Vital industries for UK growth like steel or cement are also energy intensive, and their decarbonisation is essential. We convened a roundtable of experts to discuss barriers and solutions to unlocking low-carbon investment opportunities.
Read this article to understand:
- The importance of policy certainty and strategic direction for industrial decarbonisation
- Systemic, supply-side and demand-side barriers
- Solutions to unlock investment and help energy-intensive industries achieve a low-carbon future
Energy-intensive industries include sectors like steel, cement, chemicals, glass, and ceramics. They are a key growth driver, delivering over £152 billion Gross Value Added (GVA) in 2022 and directly employing over 2.6 million people in 2024, with higher-than-average wages.1,2,3
Yet these industries contributed around 14 per cent of the UK’s emissions in 2023.4 Decarbonising them is essential for the UK to reach net zero by 2050 – and unlock significant investment opportunities.5 Their GVA could reach £235 billion by 2050, representing around 6.2 per cent of national GVA and an increase of more than 50 per cent relative to 2022.6
Fostering the right market conditions to unlock investment will require a careful balance between supply- and demand-side measures. This can enable the UK to enhance its manufacturing base and establish itself as a leader in low-carbon industry.
As part of our Climate Stewardship strategy (CS30), we convened a value-chain roundtable in January 2025 where we brought together 11 industry leaders, representing sectors such as steel, cement, glass, construction, power generation, and power networks (see Figure 1).
Figure 1: Value-chain roundtable – represented sectors
Source: Aviva Investors, as of July 30, 2025.
We discussed technological and policy progress, and the remaining challenges in decarbonising energy-intensive industries. We then explored opportunities to collaborate across the value chain and to use policy to help unlock private investment at the pace and scale required.
Although the discussion primarily focused on the UK, the lessons and insights have wider relevance, especially in the EU. We have built out some themes with additional policy recommendations and contextual information based on our wider policy work, including the Low-carbon investment policy roadmap published in July 2024.7
Policy certainty and direction
As decarbonisation technologies – such as electrification, low-carbon hydrogen and carbon capture, utilisation and storage (CCUS) – require significant upfront capital and have long asset lives, long-term policy certainty and infrastructure support are crucial to unlock investment. Roundtable participants explained such investment was often easier in other jurisdictions with clearer and more stable policy environments.
The recent Industrial Strategy was a significant step forward in providing technology-specific deployment and policy plans, including for those sectors identified in the Advanced Manufacturing Sector Plan.8,9 The Plan outlined a range of measures to support advanced manufacturing, including: a steel strategy, support for UK glass and carbon-fibre manufacturing through R&D centres such as Glass Futures, and reducing electricity costs for energy-intensive industries.
Proposed solutions
- Deliver policy certainty: Building on the Industrial Strategy, the upcoming Industrial Decarbonisation Strategy in 2026 should provide a coordinated pathway for the sector. It should clearly set out the policy support and innovation funding available for key energy-intensive industries to provide a roadmap for private investment flows.
- Move away from a one-size-fits-all approach: Each subsector will benefit from a tailored decarbonisation pathway. For example, electric arc furnaces are proven for steelmaking, whereas other subsectors are still trying to develop the right solution. Policy should focus on deployment rather than innovation in sectors with a proven route to decarbonisation.
Systemic barriers
Complex planning and permitting processes are slowing down the delivery of clean energy and industrial decarbonisation infrastructure projects. Despite the reforms announced in the Planning and Infrastructure Bill, participants felt the systems were not sufficiently joined up.
Participants also highlighted the frequent disconnect between the deadlines given to use R&D grants and the wait to obtain necessary planning and permitting consents. This can result in businesses losing out on funding.
Energy-intensive industries also face workforce shortages, with 36 per cent of manufacturing vacancies difficult to fill.10 And the sector suffers from an image problem, as roles are often perceived as low skilled and low paid.
Proposed solutions
- Streamline planning and permitting systems: Prioritise the harmonisation of planning and permitting processes for industrial decarbonisation, including as part of delivering the Planning and Infrastructure Bill. The overall package of reforms should include delivering the Strategic Spatial Energy Plan in 2026 as planned and ensuring planning bodies are sufficiently resourced.
- Map and address the skills gap: Skills England should identify skill gaps across energy-intensive industries and develop targeted solutions as planned, such as the Hydrogen & CCUS Skills Curriculum. It is important to differentiate support for the existing and future workforce and for international workers while domestic skills gaps remain.
- Create cross-industry apprenticeships: Building on the £100 million investment over three years to support engineering skills announced in the Industrial Strategy, create a cross-industry apprenticeship programme, with specialisation in the final year of training.
Supply-side barriers
There are a range of options to decarbonise industrial processes, including electrification, low-carbon hydrogen, and CCUS, each facing its own challenges.
Electrification
UK energy-intensive industries historically faced high electricity prices – paying more than double their European counterparts (see Figure 2).11
Figure 2: Average industrial electricity prices per kWh EU14 plus UK for medium consumers, including tax, July to December 2024
Source: Aviva Investors, Department for Energy Security and Net Zero. Data as of May 29, 2025.12
To tackle high electricity prices, the government will launch the British Industrial Competitiveness Scheme from 2027, cutting bills by up to £40/MWh for 7,000 businesses through a set of cost exemptions.13 From 2026, the British Industry Supercharger Package will increase network charge discounts from 60 per cent to 90 per cent for the 500 most energy-intensive businesses.14
However, a combination of blockers, including planning delays, permitting issues, outdated connection rules and supply-chain bottlenecks have delayed the construction of transmission and distribution infrastructure, and the connection of key projects to the grid (see Decarbonising power: Challenges and solutions). This includes inbound connections, which are crucial for electrifying industries. The overall connections queue stands at over 738 GW, nearly four times the capacity needed to meet the government’s 2030 clean power ambition (see Figure 3).15
Figure 3: UK grid connections queue versus clean generation capacity required by 2030 (GW)
Source: Aviva Investors, NESO. Data as of July 29, 2025.
In April 2025, Ofgem approved NESO’s Connections Reform programme, which aims to prioritise grid connections for projects that are ready to connect and strategic for the overall network. The Industrial Strategy also announced the creation of a Connections Accelerator Service to streamline grid access for major projects.
Proposed solutions
- Deliver a roadmap: Building on the measures to reduce industrial electricity prices, an electrification roadmap could unlock investment for each subsector by providing clarity on policy plans and available support. Following the REMA decision, the forthcoming Reformed National Pricing Delivery Plan should clarify wholesale market design and measures to improve investment signals for new major electrification projects.
- Rebalance green levies: Participants suggested low-carbon and environmental levies should gradually be rebalanced away from electricity bills, towards gas bills or general taxation.
- Support the spatial planning process: Industry must communicate its current and future energy demands to distribution network operators for the Strategic Spatial Energy Plan in 2026. Creating capacity hubs could also help manage distribution and enable operations to be electrified.
- Accelerate connections: Inbound connections need to be expedited to align with asset lifecycles as part of NESO’s Connections Reform programme. One proposal put forward in the roundtable was to prioritise connections based on projects’ carbon-abatement potential.
Low-carbon hydrogen
The UK currently faces a significant shortfall in green and blue hydrogen production and lacks supportive infrastructure (i.e., feeder pipes). Projects like the HyNet cluster are experiencing development delays, with knock-on impacts for industries.16
The government is expected to publish a business model for hydrogen transport and storage infrastructure in 2025 to clarify potential revenue streams.
Proposed solutions
- Grow green hydrogen production: Building on HAR1 with 11 successful projects and HAR2 with 27 shortlisted projects, continue to progress – and grow – the pipeline of projects through Hydrogen Allocation Rounds (HARs). Clarify the future of HARs to support projects after HAR4.
- Support blue hydrogen production: Continue to support commercial arrangements and finalise contracts for the first blue hydrogen production projects as part of the Track-1 CCUS Cluster Sequencing Programme.
- Distribute funding across the supply chain: Ensure the £500 million allocation towards the first regional hydrogen transport and storage network to connect hydrogen producers with end users is effectively distributed across the value chain, supported by the delivery of transport and storage business models as planned in 2025.
CCUS
While constrained public finances were recognised as a challenge, the announcement of £21.7 billion to support CCUS and low-carbon hydrogen production infrastructure over 25 years was welcomed by roundtable participants. Further progress has now been made, with three commercial contracts now signed across the HyNet and the East Coast clusters. The Treasury’s multi-annual Spending Review in June 2025 also confirmed that an initial tranche of £9.4 billion (the first part of the £21.7 billion) would be rolled out to support CCUS and hydrogen deployment over the next five years.
Roundtable participants highlighted that uncertainties remain on approval processes, long-term liability for stored CO₂ and specific requirements and standards for capture, transport and storage, making attracting investment difficult.
Proposed solutions
- Deliver public investment commitments: Deliver the committed public investment in the 2025 Spending Review in a timely manner to support the cost-effective roll-out of CCUS and hydrogen infrastructure for the East Coast and HyNet clusters.17
- Provide clarity on the timing and sequencing of future funding: Provide clarity on the plans for Acorn and Viking clusters under Track-2 and for other industrial clusters. Clarify how dispersed sites (i.e. industrial sites not located in a cluster) will access infrastructure.
Demand for low-carbon industrial products
Demand for low-carbon industrial products must grow to unlock further investment, but they remain less affordable than conventional products. It is not clear how the cost differential is to be shared across public and private finance, which dampens offtaker appetite (offtakers are firms who would purchase low-carbon industrial goods).18
The UK and EU announced their intention to negotiate an ETS linkage agreement
Participants were clear that existing mechanisms, such as the UK emissions trading scheme (ETS) and the UK carbon border adjustment mechanism (CBAM) expected from January 2027, were insufficient. Misalignment with the EU’s respective schemes risks reducing competitiveness of UK low-carbon industrial goods.
Encouragingly, in May 2025, the UK and EU announced their intention to negotiate an ETS linkage agreement, which – once complete – aims to shield UK industry from EU CBAM charges due in 2026. It could create a more level playing field for UK manufacturers and help grow demand.19 However, implementation timelines remain unclear.
The government is also currently consulting on options to grow demand for low-carbon industrial products, such as through green public procurement reform and low-carbon product standards.20
Proposed solutions
- Label energy-intensive industries as strategically important: Steel has been recognised as strategically important. By giving the same standing to other subsectors, the UK can incentivise domestic production and stimulate demand.
- Implement green procurement reform: Introduce criteria in public procurement guidelines to incentivise the use of low-carbon cement and concrete in infrastructure projects and encourage similar approaches for private procurement to help stimulate demand until price parity is achieved.
- Develop Mandatory Product Standards: Introduce standards to reduce embodied emissions in finished products (like buildings) and industrial goods (like steel or cement). The British Standards Institute should accelerate the standard-setting process for low-carbon industrial products.
- Progress alignment with the EU ETS: Progress UK – EU ETS linkage negotiations in a timely manner and consider options to protect UK industry from EU CBAM charges from January 2026.
Investment insights
We used the roundtable discussions to deepen our investment insights.
Our key takeaway was that financing and investment are not the primary barriers to industrial decarbonisation. Instead, the limiting factors are on the supply and demand sides. Specifically, many technological solutions are still in the early stages of development and demand for low-carbon industrial products remains nascent. For those focused on progress in technologies such as CCUS and hydrogen, other issues appear more pressing than capital—namely planning, industrial strategy, CBAM, and growing demand for low-carbon products such as through procurement and standards.
A practical concern is around access to affordable and reliable electricity
A second practical concern is around access to affordable and reliable electricity, which underpins all the solutions for industrial decarbonisation. This relates to the efficient build-out of the grid system (to cope with higher demand for electricity) and low-carbon power generation, as well as to the modernisation of the UK’s electricity market arrangements. Addressing this energy challenge is essential if many of the technologies discussed are to become viable investment options.
Collaboration across the value chain on the solutions discussed at the roundtable can help drive sustainable transformation. This, in turn, will unlock further investment opportunities.
