In support of a ‘bias-to-action’ in industry for a net-zero future

In its Q1 2021 Manufacturing Outlook, industry body MakeUK reported a third consecutive quarter of growth in manufacturing, particularly correlated with a concomitant growth in domestic orders.

Returning confidence in manufacturing is also often associated with renewed investment, and early indications are that investment intentions will turn positive in 2021. At ABB, we know from speaking with our customers that UK manufacturing strongly supports the drive to net-zero and digitalisation.

The ‘Build Back Better’ growth plan and commitments contained in the UK government’s Industrial Decarbonisation Strategy and 6th Carbon Budget send a clear message of intent that there is ‘no turning back’ and that enabling infrastructure to support technology investments will be provided.

However, as industry cautiously builds its way out of a tumultuous 2020–21, longer-term issues that threaten UK manufacturers’ competitiveness on the global stage are once again coming to the fore.

The switch from support to stimulus

The timing and intent of the UK government’s switch from support to stimulus is critical. The UK government has effectively both set a destination and fired the starting gun to trigger widespread investment in industrial decarbonisation and digitalisation – but to turn intent to action requires clearly stated and long-term policy commitments alongside stimulus measures that trigger investment.

The Chancellor’s ‘super-deduction’ – the tax that allows companies to deduct 130% of the cost of any qualifying investment from taxable profits – along with the Industrial Energy Transformation Fund (IETF) are encouraging and demonstrate that the government has listened carefully to industry.

Both ‘bias-to-action’ initiatives have clarity of purpose in that they directly focus on productivity and energy efficiency gains, being time-bound in nature, they will enable deferred investments and stimulate new initiatives. Critically, these investments are very accessible. This is incredibly important in levelling the playing field for SMEs, which do not always have the resources or specific domain expertise to engage with exhaustive documentation and application processes.

Beyond business as usual

Alok Sharma, President of the forthcoming UN Climate Change Conference (COP26) in Glasgow, recently called on ministers across all relevant departments to put in place meaningful policies that will contribute to carbon reduction targets across all areas of government, business and society.

However, beyond the structural components of government policymaking around industry and the environment, behavioural economics play a major role. In 2020, travel and industrial production in much of the developed world was significantly reduced, thanks to the Covid pandemic and its associated lockdowns.

What was the subsequent impact on climate change? We reduced global emissions by just 7%. To me, this is proof that we cannot solve the global warming crisis without modifying our behaviour.

I am referring to how organisations behave. UK businesses generally tend to prioritise operational spending (OPEX) over capital investment (CAPEX). This means that a large CAPEX outlay every five years on new technology is going to be scrutinised more than OPEX automatically factored into each year’s budget. The result? Companies succumb to what is known in behavioural economics as the sunk cost fallacy, whereby they continue a behaviour as a result of previously invested resources.

For this reason, many businesses could potentially struggle to achieve the UK industrial decarbonisation strategy goal which models that approximately 30–40% of the UK’s reductions come from energy efficiency.

Policies and incentives around industrial decarbonisation must therefore come with a time mandate in order to incentivise companies to make investments in technology now. Waiting for natural production cycles to play out and delayed investments to come to fruition is not a viable option.

The power to change

We know that investments in technologies such as industrial robotics, energy-efficient drives and digital technologies move the needle on productivity and efficiency for those who adopt them.

ABB’s confidence in UK manufacturing is reflected in its decision to invest in a new state of the art robotics facility in Milton Keynes in 2021. Measures such as this, coupled with the super-deduction and the IETF, have the potential to shift the centre of gravity for UK manufacturing more generally because competitive forces will incentivise later-adopters to invest in an effort to close the gap.

Another compelling example can be found in something as prosaic as electric motors, which produce an estimated 40% of the energy in a manufacturing plant. If manufacturers were to replace legacy motors with the latest model they would see the payback in terms of reduced electricity usage and costs in just 2–3 months. In order to remain competitive, other companies would inevitably follow. In ‘nudging’ the competitive centre-of-gravity in such ways we can stimulate profound changes in industrial decarbonisation

In addition to re-evaluating investment and buying cycles, cultural and behavioural transformation is also dependent on clear-sighted legislation aimed at all industry stakeholders, big and small, as well as rebalancing the conversation around profitability and sustainability.

The UK government’s net-zero commitment for 2035 is laudable. UK manufacturing has a unique opportunity to decarbonise on a large scale and contribute to achieving this goal. Those that require evidence need look no further than the UK offshore wind sector’s success in attracting investment, the result of coherent strategies, targets and economic incentives at a national and industry level.

Policymaking that incentivises decarbonisation and digitalisation, combined with a willingness by UK manufacturers to adapt and invest long-term in new technology will enable industry to significantly reduce its carbon footprint and compete from a position of strength on the global stage.

- The author, Dermot Lynch, is head of business development at ABB in the UK.

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