A novel optimisation framework to design market-based policy interventions for the uptake of alternative fuels in the UK chemical industry

Abstract

Shifting to clean alternatives like biomethane, green hydrogen, and blue hydrogen for industrial heating offers emission reductions, yet their high costs hinder adoption. There is no systematic way to design policy interventions that enable cost reduction at minimum cost to government and industry. This study aims to formulate and apply a novel multiperiod Mixed-Integer Market Penetration Optimization Model to fill this gap and inform decisions about transitioning to alternative fuels for heating in the UK Chemical Industry. The model cost-effectively designs a policy pathway whilst accounting for the fuel cost reduction due to demand-pull induced learning effects in the policy design. The model is applied to 490 boilers in the UK chemical industry, the model designs effective policy mixes to reduce the cost of green hydrogen by 60%, blue hydrogen by 36%, and green gas biomethane by 17%, with revenue from taxes supporting subsidies for cost neutrality.