Low Carbon Manufacturing Challenge Fund: business regulatory impact assessment

Competition Assessment

The opportunities that the capital investment the LCMCF provides will have a bearing on economic activity. We have taken every step to ensure that this government investment does not restrict competition in a low carbon manufacturing market. The aim of the LCMCF is to promote competitive collaboration between Scottish manufacturers, and give all Scottish manufacturers a global advantage in a circular global economy. See Annex A for the full Competition Market Impact Assessment.

Option 1: LCMCF is not introduced.

• this could result in longer term cost to businesses through loss of the competitive boost provided by the funding;
• businesses having to bear the brunt of all costs of transitioning to low carbon manufacturing;
• large businesses with a greater turnover, will be better placed to invest in in the research, development and introduction of low carbon manufacturing processes, and attracting and retaining talent, to the detriment of smaller businesses;
• international companies may find Scotland a less attractive place to continue, or locate, business;
• SME's will struggle more to invest in research, development and introduction of low carbon manufacturing processes;
• talent supporting LCMCF projects may remain undeveloped, or not be retained;
• Scottish manufacturers may be unable to meet customer demand for sustainably produced goods, and customers may seek goods from other countries which are produced through low carbon manufacturing;
• original manufacturers may remain at a remanufacturing advantage to other businesses due to knowledge of the original manufacturing processes^[14];
• businesses may be less able to transition due to skills shortages of technically skilled engineers in the manufacturing sector^[15], with smaller businesses potentially losing talent to larger manufacturers who may be able to offer more attractive terms of employment;
• existing barriers, such as access to end of life products that enables low carbon manufacturing processes, such as remanufacturing, and technical problems that prevent remanufacturing, are likely to continue.

Option 2: LCMCF is introduced.

• businesses with a location in Scotland will be more able to compete with businesses, domestically and globally, in a low carbon manufacturing, circular economy;
• small and medium sized businesses will be better supported, through the award of funding, to transform to low carbon manufacturing, allowing them to better compete with larger companies who may be better placed to invest in transformation, research and development and skills development;
• new market opportunities, in existing and emerging markets, for business should be available as a result of LCMCF investment;
• the funding which the LCMCF provides will support Scottish manufacturers to develop the processes needed to manufacture, and meet increasing customer demand, for sustainably produced goods;
• knowledge on products manufactured using low carbon manufacturing processes will be shared and new remanufacturing skills and processes developed allowing non-original manufacturers to compete with original manufacturers. As technologies shift, manufacturers/remanufacturers will be supported to make advances in their processing technologies to ensure the end product matches the performance of new products
• Low cost, new product, import competition has the potential to hinder Scottish based manufacturers ability to achieve sufficient sales of goods manufactured through low carbon manufacturing processes to make low carbon manufacturing business models financially viable. However, remanufacturing could be limited to high cost products, with low-cost products being recycled^[16].
• Low carbon manufacturing will allow companies to remain competitive and resilient, through remanufacturing and recycling, in markets where the virgin raw materials required to manufacture products become scarce;

Consumer Assessment

There is evidence that consumers consider the environment and carbon production when deciding to make a purchase and there is a growing consumer interest in sustainability. However, they do not always make the sustainable choice:

• two thirds of people in Scotland are fairly or very worried about climate change, with only 11% not worried. Levels of concern vary by age, with over 65s less likely to be worried.
• 45% of Scottish consumers have made a conscious sustainable choice when buying electrical products and around 40% when making clothing or household choices. Price and availability are the biggest barriers to consumers making a sustainable choice^[17].
• despite business decisions being characterised as being profit driven, some businesses consider the environment when making purchases for ethical and profit reasons.
• the price of products does not always reflect the real environmental or social cost of producing them, such as pollution effects or unpaid labour, impacting on the health and quality of life of people, and 71% of people have said they do not always understand what is the greenest choice^[18]. When goods are produced, sales growth is based on planned obsolescence i.e. products have shorter useful lives and so people will consume more of them^[19].
• 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^[20].
• there are potential cost savings for consumers buying remanufactured goods over new^[21].

Nearly half of the UK's carbon footprint comes from emissions released overseas to satisfy UK-based consumers. Products including clothing, processed goods and electronics imported into the UK are counted as the manufacturing country's emissions - not the UK's, however, they would not have been produced if it wasn't for UK demand. These emissions account for 46% of the UK carbon footprint but are not included in the UK net zero target^[22].

The LCMCF has the potential to contribute to a scenario that will better allow consumers to make purchase decisions on an increased range of high quality, affordable, sustainable and locally produced goods that are manufactured through low carbon manufacturing.

Providing consumers with information can be a powerful tool in driving consumer consumption towards green products. In order for a Scottish low carbon manufacturing sector to be successful and profitable, there is a clear need to educate customers how to understand the overall benefits of making the greener choice and encourage consumers to be more open to purchasing goods that have been manufactured using low carbon sustainable processes and materials.

Bearing in mind that there are constraints on the interventions that Scottish Government can use as a result of a number of matters being reserved by UK Government or international law, the LCMCF is a proactive intervention by the Scottish Government to ensure that more goods manufactured in Scotland are low to net-zero.