Much has been made of the UK's position as the sixth largest producer and provider of low-carbon goods and services in the world. But there are signs that the UK is faltering. Manufacturing, which accounts for the largest slice of activity in the sector, actually contracted in 2010/11 – by one percentage point on the previous year. While the UK stagnates, China, the States and others are experiencing rapid growth in this sector.
Yet there remains a real opportunity for UK plc. Real opportunities for UK manufacturers. We are especially well positioned to proper in sectors relating to energy technology where the opportunity could be as much as £189.5-877.5bn by 2050. In our latest report, Tech for Growth: delivering green growth through technology we outline the steps we think government must take to realise the potential of low-carbon manufacturing and unlock investments in breakthrough technologies to help manufacturers decarbonise.
Here's our seven-point plan for driving growth in the low-carbon economy:
- Establish a clear vision for manufacturing in a low-carbon economy.In the recent past, the language of government had often been disparaging about the role of certain manufacturing sectors in a low-carbon economy. This has undermined confidence in investing and has manifested itself in a confusing regulatory environment. While the language of government has changed, the climate change regulatory environment has not. Government must outline a clear vision of the role of manufacturers in achieving its climate goals and this in turn should drive a coherent set of policies.
- Fulfil our innovation potential.There are elements of our innovation landscape that is strong but we still struggle to develop and commercialise innovative ideas. The system could benefit from more aggressive funding at this stage of the innovation process. Furthermore, compared to our competitors, we are spending less of our R&D budgets on energy and environment. This gap needs to close. We also want to see clearer signposting of who is leading on what in low-carbon innovation and clear communication from government confirming where we, as a country, will focus our innovation effort on. We don't have the resources to concentrate on everything, so let's set out the portfolio of technologies which offers the most opportunity.
- Address our eroding skills base.To innovate we need access to highly skilled workers. Half of all our members are expecting demand for staff with R&D skills to increase. Yet our sector is on the brink of a skills crisis with the sector experiencing real difficulties in recruiting skilled workers. We have long called for a demand-led approach to skills. We want to see more young people taking up higher-level apprenticeships. We also want better career guidance. We know lots of young people are motivated by the environment. Do they really appreciate the key role that manufacturers play in delivering green growth?
- Reduce regulatory complexity; establish stability.Interviews with our members reveal how the complex interaction of incentives, feed-in-tariffs, regulation and carbon pricing makes it incredibly complex and time consuming to calculate a compelling business case for investing in low-carbon technology. We need to make it as easy as possible for people and businesses to see the benefits of investment. Furthermore, instability in this policy area is also undermining confidence in investing. Government needs to strike a delicate balance between policy credibility, longevity and recognise that constant changes effects investments.
- Bridge the finance gap.As with many sectors of society, many manufacturers are currently facing financial constraints and challenges. In the climate change area these are even more pronounced. Most manufacturers have already implemented technologies that deliver paybacks within the normal investment horizons. The low-hanging fruit has been plucked. Yet with continued expectations to continue to cut emissions, we now face having to make bigger investments on increasingly slimmer returns. This is likely to get increasingly acute as carbon budgets tighten. We had hoped the Green Investment Bank may have been able to help manufacturers bridge this gap by unlocking investments in a new suite of technologies that payback beyond typical business investment horizons. But we are concerned it won't address this market failure. We also need a proper review of the Capital Allowance system, including Enhanced Capital Allowances, to ensure it matches the economic reality of investment in modern machinery and is properly targeted. At the moment, we doubt it is working to its full potential.
- Make electricity competitive.EEF has long argued that the cost of decarbonising our energy system must be central when designing our energy policy for the future. We have argued that without doing this we risk making the UK uncompetitive, put certain manufacturing sectors at risk and furthermore, risk isolating the public in activity to decarbonise. There is a further strand of concern. The government's Carbon Plan anticipates that during the 2020s manufacturers will electrify more and more of their processes, in turn cutting emissions relating to the sector. This simply won't happen unless electricity costs are competitive with alternative fuels. Again, we renew our calls to place affordability centre stage in energy deliberations.
- Address our hard-to-treat sectors.Some manufacturing sectors are facing unique technical challenges in their efforts to decarbonise. This particularly affects those sectors which emit greenhouse gases as a result of their processes rather than their energy use. These sectors require very specific technological breakthrough solutions. The market won't deliver this innovation because of the lack of scale and, in some cases, the high-capital costs involved. So far we have largely side-stepped how we deal with these “hard-to-treat” sectors. But this is clearly increasingly untenable. We need to understand what is expected of these sectors in the long-term and have a clear plan on how to address the challenges these sectors present. Clearly the UK , many cases, doesn't have sufficient scale to justify intervention, so we need international collaboration. Let's signpost much more clearly funding opportunities in the EU and make those funds more accessible for these sectors to explore technological, low-carbon alternatives. For trade-exposed, energy intensive sectors the EU emissions trading system will not deliver the decarbonisation that policy makers are looking for and an alternative model must be found. We need fresh thinking and we are committed to working with government to help explore credible alternatives.