The UK, and other leading economies, face a challenge: how does it grow, while at the same time cutting its impact on the environment? The High Value Manufacturing Catapult’s Sam Turner believes that ‘Greenshoring’, building sustainable local supply chains, may be the answer.
The traditional way national economies, and companies, have competed with each other is on cost. Over the last 50 years or so, companies have shifted production to lower wage regions. That has left many industrial regions in decline. Many jobs have been lost in manufacturing industries. With that, has come social upheaval and disruption.
And a cost-driven approach ignores—and often exacerbates—the environmental impact of manufacturing. Cost offers only one way of understanding the efficiency of a production process, or of a national economy.
If companies and countries are to consider the environment, alongside cost, they need to be able to understand their own impacts. And when they succeed in improving their environmental performance, they need to be able to demonstrate this, and use it as a competitive advantage: after all, many consumers are now happy to pay a bit more for products, if that helps save the planet.
But this is hard to do, if you are buying the raw materials, which contribute the majority of any product’s carbon costs, from a supplier halfway around the world, in a country with poor data on how these materials were produced.
Thinking about green growth
Sam Turner is net zero champion at the High Value Manufacturing Catapult. He’s been working to develop a concept the UK government, and others, can use to guide their industrial strategy, while paying attention to local jobs, green impacts, and their country’s overall competitiveness.
If offshoring has been the placing of manufacturing content in low cost regions of the world, greenshoring is placing manufacturing content in low carbon regions of the world
Sam Turner, Net Zero Champion, High Value Manufacturing Catapult
“We’ve kind of coined greenshoring, this definition, and it started from us looking at a risk perspective,” he says. “We have two challenges we saw. One is the need to decarbonize our manufacturing footprint, territorially. And second was the risk that if we did that, we could potentially end up doing that by offshoring it. So how do we decarbonize but not lose the value, the economic value of manufacturing content in the UK?”
“I went in as an engineer expecting to find a technical solution and realised we needed some system level solutions. The major challenge is system level, around how we account for carbon through manufacturing supply chains. How do we do that in a transparent way, that’s common, and standardised across sectors? How do we do it in a way that either would underpin carbon pricing or, you know, in the nearer term maybe, inform markets for voluntary adoption. So consumers, OEMS are making informed choices about the carbon content of their supply chain, which would drive a market for reducing carbon content and will start to reward manufacturers who make investments to reduce carbon content.
“If offshoring has been the placing of manufacturing content in low cost regions of the world. Greenshoring is placing manufacturing content in low carbon regions of the world.”
The time is now
It’s an idea whose time has very much come. The UK’s manufacturing performance has long fallen below its research performance. And events of recent years have demonstrated that the country can’t rely entirely on globalisation.
“We’re, by various measures, top three in the world in terms of academic output, and we’re not at that level in terms of industrial output,” says Turner.
“The skills that the UK has in design: I think it’s something that we possibly don’t talk about enough, about where the UK really has its crown jewels, the key skills,” says Katherine Bennett, CEO of HVM Catapult. “If you’re good at the design, you would then hope that it makes a better case for the manufacturing to also be done here. And I think in the past, maybe that’s not been the case: We’re good at the design, and then it goes offshore.”
“We’re in an environment now, after COVID, Brexit and Ukraine conflict, where there’s more sympathy for looking at how we build that UK competitive supply base that provides resilience, and provides wealth,” adds Turner. “And this actually could be a big answer to how we decarbonize not only our footprint, but start to decarbonize the wider footprint and lead industrial decarbonisation globally.”
As a consumer, or an investor, it can be hard to identify how your spending choices can help the world reach Net Zero. Often, a few clever ideas come to prominence, but have little real impact.
“If you look at all the claims around low/zero-carbon products, we’ve already fixed the global warming problem,” says Turner. “We’re a long way from doing that. There’s still room for greenwashing, either unintentionally or intentionally, at the moment. So clarity and transparency is really important.
“If you have that transparency, investors could then ‘Give me the evidence base of what the plan is, the current footprint is, for this product, for this supply chain, or the plan to get it done zero carbon?’, so it starts to incentivize finding the right places.”
To have the biggest impact, we need to focus not so much on outwardly green solutions, but at the roots of the economy. “It’s easy to put green money into an offshore wind farm or a product that is overtly addressing Net Zero end use case solutions. Whereas things like steel and foundations industries are seen as dirty, we don’t invest in those. But transformation of the current high emitting sectors is where green finance is required. We’ve got to decarbonize the existing manufacturing base. Standards and transparency would help to channel money into those investments, to drive the changes we’ve been talking about.”
Getting beyond Scope 2
As manufacturers move towards Net Zero, they must consider the ‘scopes’ of the Greenhouse Gas Protocols. These include their own emissions (Scope 1), emissions caused by the energy they use (Scope 2) and emissions generated by their supply chain (Scope 3). It’s those Scope 3 emissions that are both most important, and hardest to track. HVM Catapult has reported (PDF) on tools that industry can use to measure their carbon impact. But these can currently only go so far.
“A study we’ve done as the Catapult demonstrated that between 60 and 95% of the embodied emissions in manufactured goods, in the sectors we looked at were in the raw materials processing steps, not in the downstream manufacturing activities,” says Turner.
But, as HVM Catapult chief engineer, Net Zero, Russ Hall explains, the UK is currently not able to supply the materials manufacturers need. And that means they cannot properly assess the most significant carbon costs of their products.
“In the UK, there isn’t a huge amount of primary aluminium manufacture. It’s very difficult for companies to know when they’re buying their aluminium, what the actual environmental footprint of the aluminium is. So at the moment, many companies buy their aluminium from China, and they don’t know what the actual co2 output is, and it’s very difficult for them to find out. And for them to do so they have to go through intermediaries, they have to ask for certificates. There’s no way of guaranteeing that that data is correct.”
To draw in the investment needed to supply materials like these, will need the UK to make a clear business case for building these facilities. “The first thing we need to know is that there is a market for it. And that market can’t be an individual manufacturing market,” says Hall. “If you look at something like metal manufacture, for steel or aluminium, what you need to know is that there is a requirement for an amount of material, which could support the development of something like an aluminium smelting plant. So we’re not talking a few tonnes, we need to be talking thousands of tonnes or tens of thousands of tonnes, in order to make what is a significant investment worthwhile.”
The time scales raw materials suppliers use to plan their investments, and the buying cycles their customers work to, are very different. “I was invited to an Australian trade delegation for critical materials last year,” recalls Hall. “On one side of the table, there were a bunch of guys who owned mines, and they wanted to develop mines for materials to go into batteries. And on the other side of the table, were people who owned automotive companies, or worked for motor companies. And the miners called out straight away that the types of investment they were looking at, were not the same as the buying cycles for the automotive companies.
“If you want to run a mine, what you’re looking for is 10 or 20 years worth of investment. What they don’t want is three years of negotiation about who’s got the cheapest product. There has to be something that acts in the middle, or some way of translating the demands from one to another.”
The Catapult can help bridge some of these gaps. They can talk to both suppliers and OEMs. And they can take what they learn from both, to government, and to the research community. “There’s things that we at the Catapult can say, that maybe a business can’t,” explains Bennett. “There’s always other aspects for businesses—their own shareholders, etc—but we can say, ‘Look, we’re hearing this from business, we need to get the circular economy going, we need to be looking at use of raw materials, we need to be getting energy prices down’.”
The Catapult can also help all of these parties make their needs—and challenges—known to standards bodies. And Turner believes that standards-based systems for carbon accounting will be at the centre of allowing businesses to compete in terms of environmental efficiency.
“We’ve been working with the British Standards Institute,” he says, “To survey the standards landscape and interview key industry stakeholders as to where they think the problems lie: ‘What do they need for transparent carbon accounting, to make the right choices, to make the right design choices, to make the right supply chain choices?’
“The outputs of that assessment are being used to set practical requirements for those standards. And then we’re using that to go and review what’s out there in terms of current standards. So there’s not a shortage, there’s just a lack of clarity and adoption. And maybe there are some gaps and we’re reviewing that currently.”
Fintech and factories
The UK’s move away from local manufacturing was mirrored by a move into services, and particularly into financial services and technology. That may now set the country up to play a leading role in tracking environmental performance.
“The UK has some real strengths there,” says Turner. “You could turn some of that world-leading financial technology skill base towards this challenge. There are opportunities for things like blockchain—or distributed ledger technologies, to be more precise. One option, for reporting carbon content, is every company reports their carbon, their Scope One and Two content and you pass it down a blockchain. Everybody’s Scope Three, is someone else’s Scope One and Scope Two.
“You could have a hybrid system, where you’ve got a lookup table with averages for a region and a sector. For the black spots, you could use actual data that companies in the supply chain have reported.”
Developing systems like this will bring business to the City of London, as well as enabling manufacturers around the country to compete on carbon content.
“In the future, global markets will price-in embodied carbon,” says Turner. “There’s going to be a huge carbon accounting sector. Huge opportunity for consultancies, for conventional financial accounting firms, for the tech firms developing the blockchain, the data analytics, and reporting systems. It’s going to be a hugely vibrant and innovative sector at some point, and we’re interested in looking at how we can support UK companies in providing some of those solutions.
“We’ve got to not only look at the opportunities that Net Zero brings in terms of creating the next wave of offshore wind farms, small modular reactors for nuclear, decarbonized transport, be that automotive, aerospace, but also looking at how we decarbonize the supply base that we have.
“Government can incentivize building those design skills and competencies, incentivise businesses to either grow in the UK or place themselves here. We need to start to have the benefit of access to low carbon supply chain clusters. We should invest in the infrastructure that allows UK-based companies to clearly report and account and demonstrate their low carbon content and value.”
