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UK Chemical Industry

– in Westminster Hall at 1:00 pm on 30th March 2010.

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Photo of Brian Iddon Brian Iddon Labour, Bolton South East 1:00 pm, 30th March 2010

It is a great pleasure to serve under your chairmanship, Mr. Wilshire. I wish you well in your retirement. I think that this will be my last speech in this place, as well. It is a great pleasure, also, to see my hon. Friend the Minister here, because he has shown quite an interest in some of the subjects in which I have been interested.

I dedicate this debate to Dr. Ashok Kumar, the late Member of Parliament for Middlesbrough, South and East Cleveland. I succeeded Ashok as chairman of the all-party parliamentary group on the chemical industry, which is administered by the Chemical Industries Association. It was his intention to become chairman of the all-party group again after my retirement. I am sure that we all agree that Ashok will be sadly missed in this place, and I send my condolences to his family and friends.

The UK chemical industry, including pharmaceuticals, is a £60 billion business, which employs over 600,000 people. It adds £30 million to our balance of trade every working day and represents 12 per cent. of total UK manufacturing-twice that of aerospace. Throughout the 1990s, 16 countries produced 80 per cent. of the total world output of chemicals. The UK was sixth behind the USA, Japan, Germany, China and France. According to figures produced in 2005 by CEFIC, the European Chemical Industry Council, the EU chemical industry leads all EU manufacturing in terms of value added per employee, and is second only to the USA in world output. Therefore, for both the UK and Europe, the chemical industry is a valuable contributor to our economies.

The chemical industry's current major concerns are the cost and security of energy supplies, skills training and recruitment, the availability of capital for investment in developing new products and acquiring new plant and equipment, the costs of transport, and the regulatory burden placed on the industry in recent times, which has had the biggest impact. The election manifesto just published by the CIA expands on those concerns.

Our Government have decided that energy security is a major concern, and major changes in energy supplies are under way, with less reliance on imported oil and gas in future years and more reliance on a basket of renewable energy generation technologies and nuclear fission. Coal will play a major role in future, but only if either pre- or post-combustion carbon capture technologies are incorporated in new plant, or retrofitted to old plant. That will require massive capital investment which, in turn, will result in increased energy costs.

Photo of Bob Spink Bob Spink Independent, Castle Point

I congratulate the hon. Gentleman, who has been a superb advocate of and worker for the chemical industry in the UK. I wish him well in whatever he does in the future. No doubt he has plenty of ideas.

Did the CIA say how we can conserve feedstocks for future generations, so that we can keep the industry going, rather than burning them, as he is about to describe?

Photo of Brian Iddon Brian Iddon Labour, Bolton South East

It did not, is the honest answer, but I have some thoughts about that, which the hon. Gentleman will hear.

Increased energy costs will obviously impact on the chemical industry, which is affected particularly by spikes in gas prices. It believes that those are caused by a shortage of gas storage facilities in the UK, which is now being addressed by the Government. In the winter of 2005-06, many UK companies were forced to cut or stop production altogether. Aluminium production in the UK has been particularly badly hit, as have processes such as chlorine production and metallurgical and ceramic processing. The image that the chemical industry had when I was a student in the '60s has changed beyond imagination through the introduction of environmental and health and safety legislation. Chemicals are highly regulated products today. In environmental legislation alone, more than 500 measures affect the industry. Much of the current national and international legislation is complex and some of it is obscure, and various organisations are pressing for better regulation of the industry. There are signs that the EU is beginning to take notice.

Retaining a viable chemical industry in this country, as against displacing it abroad by over-regulation, is of the utmost importance. If our Government over-legislate, however good their intentions are, displacement of our chemical industry to other countries will occur. There are signs, of course, that that has happened in the past few decades. The impact of displacement on the manufacture of just one strategic raw material can be illustrated by the case of ethylene oxide, which has many downstream uses. This year, unfortunately, Dow Chemicals will close its Wilton ethylene oxide plant on Teesside, which has supplied 98 per cent. of the UK's needs. The opening of a plant in the middle east producing monoethylene glycol, resulting in a significant drop in prices of that downstream chemical, appears to have prompted Dow's decision. Although ethylene oxide can be shipped into Britain, there is limited shipping capacity. It cannot be brought through the channel tunnel and ferries are reluctant to carry it in tanks. Those difficulties are causing the closure of other UK plants that use UK-produced ethylene oxide, such as the Croda ethoxylation facility.

Climate change is seen as the biggest global challenge facing mankind today. With a projected population increase from 6 to 9 billion by 2050, I see water and food security as our greatest global challenges but, of course, there is a connection. For two main reasons I believe that we should not be burning fossil fuels. First, coal and oil are larders of chemicals for the enjoyment of a high quality of life by future generations, in developed as well as developing countries. Secondly, 50 per cent. of the carbon dioxide generated since the industrial revolution has now been partitioned between the atmosphere and the seas, which cover more than 70 per cent. of the earth's surface. In turn, acidification of those seas is causing a breakdown in the marine carbon cycle. We are losing corals, on which other marine species rely, and shellfish. In any case, burning fossil fuels is an extremely inefficient way to provide energy.

We have to get things in proportion, however. This country is responsible for only 2 per cent. of current world emissions of carbon dioxide. However, we need to show countries such as India and China, especially, but also other developing countries, that there are alternative ways of producing energy that have an overall benefit to the environment. For every unit of greenhouse gas emitted through chemical manufacturing, the resulting products enable two to three units to be saved downstream. The downstream products that result in the greatest savings of carbon dioxide, evaluated in a recent report on responsible care by the International Council of Chemical Associations, for emissions-saving enabled by the chemical industry, are insulation materials, chemical fertilizer and crop protection products, advanced lighting solutions, such as compact fluorescent lamps, plastic packaging, marine antifouling coatings, synthetic textiles, automotive plastics, low-temperature detergents, increased engine efficiency, and plastic piping.

Photo of Bill Cash Bill Cash Conservative, Stone

I declare an interest in that in the somewhat distant past I was an adviser to the United Kingdom Offshore Operators Association and to Shell and ICI. I take a great interest in the questions that the hon. Gentleman is discussing, from the environmental point of view, and in terms of enterprise. As a member of the all-party group on clean coal, I presume from the hon. Gentleman's previous remarks that he would regard what he was saying about not wanting to use fossil fuels as being overtaken by the advances that we hope will be made in carbon capture, which would overcome the difficulties he mentioned. I absolutely believe in carbon capture as part of our energy security.

Photo of Brian Iddon Brian Iddon Labour, Bolton South East

I absolutely agree with the hon. Gentleman. We need to keep oil for the petroleum industry, but of course there is far more coal on earth than oil so we can carry on burning it for a little longer.

The Government were one of the first to tackle climate change, initially through the introduction of the climate change levy. Climate change agreements allow energy-intensive industries to receive a discount on the climate change levy provided that they meet certain energy efficiency targets. More than 230 climate change agreements have been made in the UK chemical industry. However, the rebate received by energy-intensive industries will be reduced from 80 per cent. to 65 per cent. from April next year to comply with the EU energy taxation directive. That will cost the UK chemical industry £10 million, and UK manufacturing a total of £50 million. The CIA believes that the Government have gone further than necessary in meeting the requirements of that directive.

The introduction of the climate change levy has resulted in a change of behaviour in the chemical industry. The industry realised that it made sense to think about its energy usage and costs, and it changed its manufacturing processes as a result of regulation. Subsequent cost savings made those industries more competitive. Based on 1990 levels, the chemical industry reduced world CO2 emissions by between 8 per cent. and 11 per cent. by 2005, according to the IPPC. Since 1990, the UK industry has improved energy efficiency by 35 per cent., which is equivalent to a saving of more than 2 million tonnes of CO2.

Britain has set itself some tough targets. We were the first, with the Climate Change Act 2008, to introduce climate change legislation. That Act enshrined in law the reduction of UK CO2 emissions by 80 per cent. by 2050. The EU emissions trading scheme, which works on a cap-and-trade basis, is central to the UK's long-term policy of reducing CO2 emissions. Under the emissions trading scheme directive, large emitters of CO2 in the EU, including in the energy-intensive chemical industry, must monitor and report annually on their emissions of greenhouse gases, and are obliged to return emission allowances equivalent to their annual emissions, currently to the Government. To do that, they may have to buy or sell emission allowances on the market.

Minds are now turning to using the CO2 emitted into the atmosphere to synthesise other chemicals. Methanol, which can be synthesised from CO2, can be used instead of ethanol as a transport fuel. Lotus cars have already developed engines that will run on pure methanol. An article appeared in the 22 February edition of "Chemistry and Industry" on the world's first resins made from polyols using CO2 as a feedstock.

Probably the most significant piece of legislation on chemicals introduced by the EU has been REACH--the registration, evaluation and authorisation of chemicals-with which all European countries are expected to comply. It is being implemented in stages by the EU Chemicals Agency, based in Helsinki; by 2018, it will have dealt with all the 30,000 chemicals that are supplied in quantities of more than 1 tonne a year. That legislation replaces more than 40 pieces of previous legislation, but 20 pieces of connected legislation remain in place. Implementation of REACH has proved more difficult and more costly than forecast. Instead of the expected 200,000 pre-registrations, the EU Chemicals Agency has received 2.75 million.

Chemists still have a difficulty in explaining, and the general public in understanding, the relationship between hazardous substances and their risk to society. However, the good safety record of the chemical industry is noteworthy when compared with the rest of manufacturing, and especially with the construction and farming industries.

At a recent meeting of the all-party group on the chemical industry, it was reported that some chemical manufacturing previously displaced offshore-for example, to China or even elsewhere in Europe-is returning to Britain. That is being encouraged by taxation changes, a good working relationship between employers and employees-including a responsible approach by the industry's unions-and a recognition that this country produces high-quality products.

At the high-value end of the market, the availability in the UK of a highly skilled work force, graduate or otherwise, is another important factor. In addition, the supply chain in the UK and Europe is better than in developing countries. The changed image of the chemical industry has attracted more people to consider working in it. That has been helped by the fact that wages and salaries, as well as working conditions, are also good in comparison with other industries; for instance, workers can earn up to 20 per cent. more than in other manufacturing industries.

There are further challenges ahead for the UK chemical industry, but I am confident that it is capable of meeting them. However, 70 per cent. of chemical and pharmaceutical businesses operating in the UK are foreign owned. It is therefore important to create the right financial and regulatory conditions to retain those businesses in this country.

I look forward to the Minister's recognition that the chemical industry is essential to the UK economy. After all, its products are used by nearly every other manufacturing industry.

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform) 1:16 pm, 30th March 2010

It is a privilege, Mr. Wilshire, to serve under your chairmanship. I think that this is the first time that I have done so, and it may be the last.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

It will indeed be the last time.

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform)

I intend to return to Parliament, Mr. Wilshire, but I give you my best wishes for your retirement.

It was a privilege to listen my hon. Friend Dr. Iddon, who has just demonstrated why he will be missed in the next Parliament. I welcome my hon. Friend's dedication of this debate to our former colleague, Ashok Kumar. As my hon. Friend said, the late Member for Middlesbrough, South and East Cleveland will be sadly missed. He brought a formidable knowledge and a quiet intelligence to the business of Parliament, especially when considering matters relating to the chemical industry. Coincidentally, I attended an award ceremony last Wednesday, when I spoke to a Cluster Mark group from Teesside. They spoke very warmly of Ashok, and expressed their profound shock at his death. He was highly regarded in the north-east, in the chemical industry and, of course, in the House.

I pay tribute to my hon. Friend the Member for Bolton, South-East, for his long and distinguished academic and parliamentary career. I am genuinely pleased to have the opportunity to respond to this debate. I think that I first spoke to my hon. Friend at an aerospace lunch. He may remember that we had a discussion on nuclear power in the UK, which he has always supported. At that time, it was not as politically fashionable as it is now, but he has always shown a quiet intelligence and maintained a logical argument.

We heard today that he has a wide knowledge of scientific matters; I speak as a lawyer, and I am sorry to say that his knowledge was not as much in evidence in the House as it should have been. His commitment to the chemical sector has been demonstrated in Parliament since 1997, and is shown by his involvement with universities and learned societies. Through his support for organisations such as the Catalyst discovery centre, the Bolton Technical Innovation centre, and through his own magical chemistry demonstrations, I am sure that he has encouraged many young people and adults to take up careers in the chemical industry.

In Parliament, my hon. Friend has maintained a focus on chemical industry matters, including through the constructive work of the all-party group on the chemical industry. His interests extend far beyond that to embrace drug misuse, policies on higher education, skills research and British-Palestine relations. As a Back Bencher, he has made an important contribution to marine safety, and his private Member's Bill became the Statistics and Registration Service Act 2007. It is therefore with real sadness that I note that my hon. Friend will be retiring from the House. I am sorry that we will lose his considerable knowledge and experience, but I do not envisage him sitting back in an armchair with pipe and slippers. I suspect that he will be very active in his so-called retirement, and I look forward to hearing from him on a regular basis in the future.

I agree with what my hon. Friend said about the significance of the chemical industry for direct and indirect employment and the balance of trade, and also with what he said about how important chemicals are to our manufacturing base. The industry invests heavily in research and development, and provides some of the highest quality, best paid employment in UK manufacturing. The chemicals industry underpins most of our manufacturing. For example, if we look at the supply chains in most of the UK's manufacturing industries, we will find a chemicals producer in there somewhere. It is easy to lose sight of the fact that chemicals are essential for a vast array of everyday products, ranging from packaging and pharmaceuticals to car interiors and personal care products.

The chemical industry, like many other sectors, has had to face some very tough trading conditions due to the global recession, particularly where downstream customers have been struggling. The Government have, therefore, been supporting the industry in various ways over the past 18 months to enable it to face the challenges ahead.

Today, we announced details of our support for the industry in the north-east, where the UK's largest chemical cluster is located. As a result of working with the regional development agency and making good use of the strategic investment fund, a total of £7.5 million will be invested in the region. That is just part of the £60 million support package that was announced last November, which will help to create about 3,000 jobs in the region, and some 150 apprenticeships. The £7.5 million investment will help some promising projects. For example, £2 million will go to MSD Biologics UK, which is based in Billingham, creating 75 jobs over the next three to five years; £2 million will go to PYReco, which is based at Wilton, to help with the development of a new processing plant to reclaim and recycle material from tyres, creating 52 new jobs, and a further 240 construction jobs; and £1.34 million will go to GrowHow's environmentally essential project to tackle nitrous oxide emissions at its Billingham plant.

We are also spending more than £600,000 on a building operator certification energy efficiency project at Tees dock, Middlesbrough, which, again, will safeguard jobs.

Photo of Bill Cash Bill Cash Conservative, Stone

I should like to place on record my admiration both for Dr. Iddon, with whom I have debated often, and for you, Mr. Wilshire. As well as being an hon. Friend, you have been a very good friend of mine.

The Minister presents a picture of numerous grants being made, of aid being given, and of systems being put in place to help the chemical industry, but what about the problem of over-regulation, which the hon. Member for Bolton, South-East, mentioned? Both at a European and a domestic level, many industries are heavily over-regulated, which causes massive unemployment. According to Lord Mandelson, 4 per cent. of GDP is lost in over-regulation, which must affect the chemical industry as well. Does the Minister not agree that it would be in our national interests to override European legislation and instead pass legislation here?

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform)

The hon. Gentleman puts an interesting proposition to me, which, unfortunately, I shall decline. As a Minister responsible for regulatory reform, I am well aware of the importance of better regulation. Regulation in the chemicals industries is extremely important. My hon. Friend referred to the perceptions among the general public about safety in the chemicals industry. The relationship between risk, safety and regulation is vital to the continued confidence of the British public in the chemicals industry. We heard from my hon. Friend that the chemicals industry has a very positive safety record, and that depends on good regulation being properly and intelligently enforced. I say to the hon. Member for Stafford-

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform)

I am sorry, but Stone is in Staffordshire. I apologise to the hon. Gentleman from Staffordshire who represents Stone. On this issue, it is important that regulation is based on logical and-I hesitate to say it-scientific criteria, and that it is intelligently drafted and applied. It is very important that at both European and national level, we consider the effects of legislation at an early stage. Regulation is very important. We have to command the views of the general public, but be conscious of the necessary impact that regulation will have on business.

Photo of Betty Williams Betty Williams Labour, Conwy

Let me first say what a pleasure it is to be in this Chamber under your chairmanship, Mr. Wilshire. May I also wish you all the very best in your retirement? I congratulate my hon. Friend Dr. Iddon on securing this debate and thank him for devoting it to our late friend, Dr. Ashok Kumar, for whom we all had great respect.

Will the Minister tell us whether we are likely to see further regulation concerning safety? I am talking about the safety of transporting chemicals along our roads. I serve a north-west Wales constituency, and transporting chemicals has been a particular concern of mine.

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform)

My hon. Friend raises an extremely important point. I know that there is genuine and profound public concern about the transportation of chemicals. However, we have a very good safety record in that regard, which we must maintain. That will involve co-operation between Government, the industry and trade unions, and it will involve presenting the good practice in the industry to the general public.

The chemical industry has faced difficult times over the past 18 months, and the Government have been supporting it in the best way that they can. It is clear that the high level of skill required in the industry needs to be built on, so we must focus on developing highly skilled technicians in the sector. Moving to a low-carbon economy is not an easy task for an industry that has been highly dependent on fossil fuels.

I visited the INEOS plant at Runcorn, which is contributing to the reduction of the carbon footprint of the sector. I heard at first hand how the municipal waste from the north-west will be used to generate power for INEOS's chemical processes. That is a model approach to change in the industry, and one that should be greatly encouraged.

I also had the good fortune to visit the Wilton plant in the north-east, where major progress is being made. Innovative approaches are being taken to the use of new technologies, new sources of energy and new fuels. The industry is long-established-I heard about the industry's Roman roots while I was in the north-east-and it has the capacity for change.

Photo of Bob Spink Bob Spink Independent, Castle Point

I, too, wish you well in the future, Mr. Wilshire. Particle physics and, eventually, chemical engineering will change drastically as a result of the experiments taking place with the large Hadron collider. While promoting near-market development, will the Minister also agree that innovation is important for the industry? Will the Government continue to fund blue skies research, such as that done through the LHC?

Photo of Ian Lucas Ian Lucas Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Business and Regulatory Reform)

I think that the hon. Gentleman has been slipped a copy of my speech, because I was just about to move on to the importance of innovation. Blue skies thinking is very important, and it is something that we have been good at in the UK in the past. We should be proud of our science and innovation record and of this Government's massive investment in the university sector since 1997, which is evident when I travel round the country visiting universities. What we also need to do better is translate some of that blue skies thinking and innovation into manufacture. We must carry forward the powerful ideas from the universities to create manufacturing capacity and employment in the UK.

The Government, and my Department in particular, have made a strong commitment to ensuring a constructive and positive relationship between industry, trade unions and Government. We believe that such a relationship is essential to building the foundations of a sustainable manufacturing industry in the UK that has the capacity to change in a low-carbon world. We have tremendous potential in this country. We were the first industrial nation-

Photo of David Wilshire David Wilshire Conservative, Spelthorne

Order. I am sorry to interrupt the Minister, but he went past a full stop, so I have to call a halt to the debate.