Making Eco Friendly Net-Zero Manufacturing A Reality | Deloitte UK has been saved
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Most manufacturing companies are working on what a low carbon future means for their business. Given the scale of the challenge – to reach net-zero in the manufacturing sector by 2050 – and the pace of change today in parallel sectors like energy, it’s imperative for manufacturers to act now to future-proof their business.
Shorter-term pressures – including disruption caused by COVID-19 and a looming Brexit – cannot be ignored. But they should not distract from thinking about where your company is going to be in the next 10 or 20 years.
The form and pace of the UK’s transition to net-zero manufacturing will have a pivotal impact on the sectors’ ability to decarbonise and remain competitive.
Why it’s difficult, expensive, but critical for manufacturing to decarbonise
There are complex technical challenges and significant cost disadvantages associated with the transition to a net-zero manufacturing sector, including:
● considerable demand for high-temperature heat;
● use of feedstocks with an associated high level of emissions;
● large technical systems characterised by long-term investment cycles;
● integrated industrial processes that make it challenging to change equipment without capital-expensive rebuilds;
● using machinery and equipment powered by potentially carbon-neutral electric motors, but motors manufactured using high-carbon-footprint steel and aluminium.
Using scenarios to uncover your best options and capital choices
What does “act now” mean for companies looking for practical next steps towards supporting a sustainable, net-zero manufacturing sector?
Scenario planning provides a well-established tool for engaging with an uncertain future. Deloitte’s Future of Energy Scenario Planning toolset identifies 92 high-impact driving forces that can shape the future of energy.
Working through the implications of these driving forces for your business, and forming a view on how the energy system will evolve, will guide on the timing and type of capital investment needed in the transition to a low carbon future.
Why the urgency?
Most companies appreciate the sheer scale of the decarbonisation challenge, but why the rush to act now?
To date, manufacturing companies have remained sheltered from regulatory pressures to achieve net-zero emissions.
Policymakers have been keen to avoid increasing direct and indirect costs for the sector where businesses operate in highly competitive global markets. The fact that manufacturers remain a key employer and powerhouse for the economy is undoubtedly a factor behind the struggles to create a net-zero manufacturing sector.
But pressure from shareholders and consumers is building for this sector to decarbonise and with it comes profound implications for corporate decision making. For a powerful example of what this can look like, take BP’s announcement in August to transition from an international oil company towards selling clean energy products as part of its net-zero ambition.
Manufacturing businesses need to address the decarbonisation challenge across the entire value chain – at the design, sourcing, building and operating phases.
Commercial aerospace, for example, has already begun exploring new technology pathways. This will encompass designing lower carbon and carbon-free engines and airframes, reinventing the manufacturing process to a low or zero carbon footprint, and operating with clean aviation fuels such as green hydrogen and battery power. Evidently, zero carbon manufacturing is possible.
Yet in other manufacturing sub-sectors – including building products, construction, and heavy machinery and equipment – many businesses have yet to focus on net-zero and the future of energy.
What will the impact be on building products manufacturers, for example, when people think about the carbon footprint of their home, or when businesses need their office buildings (including the steel used in their construction) to be more in line with their low carbon ESG commitments?
Transitioning to net-zero manufacturing is a journey that needs to begin today. Companies that can form a vision of themselves in that future while monitoring how the world and the energy sector are unfolding in the present are best placed to make the right capital choices at the right time, and form the right alliances and partnerships to share the risks and rewards.
Duncan Johnston is a partner in the Deloitte M&A Transaction Services Group in London. He has more than fifteen years’ transactions experience encompassing corporate and private equity transactions with a focus on cross-border transactions. Duncan has been based in our London office since 2008, having spent five years on secondment in Germany. Duncan has worked on a wide range of transactions in the manufacturing process and automotive sectors.