Talks on the agreement have been under way between the CIA and Department of the Environment (DoE) since early last year. Progress has been slow, but in a speech on 26 June junior Environment Minister Angela Eagle signalled keen interest in a deal.
The CIA has offered a 20% reduction in its member companies' specific energy consumption - energy consumption per unit of output - by 2005 from a 1990 baseline. "This would, according to our initial assessment, require the take-up by CIA members of all cost-effective energy efficiency measures," said Ms Eagle. "If our further evaluations bear this out, this target would not be a soft option, and a negotiated agreement might offer the most efficient way forward for all concerned."
An agreement with the CIA would form part of the Government's climate change strategy, and might pave the way to similar deals with other sectors. The chemical industry accounts for 19% of UK industrial energy consumption, with CIA members accounting for about 80% of the sector total.
CEFIC, the chemical industry's European trade body, has offered an identical target, but only on condition that no new energy taxes are introduced. A CIA spokesman said on 26 June that such a condition would be "pivotal" in the discussions with the DoE, but the organisation said later that it did not expect the issue to figure prominently in the talks.
On the face of it, the target offered by the CIA does not appear particularly demanding. Figures released in June show that its members have already reduced their specific energy consumption by 14% in the past six years (see figure ) - leaving them nine years to make up the remaining 6%, at less than one-third of the rate achieved in 1990-96.
However, the DoE and CIA appear not to be approaching the target on the same basis. The CIA initially told ENDS that both its energy consumption data and its target were expressed in terms of delivered energy, but later confirmed that they were in terms of primary energy. In contrast, the DoE said that it understood the CIA's offer to be based on delivered energy, and its thinking about the scope for energy savings in the industry has also been on this basis.
The difference between the two is significant. Basing the target on primary energy would allow CIA members effectively to take credit for efficiency improvements in the electricity generation industry. The switch to gas and the closure of less efficient coal-fired power stations have already contributed around two percentage points to the 14% improvement in the chemical industry's specific energy consumption, and the figure is likely to be towards five percentage points by 2005 as the switch to gas continues.
Expressing the target in terms of delivered energy would eliminate these windfall gains. Indeed, a report prepared for the DoE last year by the Energy Technology Support Unit (ENDS Report 262, pp 5-6 ) concluded that the chemical industry would not achieve a 14% improvement in its specific delivered energy consumption until 2000/1 even if it was investing progressively in all cost-effective energy saving measures - and it was from this work that the DoE concluded that a 20% improvement by 2005 would not be a soft option.
Information published by the CIA suggests that the industry is some way from investing in all cost-effective opportunities to save energy.
One source of data is the CIA's annual investment intentions survey. This has revealed that its members' expenditure on energy saving has closely followed the declining trend in real energy prices. Spending on energy saving peaked in 1984 at 17% of their total capital investments but then fell by two-thirds by 1992, and has since remained at 5-6% of the total (see figure ).
In June, the CIA also released the results of a self-assessment exercise by 204 of its members' 376 sites in which companies scored aspects of their energy management performance on a five-point scale. Key findings included:
These figures do little to suggest that the Government could not squeeze the industry to deliver on a stiffer target. The picture should be clearer after the next round of talks in July.