Following Teresa May’s commitment to ratify the Paris Agreement by the end of 2016 we look at what it might mean for UK Manufacturing and what UK manufacturers can do now to ensure they’re in a strong position to comply with forthcoming changes.
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What is the Paris Agreement?
The Paris agreement is the next level of global consensus on how the international community will combat climate change. The headline commitment is to limit global warming to 2 degrees (with a target of 1.5C) and to set improved national targets every 5 years.
Unlike Kyoto, Paris is not legally binding, but it is significant – particularly when you look at the UK’s dependency on fossil fuels and the extent to which the economy is tied in to fossil fuels.
In order to achieve the 2 degree limit in global warming (according to the London School of Economics), 60-80% of reserves currently on the balance sheets of public limited companies will essentially be ‘unburnable’.
What might the Paris agreement mean to the UK?
Current trends are likely to continue or intensify as a result of committing to the Paris Agreement and there are two key areas businesses should be thinking about; cost and supply.
- There is already a review of UK carbon taxation underway and at best you can expect the cost to stay the same but many will see an increase. You can expect to see the scrapping of the Carbon Reduction Commitment (CRC) and those who used to pay it will be captured by the Climate Change Levy (CCL) where you’ll pay more, Climate Change Agreements are likely to remain unchanged but we are expecting a review of the targets and penalties.
- The price of power is already a huge issue for many – particularly manufacturing – and the future doesn’t seem to offer much hope. Hinckley Point C, for example, has been given the green light with an agreement that the price per KWH increases threefold – from £37 to £92.50.
- Fossil fuels still provide in the region of 84% of the UK’s energy yet by 2025 coal fired power stations are due to be phased out, requiring 10-30 more gas fired power stations to fill the void – but, there’s only one currently in construction. There is Hinckley Point C but, again, that’s decades from operation.
- So, where will the UK’s energy supply come from? Investments in offshore wind power will help, but it’s unreliable and will still leave a shortfall of 40-50%. The government needs to plan for this of course, but businesses need to evaluate their reliance on fossil fuels and appreciate the risks of an unreliable and volatile supply of energy.
What should manufacturers be doing now?
You don’t need to be Bill Gates to know that uncontrolled overheads and risks in your supply chain will seriously harm the prosperity of the business. But, how do you get control of something that is completely out of your control?
- Set targets for energy reduction – preferably align them to legislation and national targets as at some point they will catch up with you
- Reduce your need for energy – can you do more with less?
- Evaluate your reliance on fossil fuels, on carbon – can you operate differently? Can you invest in on-site energy courses? Can you source from renewable sources? Can you switch to low carbon fuels?
- Consider ISO50001 – set a coherent strategy across the business functions to embed a focus on managing the risks from energy through procurement, marketing, operations, R&D, etc.