NEWS COMMENT COHERENT POLICYMAKING IS KEY TO THE UK’S DECARBONISED FUTURE


The recently announced UK Industrial Decarbonisation Strategy shows that 30–40% of the nation’s industrial GHG reductions have to come from energy efficiency. Clear-sighted and user-friendly policymaking that incentivises both structural and behavioural change in businesses of all sizes is crucial, argues ABB’s Dermot Lynch


At the IEA-COP26 NetZero Summit in March, country and industry leaders flagged the need for strong policy at domestic and international level to drive the world towards net zero. COP26 president, Alok Sharma, called on ministers across all departments to put in place meaningful policies that will contribute to carbon reduction targets in all areas of government, business and society. Coupled with renewed confidence in


manufacturing (Q1 2021 Manufacturing Outlook), the environment is ripe for investing to meet UK carbon reduction targets.


BARRIERS TO SME ENGAGEMENT We know from speaking with our customers that UK manufacturing strongly supports net zero and industrial digitalisation priorities in its forward- looking roadmap. To turn intent to action requires both clearly stated long-term policy commitments and stimulus measures to trigger investment. However, it is critical that policy to stimulate and


support industry to transition to a greener future is easy to access and administer. 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), provide blueprints for such accessible policy. This is incredibly important in levelling


the playing field for SMEs. Unlike large multinationals, they may not have access to the specialist domain expertise often required to navigate complex incentives with onerous documentation and application processes. There are also soft barriers to overcome, with


some organisations unaware that incentives designed to help them reduce their carbon footprint exist. We know investments in technologies such


as industrial robotics, energy-efficient drives and digital technologies move the needle on productivity and efficiency for those who have adopted them. The IETF is an example which


presents a clear, understandable, goal.


BEHAVIOURAL ECONOMICS Alongside structural components of government policymaking, there is also a significant behavioural dimension. The result of the developed world coming to a standstill in 2020 was that we reduced global emissions by just 7%. To me, this is proof that we cannot solve the global warming crisis without modifying organisational behaviour. The UK industrial decarbonisation strategy outlines


that a significant amount of the country’s reductions have to come from energy efficiency. However, UK businesses generally tend to privilege operational spending (OPEX) over capital investment (CAPEX); in doing so they fall victim to what is known in behavioural economics as the sunk cost fallacy, whereby they continue a behaviour as a result of previously invested resources. Plus, a CAPEX lump-sum spent typically every


five years on new technology or equipment is going to come under much more scrutiny within an organisation. As a result, behaviourally, many businesses are


not yet culturally equipped to hit energy efficiency targets. The climate clock is ticking, and if we have to wait for delayed investments to come to fruition, we are simply not going to get there. In certain instances this will require replacing


equipment ahead of traditional lifecycles. Although it may seem counter-intuitive, in many cases it is rational from both an economic and sustainability standpoint due to the short payback period afforded by large efficiency gains To drive behaviour change, incentives must be


time-limited, finite and readily accessible. An incentive without scarcity may not be a sufficient impetus to immediate action. Using another behaviour economics technique


known as ‘nudge theory’, we can subtly incentivise behaviour changes that will really move the dial over time. For example, approaching a decision maker with a request for a one-off CAPEX outlay on


a new piece of digital equipment aimed at optimising energy usage may not be fruitful for the reasons that I have explained. But, armed with a solid business case plus details of the government’s tax incentivisation scheme, constitutes a much more compelling proposition.


A CHANGE OF MINDSET Take the latest generation of electric motors from ABB. Electric motors produce around 40% of the energy in a manufacturing plant; the payback for businesses from replacing legacy motors with the latest IE5 model is just 2–3 months. If just 2–5% of companies took advantage of incentives like the ‘Super Deduction’ or IETF, and installed these technologies, they will enjoy a competitive advantage in operating costs – and the market will inevitably follow. Market forces can be used to move the centre of gravity within industry to a more sustainable pathway. Cultural and behavioural change in investment


and buying cycles, is dependent on transparent legislation that companies of all sizes can access. We already have much to be proud of in the UK.


The 2035 net zero commitment is among the most ambitious of its kind in the world. The success story that is UK offshore wind is the result of setting clear targets and defining the steps and economic incentives needed to attract real investment; and the Government has already shown strong commitment to addressing difficult to solve problems such as the decarbonisation of Marine & Aviation. In championing streamlined policies and a committed mindset, the UK Government has effectively shortened the distance from intention to action on the critical industrial journey to decarbonisation. https://new.abb.com/uk


BUSINESS ENERGY SAVINGS NEUTRALISED BY AT-HOME CONSUMPTION DURING LOCKDOWN


According to research by Gazprom Energy, a fall in workplace energy consumption as a result of UK lockdowns in 2020 was largely cancelled out by an increase in personal usage. During lockdown, average workplace


electricity consumption across all industries fell by 6% versus 2019, according to Gazprom Energy’s usage data. Gas consumption also fell by 1%. Despite this, many businesses


may have unknowingly experienced an increase in total net energy consumption when accounting for a remote workforce – with 37% more


personal energy used in 2020 due to increased reliance on home lighting, heating and appliances. The company encourages


organisations to educate themselves on their true total consumption by taking employees’ working from home consumption into account, and has launched an online Net Energy Consumption Calculator to help. “The misconception of a drop in


total business energy consumption has the potential to distort some organisations’ advancement towards sustainability targets. It may give business leaders a ‘false reading’ of


www.energymanagementmag.co.uk


progress if the broader combined consumption picture isn’t considered,” said Daniel Sullivan, head of UK Sales at Gazprom Energy. While different industries faced


varied restrictions during the year, all sectors experienced a significant drop in consumption during the first and strictest lockdown period in April and May 2020. Unsurprisingly, consumption of electricity among businesses in the hospitality sector saw the largest fall (25%), followed by financial services firms (19%) and the education sector (18%). Conversely, the manufacturing industry


experienced just a 5% reduction in electricity consumption, with the majority of its workforce continuing to operate from the workplace. Manufacturing saw a 9% fall in gas


consumption in April and 15% in May; with office-based businesses seeing an 18% drop in April and 20% in May. The Department for Business,


Energy & Industrial Strategy (BEIS) estimates the average household uses 3,731 kWh per year. A year-on- year consumption increase of 37% adds a further 1,380 kWh per year to each household’s consumption. www.gazprom-energy.co.uk


ENERGY MANAGEMENT - Autumn 2021 5


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