The Industrial Strategy: taking clean growth to the next level

The government’s Industrial Strategy is a good start – but for the UK to lead in clean growth it needs to attract investment in project pipelines, local supply chains and skills, argues Nick Molho, Executive Director at the Aldersgate Group.

When publishing its Industrial Strategy in November 2017, the government set four “Grand Challenges” that would help increase the productivity of the UK economy and improve its competitiveness in growing sectors of the world economy. Clean Growth was rightly chosen as one of these Grand Challenges and on 21 May, the Prime Minister Theresa May announced a mission to halve the energy use of new buildings by 2030.

This announcement is important on two counts. First, it reinforces the positive narrative on clean growth, which has been a feature of key government publications such as the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan. This matters to global businesses and investors who have a choice of locations to invest in and whose investment confidence will in part be shaped by the political discourse in different markets.

But it also matters in the context of the UK’s climate change targets. Heating and powering buildings accounts for around 40 per cent of the UK’s total energy use and any comprehensive strategy to cut greenhouse gas emissions must include a significant decarbonisation of the building stock, both in terms of improved energy efficiency and the growth of low carbon heat.

Delivering on the Buildings Mission

By setting a target to halve energy use in new buildings, this mission will help drive investment in better technologies and building practices, which will ultimately result in better quality buildings. However, it is clear from talking to engineering consultancies and developers that the goal itself of halving energy use in new buildings is deliverable with technologies that exist today and can be exceeded. The key challenge resides more in how the goal will be implemented in practice.

There are many UK engineering consultancies that are able to design buildings at a high level of energy efficiency, thanks in part to the ambitious energy efficiency standards that have come out of policies such as the London Plan. However, there tends to be a performance gap between how buildings are designed and how they end up operating in practice, where metered energy use can be much higher than initially intended.

This is partly due to a skills gap with construction contractors, a very fragmented and transient part of the supply chain, but it is also down to the fact that the current regulatory regime measures the theoretical energy performance of a building at the design stage rather than focusing on the metered energy use which shows the actual energy consumption of a building once operational. Tackling both these issues should be a priority for the Buildings Mission and could deliver improvements in the energy efficiency of new buildings close to the more ambitious Net Zero Carbon Standard that the World Green Building Council has been advocating for a number of years.

Beyond the Buildings Mission

Many other areas would benefit from a similar missions approach and the government also announced a mission for all new cars and vans in 2040 to be zero emissions as part of the “Future of Mobility Grand Challenge”. Missions focused on commercialising carbon capture and storage technology, using hydrogen as a source of low carbon heat, decarbonising a cluster of key urban areas and at least doubling the resource productivity of the UK’s economy could all play a key role in ensuring the UK delivers on its climate targets and strengthens the competitiveness of its low carbon economy.

However, if the Industrial Strategy is going to be successful in growing low carbon supply chains and delivering new technologies at low cost, the government will need to get three key things right in parallel with the missions.

A steady pipeline of work holds the key to a growing low carbon economy

First, the government’s clean growth policy needs to be sufficiently detailed so that there is a constant pipeline of projects that can be invested in. Having a steady pipeline of work is what creates the demand for investment in the innovation, skills and supply chains that the Industrial Strategy is targeting. This point applies across the board. It’s important to the construction and insulation industries, who need clear and long-term visibility on energy efficiency standards for new and existing buildings and it’s important to the renewable energy industry where, to keep project developers and factories busy, onshore and offshore wind farm developers need to have a clear access to market and awareness of future project auctions several years ahead. This is a particularly important issue for manufacturing SMEs in the renewable energy supply chain, many of which are currently operating well under capacity.

Taking the Industrial Strategy to the local level

Second, the Industrial Strategy needs to be delivered at the local level. Supporting better co-ordination between central government and Local Enterprise Partnerships (LEPS) is essential to ensure that businesses throughout the country – especially SMEs – are aware of the implications of the government’s clean growth agenda and are supported in winning contracts in low carbon supply chains. For example, the Humber LEP and Solent LEP are already playing a central role in ensuring local businesses have the right skills and information to successfully bid for supply chain contracts in the offshore wind sector. We need to see more of this.

Skilling up the workforce: not just about STEM skills

Third, government policy needs to focus heavily on promoting and facilitating access to low carbon skills. Beyond STEM skills, which are essential to many jobs in low carbon supply chains, this is also about embedding sustainability across the educational system in the same way that Germany and Japan have with their national sustainability strategies. It is clear from talking to businesses across the Aldersgate Group membership that equipping young people with an in-depth understanding of the resource, energy and carbon constraints that the world economy is increasingly facing will put the UK’s workforce in a competitive position to innovate in a low carbon economy.

Over the last year, the government has delivered the most positive narrative on the low carbon economy that the UK has seen for a long time. But to maximise the UK’s ability to grow its supply chains and deliver new technologies at low cost, the government must now combine its positive aspirations with the detailed policies that will attract the day to day private investment needed in projects, skills and local supply chains.