Interview: Bhavina Bharkhada, Head of Policy and Campaigns, Make UK

“Despite manufacturers today facing quite unprecedented economic challenges, most businesses have moved decarbonisation to the top of their company’s agenda. The fact that 80 per cent are saying that this is a priority within their business, demonstrates the need to lead in this.” Head of Policy and Campaigns at Make UK, Bhavina Bharkhada, further explains that half of the companies she refers to are already implementing their decarbonisation plan. These are just two of the top-line findings to come out of Make UK’s most recent research survey document, ‘Decarbonising Manufacturing: Challenges and Opportunities’.

Published in partnership with Siemens, the new white paper provides a snapshot of how British manufacturers are moving towards net zero and decarbonising their businesses as the sector moves to reduce greenhouse gas emissions, cut energy use and switch to renewable and sustainable energy sources. As Brian Holliday, managing director of Siemens Digital Industries in the UK and Ireland, says in his foreword to the piece: “Carbon emissions are among the list of industry’s largest challenges – a fact that can’t be stressed enough... The commercial and moral arguments for action stack up. Asset owners and operators increasingly see poor environmental performance as a serious commercial risk and are acting to address it.” Meanwhile, energy demand is becoming an increasingly loud voice in the debate: “It’s rare that energy stories drop off the news agenda.”

While there are encouraging indications – “companies are accelerating efforts to decarbonise due to rising energy costs, the need to do the right thing and the rising cost of raw materials” – the message that emerges from the report is that there is still a long way to go. The challenge with engineering and manufacturing, says Bharkhada, is that they are “traditionally seen as brown” – high carbon-emitting and unsustainable – “the journey manufacturing needs to take is longer than other sectors and will take significantly more investment”. Holliday reinforces Bharkhada’s point, emphasising that decarbonisation and transformation of energy use in the manufacturing sector “will be a core part of how UK industry modernises to remain competitive.”

Bharkhada says the report has at least some of its origins in the 26^th United Nations Climate Change conference, held in Glasgow in late 2021. “We had the event, and it was wonderful, and we thought: ‘right, we’ve got the manufacturers engaged and they’re aware of what’s going on.’ Then we thought about how we could build on that momentum. In May we looked at COP26 six months on and what we saw was that lots of manufacturers wanted to take that next step but weren’t quite sure how to do it.” Bharkhada says that Make UK – a trade association representing in the region of 20,000 manufacturers across the UK with about 80 per cent of the membership being small to medium enterprises (SMEs) – had been in conversation with the sector trying to understand what the barriers and challenges were, leading to “going out with a survey to get a picture of how seriously this was being taken”.

The survey was based on 134 companies, the findings collated with regional advisory boards and policy committees to develop the report ‘Decarbonising Manufacturing: Challenges and Opportunities’ with support from Siemens. Working with the technology giant was useful “to test some of the findings. They’ve been working to decarbonise and have faced challenges. So being able to work with them closely on the project has been good.” Bharkhada says the findings will be presented to the UK government in the “hope that they will listen as we continue our campaign throughout the year to make it reality, particularly at the autumn budget, where we hope we can see some change”.

While Bharkhada concedes that there are “a lot” of statistics to digest, the over-arching narrative boils down to a ‘glass half-full versus glass half-empty’ position, with “the main driver for implementing decarbonisation plans being the rising cost of energy. Part of what I do is to speak with every manufacturer across the country, and the number one issue at the moment is the cost of energy. It’s a real challenge, and it will come as no surprise that energy costs have risen significantly in the past year, with one-third of companies having seen an increase of more than 50 per cent in electricity prices.”

To demonstrate the severity of the problem, she says “one in ten have experienced a doubling of their costs for electricity and gas. These are huge numbers and the pace at which this is increasing is also worrying.” What about the organisations not reporting uplift in their energy costs? “We think this is due to their not having renewed their contracts,” says Bharkhada, before adding: “They might be in for a shock. But there are also other pressures,” she says, stating that 20 per cent of respondents cited compliance and government regulation as a key influence on their decision making.

The report says “nearly half (46 per cent) of manufacturing companies are already implementing their decarbonisation plans while a further quarter will start decarbonising within the next 12 months. An additional 17 per cent aim to begin the process in the next 24 months.” Half of the strategies implemented for decarbonisation centre on reducing emissions, with 47 per cent “telling us they have already adjusted their business practices to cut energy consumption in response to the energy price hikes in 2022. Moreover, after the outbreak of hostilities in Ukraine, the situation began to reach critical levels, with three-quarters of manufacturers escalating optimising energy efficiency to be the main focus of the decarbonisation agenda. If your business falls under Scope 1, 2 or 3” – the basis for mandatory greenhouse gas reporting in the UK – “you have to report on this stuff and you have to be measuring it now.” It’s an obligation neatly summed up in documentation produced by management consultants Deloitte as: “If you’re hearing about Scope 1, 2 and 3 emissions for the first time, it’s unlikely to be the last.” But the call to action isn’t only due to the requirements of government. Bharkhada notes that there is additional pressure coming from suppliers, investors and customers, “so manufacturers are really faced with the need to begin to think about this and put it on their agendas”.

Three-quarters of respondents felt that the main pathway to achieving decarbonisation objectives is to shift focus onto energy efficiency, “followed by the installation of new or upgraded equipment. We have this conversation with manufacturers a lot. Replacing old equipment that is no longer energy efficient with more modern equipment, is being seen as an option. Others are considering installing renewable energy equipment options.” The cost of upgrading or replacing capital equipment comes on top of the list of challenges to decarbonisation of operations for 42 per cent of manufacturers, with a third reporting that they are “concerned about remaining cost competitive”, while the same proportion cited the rising costs of energy for fuel switching as the main barrier to change. Further to which, a quarter are held back by the challenge of decarbonisation of transport and logistics, while decarbonisation of supply chains is “a real challenge as they are not in direct control”. Lack of internal resources is an issue for some companies alongside a lack of appropriate skills.

The report states that 40 per cent of companies have reported that installation of onsite renewable electricity to reduce grid-supply consumption had “been helpful” in mitigating costs. Meanwhile, adoption of new Industrial Digital Technologies (IDTs) saw growth in response to changing work patterns during the Covid-19 pandemic, with companies “having to find new ways of remote working almost overnight. Some 13 per cent of manufacturers said they are now using IDTs as a focus of their decarbonisation pathways. Although this is somewhere off where we need to be, we are beginning to see more and more companies digitalise to decarbonise.” New and emerging technologies, admits Bharkhada, “are not the dominant form of decarbonisation at the moment. But the hope is that as we move towards the net-zero target that will increase and become one to watch.”

While the overall manufacturing response to the need for decarbonisation is ‘positive’, Bharkhada indicates that research carried out by Make UK has revealed varied understanding and take up of support available. The report states that following the “huge impact and awareness growth” that resulted from COP26, over time “awareness has dwindled, and understanding of the more practical steps to take is in many cases poor”. Bharkhada says that a third of manufacturers agree that government-initiated decarbonisation strategies will help, “but to date we found that understanding and take up of that support has been mixed”. While there have been numerous strategies published by the UK government – including the Net Zero Strategy and the Industrial Decarbonisation strategy – “there has been little, or no update or progress made against these. Government should deliver regular updates on progress in order to help business understand the government’s overall intentions and make investment decisions accordingly.”

With this in mind, Make UK is now calling on the government to deliver policy on four points that will “help manufacturers power on with their decarbonisation policy”. First is to incentivise investment in industrial decarbonisation technologies through capital allowances and tax reliefs by expanding the R&D tax-credit-relief scheme to include green capital expenditure relating to industrial decarbonisation. Second is to expand the existing Help to Grow government-backed scheme (that already includes programmes on management and digital) to include ‘Help to Grow Green’ that would encompass “vouchers for businesses to spend on products and services to make their firms greener and support to train leaders and managers in industrial decarbonisation”. Third is to incentivise on-site energy generation to service businesses and recirculate surpluses back to the grid: “Government should offer grants to businesses for on-site generation, for example 50:50 funding. Surplus energy produced could also be added to the national grid to increase the UK’s energy security.”

Fourth is to take forward plans with the Net Zero Review on UK carbon prices and electricity price structure: “While the government has begun work on the demand side aspects – e.g. a carbon border adjustment mechanism (CBAM) – more needs to be done on UK carbon prices.” The report says the government “should look to work with industry to explore a broader carbon tax mechanism”, while the UK emissions trading system (ETS) should be extended to other sectors and linked to wider ETS schemes to increase the market size. In addition, the government “must look at electricity network charges and policy costs in a bid to decrease costs, including exploring compensation and exemptions to current schemes”.

Assistance for manufacturers is out there with, as Bharkhada says, the “single biggest” support measure offered by the UK government being the Industrial Energy Transformation Fund (IETF), which is “designed to help businesses with high energy-use to cut their energy bills and carbon emissions”. This scheme has the potential to make a “massive difference to manufacturers”, and yet doesn’t have high levels of awareness in the sector. Added to this, “it takes months to write an application and there is a high probability that it will be rejected”. All of which deters applicants from getting involved. It’s one thing to incentivise the right sort of decarbonising behaviours, says Bharkhada, but if it takes a significant investment of time and effort to get through the process, manufacturers are likely to draw the conclusion that they might be “better off using that time on something else”.

There are also other schemes related to tax incentives, annual investment allowances and the government’s 130 per cent ‘super-deduction’ capital allowance on qualifying plant and machinery investments, the “take-up of which was quite low in our sector. And this is why we say that this is not just about specific schemes such as the IETF, but all of the available schemes.” Bharkhada continues by saying that research carried out by Make UK in December 2021 revealed that 60 per cent of British manufacturers “were unaware of government support schemes available to them”.

“This is a high number, and we need to raise awareness by using existing channels such as trade associations. We need to explain what these schemes can do for those businesses.” But, says Bharkhada, the inescapable fact that applications are often frustratingly difficult to complete is “partly why SMEs struggle”, especially when “your MD has so much going on. It’s a case of asking where the time to do all this comes from. How do you prioritise looking forward to a time when you’re not even sure your business is going to be viable? The fact that support applications are complicated, time-consuming or resource-intensive will discourage manufacturers even though it is the right thing to do.”