Industry calls for greater support for decarbonisation

 As George Osborne vows to cut support for onshore wind, business leaders call for the opposite.

Business leaders have called upon the government to provide a more stable, consistent and sufficiently long term set of policies to enable the transition to a low carbon economy.

In a new report by think tank IPPR, Growing pains: British industry and the low-carbon transition, which is based upon conversations with senior executives in many sectors at the forefront of this transition, the leaders also call for specific industrial strategies targeted at the different sectors.

The findings suggest there are plenty of opportunities for British companies to participate in this fast growing global business sector. According to figures to be released next week by WWF, in their annual Clean Economy, Living Planet report, in 2011, the global sales value of greentech manufacturing, from manufacturing inputs like silicon to end products like biofuels, came to €198 billion ($245.3 billion), double the figure in 2008.

Reg Plant, one of the authors of the IPPR report, put an even higher value, of £2.27tn, on the global market for wider environmental goods and services, and said it was growing by 4% a year.

“The government should work far more closely with industry," say the business leaders, in order to counteract the perception that its policies are muddled, overlapping, continually being changed, and not farsighted enough, particularly for the period after 2020. All sectors considered mid-term targets (to 2030) to be important, for providing greater clarity and consistency with current investment timeframes.

Support for onshore windpower

The Government continued to give mixed signals to industry over the weekend, with the news that George Osborne was seeking to reduce the level of Renewables Obligation support for onshore wind power, after April 2013, by five or ten per cent more than that which had been proposed by the Department For Energy and Climate Change, due to pressure from backbench Tory MPs.

Tim Yeo, Conservative leader of the Select Committee for Environment and Climate Change, led the criticism of this move by saying that it made absolutely no financial sense to do this, since "you get more carbon reduction for your money by subsidising onshore wind than you do by subsidising the more expensive offshore wind power".

One British company which would be affected by such a savage and politically motivated cut in support for onshore wind, is David Brown Gear Systems, which has been manufacturing gear sets for 150 years and is based in Huddersfield and West Bromwich. The company has found the wind sector to be a core market for the business, last year receiving a £2 million grant from the regional growth fund to invest in a state-of-the-art R&D centre for wind gearbox technologies.

Carbon price floor

Amongst other Treasury policies that business leaders say should be amended or scrapped is the carbon price floor. Currently, this is specifically designed to encourage investment in nuclear power which, they say, would skew precious investment at a less effective technology. "It is ill-designed as it reduces British competitiveness, won't cut emissions and will drive up fuel bills pushing more people into fuel poverty," said Reg Plant.

Call for more partnerships

Business leaders also call in the report for “strategic public-private partnerships at the sector level based on the model successfully pioneered by the Automotive Council", which brings together leading industry players, policymakers and expert academics. This would help to identify and tackle barriers to development such as infrastructure, skills and financing requirements.

Many leaders criticise the Carbon Reduction Commitment and called again for an industry-by-industry approach to emissions reductions, with incentives such as support for research and development.

Business leaders also think that greater collaboration with European partners on low carbon innovation is advisable, to target possible technological breakthroughs. Pooling member state resources and encouraging countries and businesses to work together is cost-effective, attractive to investors and could deliver greater returns.

The UK is already doing this in the areas of carbon capture and storage (CCS) and offshore wind but the pace of change should be speeded up, they say. One way of doing this is with the help of a new European programme modelled on the governance structure of the EU's NER 300 programme, which subsidises installations of innovative renewable energy technology and CCS, and is funded by a set-aside of 300 million allowances from the European Emissions Trading Scheme.

Transport sector

Government support is also called for to help the transport sector, which is responsible for 21% of the UK's emissions, to decarbonise. In particular, despite government efforts by the offer of a grant of up to £5000 to purchase an electric vehicle, there has been little effect on the market, partly due to the high upfront cost but also to the lack of charging infrastructure.

There is also a lack of tax harmonisation on vehicles across EU member states, leading to the fact that the same car model can be effectively taxed at different rates in different countries. But addressing this issue would pose a huge political challenge, since taxation policy is largely a matter for individual states.

Several leaders called for greater integration between the energy and transport roadmaps, which would include “explicit modelling of the consequences of the electrification of transport for the electricity and gas sectors", otherwise, if the grid was not decarbonised fast enough, more electric vehicles on the roads could increase carbon emissions.

Manufacturing sector

In the manufacturing sector, the vast majority of executives interviewed for the study were ignorant of the long-term vision set out in the various EU 2050 roadmaps. This uncertainty, say the report's authors, “could reflect the increasingly short-term perspective within which many manufacturers operate".

In principle, however, when it was explained to them, participants supported the roadmaps because they provided policy direction and milestones that businesses can work towards.

A particular incentive for the manufacturing sector would be a type of 'green deal', which would help them to invest in low carbon and energy efficient technologies. A pilot scheme for small and medium-sized manufacturers should be established as a first step.

One company involved in energy is Ceres Power, a spin-off from Imperial College which manufactures fuel cell technology for use in small-scale combined heat and power systems. Despite having identified a market of 14.5 million households in the UK and aiming for a market launch in 2014, it sees its next step as being far from straightforward. It requires a significant injection of capital to finalise product development and scale up its manufacturing, which would normally come via equity finance.

But as a result of the economic downturn this has proved difficult, so it is now investigating corporate venturing, which means partnering with a large energy utility or manufacturer. Even this is difficult and, to make things easier, it is calling for the Treasury to introduce “more tax incentives for corporate investments in SMEs, together with any capital gains and dividends from these investments".

All in all, the report paints a picture of an industry full of enthusiasm, but continually frustrated by the slow pace of change and inconsistent support from government.

Low Carbon Innovation Survey

Coincidentally, in June and July, the Department of Energy and Climate Change (DECC) is surveying firms on their levels of investment in innovations that result in reductions in greenhouse gas emissions. DECC says it is also keen to investigate drivers of and barriers to investment. This will help inform the development of future innovation support programmes.

DECC says it is keen to hold brief telephone interviews with a wide range of companies active in the low carbon sector. If you would be interested in taking part in this survey, please enter your details here. If you would like further details about the survey, please contact William Lecky in the Energy Innovation team at DECC (William.Lecky@decc.gsi.gov.uk, 0300 068 5080).