Green industrial strategy must seize the potential of innovators of all sizes

25 April 2024

Industrial strategies – particularly those linked to the net zero opportunity – are rightly back at the top of the agenda for policymakers globally. In the US, the Biden administration last month announced $6 billion for dozens of projects to transform America’s industrial sector through decarbonisation and electrification. Here in the UK, both the government and Labour Party have announced funding pots to boost the country’s clean tech supply chains.

They are right to do so. Investing strategically in carbon capture, utilisation and storage (CCUS) and other clean technologies provides a huge opportunity for the UK to develop a world-leading position and support a range of political goals – from economic growth and export potential to nationwide job creation.

There is real potential for a UK industrial renaissance with the right strategic support for specific low-carbon manufacturing sectors, in conjunction with wider policy reforms. But a number of challenges must be addressed, such as reducing the cost of power for industrial customers, reforming the planning and permitting systems, and investing in skills.

To fully realise these opportunities, it’s vital that businesses of all sizes are able to benefit. The target sectors for the government’s Green Industries Growth Accelerator (GIGA) are all highly innovative. GIGA prioritises CCUS, hydrogen and grid technologies – industrial sectors that benefit from a large number of small, fast-growing, R&D-intensive businesses. These companies typically drive the deep technological change needed to meet the decarbonisation challenge, as well as secure opportunities that will benefit the wider economy – if stimulated by favourable government policy.

A historically inconsistent policy environment for CCUS has held back its full commercialisation, in turn stymying the growth potential of the UK’s expanding clean energy start-up sector.

Given the urgent need to decarbonise our most carbon-intensive industries, and the policy incentives governments around the world are putting in place, now is the time to support the country’s leading innovators so they can reach their full potential.

The government’s GIGA programme and Labour’s National Wealth Fund both provide the opportunity to boost UK supply chains. But the detail of how these funding pots are designed is crucial to attract much-needed private investment during a period of fiscal restraint. Both approaches would benefit from three key elements:

First and foremost is flexibility – both in the nature and location of the facilities supported. GIGA funding should cover new-build manufacturing sites, the repurposing of defunct sites and the expansion of existing operational facilities. Flexibility regarding the types of funding is also important, with grants available for operational support as well as for capital investment.

Second, programmes should be competitive but not competitions. Formal competitions can be slow, costly and resource-intensive processes, with no certainty of success. This can be a major disincentive, particularly for smaller businesses. Approaches that clearly stipulate acceptance criteria, such as the 45Q tax credit in the US, will help more projects come forward at speed.

Finally, eligibility criteria should be designed to support the growth of innovators driving deep technological change, whether this is in carbon capture, hydrogen, nuclear fusion or floating wind. Our country has incredible expertise across a range of clean technologies, and I believe GIGA – or similar strategic funding pots – would have the greatest impact by supporting these small and medium enterprises (SMEs) to expand their R&D, supply chains and production in the UK. Globally recognised production facilities and associated R&D hubs for a range of climate solutions could then be established nationwide.

Through R&D collaboration, often with local educational institutions, the development of UK clean energy and decarbonisation hubs will generate tailwinds for smaller businesses, boost local economies and ultimately lead to greater innovation.

It's right that politicians are developing industrial strategies with net zero technologies at the centre. While the associated funding pots are welcome, the devil will be in the detail as to how they are allocated. Getting this right – not just now, but for the next 10 years – means backing innovators of all sizes.

That’s why I’m calling for a flexible, competitive and collaborative green industrial strategy to seize the potential of the UK’s clean tech entrepreneurs.


This article was first published in BusinessGreen on 24 April 2024.

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