Chapter 4 Industry
This sector includes all industrial activity in Scotland, including the energy-intensive industrial sectors covered by the EU Emissions Trading System.
Where We Are Now
- 49% fall in industry sector emissions between 1990 and 2015
The industry sector saw a 10.3 MtCO 2e (49%) fall in emissions between 1990 and 2015. Much of this decrease was linked to a decline in emissions from manufacturing and the iron and steel industry between 1990 and 2000. There was a further smaller decrease between 2008 and 2009, coinciding with the recession. Emissions figures from this sector have been more level in recent years, albeit with small fluctuations since 2009. There was another slight decrease (0.5 MtCO 2e; 4%) in emissions between 2013 and 2015.
The Scottish Government is committed to protecting domestic industries at risk of relocation overseas where climate or energy regulation is less stringent (referred to as 'carbon leakage'). Scotland's Energy Strategy, published in December 2017, sets out how we will continue to manage the transition towards a future energy system in a way that reduces this risk to domestic industries. We want to collaborate with Scottish industry to strengthen the case for low carbon investment reducing emissions, in line with our global responsibilities, while at the same time improving our competitiveness and productivity.
Since 1990, decreases in emissions have been driven by a number of factors which include the adoption of technology or investing in more energy efficient equipment that, for example, utilises waste heat. However, there has been a reduction in the size of output from some industrial sectors. To place the importance of sustainable economic growth at the heart of our Plan we will be adopting new measures of emissions intensity and energy productivity.
Emissions intensity measures emissions per unit of output. In the Industrial and Commercial sectors Scottish Gross Value Added ( GVA) is taken as the measure of output. Heat recovery and fuel diversification contribute to reducing emissions intensity but other factors, including energy efficiency improvements, can also reduce emissions and therefore reduce emissions intensity.
Energy productivity in the Industrial and Commercial sectors measures the level of economic activity for each unit of energy being used. It is calculated as Scottish GVA divided by total energy consumption in the Industry and Commercial sectors. Enhanced energy efficiency, fuel diversification and heat recovery all contribute to improving energy productivity, which in turn helps industry become more competitive, with investment in energy efficiency and heat recovery reducing operating costs and protecting against any rise in energy prices.
Figure 13: Industry historical emissions
Using these measures allows us to show reductions in energy use and emissions which do not come at the expense of a growth in output, thus capturing productivity improvements that can build on existing strengths in several sectors. This allows industry sectors to encourage investment that may result in growth in economic output, with corresponding benefits for wider society across Scotland. These measures embed our support of economic activity within our ambition to decarbonise industrial processes and are consistent with the emissions trajectory outlined in the plan for this sector.
Progress Since RPP2
Progress made on emissions cuts arising from heat policy, alongside a fuller description of Scotland's Energy Efficiency Programme ( SEEP) is set out in the Buildings chapter of this Plan. We are consulting on the regulation of district heating during 2018 as part of the wider consultation on SEEP, and this will include consultation on industrial heat recovery.
Figure 14: Industry Emissions Envelopes
Scotland's industrial sector has already delivered substantial emissions reductions. The Scottish Government wants to ensure that further decarbonisation over the lifetime of the Plan (2.2 MtCO 2e; 21% reduction) will be achieved by supporting industry to invest in measures that will enhance its productivity, improve its competitiveness, and realise new manufacturing opportunities in global markets.
Our policy outcomes in this Plan combine measures that show improvement in energy productivity as well as falls in industrial emissions intensity. In addition, an outcome will be securing new investment to enable commercial demonstration of technologies critical to further industrial emissions reduction. We will work with businesses and others to achieve these outcomes through the following principal means:
- emissions will fall through a combination of fuel diversification, energy efficiency, heat recovery and participation in EU carbon markets
1) By ensuring a continued level playing field for regulation through EU and UK frameworks for industrial decarbonisation.
The regulatory environment is underpinned by existing and planned EU and UK regulatory frameworks – the EU ETS Phase III (2014-2020) and Phase IV (2021-2030), and UK carbon taxes and related reliefs ( e.g. Climate Change Levy, Climate Change Agreements, Energy Intensive Industries package)  .
These regulatory frameworks ensure continuing access to the level playing field for industry across the UK and EU, and support investment in the industrial decarbonisation pathways necessary to meet the EU and UK's contributions to the Paris Agreement, including continued access where required to free allocation of allowances for those sectors at risk of international carbon leakage  .
The Committee on Climate Change has already confirmed that it expects that "available rules for future phases of the EU ETS will imply a reduction in Scottish net emissions in these sectors of 34% from 2013‑2030"  .
The ETS cap will therefore make a major contribution to the 21% emissions reduction envelope for industry from 2018-2032  . For example, at the EU level:
- By 2020 – Industrial emissions covered by the EU ETS cap will be 21% below 2005 levels, consistent with the EU's 2020 emissions reduction target and commitment to the Kyoto Protocol second period.
- By 2030 – Industrial emissions covered by the EU ETS cap will be 43% below 2005 levels, consistent with the EU's 2030 emissions reduction target and commitment to the Paris Agreement.
- By 2050 – Industrial emissions, covered by the EU ETS cap would be 90% below 2005 levels, which would be consistent with the EU's 2050 emissions reduction target.
2) By providing a coordinated approach to incentives and business support that reflects our commitment to manage the transition toward decarbonising industry. This includes:
- Our manufacturing action plan ( MAP) – 'A Manufacturing Future for Scotland'  ;
- Scotland's Energy Efficiency Programme ( SEEP)  , and
- Our circular economy strategy – 'Making Things Last'  .
These plans and programmes draw together a combination of existing support from the Scottish Government, Scottish Enterprise, Highlands and Islands Enterprise and other partners.
Our engagement with industrial representatives has highlighted that many opportunities exist to increase investment in energy efficiency and decarbonisation measures. Taken together these programmes will form a policy delivery framework aimed at supporting this activity.
Existing activities covered within the Energy Efficiency and Decarbonisation workstream of MAP that identify cost-effective energy efficiency and decarbonisation measures, such as investment in equipment to improve productivity, will be reviewed during 2018.
A coordinated approach to industrial energy efficiency should enable the development of financial mechanisms for industry to invest in effective energy efficiency and decarbonisation measures. Targeted financial instruments allied to packages of business support that look only at industrial processes as part of a whole system view (as set out in the Energy Strategy) will help stimulate investment to facilitate more sustainable business models.
Coupled with this we will align the support or incentives for business and industry that are on offer within Scotland's Energy Efficiency Programme ( SEEP), taking account of the more bespoke needs of industry. This will consider the behaviours and decision-making practices among intensive energy user stakeholders in industry. A joined-up approach will help to deliver our commitment to improve energy efficiency as a national infrastructure priority.
In partnership with leaders from within Scottish industry, we will publish a discussion paper during 2018 that will include consideration of financial instruments as well as how to build on existing MAP activities and commitments related to SEEP.
Our circular economy strategy, Making Things Last sets out our ambitions and priorities to keep products and materials in high value use for as long as possible. This reduces waste and carbon emissions and delivers economic benefits through improving productivity, opening new markets and improving resilience. The Waste chapter of this Plan contains a policy on delivering our suite of waste reduction, recycling and landfill diversion targets and regulations up to 2025.
Two wind turbines supplying electricity to the Michelin tyre factory in Dundee
Michelin is Dundee's largest industrial employer with approximately 850 staff located at the company's factory in Baldovie. On average a quarter of the plant's electricity needs has been met, over the year, by power produced from two 2 MW wind turbines, installed in 2006.
In 2015 Michelin began an investment programme of £52m over the subsequent five years. This included upgrading machinery to make car tyres to reflect current market trends for larger diameters where the company's existing capacity was more limited. It is also their first production site to install innovative electrically-heated tyre curing presses on an industrial scale to replace traditional presses that use a combination of steam and hot water. This project, supported by Scottish Enterprise, was announced in June 2017.
Michelin developed these plans to invest in new equipment, and new buildings such as the logistics centre, to maintain its leadership position by responding to wider international changes. This has increased competitiveness, improved manufacturing efficiency and customer service, whilst at the same time safeguarding production volumes at the facility and supporting local employment.
This example of improving energy productivity illustrates where a Scottish site, as part of a multinational business, has secured investment to enable deployment of efficiency measures to lead to significant reductions in energy use. The company successfully aligned its business case with the wider case for decarbonising an essential process that is an important part of the foundation of our manufacturing base.
In March 2017, the Scottish Government's Low Carbon Infrastructure Transition Programme ( LCITP) provided capital support of £1.68 million to Michelin and MVV Environment Baldovie Ltd for a project to supply direct steam from an Energy from Waste plant being constructed by MVV on adjacent land.
Michelin will use the direct steam supplied by the waste plant primarily for the vulcanisation of tyres. The project has the potential to reduce CO 2 emissions from tyre production by around 84%. Once complete, reductions in energy consumed will help lower operating costs and further embed a more sustainable industrial operation within the local community.
Whilst the end user of the project in the initial phase will be the Michelin site, Dundee City Council is in the process of developing its Sustainable Energy and Climate Change Action Plan which includes plans for a wider heat network within the Whitfield/Baldovie area.
3) By continuing to consider emerging Carbon Capture and Storage ( CCS), Carbon Capture and Utilisation ( CCU) and hydrogen opportunities and supporting research and international collaboration.
These technologies are essential to cost-effective climate policies, particularly in industries such as petrochemicals, cement production, oil and gas processing and the production of aluminium and steel.
CCU could also help Scotland shift to a lower carbon, more sustainable and more circular economy through better management and reuse of its carbon. In doing so, it can also help create new, lower carbon manufacturing processes and opportunities  .
Scotland is one of the best-placed countries in Europe to realise CCS and CCU on a commercial scale. With support from the Scottish Government, Scotland has developed a world-leading academic and research reputation in CCS, alongside forging important international collaborations. The UK Government has renewed its commitment to Carbon Capture Utilisation and Storage ( CCUS) in its Clean Growth Strategy.
Scotland's considerable renewable energy assets and future renewable energy potential could support the emergence of a green hydrogen sector that helps industry decarbonise, provides energy network services and helps decarbonise heat and transport systems. CCS may be critical to unlocking the potential for large scale low carbon hydrogen production where Steam Methane Reforming is the principal source of hydrogen.
Hydrogen also has a variety of industrial applications that can contribute to decarbonisation. For instance, it can be used with captured CO 2 (or CO 2 from biomass) to replace fossil fuels in the production of hydrocarbon-based chemicals such as methanol and transport fuels, or in the production of 'green' ammonia, which is used in the manufacture of fertilisers.
- CCS, CCUS and Hydrogen
- technology critical to further emissions reduction will be demonstrated at commercial scale by 2030
The Future of Carbon Capture, Storage and Utilisation in Scotland Beyond 2032
- essential technologies to further industrial emissions reduction
- existing infrastructure makes Scotland one of the best-placed countries in Europe to realise CCS on a commercial scale
- CCS may be critical to unlocking the potential for large scale low carbon hydrogen production
- CCU could help Scotland to shift to a more circular economy through better use and management of carbon
Policy Outcomes, Policies, Development Milestones and Proposals
Policy outcome 1: By 2032, industrial and commercial energy productivity to improve by at least 30%, from 2015 levels, through a combination of fuel diversification, energy efficiency improvements and heat recovery.
Policy outcome 2: By 2032, industrial and commercial emissions intensity will fall by at least 30%, from 2015 levels, through a combination of fuel diversification, energy efficiency improvements and heat recovery.
There are four policies, three policy development milestones and one proposal which contribute to the delivery of policy outcomes 1 and 2.
Policies which contribute to the delivery of policy outcomes 1 and 2
1) EU ETS cap delivers a 43% reduction on 2005 EU emissions levels by 2030  , and we will argue for a share of that cap in line with meeting Scotland's domestic ambitions.
The EU ETS will continue to cover energy intensive industries to 2030 under proposed ETS Phase IV, with an increased reduction trajectory.
Industrial sectors at risk of carbon leakage will continue to benefit from free allocation of allowances to avoid decarbonisation by deindustrialisation in the absence of comparative effort from other economies under the Paris Agreement.
Delivery of the EU ETS in Scotland will continue to be a partnership between the Scottish and UK Governments, and the other devolved administrations, with SEPA as the major enforcement body in Scotland. 
2) UK Climate Change Levy ( CCL) and Climate Change Agreements ( CCAs) incentivise shift from gas to alternative fuels, and deliver agreed energy efficiency and emission reduction targets for energy intensive industrial sectors.
Carbon taxation is a reserved matter, and for non-domestic organisations the UK Government intends to focus this in a single instrument ( CCL) from 2019 onwards. In order to incentivise reductions in gas, to support achieving the UK climate change targets, the UK Government will rebalance the rates of CCL for electricity and gas such that they equalise by 2025.
The UK Government has confirmed that energy intensive industry will continue to benefit from CCAs until 2023, which provide a CCL discount (90% for electricity and 65% for other fuels, increasing from 2019) in return for meeting emission reduction targets.
3) Non-domestic Renewable Heat Incentive (ends 2020-2021) and associated Scottish Government supportive programmes will continue to encourage the uptake of renewable heat technologies.
The Renewable Heat Incentive ( RHI) is a UK-wide scheme created by the UK Government (with the agreement of the Scottish Government). The non-domestic scheme helps businesses, public sector and non-profit organisations meet the cost of installing renewable heat technologies such as biomass, heat pumps (ground source, water source and air source), deep geothermal, solar thermal collectors, biomethane and biogas, combined heat and power ( CHP) systems. Payments are made over 20 years and are based on the heat output of the system.
There is no UK Government commitment to funding the RHI beyond 2020-2021. During the development of SEEP we will consider what sort of funding mechanisms are needed into the 2020s and 2030s to enable continued take-up of these technologies by business.
4) Our manufacturing action plan ( MAP) 'A Manufacturing Future for Scotland' industrial Energy Efficiency and Decarbonisation workstreams supports investment in energy efficiency and heat recovery. Funding of £63,000 has been allocated to Resource Efficient Scotland for its Energy Efficiency and Decarbonisation ( EE&D) actions under the MAP. The MAP commits the Scottish Government and its partners to a programme of activity that includes:
- Supporting Scotland's energy intensive industries to develop feasible business plans for measures.
- Developing new incentive or regulatory mechanisms to deliver energy efficiency, working with the UK Government and other administrations as necessary.
- Establishing a more detailed baseline of Scottish industrial energy, heat and emissions performance.
- Exploring the scope for supporting and accessing finance for cross-sector technology demonstrator projects identified in UK road maps ( CCS, heat electrification, industrial biomass etc.), including EU ETS Innovation Fund and support for industrial clustering, in key sites such as the Grangemouth area, to realise co-location and shared infrastructure benefits.
Policy development milestones
1) Establishing a coherent package of support for industry within the National Infrastructure Priority for Energy Efficiency – Scotland's Energy Efficiency Programme ( SEEP).
The Programme for Government commits the Scottish Government to develop a range of policies to decarbonise the heat supply and make energy efficiency improvements in all buildings across Scotland through the national infrastructure priority. For industrial buildings, this could include support for investment in energy efficiency equipment, or in heat recovery to district heating networks alongside support, where eligible or available, via existing financial mechanisms of Scottish Ministers and Scottish Enterprise.
Our approach to supporting industrial processes as well as premises will be outlined within the route map for SEEP, which will be published during 2018.
2) Tracking progress against actions in the EE&D workstream of our manufacturing action plan (MAP) 'A Manufacturing Future for Scotland'.
Analysis of Energy Saving Opportunities Scheme ( ESOS) audit pilot recommendations is one method of identifying business cases for investment in energy efficiency or decarbonisation measures to be considered as part of a coordinated approach.
ESOS audits set out cost-effective energy efficiency and decarbonisation measures. Further development could include consideration of the potential to require mandatory implementation of ESOS audit findings where they are demonstrated to save industry money and improve productivity, if this is within devolved competence. Reviewing MAP progress with agency partners, and stakeholder engagement, will be undertaken in 2018.
3) EU ETS beyond 2030.
Figures for Phase V of the ETS (post-2030), covering the Scottish carbon budget to 2032 are not available, since the EU's contribution to the Paris Agreement is currently only set out to 2030. We can expect further tightening of the ETS cap beyond 2030 to meet the EU's 2050 target of 80% emissions reduction.
The European Commission has said that under the ETS, by 2050 emissions would be reduced by around 90% compared to 2005 levels – though this is subject to further provision in EU law to extend the ETS beyond 2030.
1) We will coordinate incentive mechanisms on energy efficiency and decarbonisation measures, reflecting sector road maps and sector deals.
Our MAP currently sets out our industrial policy for energy efficiency and decarbonisation. During 2018, MAP actions will be reviewed and current activities adapted or developed to reflect engagement with representatives from energy intensive industries. In addition, a working group will be convened to capture opportunities from investment in energy efficiency.
Other influencing factors include the UK Clean Growth Strategy  and associated Sector Deals, Scotland's Energy Strategy  , anticipated support offers such as SEEP and the impact of Brexit on the EU ETS.
Policy output indicator or policy outcome 1
1) Industrial and commercial energy productivity to improve by at least 30% by 2032.
Change in energy productivity from 2015
Policy output indicator for policy outcome 2
1) Industrial and commercial emissions intensity to fall by at least 30% by 2032.
Change in emissions intensity from 2015
Policy outcome 3:
Technologies critical to further industrial emissions reduction (such as carbon capture and storage, carbon capture and utilisation, and production and injection of hydrogen into the gas grid) are demonstrated at commercial scale by 2030.
There are two policies, two policy development milestones and four proposals which contribute to the delivery of policy outcome 3.
Policies which contribute to the delivery of policy outcome 3
1) Provide funding support for the ACORN CCS Project proposed at St. Fergus Gas Processing complex.
The ACORN CCS Project is a full chain industrial Carbon Capture and Storage concept, which proposes to use the legacy oil and gas circumstances in North East Scotland as the stepping stone to initiate CCS in the UK.
The project will seek to re-purpose the CO 2 capture facilities of an existing gas plant at St. Fergus targeting industrial CO 2 from gas processing activities and using existing offshore pipeline infrastructure to transport CO 2 to well-understood offshore CO 2 storage opportunities in the Central North Sea for sub-surface injection and permanent storage of CO 2.
A recent Scottish Enterprise report (2017) assessed the opportunity for growing a CCU industry in Scotland to be 'globally significant'.  It assessed the global early stage of many technologies as being an opportunity for Scotland to accelerate their development.
By conducting a capability and attractiveness analysis within Scotland, the Scottish Enterprise report recommends inorganic fertiliser, mineralisation of CO 2 (concrete and carbonate aggregates) and CO 2 derived liquid fuels as the best manufacturing opportunities for Scotland.
2) We have supported several projects which demonstrate how hydrogen can be renewably produced, stored, and used when needed for local energy and transport. There is potential to replicate or scale up these projects.
The Scottish Government has worked with the UK Government and other partners to develop the 2017 Hydrogen and Fuel Cells Roadmap  .
We remain committed to supporting further research and development in this area, including proposals by SGN, which manages the gas distribution network in Scotland, to assess the viability of constructing and operating the first hydrogen distribution network in Scotland.
Policy development milestones
1) The Scottish Government will continue to consider and support emerging CCS, CCU and hydrogen opportunities.
This will include exploring funding streams such as the Low Carbon Infrastructure Transition Programme ( LCITP).
2) Support research and international collaboration to support the emergence of CCS and CCU in Scotland.
Recent examples include Scottish Carbon Capture and Storage Scotland, the Global Carbon Capture and Storage Institute, and the Guangdong (China) initiative.
1) The Scottish Government will continue to work closely with the UK Government and the Oil and Gas Authority to ensure that Scotland's interests are reflected in developing Carbon Capture Utilisation and Storage ( CCUS) work.
This will include our participation in the UK Government's newly created CCUS Ministerial Council and the CCUS Taskforce, to work together to reduce the costs of CCS and CCUS and develop the UK's CCUS Deployment Plan. We will also work to preserve critical infrastructure and to support the demonstration of CCS and CCU projects in Scotland.
The Energy Strategy includes proposals to:
1) Establish new forums to help us work with industry and academia to advance and track progress on CCS, CCU and Hydrogen.
2) Continue to commission evidence on the impact of technology, regulatory and market barriers to hydrogen and CCU opportunities in Scotland.
3) Build on our initial work carried out in 2017 to develop a road map towards a Carbon Dioxide Utilisation Strategy for Scotland.
Implementation indicators for policy outcomes 1, 2 and 3
1) The installed capacity of renewable heat receiving payment under the non-domestic RHI increases.
2) Improve the evidence base of the industrial sector in Scotland through initiatives under the Manufacturing Action Plan and SEEP.
3) Continued annual monitoring of energy productivity and emissions intensity.
4) The Scottish Government funded elements of the ACORN CCS Project feasibility study are completed by November 2018.
Explanation for selection of indicators
1) The installed capacity of renewable heat receiving payment under the non-domestic RHI shows the level of renewable heat supported through the RHI scheme, which contributes to reducing the carbon intensity of Scotland's heat generation – data is available annually.
2) Improving the evidence base of the industrial and non-domestic sectors in Scotland will be necessary to allow more effective monitoring of progress in the sector.
3) Annual figures for industry will give closer understanding of trends and, through analysis, could enable activity to focus on specific drivers of change.
4) The ACORN CCS feasibility study will provide analysis and insight into the practicalities of repurposing existing assets for CCS in Scotland and test the regulatory framework for future projects.
Enabling Factors and Wider Impacts
There are potential co-benefits for business competitiveness of investment in industrial energy efficiency, which reduces operating costs and protects against rises in energy prices, and industrial heat recovery, which could provide a new income stream. These enhancements in the productivity of Scotland's manufacturing sector will complement wider investment in innovation and skills to contribute to the Scottish Government's purpose of increasing sustainable economic growth. Investment should ensure that more secure, high quality manufacturing jobs continue to be located in Scotland, benefiting all people across Scotland, in both urban and rural areas. For example:
- Demonstration at commercial scale of industrial emissions reduction technologies such as CCS or hydrogen would protect Scottish business against future carbon price rises. It could also secure economic benefit in the supply chain for knowledge transfer of technology expertise to other businesses in international markets.
- Investment in industrial clustering will help businesses to reduce costs through shared infrastructure, such as district heating networks and through co-location of production processes.
- Where industry is currently a producer of waste heat, deployment of district heating would create new revenue streams to help competitiveness of the business, and reduce the recipients' emissions by reducing their requirement for additional heating using fossil fuels.
The Scottish Government will maximise these co-benefits through working with our public sector partners and industrial trade associations to support the investment necessary for these improvements in energy efficiency and productivity.
Reducing global emissions to a level consistent with the Paris Agreement will require a significant reduction in the carbon intensity of the global economy – and comparative effort from other major economies. By remaining within EU and UK regulatory frameworks, we ensure that industry in Scotland retains the EU-wide and UK-wide level playing fields for emissions reduction, which avoids the risk of 'carbon leakage'. This is where business relocates from one country to another where there is more liberal emissions control. The net effect is to leave global emissions unchanged whilst damaging the economy of the country from which industry relocated.
Provisions to protect sectors at greatest risk of carbon leakage are included within the EU ETS, which is one reason why it remains our main regulatory instrument for tackling industrial emissions in the fairest way possible, as part of collective effort with our EU partners. Those working in the manufacturing sector would be at severe risk if industries were to close or relocate from Scotland as a result of carbon leakage. Energy intensive industries, that were not required to make similar emissions reductions in other locations outside Scotland, would potentially see Scotland as an unattractive location for new investment in manufacturing.
To help businesses decarbonise within the EU ETS cap and under UK carbon taxes, we will support investment in energy efficiency and heat recovery, and support business in accessing EU funding necessary for demonstration of significant technologies, such as CCS or hydrogen, that can drive further decarbonisation of manufacturing beyond the 2020s.