4 Questions: green manufacturing: is it a myth or is it already happening? And how can industry be persuaded to tackle environmental issues? Four questions, seven experts. Let debate begin.
Money is tight for many companies at present and investment of all kinds is under pressure. How can increased or continued investment in low-carbon and other sustainable technologies be justified in difficult times?
Fergus McReynolds, EEF: One of the key routes to decarbonisation is an improvement in the way we use energy and resources. With growing world population demanding more resources and energy it will be important that manufacturers continue to improve energy and resource efficiency. In many cases improvements in efficiency lead to reductions in operating costs, particularly in energy efficiency as the cost of energy continues to rise.
However as a whole, the industrial sector has achieved greater energy efficiency gains than any other part of the economy over the past 40 years. Between 1970 and 2010, the energy intensity of UK industry--i.e. the amount of energy consumed per unit of GDP generated--dropped 67%. Much "low hanging fruit" has been plucked, but there are still opportunities for manufacturers.
Investments in truly low carbon technology will only materialise with the right pull from the market and as a major customer the government can play a key role in creating new markets and helping existing ones grow. Past experience suggests that the UK government has lagged some way behind those in the United States and in much of the rest of Europe in using public procurement in this strategic way to grow our capability in key industries. That said, manufacturers in the UK are eager to be an integral part of this emerging low carbon economy, and will provide many of the technologies and innovations for others to do so. A recent EEF survey found two-thirds of manufacturing companies in the UK see an emerging low carbon economy as an opportunity. However the dilemma is that in the same survey only one in eight viewed the UK as a favourable place to invest in this area, due to increased costs and uncertainty caused by unilateral climate change policies.
Gordon Richardson, Arup: Money is, indeed, tight at the moment and, for most companies the wage bill, raw material costs or other operational expenses outweigh expenditure on energy. Against this backdrop, investments in low carbon technologies may seem like an indulgence.
Every organisation, however, operates from premises and all buildings and facilities require investment for maintenance and upkeep. The challenge is to ensure that this expenditure--routine or exceptional--is spent on low carbon options. To achieve this, directors and managers will need a basic level of carbon literacy, and this is most likely to be effectively provided by the public sector.
At the urban or wider scale, investment in low carbon development is often more attractive when it can be seen to form part of a cohesive masterplan or comprehensive business plan. New or innovative technologies in building, communications, energy, water, transport and waste all require infrastructure, and investment of this nature may attract sovereign funds or large pensions and life assurance funds. Organisations such as these seek low-risk, long-term, low-yield projects that are, preferably, capable of being replicated elsewhere. No easy feat in today's environment, but essential in the journey to a low carbon tomorrow.
Al-Karim Govindji, Carbon Trust: Companies often think about energy projects in terms of competing against classic business improvement projects, so they're not seen against other energy projects but against a new line or a new conveyor or improving business performance or growth. We need to understand that business directors see things this way and make decisions on which offers the most attractive return. In fact the ROIs are really quite competitive against other projects. But they need to be seen as an operational investment, not a capital investment.
Within business SMEs in particular often don't have the energy infrastructure, like an energy manager, so they don't have the focus on energy reducing projects and tend to focus on more standard operational projects. With bigger companies where there is more of a focus on corporate social responsibility projects and maybe an energy manager or director there is more scope and time for them to think about these kinds of thing.
Many companies (and individuals) feel that low-carbon or other "green" technologies have generally had rather long pay-back periods. Is this inevitably the case or are there "quick-hit" ideas that could be widely applied for faster returns on investment?
Christopher Jofeh, Arup: Any building retrofit should be designed to provide the balance of risk and reward that meets the needs of the organisation (or individual) that is providing the finance. Designers need to have a keen interest in and understanding of clients' businesses and the role buildings play in supporting those businesses.
Some companies will be interested in how the retrofit can enhance their brand and reputation, will want to position themselves as leaders in innovation, improve their customer experience, develop a more nurturing corporate culture, or increase productivity and wellbeing among their staff members. Others will need a far clearer immediate financial case--they will want to reduce operating costs by reducing energy and water consumption. Large consumers, who are part of the CRC Energy Efficiency Scheme, will want to reduce their tax exposure.
Landlords will want to attract and retain the best tenants. Almost always, there will be a risk assessment element to the decision: what environmental or workplace safety legislation is in place, what legislation might be in place in future, and what litigation or insurance risks could be avoided? The Energy Act 2011 requires the Secretary of State to make regulations so that a landlord of a non-domestic privately rented property (e.g. a commercial office building) which falls below a certain level of energy efficiency (as demonstrated by its EPC) may not let the property until the landlord has complied with the obligation to improve its energy efficiency to a defined minimum standard.
All clients will be concerned with the upfront costs, and will need to understand what types of return on investment they are looking for, whether financial, reputational, or productivity-related, and how they are going to measure them.
The question remains: how does one retrofit successfully?
Myles McCarthy, Carbon Trust: In terms of the work we do and the projects we work on, we're talking about established energy efficiency solutions such as lighting controls or heating and air-conditioning and in a factory it may be motors or drives or compressed air or a whole range where there are opportunities for improved efficiency. These have very attractive returns on investment and short payback times based on the energy savings. So these investments give businesses the opportunity to upgrade and invest in new equipment and improve the quality of their services and they can be fully funded from the energy savings. And with appropriate financing they can be implemented with no impact on the cashflow for the business, so the monthly paybacks are exceeded by the energy savings.
We've also seen customers getting additional benefits such as lower maintenance, greater reliability and often improved quality or output because of upgrading equipment. The significant increases in energy prices make these ever more compelling and make energy costs an increasingly important area to control.
Fergus McReynolds, EEF: It is true that many of the "quick-hits" have been achieved by industry particularly energy intensive industries, but opportunities remain. As a general rule, the scope for further efficiency gains, in the short-term, is likely to he greater in the industrial building stock and non-energy intensive manufacturing processes than in the core processes of highly energy-intensive activities such as steelmaking, the manufacture of basic chemicals and cement production.
In many of these activities, there is extremely limited short-term scope for significant energy efficiency improvements. The UK's energy-intensive industries tend to he highly energy-efficient within the limits of today's technology and substantial further gains are likely to require major technological advances.
Government policy must focus on creating positive incentives to overcome market failures holding back investment in untapped energy-efficiency and low carbon potential and supporting the most promising RD&D aimed at technological breakthroughs in energy-intensive industries. The government should also work with industry to develop technology roadmaps focusing on how to decarbonise specific sectors and generate the policy and support to overcome any barriers.
The government has a lot of schemes to encourage companies to invest in low-energy and low-carbon manufacturing technologies. Is the current package of measures and inducements equitable in terms of technologies and their impact on companies big and small? And where would you like to see any specific changes?
Al-Karim Govindji, Carbon Trust: There are a number of different things that encourage companies, there's the green deal which is coming but its likely to be focused much more around buildings than around processes though it may fund some of that. Other things like the Energy 'technologies List that we manage for the Treasury is very much focused on manufacturing in areas from heat recovery to boilers to refrigeration and allows companies to invest and benefit from the tax upfront. So that can help in their process of thinking about investing. Then there's other kinds of longer term drivers which tend to be directed more towards the larger companies or at specific sectors as a whole.
Where we're seeing a bit of a gap is there is no incentive really to consider innovation. Companies can benefit from some of the funding to deploy best practice but there is no real incentive to deploy innovation in the manufacturing process that can help reduce energy.
Myles McCarthy, Carbon Trust: I would say looking at the implementation and rollout of existing technology it's important businesses don't get too distracted by government schemes and incentives. My key message is that there are likely to be compelling opportunities that make business sense within any business for energy efficiency and it's important businesses just have a look at those on their returns and stand aside from any external drivers from the markets or from governments. There's a growing risk if businesses ignore the impact of rising energy prices and we are also seeing in some markets a growing emphasis on energy efficiency and carbon reduction and sustainability coming up and down supply chains and that will impact on businesses too.
Fergus McReynolds, EEF: The complex, competing and costly policy landscape in the UK is in fact deterring investment. Many manufacturers in the UK are simultaneously caught by a number of competing and complex climate policies, such as the European Emissions Trading Scheme (EU ETS), Climate Change Agreements (CCA), and the CRC Energy Efficiency Scheme (CRC). Too many policies come with a cost and few provide the avenues or incentives for manufacturers or consumers to reduce life-cycle emissions. The government must effectively balance the proverbial regulatory carrot and stick-at the moment this is just not happening.
There are a range of well-documented and widely discussed barriers to investments in energy efficiency and carbon reduction. These include overcoming high upfront costs with occasionally long payback periods, the lack of incentives on landlords to improve energy efficiency where the direct benefits accrue to tenants, and an underdeveloped energy services market. From the Green Investment Bank and Green Deal to the Energy Company Obligation, the government is pursuing a range of measures to address these issues.
However, to maximise energy efficiency gains in manufacturing, EEF has recommended that the recently instated Energy Efficiency Deployment Office (EEDO) needs to take a broader perspective. This includes looking beyond what are traditionally viewed as energy efficiency policy tools at the wider business environment and how this impacts on investment decisions. For example, the UK's uncompetitive capital allowance regime could be acting as a barrier to industrial energy efficiency improvements.
Keith Evans and Helen Jackson, Arup: The UK is still the only Kyoto signatory to implement binding legislation related to meeting the agreed carbon reductions. The 2008 Climate Act has since been influential in government incentives and investments. Environmental impacts, in terms of greenhouse gas emissions, from industry remains substantial (approximately 35%) with recent measured falls only coinciding with the worst recession since the 1920s.
There is no doubt that government incentives have increased low carbon/energy manufacturing and these incentives will strongly influence the development of the UK's manufacturing sector in the future. Due to the strong export market these incentives will benefit the international market (big or small) but may neglect the domestic market. For example UK subsidies for large scale renewable energy projects can seem disconnected from the UK manufacturing base. Therefore projections for UK's low carbon technologies will outweigh UK's manufacturing forecast. In future, focus on domestic benefits gained from incentives should be considered in equal measure to the wider benefits so that local manufacturing base grows and skills in these areas are developed and sustained.
There are, however, fundamental barriers to succeeding in encouraging companies to invest. The overall return or payback period on these technologies is not financially viable for many, particularly small businesses. The Green Investment Bank (GIB) may go part way to mitigate this issue but this needs to be managed by those who appreciate the wider, joined-up picture. GIB has a broad remit but does still focus on late stage technologies.
It is important that new start-ups and technology projects also see benefit from these incentives. There is much expertise in the UK for developing these solutions. Where there may not be financial grounds for support currently, gaps in this area can reduced through collaborative working with investors, engineers and government.
Is the UK a world leader in sustainable manufacturing technologies?
Fergus McReynolds, EEF: Manufacturers in the UK are at the forefront of developments in sustainable technologies and are eager to take advantage of the opportunities, as a central player in the green economy, manufacturers can provide many of the building blocks for low carbon technology and innovative production, from the steel in wind turbines, to the chemicals used in energy-saving lighting and solutions in high speed rail.
In our Green and Growth report, published last December, we looked at what needs to be done and set out our ambitions for creating a greener and more competitive economy, looking at the barriers to realising this and introduced 10 recommendations that we believe will help to overcome them.The recommendations focus on setting the right energy targets and right instruments to achieve it, helping manufacturing to do more through better designed measures with a stronger emphasis on incentives to invest in energy efficiency, avoiding carbon leakage and encouraging investment in the UK, and developing our capability to build a green economy.
These recommendations aim to help government to work with industry to meet its challenging ambitions for reducing carbon emissions, generate continued investment for breakthrough technologies and achieve sustainable growth.
Keith Evans and Helen Jackson, Arup: Sustainability is on most UK designers' and manufacturers' agendas. With the rise of low cost manufacturing in China and India, the UK is now re-establishing itself as a high-tech manufacturing nation developing next generation, sustainable technologies. In 2011, the UK was ranked third, behind US and China, in relation to sustainable technology innovation and sixth largest market in the world for low carbon goods and services. It is fair to say that whilst the UK is not the world's leader, we are making substantial headway in becoming so. This has come about through multinational manufacturers completing research and development in the UK, supported by academic excellence in UK universities.
Energy management is fundamental to sustainable technologies--be it the energy to make a product or the energy it generates or used. This has been recognised in the UK Carbon Plan 2010 (and 2011 update) which influences national projects and investment, prioritising sustainable projects and technologies. The plan and future legislation changes aim to reduce existing regulatory barriers, which do not exist in other countries, in order to accelerate the UK's development and influence in this area. The move away from UK's reliance on fossil fiiels will be dictated by the manufacturing technologies immediately available to us. Becoming a leader in their development and supply will provide the UK with a sustainable and profitable future and become a recognised leader in this area.
Al-Karim Govindji, Carbon Trust: There might be pockets where we are leaders but not necessarily in manufacturing. The work we've done in the innovation side there were some interesting things in for example the dairy sector and at people like Tarmac in the aggregates sector looking at lower temperatures. But some things seem already to have been done in other parts of Europe and in some areas the key equipment manufacturers are often Italian and German. One promising area though is in one of the EPSRC centres of innovation, the centre for sustainable manufacturing, based out of Cambridge. That's recently set up and is well funded and is looking at eco factories and sustainable production with nice collaboration between large and small companies and people like us.
Senior climate and environment policy adviser at the manufacturers' organisation, EEF
Associate director, environment and sustainability, Arup
Global leader, buildings retrofit, Arup
Associate director operations, consulting, and global leader, logistics skills network, Arup
Senior consultant, Arup
Managing director, Carbon Trust Implementation Services
Innovation group, Carbon Trust
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|Date:||Apr 1, 2012|
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