Low Carbon Manufacturing Challenge Fund: business regulatory impact assessment

Scottish Firms Impact Test

It is anticipated the LCMCF, as well as having positive impacts on manufacturers, businesses who operate in other sectors and who supply the manufacturing sector will benefit from the opportunities presented as a result of the opening up of new markets and skills required:

• Core businesses who engineer, manufacture or remanufacture products;
• Enabling businesses such as engineering, businesses who recycle materials and repair products, develop and maintain digital technology, design and redesign products and businesses who provide materials;
• Indirect businesses who provide services to the sector such as delivery companies, and educational institutes and training companies who will be required to equip people with new skills.

Opportunities for the manufacturing sector in a circular economy have been identified as increased productivity and more efficient production, product and supply chain innovation, stronger customer relationships and greater resilience.^[6] The remanufacturing of products could potentially reduce the production costs for manufacturers by between 34% and 60%^[7].

1. Pre-COVID-19 the Scottish Government assembled the Making Scotland's Future Programme Board, and 4 subgroups of the programme board, with the aim of developing a plan to secure a strong, sustainable future for the Scottish manufacturing sector, in collaboration with enterprise and skills agencies, industry partners, trade unions and academics.

SG response: In recognition of the significant impact COVID-19 has had on the manufacturing sector, the Programme Board and sub-groups met regularly for face to face discussions to discuss and develop Manufacturing Recovery Plan, including action points that will enable the sector to make a green recovery, utilising the LCMCF.

2. The independent report prepared by the Just Transition Commission, providing advice to the Scottish Government, sets out the opportunities that manufacturing businesses can exploit, whilst ensuring a just green recovery with:

• the need for domestic manufacturing opportunities resulting from new technologies to mitigate against diversifying away from North Sea oil and gas;
• the need to grow the manufacturing base for next generation energy technologies, accompanied by high-value manufacturing in the supply chain;
• the manufacturing opportunities presented as a result of energy efficiency programmes and low and zero emission public transport;
• the opportunity to exploit the whole-chain and economic and employment opportunity as a result of energy transition, by directly investing in manufacturing facilities to build competitiveness in off-shore wind components and net-zero enabling technology.

SG Response: The LCMCF provides capital investment that businesses require to develop the new technologies, grow the domestic, high-value, manufacturing base and exploit the opportunities that is presented as a result of other sectors transitioning to low or net zero emissions.

3. Transitioning to low carbon manufacturing may be more challenging for small (less than 50 employees) and micro (less than 10 employees) businesses due to costs involved, putting them at a disadvantage to larger companies.

SG Response: The LCMCF will look to use collaboration to enable manufacturing SME's in particular to increase competiveness for opportunities represented by decarbonisation and the net zero transition, and this is why there are specific actions outlined in the Recovery Plan where the LCMCF could provide support, including:

• running a national innovation challenge to accelerate the development and implementation of new circular manufacturing processes;
• considering if there is additional support infrastructure around low carbon that the LCMCF could support under the action to provide inward investors with facilitated access to Scottish supply chain capability and support infrastructure (e.g. space, health, rail, low carbon);
• build levels of collaboration between manufacturing companies and organisations able to support the transition to net zero;
• support actions around companies working together, e.g. by sharing equipment, facilities, contacts and expertise, and supporting purchase/access to equipment where it is currently available.

4. If Scottish manufacturing businesses do not adapt and transform, there is a significant competitive risk in domestic or international markets with businesses who have transitioned to low carbon manufacturing, particularly in countries who have embraced low carbon manufacturing and circular economies. Increasingly businesses who do not transition to low carbon manufacturing could be threatened by changes in consumer habits, resulting in their processes and/or products they manufacture eventually becoming obsolete. Scotland's circular economy is already on a par with others in Europe, as more countries across the globe increasingly transition to a circular economy we must do much more to remain competitive^[8].

SG Response: the LCMCF 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 create competitive advantage in net zero markets through innovation in circular manufacturing processes; shared equipment/facilities for R&D in low carbon innovation; enable pilots, testing for diversification and low carbon start-ups; demonstration schemes to encourage adoption of low carbon products/processes.

5. The transition to low carbon manufacturing will cause restructuring and downsizing in some parts of the manufacturing sector^[9]. It is widely accepted that the net effect will be positive, however comprehensive planning and retraining and skills upgrading measures will be required.

Developing and understanding the roles and skills required for jobs in a low carbon manufacturing circular economy is required to address the skills gaps and ensure that business do not struggle to find the right talent, skill sets and leadership required.

SG Response: the LCMCF will help businesses support the development and training which employees require and through collaboration with partner organisations, such as Scottish Enterprise, Skills Development Scotland and the National Manufacturing Institute of Scotland (NMIS), skills gaps will be identified and addressed.

6. Reverse logistic costs for the transport of large or bulky items for the remanufacture of goods, particularly in rural areas, and the storage of storing large volumes of re-used components, may hamper businesses ability to remanufacture goods due to the costs involved^[10]

SG Response:under the Fairer Scotland Duty, the Scottish Government has a duty to pay due regard to how they can reduce inequalities and socio-economic disadvantage under the Equality Act 2010; and the Scottish Government's National Islands Plan sets out our commitment to aligning with our ambitious recycling targets^[11]. Fulfilling these obligations are at the heart of the LCMCF, and as a result the LCMCF will be available to support businesses throughout Scotland to transition to low carbon manufacturing.

The BRIA consultation period will allow businesses to provide more information about any potential barriers, and how these can be overcome.

7. Low carbon manufacturing activities such as remanufacturing currently involve a large number of SME's, however, data is more readily available from larger manufacturers. A lack of baseline information for SME's could skew remanufacturing potential by over or under estimating the impact of barriers^[12].

SG response:the LCMCF BRIA consultation period will allow SME's to provide more information about the barriers presented.

8. Low carbon manufacturing products, such as remanufactured products, can be viewed by consumers as being of inferior quality, limiting their appeal, and remanufacturing can be poorly understood, with consumers being unwilling to consider remanufactured products even when competitively priced. Often new low cost imports are perceived to be of higher quality than even remanufactured higher specification "brand" products^[13]. This could result in businesses struggling to find a market for remanufactured products.

SG response: the Scottish Government is researching the potential for incentivising the decarbonisation of energy-intensive manufacturing industries, which also looks at the consumer attitudes to lower carbon products. The LCMCF BRIA consultation period will allow businesses to provide more information about what support is required to increase the customer appeal of remanufactured goods.