LONDON, 10th April 2019 – The critical CO2 shortage experienced by the UK last summer was caused by a combination of increased demand – with England’s progress at the World Cup and an unprecedented heat wave in part to blame – and outages at key production facilities. But characterisation of the shortage as “a perfect storm” risks ignoring a structural fragility in the UK’s CO2 supply chain that has been exposed by events. Global Counsel explores the systemic reasons for this shortage and outlines proposals for how to avoid it in future, in its latest report “Falling flat: lessons from the 2018 UK CO2 shortage” commissioned by Food and Drink Federation.
In contrast to the prevailing negative image of carbon dioxide and its association with climate change in the media, CO2 is used in a wide range of sectors, including food and beverages, medicine and energy. Despite being critical to large parts of UK food supply, the CO2 chain is poorly understood by purchasers, government and the public.
Increased demand for beer and fizzy drinks during last summer’s heat wave and England’s extended run in the World Cup clashed with unexpected closures at CO2 production facilities, cutting off suppliers. The result was widespread cancellation of supplies to a range of small and large businesses across the food and drink sector forcing companies to take expensive and disruptive measures to mitigate the worst impacts on consumers.
Last summer’s shortage was a product of unfortunate events, but it also highlighted structural weakness in the UK CO2 market. CO2 is sourced mainly as a by-product from the production of other more valuable commodities: ammonia and bioethanol. This means that when there is demand for ammonia and bioethanol there is CO2 supply, but when there is demand for CO2 the price is too low to incentivise production of ammonia or bioethanol.
In addition, millions of consumers and thousands of purchasers - companies from various industries including food and drink – are reliant on a ‘narrow base’ of four major CO2 suppliers who all draw from the same limited sources of CO2. These are two ammonia plants, two bioethanol plants and two import facilities.
Based on analysis, Global Counsel sets out proposals that can be taken across the CO2 chain to improve its resilience in future:
- Government, parliament and regulators:
- Clear communications from the government on prioritisation of CO2 supply in times of shortage with clear lines of responsibilities, as well as guidance on responding to shortages.
- Contingency planning and supply chain dependencies of food chain survey carried out by Defra and by BEIS on the supply of CO2.
- Suppliers: consider increasing storage capacity for CO2, improve communication with purchasers and the public and actively search for CO2 alternatives.
- Users: review procurement ‘best practices’ to maximise the resilience of their CO2 supply.
Matthew Duhan, Energy Practice Lead, Global Counsel said:
“Before last summer’s shortage few people realised how critical secure CO2 supply is for the UK economy, particularly for the food and drink sector. Although mostly unaware, almost every single person is a CO2 consumer – not just those who enjoy a crumpet for breakfast or a pint in the pub.
The summer of 2018 saw a combination of unusually high demand and outages at key production facilities that left companies scrambling to locate and secure supplies. But as our report shows, this was not simply ‘a perfect storm’ of unfortunate events, but the product of structural weaknesses in the UK CO2 supply chain that need to be addressed if shortages are to be avoided in the future.”
The full report “Falling flat: lessons from the 2018 UK CO2 shortage” is available here.
Report is based on research by Global Counsel and interviews with representatives of the CO2 supply chain participants: producers, suppliers and consumers.