Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Britain’s chemical industry is headed for extinction due to a combination of high energy prices and a carbon tax, according to Sir Jim Ratcliffe, the billionaire owner of petrochemical group Ineos.
The company, which owns several petrochemical plants in Grangemouth, Scotland and co-owns an associated refinery, shut down ethanol production last week.
The 80 directly affected employees have been redeployed to the remaining chemical operations at Grangemouth, although Ineos said as many as 500 indirect roles will be affected in the wider economy.
The group said last March that it would halt ethanol production due to falling demand in Europe and increasing import pressure.
This operation, one of only two in Europe, produced synthetic ethanol used in the production of pharmaceutical drugs and other critical medical applications.
“We are witnessing the extinction of one of our major industries because chemical manufacturing has squeezed the life out of it,” Ratcliffe said.
The deindustrialization of Britain, he added, achieved “nothing for the environment. It just shifts production and emissions elsewhere.”
Ineos he said the ethanol plant had been operating at a loss for several years, particularly because of high energy prices in the UK, which he said had doubled in the past five years to five times those in the US.
“The costs that hurt us in particular were energy related because it’s quite an energy intensive process and the source is natural gas,” said Stuart Collings, managing director of Ineos Olefins and Polymers UK.
At the same time, high carbon costs and pressure from cheaper imports from countries like Pakistan have added to the challenges.
“We’ve seen a shrinking market, lower prices, higher costs, and we’ve reached a point where it doesn’t make sense anymore [to keep operating],” Collings said.
The warning comes after the British Chemical Industry Association (CIA), the industry trade body, warned at the end of last year those future investments were at risk as companies struggled with rising costs and falling demand.
It says industry output has fallen more than 37 percent since January 2021, citing official data. Steve Elliott, executive director of the CIA, said the steep decline was largely due to “the price of energy and the associated price and uncertainty around carbon.”
Although British manufacturers have long complained that they pay higher energy costs than their European counterparts, industry on the continent faces similar challenges. More than 11 million tons of capacity it has already been announced that it will be closed between 2023 and 2024, according to Cefic, the European industry trade body.
The sector has seen “closure announcements across Europe”, Ineos’ Collings said. “What we are saying to the government is ‘wake up’.”
Ineos said it wants to see action in the UK on energy policy and trade policy, as well as carbon pricing. The new energy policy should ensure “globally competitive natural gas prices”. The current emissions trading system, where big polluters can trade “permits” allowing them to emit a certain amount of carbon dioxide, acted as a tax on UK operators and favored importers who paid nothing, it said.
Manufacturers are also waiting for a new industrial strategy from the government. The CIA’s Elliott said that while engagement with businesses “has been good, nothing yet gives energy-intensive industries confidence that we will be seen as part of the solution.”
