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What the Climate Change Committee’s Annual Report Means for Manufacturers

Last week saw the publication of the Climate Change Committee’s (CCC) annual progress report on UK emissions reductions. It made for sobering reading and wasn’t shy to point out that current Government policies will fail to carry the UK to its net-zero ambitions.

The energy-intensive nature of the manufacturing sector means that whether it is preventing blackouts during winters with narrow supply margins or accelerating progress towards net zero, much of the burden of solving these issues tends to fall on the sector’s shoulders. Most manufacturers are already incentivised to improve their sustainability through Climate Change Agreements that secure them a discount on their energy bills, but further legislative pressure could further impact on productivity and profitability. With many manufacturers already facing issues with rising energy costs, increased costs for raw materials and supply chain difficulties, further challenges because of increased pressure to decarbonise more rapidly is far from ideal.

What did the Report Find?

The CCC were damning in its conclusions, accusing the government of failing to enact policies needed to reach net-zero targets. Going further, Committee head Lord Deben voiced concerns that ministers will be forced to renege on legally binding commitments to reach net-zero by 2050, citing major policy failures and ‘scant evidence of delivery’.

While the two issues may seem at odds with each other, Deben also concluded that if it had been implemented properly, net-zero policies were the best way to combat the current energy crisis and rising cost of living. If previous green energy and energy efficiency plans had been followed through on, it would have delivered a saving of around £125 per household on annual energy bills. Britain’s part in a global resurgence for coal was also condemned, with plans for a new coal mine in Cumbria branded ‘indefensible’.

What does it mean for manufacturers?

Manufacturing and construction was one of the sectors singled out for specific attention in the report. During 2020, manufacturing and construction sites made up 14% of the UK’s total emissions. While the report made an exception to the general sentiment of policy failure by stating that the sector’s decarbonisation progress had been accelerated by ‘several clear policy plans’, it also concluded that these plans are unlikely to deliver the Government’s ambitions in full, and that there are already warning signs that delivery timelines are slipping.

Emissions for the manufacturing sector rebounded slightly in 2021, a pattern seen across the UK as the country opened up following the COVID-19 lockdown. Collectively, manufacturing is still 3% down on 2019 levels, but a further 3% behind the government’s pathway for the sector.

The report questions a Government approach that places a focus for the sector on hydrogen and carbon capture and storage in the short-term, with energy and resource efficiency measures being delayed as a result. This risks a more expensive decarbonisation route overall, as well as elevating energy security risks.

Gaps in policy were identified as surrounding electrification, improvements in resource efficiency, low-carbon mobile machinery and incentives for fuel switching. Smaller manufacturing facilities, which make up 40% of the sector’s emissions, have received less policy focus to date and could be the first to see new legislation brought in.

Planning Ahead

The report identifies four key areas of improvement that could help manufacturers unlock greater sustainability improvements. Two, infrastructure readiness and innovation for CCS, are largely out of the hands of individual businesses. The other two, however, are all areas that can be improved. The report found that 40% of manufacturing SMEs did not have a digital strategy in place, and greater levels of data and digitalisation were key to shaping an effective net-zero strategy. Similarly, 67% of manufacturers needed more engineering and technical staff with the skills and knowledge to lower their environmental impact.

The report found that existing policy focuses on both large manufacturers and industrial clusters, leaving smaller sites and the need for greater electrification unattended. Current energy efficiency policies may not deliver sufficient emissions reductions, and greater ambition and clarity is needed. It called on the Government to set out exactly how it is going to deliver energy efficiency improvements, and what the responsibility of individual manufacturers will be in those ambitions. It also called for a change in the structure of Climate Change Agreements to remove a ‘distorted disincentive’ that is currently discouraging greater electrification.

When summarising potential risks, the impact on cost of living was highlighted but not the impact of greater costs on manufacturers. While it does not provide specifics, this appears to be an indicator that both the CCC and the government consider minimising the impact on consumers of the cost of industrial decarbonisation to be the priority, not to minimise the rising cost of doing business.