Deep decarbonisation pathways for Scottish industries: research report

5 Pathways

A baseline and three decarbonisation pathways were devised by combining the decarbonisation options introduced above, as illustrated in Figure 9. These pathways are possible – rather than optimal – ways for Scottish industries to abate their emissions. Therefore, while the two deep decarbonisation pathways are evaluated independently to better assess the relative merits and infrastructure requirements of each fuel-switching option more transparently, it is likely that a hybrid pathway that includes both electrification and hydrogen fuel switching (as well as CCUS, efficiency improvements, and other decarbonisation options), could be preferable. This hybrid pathway is qualitatively reviewed in Section 6.5.

5.1 Business as usual scenario

The net impact of each decarbonisation pathway is assessed against a baseline or business-as-usual (BAU) scenario representative of the case where none of the conditions necessary to invest in deep decarbonisation materialise. Neither fuel switching nor CCUS are deployed in this scenario, and the only decarbonisation measures implemented are the incremental improvements in energy efficiencylisted in Section 4.1.

As was already noted in the introduction, the scale and type of industrial activity is assumed to remain steady over thetimeline of interest (i.e. to 2050) and equal to 2018 levels. It is acknowledged that this assumption is not likely to hold in practice, especially in view of the current downturn induced by the COVID-19 pandemic, briefly addressed in Error! Reference source not found.. This simplifying assumption applies to all pathways and is specifically made to clearly isolate the impacts of the decarbonisation options and avoid blurring the insight with uncertain assumptions around the future evolution of industrial markets.

It is further assumed that neither the industrial products nor the processes used to manufacture them change over the 2020-2045 period. For this reason, the impact of demand-side measures such as product substitution, increased recycling – and more generally the transition to a circular economy – is not assessed here, although these may well have an important role to contribute in curbing industrial emissions in practice. Given their similar, highly uncertain nature, a detailed review of the breakthrough technologies that may revolutionise how industrial products are made is out of scope.

Box 6 – The COVID-19 downturn

At the time of writing the COVID-19 pandemic is still unfolding and its impact on the UK economy is not yet fully known. Interim estimates by the Bank of England are that the UK GDP could reduce by 14% in 2020 compared to 2019,^[114] and PwC estimates a 9-16% reduction in gross value added from the manufacturing sector in the same period.^[115] Should these predictions turn out to be correct, the UK will face in 2020 an unprecedented contraction of the economy which may also have long-term repercussions on industries in Scotland. To accurately assess how industry emissions will be affected by COVID-19 over the timeline assessed in this study one would need to know how each industrial subsector was affected as well as when and how it will recover. However, there are substantial unknowns:

• The timeline and 'shape' for the recovery is not known. If the sharp economic decline is followed by quick and strong recovery there may be virtually no long-term impact on the scenarios assessed here. If however the recovery is slower (as was the case with the 2008 downturn, after which it took over a decade to return to pre-crisis levels)^[116] it is possible that industrial activity may not return to the previous level for several years.^[117]
• Policy could affect the long-term viability of certain industries, also depending on whether future business support packages will support emission-intensive sectors as much as others.

Acknowledging the great uncertainty surrounding future developments as the world recovers from COVID-19 and recognising the impossibility of making accurate predictions about such an uncertain future, this study assumes that all industries will return to pre-COVID-19 levels in due time, and the likely short- to medium-term deviations are estimated to be negligible over the long-term.

5.2 Decarbonisation pathways

5.2.1 #1: Efficiency pathway

The Efficiency pathway assesses the maximum abatement that can be attained by implementing all energy efficiency measures presented inTable 3, and it is the only pathway that assumes implementation of efficiency measures classified as major overhauls (whereas only incremental improvements are implemented in the other pathways – the difference is only relevant to the oil and gas and glass sectors). Since the implementation of each individual efficiency measure has a relatively marginal impact on the overall trajectory of the emissions from Scottish industries, a simplifying assumption is made that the implementation of efficiency measures reduces emissions at constant rate until 2045.

This pathway represents the case where the policy and regulatory environment does not justify investment in fuel switching or CCUS. It is however expected that additional policy incentives would be required for implementation of measures classified as major overhauls, which may otherwise be considered hard to justify commercially.

5.2.2 #2: Electrification pathway

The Electrification pathway is characterised by the electrification of all industrial processes for which this is considered to be technically viable. Since the analysis presented in Section 4.2 highlighted the cement kiln as the only process for which full electrification or full hydrogen conversion is not assumed to be possible, all sectors other than cement see no uptake of hydrogen technologies in this pathway.^[118] As discussed Section 4.2.1, a mixed-fuel kiln using bioenergy, hydrogen and electricity is assumed to be used in the cement industry in both deep decarbonisation pathways.

Considering that fuel switching cannot tackle emissions from internal fuel combustion or industrial process,^[119] CCUS is also deployed on selected sites (see Section 4.3.1).

The Electrification pathway is representative of a world in which cheap renewable energy sources are rapidly deployed, meaning that grid decarbonisation can progress at the rate shown in Section 4.2.2 in spite of the additional demand for electricity from industry. A few other developments are expected to happen for this decarbonisation pathway to be possible:

• Ways are found to manage the increased volatility in electricity supply due to the high penetration of variable energy sources. For instance, this could happen through technological developments that substantially reduce the cost of 'flexibility measures' like energy storage and demand-side response.
• Alternatively, substantial deployment of CCUS or hydrogen in the power sector could also help address said volatility through flexible thermal generation.
• Major electricity grid upgrades are carried out to enable large-scale electrification.
• Changes in the policy and/or regulatory framework mean that investment in deep decarbonisation is commercially viable. This scale of the policy and regulatory change necessary to support these pathways cannot be understated, since the mechanisms required to encourage deep decarbonisation have not even been designed yet, and a considerable lead time might be expected before these are implemented and decarbonisation can start.

5.2.3 #3: Hydrogen pathway

The Hydrogen pathway is characterised by the deployment of Hydrogen in all industrial processes for which it is considered to be technically viable, and no electrification happens outside of the cement industry.

While the Electrificationpathway can partly leverage existing infrastructure and electricity generation assets and can hence start sooner, the start of the Hydrogen pathway is dependent on the development of new infrastructure for the production and distribution of low-carbon hydrogen.^[120] A few other conditions must be met for this pathway to be viable:

• The hydrogen technologies presented in Section 4.2.1 must demonstrate technical and commercial viability. While a similar condition applies also for the Electrification pathway, it is noted that the earlier stage of development of a few hydrogen technologies indicates a bigger risk that they may never become commercially available. On the other hand, there is also the possibility the hydrogen technologies could progress to commercialisation faster than electrification technologies due to their greater similarity to fossil-fuelled systems.
• Low-carbon hydrogen is assumed to be first available from 2028. This is when the blue hydrogen production facility in Grangemouth is assumed to become operative, with hydrogen production progressively ramping up to meet the growing demand.

This pathway not only includes CCUS, just like the Electrification pathway, but it is also highly dependent on it, since CCUS is also necessary for blue hydrogen production.

5.3 Uptake assumptions

The pathway trajectories arise out of the bottom-up technology uptake assumptions since no industry-specific targets have been defined by policy to date. A different approach was employed to model the uptake of each type of decarbonisation option, as outlined below.

5.3.1 Efficiency

As noted in Section 5.2.1, the implementation of each individual efficiency measure has a relatively marginal impact on the overall emissions envelope from Scottish industries. This is because most measures would only reduce emissions by a few percentage points at the individual site level, and far less than that at the overall industry or sector level. For this reason, a simplifying assumption is made in all pathways that efficiency measures are implemented at a constant rate until 2045. This rate is different for each sector, since the maximum abatement potential that can be achieved with energy efficiency measures also varies sector by sector.

5.3.2 CCUS

The first CCUS project deployed at one of the industries in scope is assumed to become operational in 2028. This timeline is ambitious and could possibly represent the earliest time that such a project could reasonably be expected to become operational. For this to happen, feasibility studies would need to start promptly and supporting policies would need to be put in place to justify the business case. If these conditions are met, it is believed that this timeline could be achievable. A final investment decision could then be taken by early 2024, leaving 3-4 years for the engineering, procurement, and construction (EPC) phase. This timeline would also enable the Grangemouth CCUS project to connect to the Acorn CCS Project, which plans to start CO₂ injection at St. Fergus from 2023 and aims to be ready to import CO₂ from Grangemouth via the Feeder 10 pipeline starting 2027.^[121]

A steady, stepwise deployment of CCUS across industry is assumed:

• The first industrial site to implement CCUS is the Grangemouth petrochemical plant, in 2028.
• The Grangemouth refinery starts capturing CO₂ from its furnaces and SMR in 2031.^[122]
• The Fife ethylene plant, situated not far from Grangemouth, is assumed to connect to the Grangemouth CO₂ pipeline network in 2034.
• The Dunbar cement plant, furthest away from Grangemouth, is assumed to join last in 2037.
• No other industrial site deploys CCUS for the reasons outlined in Section 4.3.

CCUS is also assumed to be deployed for blue hydrogen production in Grangemouth in 2028,^[123] i.e. at the same time as the first Grangemouth CCUS project, progressively ramping up production based on the increasing demand from industry (and potentially from other hydrogen users).

It is noted that, if suitable CO₂ utilisation applications can be found, the development of certain CCUS projects could potentially be sped up. Likewise, the substantial uncertainty surrounding the dates assumed above should not be underestimated. Earlier or later dates are possible depending on future developments around CCUS technology and the establishment of measures to prevent carbon leakage and of financial support mechanisms.

5.3.3 Fuel-switching

The adoption of fuel-switching technologies is assumed to increase steadily over time, at the same rate for each technology but with a different starting date, reflecting the differences in the estimated commercialisation dates (see Section 4.2.1). Specifically, it was assumed that:

• In the Electrificationpathway, each technology reaches a level of uptake of 80% within 20 years from its first deployment date, and 100% uptake within 35 years.
• For the Hydrogen pathway, the 80% uptake level is reached after 10 years, and 100% uptake is achieved within 25 years. The assumption that uptake occurs faster in this pathway (though it starts later, due to lower technology maturity) reflects feedback from stakeholders who indicated that the implementation of hydrogen technologies would be less disruptive, also considering that this can often happen via retrofits.

It was further assumed that larger sites are the first to decarbonise. While this may not be the case in practice, considering that larger sites may have stricter requirements when judging the maturity of a new technology or the reliability of its supply chain, this approach maximises the decarbonisation attained by the interim (economy-wide) targets and minimises the overall amount of emissions from industry within all future carbon budgets. This approach therefore provides an indication of the maximum abatement which could be achieved via the pathways assess in this study. It is stressed that the rate of deployment assumed here is considered ambitious, and only thought to be possible provided sufficient policy support is put in place. Additional conditions which are essential to making this ambitious deployment possible are discussed in Section 6.2.1.

Counterfactual appliance replacement

Even if no fuel-switching technology were deployed, industrial sites would still be required to replace fossil-fuelled appliances at the end of their useful lifetime. When considering the cost incurred within each decarbonisation pathway, the cost of the counterfactual appliance replacement (also incurred in the BAU scenario) is netted off.

To model this precisely, the age of current appliances would need to be known, but this generally represents commercially sensitive information that is not available in the public domain. In a few cases, however, relevant information is publicly available. For instance, it was announced in 2019 that a new CHP plant will be built in Grangemouth to replace a 40-year old power station.^[124] Assuming that the new plant would become operational in 2022 and allowing for a minimum lifetime of 20 years, it was assumed that fuel switching would not be carried out until 2042. In all other cases it was instead assumed that the counterfactual appliance replacement in the BAU scenario occurs in the same year in which fuel switching happens in the decarbonisation pathways.