By: James Dorman, Trade Treasury Payments

Despite the prevailing narrative of a transition to renewable energy, fossil fuels persist as the backbone of UK energy. Coal, oil, and natural gas still account for nearly 80% of the nation’s total energy consumption, with natural gas alone representing a 40% share. And yet, a growing body of evidence suggests that the regulatory framework governing the UK’s energy mix is driving a process of ‘premeditated’ de-industrialisation.

In TTP’s London Studio, Deepesh Patel, Editor at Trade Treasury Payments, sat down with Catherine McBride, OBE, CEO of the Great British Business Council (GBBC) and co-author of the book Premeditated Industrial Destruction? to explore how domestic policy might be inadvertently driving the export of British industry.

The real carbon cost

The root of this industrial decline in the UK, McBride argues, can be traced back to 2005 and the introduction of carbon emission costs. While admirably intended as an environmental safeguard, the lack of reciprocal costs among major trading partners around the world introduced an immediate competitive disadvantage for the UK and other European nations.

“Europe kind of started its own de-industrialisation,” McBride explains. “It suddenly became much cheaper to import goods from Asia – not just because of the wage differential, also because you didn’t have to pay for the carbon emissions.” This added incentive wasn’t limited to emerging economies, as established partners like Japan also initially operated without comparable carbon pricing.

The Carbon Border Adjustment Mechanism (CBAM) looks to level the playing field, but it’s twenty years too late in McBride’s eyes. “They should have done it when they introduced the carbon costs themselves,” she laments, to ensure European industries were “in the same ballpark” as competitors around the world.

Steel and the UK’s electricity crisis

Heavy industries like steel perfectly illustrate the impact of the UK’s high energy costs. The UK has moved towards arc electric furnaces for virtually all steel production – an ostensibly contemporary technology that McBride notes has actually been used in other nations since she was studying economics in the 1980s. The barrier to the successful implementation of electric arc furnaces in the UK has always been the high cost of electricity.

This problem has not been solved; rather, the UK’s electricity production remains more expensive than other European nations. McBride says companies were sidelined from political decisions that pushed industrial electricity costs onto them and left the UK’s cost of production significantly higher than that of countries like France or Germany.

This has consequences that are already being felt. McBride points to Liberty Steel’s commercial electric arc furnace going out of business, leaving only those with protected markets (like the Ministry of Defence) or those recycling low-grade rebar steel as viable and operational.

Emissions have been offshored, not reduced

McBride also discusses the perception of the UK’s reduced energy emissions not necessarily matching the reality of the situation. The UK claims to have cut emissions by 300 million tonnes, but this does not tell the whole story. Excluded from domestic tallies are the emissions embedded in foreign goods: roughly 180 million tonnes of emissions are ‘imported’ in this way.

“If you balance those out, we’ve made very little cuts,” asserts McBride. She further highlights that the UK’s most significant, genuine reductions in emissions occurred in the 1990s through the shift from coal to gas for electricity production – a transition that, McBride says, was economically driven and achieved without carbon taxes or other regulatory mandates.

The figures around reduced emissions, McBride believes, mask the reality that, through de-industrialising, the UK has simply exported its carbon footprint. It has also left the nation relying on global supply chains, and the assumption (or hope) that they will remain indefinitely stable.

The vulnerability of natural gas

The country’s already grim industrial outlook is further complicated by its reliance on imported natural gas. The UK sits atop substantial North Sea gas reserves but lacks the infrastructure to easily arbitrage or export its own resources. McBride points to the lack of liquid natural gas (LNG) conversion plants as a particularly glaring failing. The result is a massive reliance on imports, with 75% of the UK’s current gas imports arriving via pipeline from Norway.

This dependence leaves the UK acutely sensitive to global geopolitical shocks – McBride points to recent tensions between Iran and Qatar as a harbinger of potential shortages that could drive global prices for both oil and gas up and leave the UK in a difficult position.

“Unless other countries are able to pick up their production, there’s going to be a major shortage of oil and gas and people are going to have to pay a lot more for it,” she warns. With the UK’s major renewable energy sources – solar and wind – at the whims of the nation’s famously temperamental weather, McBride also warned of the very real prospect of summer energy blackouts.

The UK’s AI bottleneck

McBride believes the UK is at a critical juncture regarding the next big industrial wave – AI. As she points out, English is the primary language of AI development, and the UK possesses the knowledge and entrepreneurial talent to be a major part of this wave, but the country may lack the infrastructure to capitalise on this.

“Our chancellor is suggesting that this will be the next big thing in the UK and we’ll get involved with this, but she’s obviously not looked at the energy required to run a data centre,” says McBride. Whatever its theoretical potential, the physical reality of AI is that it is a hugely energy-intensive operation, requiring constant, reliable power that the current grid struggles to provide. The United States is already battling with this reality, with numerous states banning new data centres unless they provide their own, independent power sources.

These energy deficit challenges, McBride notes, are already resulting in economic losses. She points to a recent incident where a major AI firm withdrew a planned £31 billion investment from the UK, specifically because the country could not guarantee the necessary electricity infrastructure.

A choice of priorities

The UK seems to be at a critical juncture where it must reconcile its environmental ambitions with its industrial health. Modern life will only ever consume more energy, not less, and the current path of regulatory pressure and taxation driving green transitions may be unsustainable at best, economically crippling at worst.

For McBride, the solution is a return to economic pragmatism. “We’ve got to get back to doing the things that make economic sense, not because we’re forcing them with a lot of regulation and a lot of taxes.” If you force changes in this way, she says, then “the worst option becomes the predominant option”.

Prefer to listen? The full conversation is also available as a podcast below.