Low Carbon Manufacturing Challenge Fund: business regulatory impact assessment

Partial Business and Regulatory Impact Assessment (BRIA) for the Low Carbon Manufacturing Challenge Fund

Purpose and intended effect

The Low Carbon Manufacturing Challenge Fund (LCMCF) was announced in the Programme for Government (PfG) 2020-21, and as part of a wider £60 million investment for industrial decarbonisation. It is a £26 million capital Fund, to be delivered over 5 years, to support manufacturing businesses to play their part in the transition to a net zero carbon emissions economy.

The LCMCF will support development of new business models; lead to new products that will drive low carbon transition in the Scottish manufacturing sector; drive collaborative development across supply chains of new manufacturing processes and technologies; develop options to enhance capacity in growth sectors; and exploit opportunities in support of the transition to a circular, net zero carbon economy.

Context

Manufacturing is a vitally important sector of the Scottish economy:

• It is a source of business research and development, and of high-quality employment. Pre-COVID-19 figures show the sector was worth £12.8 billion in Gross Value Added (GVA ) – approximately 13% of total GVA – with the largest contributions coming from the food and beverages industry (28.1% of total manufacturing GVA) and repair and installation of machinery and equipment (9.9% of total manufacturing GVA) .
• The Scottish manufacturing sector employed approximately 178,000 people^[1], many in highly-skilled jobs.
• In 2019, there were 9,645 registered enterprises operating in the Scottish manufacturing sector (91% of which were small enterprises with less than 50 employees, and 3% large enterprises)^[2].
• Manufacturing accounts for almost 19,500 circular jobs (over 9% of all circular jobs), with an estimated 19,000 working in remanufacturing.^[3]

Our ambition is for Scotland to become the home of manufacturing innovation, to be seen as an inventor and producer, not just a consumer of goods - innovative, thriving and international looking. As part of the wide policy landscape of support for manufacturing, the LCMCF will support manufacturing businesses to decarbonise through waste reduction, embracing circular economy principles and reducing lifetime carbon emissions of products. This will directly contribute to Scotland's economic recovery and future prosperity and supporting the transition to a net zero economy.

The coronavirus pandemic had a devastating effect on Scotland - not only in health terms, but also on the economy. The PfG is based on the strong belief that it cannot be business as usual in recovering from the coronavirus pandemic and there is an opportunity to make significant advances to deliver a fairer, greener, more prosperous Scotland. Central to that recovery is a new national mission to help create new jobs, good jobs and green jobs.

Therefore, the economic recovery must be a green recovery and, even before the pandemic, significant effort was required to meet the statutory commitment to be a net zero society by 2045. Among a number of new and existing initiatives, the LCMCF will plays its part in achieving these aims. It is consistent with the aims in the Making Scotland's Future programme to boost productivity among manufacturing firms, including through the stimulation of innovation and investment to help firms compete globally.

Innovation will be supported by our investment of £75 million in the National Manufacturing Institute Scotland (NMIS). NMIS is already adding to existing services such as the Scottish Manufacturing Advisory Service (SMAS) to enhance the sector's skills, test new processes or technologies and de‑risk investment.

Pre-COVID-19, the Circular Economy Strategy for Scotland indicates there was the potential for remanufacturing and to create an additional £620 million turnover by 2020. Amongst the largest remanufacturing sectors in Scotland are Aerospace, Automotive, ICT and mobile electronics, rail and medical equipment. The global remanufacturing sector is estimated to be worth between $100 billion and $200 billion and contributes £1.1 billion to the Scottish economy^[4]

Objective

The Fund will be managed as an element of the Making Scotland's Future programme. In its first phase it will focus on supporting the Manufacturing Recovery Plan (MRP), and is a mix of direct funding and challenge funding. Following the recovery plan period, the LCMCF will be developed along the lines of other Challenge Fund models, and it is envisaged that match funding will be delivered through the Fund. The funding profile announced in the Scottish Budget in January 2021 was expected to be FY 21/22 £0.5m, FY 22/23 £8m, FY 23/24 £1m, FY 24/35 £10.4m, FY 25/26 £6.1m.

The key aims of the Fund are:

• to support innovation in low carbon technology, processes and infrastructure and encourage adoption;
• to build on Scotland's existing high level of expertise and reinforce Scotland's status as a leading exponent of efficient and sustainable manufacturing practices;
• to encourage collaboration and high project standards;
• to better enable firms to enter low carbon markets and/or their existing supply chains.

Rationale for Government intervention

There is a statutory commitment for Scotland to be a net zero society by 2045, as set out in the Climate Change (Emissions Reduction Targets)(Scotland) Act 2019.

The Scottish Government's Climate Change Plan, commits to reduce emissions in the Scottish industrial sector by taking a sequenced and strategic approach, and creating opportunities for Scottish industries and supply chains to expand into global markets.

A report by the Scottish Science Advisory Council (SACC) summarises the opportunities and challenges for decreasing emissions associated with the Scottish manufacturing sector, and makes recommendations that are strongly linked with the Making Scotland's Future, COVID-19 Green Recovery Response and Just Transition programmes.

The LCMCF will contribute to achieving these commitments and recommendations by:

initially, providing capital resource to achieve a number of key outcomes from the Manufacturing Recovery Plan during FY 2021-22, chiefly to drive collaborative development across supply chains of new manufacturing processes and technologies which support the transition to a circular, net zero economy;

enabling the Scottish manufacturing sector and those supporting them to collaboratively develop options to enhance capacity in growth sectors and exploit opportunities in support of the transition to a net zero carbon economy;

Using this collaboration to support manufacturing businesses and the wider supply chain to exploit the opportunities from emerging low carbon markets in Scotland, building on existing success and identifying solutions to common challenges and to take advantage of growth opportunities. In doing so, this should increase Scottish manufacturing supply to low carbon markets/sectors and achieve higher in-country content;

identifying the most promising Scottish opportunities in the transition to net zero, in the context of economic recovery post-COVID-19, to allow Scottish manufacturing to be at the vanguard of economic opportunities;

dispersing benefits throughout supply chains – utilising existing support infrastructure around low carbon and potentially increasing manufacturing employment opportunities.