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1. Make UK welcomes the opportunity to respond to the call for evidence. The core of Make UK’s mission is to back the manufacturing sector in the UK, helping our sector to engineer a digital, global, and green future. The 20,000 manufacturers we represent have created the new technologies of today and are designing the innovations of tomorrow.

2. By investing in their people and new technologies, they continue to compete on a global stage, providing the solutions to the world’s biggest challenges. Together, manufacturing is changing, adapting, and transforming to meet the future needs of the UK economy. A forward thinking, bold and versatile sector, manufacturers are engineering their own future.             
    
3. The manufacturing sector has a broad sectoral base spanning across multiple sectors comprised of large multi-nationals to small fourth generation family businesses. Overall, the vast majority of manufacturers within the industry are SMEs, who also form the bulk of the supply chain which has a crucial role in maintaining the UK’s ability to provide goods and services to the domestic and global markets.              
4. Britain’s manufacturers are leading the charge towards decarbonising and progressing further and further towards net zero. Manufacturers have long shown that they are at the forefront of innovation globally and they have already gone a long way to improve their processes and production in the quest to reach net zero. But what is lacked is a bold vision from the Government for the industry to transition to a net zero future.

5. The Government has published a range of strategies in a bid to transition to a net zero economy. Of most relevance for manufacturers has been the Industrial Decarbonisation strategy which set out ambitions for the industry to reduce carbon emissions by at least 67% in 2035 and by at least 90% by 2050.

6. If manufacturers are to cut emissions further and be net zero by 2050, it is fundamental that words from various Government strategies around Net Zero turn into action. While we have seen positive moves around green finance and innovation for example, we are some way behind on energy efficiency and even more so on electrification.

7. While all aspects are priorities for manufacturers it is fundamental that Government puts its foot on the pedal and accelerates progress on key areas including the cost of energy, including reviewing the pricing structure of electricity, energy efficiency, including help with Energy Management Systems and digitalization and electrification – this includes increasing funding for and extending the Industrial Energy Transformation Fund (IEFT).

8. If we are to decarbonise manufacturing, a combination of measures is needed. While energy efficiency is largely straightforward, the transformation of industrial processes is less so, yet this will be critical within the next decade. Therefore, Government must take bolder action. It must hold itself to account on its Industrial Decarbonisation strategy by providing regular updates on progress in order to help business understand the Government’s overall intentions and make investment decisions accordingly. More than 80% of manufacturers agree that the Government is not focused enough on supporting the manufacturing sector, preventing it from taking advantage of these opportunities. The time for focus on this sector and bold ambition is now.

9. The UK manufacturing sector, with its mix of high energy/carbon intensive and less energy intensive businesses, has a crucial part to play in the future low-carbon economy. This will need to be achieved in two ways: firstly, by cutting the sector’s own greenhouse gas (GHG) emissions through decarbonisation, and secondly and more crucially through the creation of innovative products, processes and services that will help the entire economy become an integral part of the green industrial revolution.

10. Make UK and the manufacturing companies we represent are fully committed to net zero. We published the sector’s first Roadmap to Net Zero earlier this year, in collaboration with many of our subsectors, which identified both opportunities and challenges.

Key statistics:

• Almost two thirds (65%) of manufacturers having taken positive action towards their net zero target in the past 12 months.
• 8 in 10 manufacturers say decarbonisation is now a high or medium priority in their business.
• Nearly half (46%) have already implemented their decarbonisation strategy with a further quarter due to start in the next 12 months.
• Energy efficiency is the main pathway towards carbon reduction with almost half of manufacturers (47%) citing this as the focus of their decarbonisation projects.
• While two-fifths (42%) of manufacturers say they have identified opportunities in the net zero economy, (33%) manufacturers say that the move towards net zero may have a negative a detrimental impact on their business.
• Over half (55%) of manufacturers said robots, cobots and automation and make some or a lot of difference to increasing sustainability in their business.
• Over a third (34%) said investment in digital technologies has led to improved efficiency and 33% said it had improved raw material and waste efficiency.

Key policy recommendations:

a)      Incentivise investment in industrial decarbonisation technologies through capital allowances and tax reliefs: This should include expanding the R&D tax credit relief scheme to include green capital expenditure relating to industrial decarbonisation within qualifying expenditure and permanent full expensing of all assets relating to industrial decarbonisation.

b)      Roll out Made Smarter and expand to include industrial decarbonisation: Made Smarter is a proven concept with companies already benefiting from energy efficiency improvements as a result of utilising the model. There should be a full roll our od Made Smarter and its remit expanded to include industrial decarbonisation.

c)       Introduce a Help to Grow Green scheme: Existing funds such as the Industrial Energy Transformation Fund (IETF) should be extended, increased and reshaped into a more accessible fund. The current IETF does not reach manufacturers of all sizes, with the criteria pushing some companies out of being able to access the funds, as well as complexities of accessing the fund meaning small businesses are needing to access external advice if they want to attempt to use it. A revamp of the fund into a Help to Grow Green scheme would provide smaller funding (e.g., £20k) to companies with advisory services (using existing expertise from legacy ERDF staff) such as energy audit, sub-metering, and help with accessing the right finance, allowing them to take their first implementation steps.

1. Decarbonising is a growing priority for manufacturing businesses who are increasingly seeing it as a growth opportunity, which in turn would support the Government’s overall economic growth target of 2.5%. As a result of these growth opportunities many manufacturers are already reaping the benefits of decarbonisation and the transition to net zero and see it as a major priority for their business.

2. The UK manufacturing sector has a crucial part to play in the future low-carbon economy, through the creation of innovative products, processes and services on which the entire economy will depend to transition to net zero.

3. A Make UK surveyed conducted earlier this year found that over a third (35%) of manufacturers said that achieving net zero is a high priority within their business right now, with 37% stating it was a medium priority and less than one in three (28%) saying it was a low priority. [1]

4. These are impressive figures given the new and unprecedented challenges manufacturers have continued to face. Not only have they had to navigate through the changes following the UK’s full exit from the EU, but they have also had to survive over two years of the pandemic with depleted order books and falling sales. Even at the start of this year, when we were beginning to see the first green shoots of recovery manufacturers have found themselves facing a multitude of increasing cost pressures from the soaring cost of raw materials to snowballing wage inflation to spiralling energy costs. All of which could prove to be existential threats to the industry and risk curtailing the sector’s longer-term ambitions including its transition to net zero. Yet despite these challenges they continue to understand the critical importance of net zero and for many the opportunities that a net zero economy can bring to their business

5. With net zero an increasing priority, manufacturers have taken action to meet the net zero target. Indeed, almost two-thirds (65%) of manufacturers say they have taken action towards the net zero target in the past 12 months and nine in ten (90%) plan to take further action in the next 12 months

“We have actively considered carbon reduction / energy efficiency when making restructuring decisions in 2021. By deciding to swap to 5 days we have been able to reduce operating hours (and therefore emissions) and increase efficiency during operating periods. Interlocks have been installed to ensure heat requirement does not exceed a present amount that would trigger higher gas usage.” – Make UK member”
 

6. Moreover, manufacturers are embedding net zero into their businesses, including implementing specific net zero strategies. Almost half (49%) of manufacturers have a net zero strategy in place, with over a third (35%) saying they have begun implementing that strategy and 14% planning to implement. Two-fifths (40%) of companies don’t have a strategy right now but plan to within the next 12 months. Just 11% of manufacturers have no net zero strategy in place and no plans to implement one. This aligns with the increasing number of manufacturers (90%) that plan to take action on net zero within the next 12 months. [2]

7. Despite the challenges on transitioning to net zero (which we outline later in response to further consultation questions) two in five (42%) manufacturers agree that they have already identified opportunities and are already taking advantage of them. Some have gone even further and changed their research and development strategies to take full advantage of the net zero economy.

• Almost six in ten manufacturers said saving money by improving process efficiency and productivity was a major opportunity.
   
• Efficiency and process improvements and the adoption of digital technologies as part of their transition to net zero, are not only saving money but clearly having productivity paybacks.
  Improving productivity within manufacturing can help close the productivity gap that the UK has experienced for some years.
   
• Gaining a competitive advantage through innovative products or services (38%) was deemed the second biggest opportunity area which can help UK manufacturers compete on the global stage.

• Attracting new talent to the business (35%) was seen as the third top opportunity, again highlighting the importance of innovation and skills in enabling the transition to the low-carbon economy. It has already been a benefit for 15% of companies. We know that access to skills, and in particular the industry’s inability to attract a high volume of young people into the sector, has been its Achilles heel for decades.
   
• A quarter of manufacturers can see commercial opportunities. such as being listed as an approved supplier for public/private procurement schemes, gaining access to new higher value ‘green’ markets and to finance (e.g., lenders, investors, grants, funds) for new projects. With a company’s ‘green’ credentials increasingly under the microscope from customers, suppliers and investors, those who have implemented their plans and are able to show their green credentials are already reaping the benefits : some16% of companies saw increased sales as a direct result of decarbonising their business . and 14% said that reducing emissions within their business has helped them access finance.
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8. Yet despite this, 16% of manufacturers identified no opportunities from the net zero economy, and it is critical we shift this perception so that all manufacturers see the opportunities associated with net zero.

9. And in the current climate, for many manufacturers resources have been exhausted. Following the capital-intensive period of the pandemic, the manufacturing sector is in a risk-averse mode, having held back for the last two quarters on recruitment and investment intentions for the next 12 months. In addition, they have had to (and indeed continue) to weather the storm of energy costs, uncertain demand and high inflation[3]. Only when the present storm calms down and energy costs level out will manufacturing businesses be able to get into recovery and stabilisation mode and regain the confidence to invest for growth.

10. But we cannot ignore the potential for further and future growth from our transition to net zero, and  there are major advantages for the economy as a whole. The Climate Change Committee[4] has revised its estimate of the cost of net zero which will amount to less than 1% of the annual GDP (from over 1%) until 2050 and that the savings it would allow would far outweigh the costs of doing nothing and bearing the full brunt of the climate impacts. This is corroborated by more and more studies as climate change impacts are being felt sooner and harder than expected.

11. It will be less costly to accelerate the shift to net zero now than to delay it any further. The earlier manufacturing sites are able to decarbonise, or to become power generators (the collective potential is big), the more they will be able to contribute to balancing the Grid and enhancing demand-side response activities. These in turn will allow less central spending on national infrastructure for power generation and better management of resources. In our response to the next question, we set our how manufacturers are progressing towards net zero through their decarbonisation plans.

12. Furthermore, there is more room to maximise the potential of new low-carbon technologies (hydrogen, CCUS, advanced/modular nuclear) and give our domestic supply chains the opportunity to manufacture the components and products and provide the services needed to feed into these new areas. This can be the case if the UK is quick on the mark enough to outrun its competitors abroad (who are attracted by the UK’s technological advances and progress in decarbonising its energy system). . Thousands of jobs will be created across the country in a variety of sectors (from transport equipment, agriculture and forestry, electricity works, steel to renewable energy technologies (solar, batteries, heat pumps, wind, low-carbon hydrogen, nuclear, tidal, CCUS), waste and circular economy and smart systems to and green finance, , nature conservation/restoration, and science and innovation.
     

Decarbonisation and digitalisation in UK manufacturing

1. Even at a time of unprecedented challenges, manufacturers consider decarbonising their businesses a priority. One-third (31%) of manufacturers we surveyed earlier this year said decarbonising their business is a high priority right now and a further half (49%) said it is a medium priority. This demonstrates the importance manufacturers are placing on decarbonisation to save costs while advancing on their journey towards net zero.

2. Larger businesses (those with over 1000 employees were more likely to report that decarbonising their business than smaller firms. Since April 2022, all large companies and LLPs (>500 employees and £500 million in turnover) – listed or not-  have the obligation to report climate-related financial information. Indeed 61% of larger firms cited as a high priority and a further 28% a medium priority. Whereas among smaller sized firms (those with 10-249 employees) 21% cited it as a high priority. Even if the proportion of smaller firms reporting is still low, it does reflect the pressure that the larger ones, as they seek to improve their scope 3 emissions, are putting on their value chain to provide information.

3. In addition, nearly half (46%) of manufacturers we surveyed are already implementing their plans to decarbonise their operations. A quarter (25%) of firms will start to implement their decarbonisation plans within the next 12 months and a further 17% in the next 24 months. A small number will start from 2025. This amounts to the overwhelming majority taking action in the next two years. The next 12 months are therefore critical to ensure that manufacturers have the tools at their disposal to start reaping the benefits of decarbonisation, which we explore later in this report.             

4. Manufacturers have clearly understood how important and urgent decarbonisation is. This is borne out not only within our survey data but also from speaking directly to manufacturers who are beginning to take action towards net zero.

“For the first year our company collated Scope 1 and 2 carbon figures for 2021 which will be reported in line with SECR which we are not required to comply with. The intention is to achieve an annual reduction in carbon which this data will enable us to measure, monitor and target. A suite of principles has been agreed with the Executive Team against which decisions at strategic and operational level can be made which will embed Sustainable Decarbonisation within the organisation. On-site renewables and energy-efficient design were written into our new Estates Design Guide and collaborative partnerships formed with many organisations to begin progress in alternative fuelling for our operational vehicles and vessels.” – Make UK member

5. Energy efficiency is seen as main pathway to carbon emission reduction. Manufacturers see energy efficiency and the installation of new or upgraded equipment as the main pathways to effectively reduce emissions within their businesses. The focus on energy efficiency is a trend we continue to see across Make UK’s research. In February this year, Make UK’s Manufacturing Monitor[5] found that almost half (47%) of businesses had adjusted their business practices to reduce energy consumption in response to heightened energy prices in 2022. This was consistent across manufacturers of all sizes, sectors and regions.

• For three-quarters (74%) of manufacturers, optimising energy efficiency is the main focus of decarbonisation. Optimisation is a continuous improvement process and energy efficiency is never ‘done in the first go.’ It means it can be improved at every optimisation ‘round’ so emission and cost savings can be made over again, even for those who have already started with some measures.

6. energy-efficiency measures are followed by the installation of new or upgraded equipment (in 42% of cases). Manufacturers are replacing old equipment that is no longer energy efficient with more modern equipment. It is often the case that when equipment has not reached the end of its life, an upgrade is sufficient to improve efficiency or reduce carbon emissions. They may also want to replace machines or vehicles running on fossil fuels by electric ones- e.g., electrifying their processes and operations.

7. The installation of on-site renewable electricity is highly ranked (cited by 39% of manufacturers). The need to reduce dependence  on grid-supplied energy is growing as a result of out-of-control prices and the uncertainty about energy supply. Where possible, manufacturers will opt to produce their own energy, which may or not cover all their needs. Moreover, in these days of very high electricity unit price, selling the self-generated power back into the Grid is very attractive, with the income sometimes surpassing the savings from the generation itself.

8. Around one-third (32%) of firms we surveyed earlier this year cited resource efficiency and materials. The Covid-19 pandemic has led to significant supply chain disruption, causing raw material shortages, longer lead times and rising prices. As a result, manufacturers have begun to seek suppliers closer to home. Moreover, as businesses come under more pressure from their customers, they are having to find more-sustainable sources of materials, which leads to the substitution of these materials and the redesign of their products for a lower environmental impact.
9.  

Further Make UK research[6] revealed that digitalisation is an enabler for increased green manufacturing. The Covid pandemic has further accelerated the speed of digital adoption. In the past 12 months we have seen a huge jump in the number of companies now in the revolution stage of the Fourth Industrial Revolution (4IR), from just 4% in 2018 and 13% in 2020 to 23% in 2022. This means that manufacturers are reaping the benefits of the applied technologies, changing their behaviour and relationships with their customers. The key benefit of adopting new digital technologies is the reduction in the cost of running the business, for 56% of companies. In addition, manufacturers believe it has a significant impact on energy-efficiency improvements (34%), reducing carbon emissions (33%) and raw material and reduced waste (33%).

10. Manufacturers are still facing the barriers to digital adoption, such as access to finance, lack of digital skills and knowledge of where to start and how to apply different and very often expensive and complex technologies. Some13% of manufacturers say they are already using these technologies. But this is far off where it needs to be given the benefits of improving sustainability, becoming more efficient and more competitive are clear. The Made Smarter initiative can unlock this potential and support manufacturers with technical advice, leadership and knowledge – giving them the tools to accelerate digitalisation. Made Smarter has had a significant impact on the businesses in the regions within which it has been rolled out. Government should now commit to rolling out Made Smarter across every region and expand its remit to include industrial decarbonisation.

“Coordination and consistency in the path to decarbonisation throughout industry would remove the frequent resistance to adoption of low-carbon technology which comes out of concern over adopting a technology which is not the one that becomes mainstream” – Make UK member.

11. In addition, government should enhance support through catapult centres to design and disseminate digital solutions to help to enhance efficiencies within factories and other workspaces. Internet of Things enabled industrial automation could help increase efficiencies across a variety of manufacturing contexts.

12. Unsurprisingly, new and emerging technologies (such as the use of biomass/biofuel, which can be used to generate energy; carbon capture, utilisation and storage (CCUS) technology; and the use of hydrogen) are not so widespread and not the dominant choice for decarbonisation at the present time. Virgin biomass (as opposed to waste), was although  still a ‘better’ fuel owing to its renewable nature, is now becoming more controversial globally; this is because its combustion and transport (sometimes across continents) can cause substantial carbon emissions and deforestation depending on its origin and nature. The UK, however, has the highest standards for biomass burning in the world, prohibiting the use of primary biomass, and capturing emissions. Companies using this technology must ensure the installation they invest in complies with UK regulations.

13. Many manufacturers will be counting on these vanguard technologies. The Hydrogen strategy is well developed, and Government has recently doubled its production targets to 10MWh by 2035 and hydrogen roll-out with deployment pilot schemes is being accelerated.
    Despite this, but the general concern around the overall hydrogen supply (which would satisfy only 25% of the UK’s demand in 2050 and there is competition between the domestic and industrial needs) and distribution to dispersed sites. These plans are not sufficiently clear to provide the confidence to invest in this technology, which explains why the plans involving hydrogen are only burgeoning them are not insignificant (only 7% are considering hydrogen as their pathway).

14. In addition, prices of hydrogen are extremely high, and there is still a question on green/blue hydrogen. Other technologies e.g., CCUS are still in their infancy e.g., CCUS and there are concerns on how this would work in dispersed sites (especially for cement) as locations in natural beauty and the distance from clusters makes deployment challenging.

15. It is unsurprising that the main driver among manufacturers’ plans to decarbonise is the rising cost of energy. The majority of manufacturers responding to our August survey expect both electricity and gas costs to increase by over 100% in the next 12 months. In fact, 42% of manufacturers surveyed in August 2022 said that their electricity bills have increased by 100% in the past 12 months and 32% said that gas prices have increased by over 100% in the past year. Looking ahead, over half (52%) of companies expect their electricity costs to increase by over 100% in the next 12 months and 42% expect to see their gas prices increase by over 100%[7].

16. High energy prices are no longer an issue for energy intensive industries only, the impact is being felt across manufacturers of all sectors and sizes. Moreover, high energy costs mean more and more manufacturers are tipping into categories of higher energy intensity and acutely feeling the pain of energy costs. In fact, in just in the year from 2020 to 2021, the proportion of manufacturers in categories of 11-25% and 26-59% of energy intensity has doubled, reaching a quarter of manufacturers now in this bracket for both gas and electricity costs.

17. In an effort to cut costs, manufacturers are looking to reduce consumption. Our research shows that the overall trend for energy consumption is flatlining, as manufacturers seek to reduce costs. Energy consumption among manufacturers has typically remained stable in the past 12 months, with less than 10% variation for around three-quarters of companies both for electricity and for gas/fossil fuels. In fact, just under one in five companies moderately increased their energy consumption by 11-30%, and fewer than 5% saw an increase in consumption of more than 30%[8].

18. But even with consumption flatlining the costs of energy have increased so dramatically that further action has been needed. For some manufacturers they have left with little choice but to act in, often, radical ways. For example, some have deliberately reduced the operating time of heavy equipment (e.g., turbines), leading to reduced production and staffing costs, whilst others have sought to insulate buildings and install better performing heating systems or even look to self-generate.

19. The theme of costs continues with a quarter of companies also citing the rising price of raw materials as a key driver. These are real and live issues facing manufacturers right now. Yet decarbonising is providing a solution to these challenges.

20. Compliance and external pressures are also leading manufacturers down the decarbonisation path. Around one in five (22%) cited compliance or Government requirements, the same number again (22%) cited customer pressures, with investor and supplier pressures also playing a role. This figure was higher among those businesses with over 1000 employees, and therefore more likely to be within scope of formal requirements.

21. ESG (Environmental, Social and Governance) is increasingly on the agenda for Board rooms across the country. The growing importance of ESG combined with  Increased requirements on companies to report on  climate risk management, including larger companies  having to demonstrate sustainability in their supply  chain, means that ESG strategies are increasingly linked  to overall business’ objectives, including when it comes to cutting emissions.

22. Already understanding the potential commercial benefits that decarbonising can bring, one in five manufacturers is motivated by the opportunities associated with decarbonisation, such as competitive advantage and commercial opportunities. Likewise, 13% cited branding as a key driver.

Overcoming the challenges of further decarbonisation through digitalisation

23. Make UK research has shown that a small proportion (~2%) of businesses from specific sectors such as paper and glass have processes that can only run-on fuels that produce extremely high combustion temperatures which only fossil fuels can achieve at the moment. This may explain why 4% of manufacturers don’t have any immediate plans to decarbonise. However, when speaking to manufacturers it is clear that they are continuing to participate in significant R&D programmes to develop future solutions for decarbonisation and innovation including in these sectors.

24. . Overall, however, the vast majority (96%) of manufacturers are planning to decarbonise their operations either now or in the near future. That said, there are barriers to accelerating action further action.

25. Make UK’s decarbonisation report found that the financial cost of upgrading or replacing capital equipment tops the list of challenges (42%) to cutting emissions. It is a balancing act between tackling climate crisis and managing the financial outlay on the machinery owing to new, efficient machines having a very high capital cost. Most manufacturers are investing in their futures by focusing on decarbonisation strategies involving new, efficient machinery.

Chart 1: The cost of equipment is main challenge to cutting emissions further, % companies reporting challenges to decarbonise

Source: Make UK Decarbonising Manufacturing Survey (2022)

“Manufacturing plans require surety about the design and technology integration; the maritime sector does not have a clear path to decarbonisation, but vessels are being manufactured which will be in operation for the next 25 years, by which time the current diesel-fuelled propulsion will likely be reducing. Greater clarity on the likely future technology would enable adaptation to accept these in future. The Clean Maritime Strategy gives some direction of travel, but not to a level at which practical measures can be made, especially with the lack of surety around regulation and design standards.” – Make UK member

26. One in three (31%) said their concerns are about remaining cost competitive, and the same number again (31%) cited the rising costs of energy for fuel switching. Unsurprisingly, at this time, cost is on the minds of many manufacturers.

27. Approximately a quarter (26%) are challenged by the lack of funding – whether internal or external. The reasons for this can vary depending on the type of company: low priority given to sustainability, soaring energy costs that are taking up all or most of the cash flow, or the combined impact of Covid-19 and the EU exit creating difficult market conditions.

28. A quarter (24%) are being held back by the challenge of decarbonisation of transport/logistics and of the supply chain (23%). These are much more difficult to tackle as they are not in manufacturers’ direct control and require a lot more effort in terms of engagement and collaboration with the value chain.

29. Other barriers cited were the business having other priorities (16%) and, on a similar theme, not having the internal resources (13%), which are no doubt being occupied by other priorities. Access to skills is again hindering progress. The lack of internal knowledge/access to advisory services on options to decarbonise was cited as a challenge for more than one in ten (14%) manufacturers. Challenges around knowledge and information were particularly prevalent among small and medium sized businesses.

30. Moreover, the availability to skill staff to decarbonise is also cited as a barrier, but perhaps further down than we might have expected. There are also technical barriers. For example, a lack of or inadequate on-site infrastructure, such as insufficient electrical capacity and not enough roof space for solar panel installations.

31. Three in five (59%) manufacturers are already measuring sub-metered electricity consumption, which was far from being the case two years ago, and half (51%) are measuring their fossil fuel consumption (gas and other fossil fuels). But it is far from enough as metering is the first step in being able to understand where energy efficiencies can be made in the first place.

32. What is even more telling about the focus on decarbonisation is that 41% are already measuring outright their Scope 1 and 2 carbon emissions. There is more to do for Scope 3 emissions, but manufacturers are already making a very good start as almost one in five manufacturers (17%) are measuring their value chain emissions, and another quarter (25%) are planning to within the next 12 months. However, one to two in eight (7-17%) don’t have any plans to measure either their electricity or fossil fuel consumption or their emissions.

33. In this respect, the role of digitalisation cannot be emphasised enough as a powerful enabler of data collection for the monitoring and understanding of complex data patterns, and for taking control. Industrial Digital Technologies (IDTs) will definitely help with metrics, such as the carbon footprint or simply the production output, which are still hindering a significant number of manufacturers in their net zero/decarbonisation progression. Our previous research[9] has shown that those who have adopted IDTs have seen the following benefits: lower costs, better-quality products, better customer engagement and service, improved raw materials, waste and energy efficiencies, and process improvements contributing to the reduction of carbon emissions.

34. Yet, although the aspect of IDTs in increasing productivity (e.g., robotics, additive manufacturing, virtual reality) is better understood, a significant proportion of manufacturers (42%)[10] are still unclear about its purpose and benefits for sustainability and long-term resilience. IDTs, and in particular Internet of Things, Digital Twin and Artificial Intelligence, have become much simpler and more affordable, and the lack of in-house skills or knowledge can be overcome by using the support of specialist partners.

35. Made Smarter has been a great example of this support with manufacturers in the Northwest, where Made Smarter was first piloted, more likely to be adopting digital technologies effectively than in other regions. We want to see a full roll out of Made Smarter and given the close link between IDTs and decarbonisation, its remit broadened to capital industrial decarbonisation.             

“Our business undertook a collection of system-based metering at our production facilities which provides data on energy and fuel consumption and allows analysis and identification of excess consumption. In some cases, this just requires an adjustment to timing or controls on a system. Greater interrogation of energy consumption has reduced energy use at our factory (constructed in 2014) by around 5%. Other times a simple change to process is triggered, for example when the factory is operating out of hours all conditioning and process systems such as vacuum, compressed air, etc., were activated for those additional hours. A review of this led to a simple change to the out-of-hours operation request process to include a checklist of which systems were required, which delivered a c.8% annual energy saving as well as the associated carbon saving and reduction in run hours of the equipment.” – Make UK member

The right policies and right technologies are the key to unlocking decarbonisation.

36. Half (52%) of manufacturers we surveyed earlier this year said that policies to support manufacturing to decarbonise would accelerate their plans. But not having information to decide which technologies are right and not having the support in upgrading equipment is also a major barrier cited by two-fifths (41%) of manufacturers.

37. More than one-third (37%) said they need help to measure their business’ carbon footprint and setting up a decarbonisation plan. While Government support has focused on detailed strategies and grants for innovation, what is missing is help with those first few steps. Trade associations and industry peers who can demonstrate best practice could support.
     
38. Energy audits are now in great demand to help with energy costs. These can accompany a carbon audit (or foot printing). While these audits are becoming mainstream and are offered for free or a small fee by academic or industrial bodies (or consultants as part of a wider service), devising a tailored plan for a manufacturing business requires specialised engineering expertise to advise which machines or equipment to replace by what and by when. Furthermore, a follow-up and monitoring programme is recommended to measure progress and enable further improvements. The expertise required for this not easily accessible and is costly (up to £50-100K depending on the business) but it is the basic need for the bulk of manufacturers, especially the smaller ones who do not have the resource in terms of time, money and internal skills.

39. One in five (20%) want basic awareness training on what decarbonisation is and why it is important. There is, then, a need for an education and awareness-raising campaign so that companies of all sizes and all sectors can have the confidence to start decarbonising their businesses and taking advantage of the commercial opportunities that this transition can bring.

40. It is clear that much wider measures are needed to enable the sector to invest than the announced business rate reliefs. The newly announced Tax Plan will be aiming to improve the overall tax treatment provided for capital investment. To achieve this, it will be important to adapt qualifying criteria for manufacturers to be able to participate. These will have to differ from the current ones, including the super-deduction which is limited as it excluded second-hand and leased assets. Energy efficiency or fuel switching investments can involve just the upgrade of existing equipment rather than the purchase of new machines. And often, expensive Industrial Digital Technologies (e.g., robots) are leased rather than purchased. Excluding these would hinder many manufacturers from introducing more efficient and/or green plant equipment and machinery in their businesses.

41. All these measures will be crucial to enable manufacturers to fully embrace the nascent opportunities from green finance as it gains momentum. As lenders and investors seek to protect their assets, they will put more pressure on manufacturing businesses to demonstrate that they are proactively managing their risks. In the UK, the British Business Bank and many high-street lenders are already adopting their own net zero targets and thinking about how they can make sustainability credential requirements from their customers mainstream. Not enabling manufacturers to progress their emission reductions could deter many to invest elsewhere.

Support for UK manufacturers

42. Current Government support to decarbonise is hit and miss among manufacturers. There has been a range of support programmes, grants and initiatives that the Government has announced to support manufacturers to transition to reduce greenhouse gas emissions. A few more[11] have been added over the past six months, and since the conclusion of COP26. However, Make UK’s report on Decarbonising Manufacturing found that take-up of support to decarbonise is mixed, with low levels of awareness. Awareness was particularly low among small and medium sized businesses – those companies that many of the schemes seek to support.

43. But when we look at what help they are obtaining, fewer than one in five (18%) are aware of and using tax reliefs for all energy users, such as the Annual Investment Allowance and the super-deduction. Almost one three are aware and considering using it (although when it comes to the super-deduction it will need to be quick given the scheme is set to end), and a further 9% are aware and have tried to access but been unsuccessful. One in five (22%) are aware and are not using the schemes and 22% are not aware.

44. The picture is similar for those reliefs for energy-intensive industries, such as Climate Change Agreements, whereby just 16% are aware and using and a further 13% are planning to use in the next 12 months. Some 11% have tried to apply but failed. This leaves 22% again aware but not using and a staggering 38% completely unaware. For those that have tried and failed, reasons behind this could be that energy intensity is not consistently defined across policies or that the qualifying criteria are very high (e.g., energy costs must represent 70% of the total business revenue). The Government has recently consulted on CCAs, and existing participants can benefit from the scheme until 2025. Those who are fully engaged with their industry associations are more likely to be beneficiaries of CCAs To truly benefit from these schemes, companies have to be consuming a minimum of 100KWh/year of electricity (to make up for the participating fee charged (usually about £2000). The design and charging model of the scheme would have to be amended to accept many smaller participants.

45. When it comes to grants and funds, there is even less take-up, with just one in ten (10%) of companies aware of and using them. A quarter do plan to use these in the next 12 months, however, which may be a result of these funds being relatively in their infancy. Once again, we see a handful (8%) of companies that have attempted and failed, and awareness is still low. Moreover, the main issue with these is that the vast majority of these funds are designed to support for innovation (R&D) efforts in energy efficiency rather than the uptake of commercial tools and equipment.

46. The main Government fund for industry to decarbonise, the Industrial Energy Transformation Fund (IETF), raises concerns for its competition-based nature and the complexity of entry criteria which deters SMEs from even trying to apply. It is for that reason Make UK has made calls to increase the funding of the IETF and to ease the criteria or even completely re-shape it to make it accessible to more manufacturing businesses. This includes removing the competitive aspect and instead focusing on performance.

47. Other general fiscal measures, such as the super-deduction, while helpful, were not as accessible to  manufacturers as it could be as it excludes second-hand or leased plant equipment and machinery. As we have seen, much equipment is not replaced but upgraded. Robots and cobots, for example, are significant investments and often leased instead of bought outright. The HM Treasury is consulting on the successor of the super-deduction which should be generous enough that it not only brings forward investment plans but increases them. Moreover, the chosen scheme must have longevity and mirror the investment life cycles of manufacturers.

“More availability of grants would be helpful. It would also be a benefit if the Government were to ensure that its procurement process was far more demanding towards a zero-carbon supply chain.[12] This should focus on local, embodied carbon and resource efficiency. They may initially need to pay more for some products or services, but those costs will reduce as companies scale up.” – Make UK member

48. These barriers to accessing funds and poorly designed fiscal reliefs create discouragement and weariness of Government schemes, and lead to a negative feedback loop (e.g., businesses no longer try to apply if they think their application will fail).

49. That said more than one-third of manufacturers agree that the strategies and initiatives the Government has announced on decarbonisation will help them and therefore it is vital that the Government continues to support industry on its path to net zero.

50. What we need to see is the Government continuing to work closely with industry and its representative groups to raise awareness among businesses about the support schemes that are out there.

51. There is a strong case to actively support manufacturers to accelerate the maximisation of energy efficiency in their businesses to better control their energy demand, reduce costs, build resilience and be able to invest sooner for growth. Accelerating energy efficiency in the manufacturing sector has the major added advantage of contributing to significantly to reduce their carbon emissions, just as manufacturers are being pressed by their large customers and suppliers for information on their progress to net zero.

52. In addition, the need to move to alternative manufacturing and new products/services is leading to the development of more efficient asset allocation and manufacturing, and more agile and resilient planning. The very high price of energy also means that investments have a much shorter pay-back time than just a year ago, and that the maximum opportunity to reap the benefits is now and for the next 18 months.

53. This will also help the country become more energy-independent, help phase out of fossil fuels faster, help balance the need for national renewable power generation infrastructure, and help the country make good progress in the transition to a low-carbon economy and the net zero by 2050 target through the decarbonisation of its manufacturing industry.

54. On-site renewable electricity or heat generation is seen by manufacturers as the second main pathway for decarbonising their businesses. In the last few months, the demand for it has soared as many see this as a means to insulate themselves from electricity grid prices which are linked with the unsustainable and volatile wholesale price of gas and other fossil fuels.

55. As many have discovered, not only the savings made by not purchasing grid power but even more so the income from selling the power back to the Grid at the current market prices make the investment particularly worthwhile.

56. But there are still some barriers which could be overcome relatively easily such as easing and accelerating local planning permission and adding local infrastructure to allow feedback into the power grid. In addition, it is more complicated for manufacturers leasing buildings than owning them and this would warrant official recommendations (or obligations) for landlords to respond within a set timeframe to installation requests from their tenants, and would warrant streamlined and harmonised agreements/contract templates between landlords and tenants to facilitate the process.
    Other technologies are also in the run, e.g. storage batteries and on-site EV charging used as a power storage facility and heat pumps (which are now found to be more efficient and less costly than running a boiler[13]).

57. For many businesses, finding the upfront cash is difficult (cash is being put aside to pay energy bills). Getting credit is still subject to blanket criteria which will penalise those who already have other (covid-related) loans, without the consideration of the overall low risk and benefits of such projects. Because the payback time on solar PV have become so short (as short as a year and typically 2-3 years compared to 10 years just a few years age), there are now very few if any grants on offer for solar PV installations. Moreover, because of the crisis, many banks have now actually withdrawn loans for green investments.

58. All in all, a more coherent direction from government is needed in this area, with incentives, tailored support schemes and rewards to help manufacturers wanting to invest in on-site generation. There are solutions such as ‘pay-back through the energy bill’ while signposting where to find finance in the first place and standardising and simplifying the application paperwork would greatly help manufacturers get what they need more easily and quickly.

59. The recent geopolitical events around energy have re-enforced the need to rehaul the existing energy markets to decouple electricity prices from wholesale gas prices and to increase the potential for demand-side response activities. Make UK supported BEIS’s suggestions for reformed energy markets and provided inputs into the recent Review of Energy Market Arrangements (REMA), but there is a need to significantly accelerate the timeline for the reform so that implementation can start by the 2025 rather than after.

60. While the Government’s vision of the future power system is good, the scenarios examined in the REMA only took into consideration the electricity from heat and transport, omitting the future potential and needs of the manufacturing sector. The potential for manufacturing sites to collectively become a significant source of power for the future Grid is manifestly big, if it is allowed to develop.
     
61. Equally, mechanisms to reward electricity demand reduction (e.g., permanently via energy efficiency) could treat the demand reduction as a capacity measure and reward it via ‘forward capacity auctions (USA) or via the MWh procured (based on avoided costs of delivering electricity in specific periods, as in Portugal, Switzerland or California).

May 2023

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