The impact of rising energy costs hits all industry hard, but the chemicals sector acutely so. British firms have been faced with particular problems, given the high oil and gas prices in the UK.

To put the problem into context, a recent submission from the Southampton-based chemicals group Ineos to a parliamentary inquiry declared that UK companies are paying the equivalent of £24bn a year more for power than their continental counterparts. Ineos’ fuel intensity is highlighted by the fact that one of its plants alone uses enough electricity every day to power a city the size of Liverpool.

The £3.4bn business complained that the price disparity is having a “devastating impact” on the already ailing British manufacturing sector. Amid expectations of a cold winter pushing demand – and therefore prices – for fuel even further up, there are fears of three-day weeks and firms going under.

“We are faced with the nightmare scenario that, in the event of very cold winter weather conditions, the UK will essentially be ‘closed for business’. Much of this business will not recover and is unlikely to operate again,” the Ineos submission to the trade and industry select committee said.

So what can be done to assist this crucial part of the economy? Two obvious solutions present themselves but neither will be easy to achieve. The first would be to reduce the sector’s fuel-dependency by using less power or doing so more efficiently. The second is to bring down, or at least restrict, price rises through different sources of power and political action.

In 2003 the Chemical Industries Association set a target of reducing energy use by 11 per cent by 2010. From 1990 levels the target is a more ambitious 34 per cent.

Much of this is to do with sustainable development and climate change commitments which involve bringing down carbon emissions by more than one million tonnes per year. “We use a lot of energy and this use contributes to global warming,” director general Judith Hackitt says. “We are responsible for four per cent of the total carbon dioxide emissions in the UK, equivalent to six million tonnes of carbon a year.”

A by-product of the target is the need to use less fuel, with one solution being recycling. “This means using less energy (coal, gas, electricity) in producing our products,” Hackitt adds. “We now recycle 27 per cent of all our waste. An increasing proportion of our special waste is reprocessed into other useful chemicals, or recycled or burned in carefully controlled furnaces to produce valuable electricity.”

The chemicals industry can make more efficient use of the fuel it is already using. Indeed, in the past 50 years it has become twice as energy-efficient in terms of the amount of power used per tonne of production, with research and innovation continuing in the area.

However, while it awaits this technology, there are limits to what the industry can do. That leaves it looking outwards, as well as inwards, for answers.

The escalating cost of gas has led to calls from the industry for electricity producers to use other sources of fuel. But as has been well documented elsewhere, there are problems with all the alternatives, including coal, nuclear and wind – not the least of which is cost.

Fuel taxes have regularly come under fire from a variety of business lobbies. But the chancellor, while easing off planned rises, has shown little inclination to bring them down. Instead, he prefers pressure on producers to increase supply in line with demand.

Similarly, the government is unlikely to step in to subsidise the industry, despite its importance to the economy. What it is pressing for, however, is liberalisation of the wider European market in order to create a more level playing field. It is also looking at a more secure supply of power in the medium to long term.

So the challenges are wide and the solutions imperfect. But finding them would be one of the biggest steps the industry could take towards securing its own future.

(Additional research by Lydia Taylor)