A recent report by the Committee on Climate Change recommends that Britain can reach 'net zero' carbon emissions by 2050. Is that a realistic target for UK manufacturing? Nick Peters reports.
Manufacturers tend to dislike being told how to run their businesses. The very individualism that makes them a success also tends to turn them against external pressure.
We see that clearly in the issue of adopting digital manufacturing technologies: even though the case is well made that those who ignore the opportunities presented by digital may not have a future, there is still so much grumbling across the sector.
The other external pressure now building on manufacturers is related to energy: the way we use it, the way we produce it, and the way we save it.
The recent report by the Committee on Climate Change (CCC) recommended that the key goal of the UK achieving 80% reduction in carbon emissions in 2050 should be changed to 100%. It’s just a recommendation at present, but political thinking is moving in that direction.
How should manufacturers respond?
So, manufacturers of the UK, you have been told that by 2050 you are to be net zero emitters of CO2. This is not government policy – yet. But it does appear highly likely that the CCC’s recommendations will be adopted.
How ready are you to achieve that? What about that 40-year-old lathe chuntering away in your machine shop? Grand old thing, to be sure, but about as energy efficient as an Austin Allegro. Talking of cars, what about your vehicle fleet? What does it run on? Diesel? Probably. And your plant. How much energy does it consume, how good are you at mitigating energy use, and do you have a plan for becoming more resource efficient?
If the answer to the above questions is entirely in the negative, then sooner or later, change will be forced upon you, you are unlikely to be master of your destiny. So why not get ahead of the game now, as some companies are now doing.
But, you might respond, why should I jack in my lathe when it’s doing a perfectly good job? Who’s going to pay for my fleet to go hybrid or electric? Our energy consumption seems OK – why should I have to pay out just so the country can meet some daft carbon target set by a bunch of academics and policy wonks who’ve never got their hands dirty in their lives?
An entirely reasonable argument. More than that, it pinpoints the fundamental flaw in the premise that the UK should be a shining example of carbon virtue and leadership to the rest of the world –the rest of the world could very well end up eating our lunch, and our entire manufacturing sector. Unless, of course, this situation is all handled very, very carefully.
Roz Bulleid, Head of Climate & Environment Policy at Make UK, called CCC report a “sobering read”.
She goes on: “If it acts on the committee’s advice, the government must ensure greater UK ambition is used to leverage further action from other countries too. This is important from both an environmental perspective and in ensuring energy intensive UK industries are not left paying much higher regulatory costs than overseas competitors, disincentivising future investment.”
“To date, much of the sector has viewed climate change policy as something that adds costs, directly or via their electricity bills, rather than delivering the ‘first mover advantage’ promised when the original 2050 target was agreed. We can’t have more of the same,” she adds.
What would ‘greater UK ambition’ look like? It would look a lot like what other countries already do, where the relationship between government and industry is more deeply-rooted and well grounded.
For instance, Energy Intensive Industries (EIIs) in the UK, such as steel, glass, chemicals, paper, and minerals pay 51% more for their energy than counterparts in Germany and 110% more than those in France. In the UK, therefore, manufacturers are expected to pay higher prices for the country’s Climate Change Levy so consumers (voters) can be spared. In Germany and France – where manufacturing is seen as a strategic asset – it’s the other way around.
What is net zero?
According to the Committee for Climate Change, ‘net zero’ is what happens when residual emissions are offset by, for instance, planting enough numbers of trees to soak them up.
French manufacturers also receive grants for replacing kit that has reached its 20th birthday. Greater ambition – actually, ambition is probably the wrong word, it should be more like a guarantee – would also look like strenuous action to ensure other competitor countries are locked into similar net zero targets, thus avoiding carbon leakage. That’s when companies move their manufacturing out of the UK because the cost of carbon compliance is higher here than elsewhere, or they shut down altogether.
“We need DRASTIC government assistance to meet the net zero target,” one energy expert involved in the process told me.
“Otherwise, we will just allow the import of cheaper products made in high-polluting countries. Government must guarantee that meeting climate change targets does not threaten the competitiveness of UK manufacturing. Or even threaten its very existence.”
As for staying in lockstep with other countries, Business Secretary Greg Clark has says he wants the UK to be “the first major economy to legislate to end our contribution to global warming entirely”.
Worthy but pointless and expensive if we are on our own. It does appear a number of countries including France, Spain and The Netherlands, are urging the European Commission to seek a net zero target from member states by 2050. Germany, Italy and Poland are not amongst those countries and there is a real possibility they could either veto the net zero target or modify it. Their fear is said to stem from a concern for their manufacturing sectors.
Paying the carbon piper
The reticence of our industry-heavy competitors in the EU to sign up to net zero 2050 should act as a warning to UK manufacturers of just how expensive this is going to get, unless the government develops a truly integrated, fully-costed and fully-funded strategy.
The annual cost of decarbonisation for the UK economy is between £5bn-£10bn, which is alarmingly imprecise. The CCC says the cost of meeting net zero will be 1%-2% GDP in 2050. Both these estimates allow for 100% margins of error.
Government must ensure that UK manufacturing does not suffer from this imprecision. Grants and allowances for upgrading to energy-efficient manufacturing equipment, on-site energy generation, and factory upgrades must all be in the mix. As it stands, policy is contradictory.
The UK steel industry
You can’t discuss industrial energy without discussing steel. As mentioned in the main story, steel producers pay much more for their energy than in competing countries. We all know how precarious life has been for the steel industry in the UK, even though there are clearly some worthy initiatives, such as Greensteel aimed at recycling steel rather than making it from scratch from imported raw materials.
Retaining a viable steel industry is unquestionably in the national interest. Steel employs 32,000 people in the UK with a further 52,000 dependent jobs in the supply chain and local communities.
It makes a net £3.2bn direct contribution to the UK’s balance of trade and a £1.9bn contribution to GDP. It currently produces eight million tonnes annually, but over six million tonnes is brought in from outside to feed just over half UK construction projects.
The signing of the UK Steel Charter last month between BEIS and steel producers means British steel producers will be given a fairer crack of the whip during the procurement process, particularly in public projects.
Gareth Stace, the director of UK Steel, whose initiative this is, says “UK public procurement accounts for a massive 14% of UK GDP each year. Its decisions are therefore a hugely important policy tool and perhaps the most significant intervention the government makes in the economy.
“Government procurement decisions are important in themselves but also as a driver and catalyst for positive change elsewhere in the economy. It is therefore essential that a more strategic and long-term approach to procurement is developed, sitting at the heart of the Industrial Strategy.”
With this, as with energy, manufacturers will need to keep a watchful eye on government policy – whoever is deciding it, and from whichever party – to ensure good intentions don’t end up costing our sector dear.
British Steel entered insolvency only a few days before we went to press, after the UK government refused to provide it with a £30m loan, arguing it would be unlawful state aid. In a letter to staff, chief executive, Gerald Reichmann blamed weak demand, high raw material prices, and Brexit uncertainty for the organisation’s demise. And so ended one of the longest running industrial sagas in British industry.
As Andrew Churchill, Executive Chairman of JJ Churchill, told us: “At the moment, if I improve the energy efficiency of my factory (e.g. put PV panels on my roof ), I’m penalised by triggering an increase in my business rates.
“This is completely wrong-headed and is in direct conflict with the government’s desire to see businesses improving their energy efficiency. We need to see business rates overhauled to encourage, not penalise, this type of improvement activity.”
Be prepared for more examples of ‘unjoined-up’ thinking. Beyond manufacturing, the government is also going to have to invest in a complete overhaul of the way we create, buy and store energy.
The gas network will be decarbonised and gas replaced by hydrogen, which has inevitable consequences for manufacturers reliant on gas for their energy. And then there is the goal for phasing out petrol and diesel vehicles by 2040.
The race is already on through initiatives such as Innovate UK’s Faraday Challenge to create the batteries for EVs, but the entire grid will have to be rethought in order to cope with consumers wanting to charge their cars just as the nation switches on EastEnders.
And then there are the opportunities that can emerge when the pressure to be the first to change is exerted. UK manufacturers and innovators can be at the forefront of the energy revolution, creating technologies and products that other countries will want to buy when they are forced (hopefully) to head down the same road as us.
It will be a difficult, but not insurmountable challenge, so long as government brings manufacturers along with it and offers not just reassurance but guarantees that it is not setting UK manufacturing up for an almighty fall.