pulling ahead - innovating for low-carbon leadership

8/4/2019 Pulling Ahead - Innovating for Low-carbon Leadership

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Pulling ahead:innovating for

low-carbon leadership

CBI onclimate change


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Foreword 04

Executive summary 05

Recommendations 06Focus on priority technology families to maximise UK strengths 08

Develop the conditions to allow business to invest 16

Embrace innovation to drive further business success 32

References 37

Case studies

Ford Britain: developing low-carbon engines 10

Ma (Innovation): conceptualising new hybrids 11Barclays: helping London lead in carbon finance 12

QinetiQ ZephIR wind profiler: applying research 13

RWE npower: investing in offshore wind opportunities 14

BP: benefits of long-term policy 17

Imperial Innovations: promoting incubation 20

Corus: unlocking EU funding 21

Rolls-Royce: investing in low-carbon aviation 22

Graham Construction: low-carbon public procurement 24Transport for London: procuring hybrid buses 24

Wrightbus: delivering low-carbon public transport 25

Pelamis and E.on: demonstrating marine power 28

AlertMe home smart energy system: skills driving new ideas 30

Sun Microsystems: greening data-centres 33

Ford Britain: reducing emissions through its people 34

Cisco Telepresence: harnessing innovative thinking 36

Contents

3Pulling ahead: innovating for low-carbon leadership


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Foreword by Richard Lambert, CBI

We often read about the need to build to alow-carbon economy and hear about the newideas that will shape the way we live, work and dobusiness in the future. And so we scan the horizonsto 2020, 2030 and 2050 and imagine what mightchange and how.

But the reality is that the future is taking shapearound us right now. British companies arealready investing in new technology, demonstratingthe art of the possible; developing, testing andcommercialising the technologies that are alreadysetting us firmly on the path to a low-carbon UK.

Companies are changing how we get around, withnew low-carbon buses and cars coming off thedrawing board and on to the roads, and changinghow we use energy, with more of our homes gettingelectricity from wind, and new smart technologyhelping us cut down our energy use. Firms are alsothinking further ahead and investing in newtechnology to manufacture low-carbon steel andenvironmentally-friendly aeroplane engines, createnew fuels from plants and energy from the sea.

And these are just some of the ideas profiled in this

report. Through the lens of low-carbon innovation,it demonstrates how businesses are alreadybeginning to change the shape of things to come indesign, construction, engineering, manufacturing,ICT, procurement, power generation, services,investment and transport.

But the importance of this report is not just toshowcase what is already happening. It is alsoto galvanise action to ensure we make the mostof this start. Government has an important roleto play in making sure business is able to buildon this beginning. Without action by governmentto help create the right conditions for investmentby supporting new low-carbon technology basedon our existing strengths, we risk missing theopportunities that will present themselves upand down the supply chain.

We are seeing the beginnings of a new economy

developing in front of us but we need to stepup the pace to ensure we make the most of ouremerging competitive advantage from our worldclass expertise. Determined action from governmentand business will create the right conditions for newopportunities at home and abroad, so the UK cantake its place alongside the worlds future leadinglow-carbon economies.

This is not a pipe dream the opportunity is hereand now so lets grasp it.

Richard LambertDirector-general, CBI

4 Pulling ahead: innovating for low-carbon leadership


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Executive Summary

Innovation will drive the low-carbon journey.Indeed, meeting our long-term climate changeobligations and securing future energy supplieswill only be possible by rethinking our businessmodels and implementing the next-generationof low-carbon technologies.

This transformation presents enormous growthpotential: the market for low-carbon andenvironmental goods and services in the UKis already estimated at 106bn and is expectedto grow rapidly throughout the coming decade.1

Globally the market is estimated at 3tn whichmeans that all major economies are consideringhow they too can manage the transition to alow-carbon economy and build an economicadvantage at the same time.

It will not be possible for the UK to compete inall low-carbon technologies. This report arguesthat building a long-term economic advantagewill require smart leadership. This means thatthe UK needs to focus on developing leadershipin a number of key low-carbon technologiesbuilding on existing expertise. To turn this into an

advantage government needs to develop the rightconditions to help the private sector commercialisethese technologies and export that expertise andtechnology globally. Support for low-carboninnovation, intelligent public procurement, buildingthe appropriate infrastructure and skills basewill all be essential.

Smart leadership also means action from thebusiness community. The case studies in this reportdemonstrate that many businesses across allsectors are already starting to integrate low-carbonthinking into their business processes, productsand services. And as we move towards a low-carbonfuture, all companies will need to understand thecarbon challenge and embed it into their businessmodels to be successful. Careful support fromgovernment will make this transition smoother.

This report demonstrates that the low-carbonjourney in the UK has already begun. Using case

studies from pioneering businesses, it confirmsthat the UK has the ability to innovate and maximiseits strengths to play a leading role in the globallow-carbon economy. The danger is that withouta more sustained effort this advantage could bewasted. So, to ensure that the UK capitalises onprogress to date and remains a low-carbon leaderwe must:

Focus on priority technology families to maximiseUK strengths

Develop the conditions to allow business

to invest Embrace innovation to drive further business

success



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Recommendations

6 Be intelligent about public procurement: ensure public

procurement decisions are taken on a whole-life cycle

basis and government uses its procurement muscle to

drive demand for low-carbon products, and supports

large-scale technology demonstration.

7 Dont delay on infrastructure: create the right physical

infrastructure, including substantial grid upgrades, to ensure

the demonstration and the commercial deployment of

large-scale energy technologies.

8 Make planning simpler: implement the 2008 Planning Act as

quickly as possible. Task the Better Regulation Executive to

minimise regulatory barriers to innovation for low-carbon

technology families key to the UKs economic growth.

9 Invest in training: ensure the UK workforce has the

necessary skills to be globally competitive, attract investment

to the UK and extract maximum value from international

supply-chains and global markets.

10 Support entrepreneurs: help ensure start-up companies

have strong commercial management to bring about full

exploitation of technological knowledge.

Top 10 recommendations for government:

1 Focus on technology success: use a transparent and robust

assessment to establish technologies that can add value

to the UK economy, taking account of existing strengths.

2 Firm actions not words: establish the next level of policy detail

to set the framework for the private sector to commercialise

technologies and encourage investment.

3 Leverage private capital: make the best use of public funds

to maximise private finance, through business incubators

and public-private hybrid funds for early stage development

and loan guarantees to aid final commercialisation.

4 Make it easier to get support: consolidate and streamline

applications to public agencies for support and press for

greater transparency in EU research programmes.

5 Maintain incentives: maintain and improve the R&D tax

credit scheme to ensure companies have confidence that

this vital incentive will continue over the long term.



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Top three recommendations for business:

1 Make carbon part of core business: take steps to measure

carbon use and include carbon costs in the bottom line.

Clear measurement of carbon use and the reduction potential

of innovation can increase uptake and give businesses

a head start on competitors.

2 Rethink approach to innovation: embrace innovation by

focusing on how frontline staff can reduce emissions and

fundamentally re-think at a boardroom level the impact of the

low-carbon economy on existing and new business processes.

3 Enable creative thinking: develop a culture of managed risk

taking to aid innovation and create incentives that allow

employees to experiment and innovate.



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With almost every country embracing thelow-carbon economy, it will not be possible forthe UK to compete in every low-carbon solution.We have neither the financial nor human resources

to do so. To ensure we gain economic advantage,we should focus on technology and innovation insectors with the greatest potential to create wealthfor the UK.

This will mean developing our core capabilities by building on

manufacturing and industrial strengths, maximising research and

intellectual property expertise and leveraging natural resources.

This focused approach will also build private sector confidence as

business understands where government plans to help build UK

strengths. As we argued in our recent position paperJoining the

dots: how to make the UK the place to do low-carbon business 2, this

clarity of vision will enable focused support for key sectors, whileallowing the market to deliver growth in other sectors.

Focus on priority technology familiesto maximise UK strengths

Building on manufacturing and industrial strengthsThe UK should take into account existing industrial strengths and

the potential to adapt these to a low-carbon economy expertise

in areas such as aerospace, automotive, electronics, ICT, offshore

industries and construction and design (see Exhibit 1).

One example of a manufacturing strength is Ford Britain, whose

UK research and development base has developed low-carbon

engines that will come into use in 2010 (see case study 1).

In addition, Fords activity has had a ripple effect as spin-off

companies such as Ma (Innovation) are able to feed into

the innovation process (see case study 2).



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Exhibit 1 Existing UK industrial andmanufacturing strengths

Automotive the UK already has large-scale centres ofexcellence including Fords research centre at Dunton and

engine plants in Dagenham and Bridgend, Jaguar-Land

Rovers technical and research centres in Gaydon and Whitley

in the Midlands and Nissans plant in Tyneside. In addition

the UKs expertise in high-value and low-volume vehicles

including a world leading motor racing industry gives a

strong base from which to develop the next generation of

low-carbon vehicles and attract global automotive

manufacturers to Britain.

Electronics and ICT the UK leads the world in key areas such

as electronics design, photonics, mobile networks and broadcast

technologies. As a result Britain attracts global players includingHewlett Packard, Phillips, IBM, Sun Microsystems and Alcatel

to conduct both research and manufacturing. Worth $45bn a

year, this high-value and high-tech industry will be crucial in

enabling energy efficiency and changes in working patterns in

the low-carbon economy such as the increased use of video-

conferencing and working remotely to reduce demand for

travel (see case study 17).

Offshore structure and operations through experience ofexploiting North Sea oil and gas the UK has become a global

leader in offshore and subsea engineering, employing an

estimated 100,000 workers and with supply-chain exports

worth over 4bn a year.1 This expertise will be crucial in the

development of off-shore wind and marine power generation

and can play an important part in the carbon capture and

storage (CCS) supply chain.

Construction and design the construction industry is worth

over 100bn, providing jobs for 2.8 million people in 2008.

Construction also generates 10bn of exports each year,

with design generating 3.8bn alone. Innovations in green

buildings will be vital in enabling energy efficiency measuresthroughout domestic, public and commercial buildings.

The UK needs to focus on developing a leadin low-carbon technologies with the greatest

potential to create wealth for the country



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Case study 1Ford Britain: developing low-carbon engines

Ford has established world-leading expertise in the development

and manufacture of fuel efficient petrol and diesel engines through

the Dunton Technical Centre and plants in Bridgend and

Dagenham. Across the sector, by combining these solid research

strengths with high-level manufacturing processes, the UK is

now in a position to take advantage of the expected move towards

lower emitting engines.

The Dunton Technical Centre in Essex is one of the biggest R&D

centres of its kind in the UK, employing 3,000 engineers with

a specific focus on engine and transmission as well as

commercial vehicle development. The work at Dunton has

contributed directly to the pioneering engines being produced

in Bridgend and Dagenham.

Over the last five years Ford has invested 315m in the Bridgend

plant, including 70m announced in October 2008 to bring to

production the next generation of low CO2 1.6 litre, four-cylinder

petrol engines. The new engines are expected to go into production

in 2010 and will be among the first in a new generation of

EcoBoost engines. Compared with current larger petrol engines

of similar power, these engines will provide 15% lower CO2

emissions, and will play a key role in delivering on EU vehicleemissions targets over the next decade.

Ford has operated at the Dagenham site since 1931, but the

2003 opening of the Dagenham Diesel Centre helped the sites

position as a leading engine producer. Last year it produced over

one million engines for Ford and other manufacturers including

Jaguar and Volvo.

The latest Econetic range of vehicles, including the Econetic

Fiesta with emissions of only 98g/km, will use the Tiger range

of engines manufactured at the plant. Fords experience

demonstrates the results of combining industrial and research

strengths to develop high-value expertise capable of competing

in a global market. By developing a portfolio of affordable diesel

and petrol engine technologies Ford has been able to take

advantage of the changes in demand, delivering significant

carbon emissions reductions through mass market application.


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Case study 2Ma (Innovation):conceptualisingnew hybrids

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While the Dunton Technical Centre continues to produce

world-leading research, it also helps to support a wider

innovation community of suppliers, contractors, researchers

and former staff. One such company is Ma (Innovation) 2T4

Ltd set up by Dr Tom Ma, a former technical specialist at Ford,

and his son Jonathan Ma.

Their concept, the Supercharger Air Hybrid, has potential to be

an alternative low-cost hybrid technology. In 2009 they were thenational winner of the Shell Springboard Awards, which rewards

the best small business ideas for combating climate change.4

Ma (Innovation) will use its cash prize to develop a simulation

of the technology and hopes to soon be in a position to take

its innovation to the worlds largest car manufacturers.

Maximising research andintellectual property expertiseBritain has world-leading research with businesses, public

and university laboratories producing groundbreaking work in

sectors ranging from aerospace to pharmaceuticals to energy

(see case study 4).

In addition many of our service sector industries have world-class

strengths that could allow them to play a leading role in the

low-carbon economy. For example business services firms are

advising on reducing carbon use, the ICT industry is enabling

smart metering, while London is a global centre of carbon

trading and clean-tech investment. Indeed, Barclays was the

first UK bank to set up a carbon trading desk and since then over

75% of all carbon trading desks have been located in the city

(see case study 3). As the service sector recovers from the

recession, the shift to a low-carbon economy offers an

opportunity for significant future growth.



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We need to maximise our core strengthsto gain a low-carbon advantage


Case study 3Barclays: helping London lead in carbon financeLondon is the global centre of carbon trading, being the location

of over 75% of all carbon market trading desks and housing 80%

of all carbon market brokering firms. The strength of its financial

sector and venture capital activity has made London home to

over 75-AIM listed clean technology companies, while in 2008

in excess of 19bn was invested in global renewable projects

and companies by London-based banks.5

Based in the heart of the City, the European Climate Exchange

was launched in April 2005 and quickly became the most

liquid carbon marketplace in Europe with more than 90 global

businesses signing up to trade emissions products, serving

several thousand clients around the world. In 2008 annual

volumes increased 170% to 2.8 billion tonnes, a figure that

was already surpassed in the first four months of 2009.

The first UK bank to set up a dedicated carbon trading desk

in 2004, Barclays remains one of the most active players in the

emissions trading market, having traded over 1.4 billion tonnes

of credits to date.6 In addition to facilitating market access and

trading, Barclays provides debt and equity finance for emission

reduction projects around the world, helping carbon reduction

projects that would otherwise be unprofitable.

An important enabler for Barclays in embracing this new market

was having an organisational culture supportive of innovation.

In seeking new opportunities Barclays focused on building on

existing strengths. With Barclays Capital a leader in the provision

of financial and commodity risk management, extending into

emissions trading was a good fit with existing capabilities.


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Case study 4QinetiQ ZephIR windprofiler: applying researchAccurate measurement of wind speed is critical to the

commercial feasibility of a wind farm. Historically this has been

done through the use of costly temporary masts, often requiring

planning permission and health and safety checks.

QinetiQ, a leading provider of technology-based services and

solutions to defence industry and related markets, adapted their

expertise in laser sensing to develop a portable ground based

laser sensor to measure wind gust profiles for both security and

aerospace applications. Realising the potential for simplifying

this technology, QinetiQ set about developing the ZephIR

a wind profiling laser sensor specifically designed for the wind

industry. In 2007 QinetiQ exclusively licensed this technology

to Natural Power, the leading international renewable energy

consultancy based near Dalry, Scotland.

Natural Power have since successfully deployed over 80 systems

in more than 25 countries around the world, renting, selling and

providing managed services to a worldwide market ranging from

large utility providers to turbine manufacturers. The ZephIR laser

anemometer is able to accurately assess wind speeds and

direction up to 200 metres into the air in extreme temperatures,

remote terrain and in both offshore and onshore sites.

The technology behind the ZephIR was the result of more than

20 years of scientific effort at QinetiQ. It is a small but vital

example of how world-leading scientific research often in

apparently unrelated sectors can have important side benefits

for the low-carbon economy.


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Exhibit 2 Natural strengths of the British isles

Wind: Britain has some of the best wind speeds in the world

for on-shore and off-shore wind generation. The UK is the

world leader in off-shore wind and is likely to remain for some

time the largest marketplace. This presents a valuable chance

to become a centre of the off-shore wind industry and create

export opportunities.

Marine power: Our strong tidal streams mean the UK is well

placed to take advantage of the power of the sea. There is a

strong existing technological base and research infrastructure

with many of the leading companies being UK-owned or

based. This technology is in the initial stages but is likely

to play an important role in reaching post-2020 targets. CCS: the abundance of depleted oil and gas reserves in the

North Sea presents a ready site for subsurface geological

CO2 storage and an opportunity to become a leader in

this technology.

Case study 5RWE npower: investingin offshore windopportunitiesIn 2003 RWE npower renewables built the UKs first major

offshore wind farm North Hoyle off the coast of North Wales.

With an installed capacity of 60MW from 30 wind turbines, the

site is fully operational and produces enough electricity for

40,000 homes.

RWE npower expects to complete the nearby 90MW Rhyl Flats

wind farm by the end of 2009, and has also acquired a 50%

stake from Scottish and Southern Energy in the Greater Gabbard

wind farm, 25km off the coast of Suffolk. Greater Gabbard is the

worlds largest offshore wind farm in construction and its 140

turbines will have a capacity of 504MW when fully operational

in 2012. It is expected to begin generating electricity in 2010.

The company was recently granted consent for the Gwynt y Mr

offshore wind farm, with a potential installed capacity of up

to 750MW.

Significant innovation in this sector is likely to come fromexisting knowledge, for example in the development of turbine

foundation designs from the offshore oil industry or a move to

high voltage direct current (HVDC) for offshore sites further away

from land. Technological innovation, such as the design of new

solutions for foundations, operations and maintenance control

systems, and improved systems for access to turbines, could all

be developed by UK companies. These innovations will require

infrastructure support outlined in the next section (see page 26).


Leveraging natural resourcesBritains island status endows it with a geography and climate

which gives an advantage in sectors such as wind and offshore

marine technologies (see Exhibit 2 and case study 5).

Historically the UK has not had a good record at picking winners.

Therefore in our November 2008 briefLow-carbon innovation:

developing technology for the future7 we recommended that

government focus research, development and deployment on

technology families, enabling investment in areas where there are

real opportunities for the UK to add value and develop expertise

without directing resources into specific technologies too early.

This approach will build business confidence, encouraging

investment into these technologies.

It is vital that government develops an evidence based framework

for selecting a limited number of families with the potential to

strengthen the UK economy, taking account of the existing strengthsoutlined in this section. This assessment needs to take place as

soon as possible, preferably in the next year, to provide investor

and market clarity.

The governments low-carbon industrial strategy, published in July

2009, is a welcome move in this direction. The government is right

to set out the low-carbon opportunity in a range of sectors, but

should ensure that policy decisions on targeted funding remain

evidence based.

The next section of this report highlights the key policy issues in

delivering low-carbon innovation, many of which the government

is beginning to address.8


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Recommendation for BIS and DECC:Focus on technology success:Britain should use a transparent and robust assessment

to establish technologies that, if scaled up, can strengthen

the UK economy. This should take account of the UKs

existing industrial, research and natural resource strengths.

1


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Setting ambitious long-term policy measures has been proven to

encourage companies to invest in a new generation of innovation.

Case study 6 shows how business will invest to commercialise

low-carbon solutions if there is a clear and long-term policy

framework. In this case an ambitious and long-term mandate for

biofuels in the US encouraged innovation and investment there,

which could potentially also stimulate a global export market.

The UK government needs to implement the same level of policy

detail to ensure companies such as BP are encouraged to locate

their low-carbon investment in the UK.

And although the UK has historically been a strong centre of

venture capital, access to finance during the current economic

downturn is increasingly difficult. For some start-ups this is because

the timescales and riskiness of their projects is beyond what the

market can currently provide. In these cases business incubators

and public-private hybrid funds need to be maintained and

expanded (see case study 7). We welcome the governments

150 million investment in a UK Innovation Fund as an important

addition to filling this equity financing gap in low-carbon and other

technology sectors. 11

For more established industries loan guarantees can overcome the

current issues over access to finance. The European Investment

Bank loans for the renewable and automotive industry are welcome.

They will help give these established industries funding to ensure

investment in low-carbon innovation is not held back and the UK is

able to commercialise these technologies in the years ahead.

Recommendations for BIS and DECC:Firm actions not words: the key to business innovation is

long-term and stable policy measures to ensure market

confidence. Establishing the next level of policy detail will

set the framework for the private sector to commercialise

technologies and encourage investment.

Leverage private capital: make the best use of public funds

to maximise private finance, through business incubators

and public-private hybrid funds for early stage development

and loan guarantees to aid final commercialisation.

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Although Britain has a number of existing strengths,these are not unchallenged and if the UK doesnot continue to innovate and embrace theseopportunities, we risk losing the ability to createan economic advantage.

In particular the creation of super low-carbon sectors will need

additional investment. OECD experts predict that to reduce global

emissions by 50% from current levels by 2050 will require total

investment of over $1tn a year, an average of 1% of global GDP each

year until 2050.9 Figures from HSBCs climate change index indicate

that investors are increasingly investing large sums of money in

low-carbon solutions. But without significant action by government

to stimulate the right investment conditions, the UK risks losing out

on its share of this low-carbon funding pot.

For successful investment in low-carbon innovation, a wide range

of factors have to come together in an optimal way. These include

encouraging and leveraging private finance, supporting the research,

development and deployment lifecycle, promoting intelligent public

procurement, creating infrastructure to support regional clusters

and developing the low-carbon skills base to support innovation.

In a world of highly internationalised R&D the UK must remain a

destination of choice for high-tech, low-carbon innovation. This will

require the development of a commercial environment where all

these factors act together to enable low-carbon innovation to flourish.

Encouraging and leveraging private financeIn order to ensure market confidence and attract private capital into

the UK, the government must ensure a degree of certainty by layingout long-term coherent policy measures across the economy. This

will require a clear long-term strategy with wide political support.

The CBIs low-carbon roadmaps published in April 2009 contain

detailed proposals for what policy will be required up to 2020 10

and should be read as a contribution to creating a coherent

economy-wide delivery plan.

Develop the conditions toallow business to invest


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Case study 6BP : benefits of long-term policyThe long-term market for cellulosic ethanol has been driven

in the US by the Energy Independence and Security Act 2007

which mandates 21 billion gallons of advanced biofuels

production by 2022, of which 16 billion gallons must come

from cellulosic ethanol.

Since 2006, BP has announced investments of more than $1.5bn

in biofuels research, development and operations. BP is actively

developing technology for advanced biofuels and other bioenergy

applications. With the right technology and production methods,

BP believes advanced biofuels including cellulosic ethanol

made from energy grasses and other for-purpose feedstocks that

minimise pressure on food supplies will deliver cleaner, more

sustainable biofuels with the potential to reduce greenhouse gas

emissions by up to 90%.

Through a joint venture with Verenium a leader in the technology

required to produce cellulosic ethanol BP hope to build one of

the first commercial-scale cellulosic ethanol plants in the US, with

production expected to begin in 2012. The joint-venture has plans

to add additional capacity, including developing a second site in

the Gulf Coast region.

This collaboration builds on a strategic alliance between BP and

Verenium announced in August 2008 which included investment

of $90m focused on technology and operations capabilities toadvance development of low-cost, cellulosic ethanol production

facilities. Using technology, the BP-Verenium partnership will

improve how biofuels are sourced, and produced a key element

of the BP Biofuels strategy.

The construction costs of the plant, which will initially be a 36

million gallon-a-year facility, is expected to be between $250

and $300m. BP and Verenium have together agreed to commit

$45m in initial funding and assets to the joint venture.

The joint venture is expected to provide lower carbon fuel for US

consumers at a price that will in the future be able to compete

with conventional gasoline. Process efficiencies in the production

process mean that early estimates for the greenhouse gas reduction

potential of the biofuels to be produced by the venture will easily

meet the 50% reduction standards for advanced biofuels set out

in the US Renewable Fuels Standard. The partners expect to improve

the greenhouse gas benefits further over time.

This investment is an example of two companies using their

respective core strengths to develop a new low-carbon product

in collaboration. The key policy driver was the US Energy Act 2007

which set out a clear policy framework over a 15-year period,

giving the stable policy framework to commit substantial funding

and manpower to the project, even given the difficult financial

situation. In order to help stimulate similar investment in advanced

next generation biofuels, the UK and EU may need to adopt

equivalent measures.



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Supporting the research, developmentand deployment lifecycleThe low-carbon technology lifecycle that is the process of moving

from research through to development, demonstration, initial

deployment and then full commercialisation presents particular

challenges in the context of low-carbon innovation. Firstly, the value

of any low-carbon solution depends on establishing a robust

incentive (or price for carbon) to reduce carbon emissions. As

explained in the previous section, this will need to be created

through long-term policy measures.

Secondly, the timeframes for commercialisation of low-carbon

technologies are often beyond normal expectations of commercial

returns. Indeed, it is useful to think of low-carbon innovation over

two time horizons: technologies which will deliver by 2020 such

as the Ford low emission engines (see case study 1), and those that

will deliver up to 2050 such as the Rolls-Royce open rotor engines

(see case study 9).

The deployment of technologies up to 2020 is focused around

those already at or beyond demonstration phase, such as

zero-carbon homes or off-shore wind. Technologies which come

on-line beyond 2020 are much further back in the lifecycle. For

example, wave power, which is not expected to become fully

commercial until after 2020, is currently at the development and

early demonstration phase.

There is a significant role for policy in helping ensure these

technologies are fully commercialised. The Sainsbury Review in

2007 highlighted that the main investment gaps were in securing

the initial capital and in the later development and demonstrationstage.12 Thus we argued in our November 2008 briefLow-carbon

innovation: developing technologies for the future 7 that where

low-carbon technologies are ten years from market and have yet

to reach full commercialisation, bringing them to market should

be a priority. Technologies that can be taken up in this time period

should be fast-tracked and receive focused funding. For technologies

that which come online beyond 2020, the UK must take a long-term

view and ensure support for early stage research into these

technologies is maintained now. Exhibit 3 shows the innovation

chain and how it may apply in one sector wave power. 13

Streamlining business support throughout the technology lifecycle

chain will be crucial to help business manage associated risks

and ensure low-carbon innovations are brought forward to benefit

the economy. Yet currently, business support for low-carbon

innovation is complex and confusing. For example, business needs

to repeatedly apply for funding at differing stages, adding to the

costs and delays of technology uptake. The establishment of the

Technology Strategy Board in 2007 has enabled progress here and

a more integrated approach to funding is gradually emerging.

As the situation improves, greater use of project-based funding

through multiple stages of innovation should be considered.

For example, in the US the Defence Advanced Research Projects

Agency (DARPA) fully funds ideas from the initial stages through

to the development of prototype systems and advanced demonstration.

It is prepared to act quickly to fast-track promising new technologies.

Thus, instead of work progressing on a block by block basis DARPA

works to take an idea through to completion, with clear break

points if the project is not successful. DARPA projects have been

key to developments in low-carbon technologies ranging from solar

cells and lighting to biofuels and aircraft.

In addition to project-based funding, there also needs to be more

cooperation between the public and private sectors in developing

low-carbon technologies. The Energy Technologies Institute,

a public-private partnership, is helping industry develop practical

solutions to energy problems, such as lowering costs in the construction

of offshore wind. The Carbon Trusts business incubator is also

helping early-stage companies grow, working with incubator

partners including Imperial Innovations (see case study 7). This

activity will need to be scaled up.

And we are well placed to do this. The UK currently is home to the

R&D centres of many major corporations in fact the UK has highly

internationalised R&D, with foreign firms more active in the UK than

comparable economies.14 While a historic strength, this also puts

the UK at risk if research is transferred overseas, for example to

developing countries where there are cheaper operating costs.

In the short term, the increased investment in energy efficiency and

low-carbon energy programmes in the USA also risk having a major

effect on our ability to attract and maintain R&D investment and

venture capital. It is therefore vital to maintain this R&D base, and

use it to ensure the UK can be globally competitive in sectors whereit has existing strengths.


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To secure this, maintaining and improving the R&D tax credit

scheme should be a priority. It is vital for companies deciding

whether to increase the level of R&D activity they conduct in the UK.

For example Cisco employs 90 R&D staff in the UK compared to 140

based in Galway, Ireland. In making long-term investment decisions

on where to base skilled R&D staff, companies such as Cisco need

to have confidence that the R&D tax credit will continue andimprove. As well as committing to the future of the tax credit,

the government should commit to extending its rate and range

to allow more companies to apply for the scheme.

An additional source of funding and support for research and

development is the EU research framework programmes, among

the largest in the world. The last Framework Programme 6 (FP-6)

ran from 2002 to 2006 with a budget of over 16bn. The current

Programme (FP-7) runs until 2013 with a budget of over 50bn.

The UK has a relatively good record at accessing Framework

Programme funding during FP-6 British partners received around

2.4bn, or 14% of the total.15 One such successful scheme is the

collaborative Ultra-Low CO2 Steel programme (see case study 8).But the funding often lacks transparency and the cost of developing

bids can be prohibitive for SMEs and other organisations.

To improve this there should be greater transparency in the process

by which EU framework programme calls are made. When a call for

proposals is made, organisations can have as little as three months

to produce a proposal, but as these proposals often take up to 24

months to prepare, companies can find themselves investing

considerable time, energy and six-figure sums in preparing for calls

which never materialise. Even if successful, the cost of thispreparation cannot be reclaimed. Large organisations are able to

absorb these costs, but they are a clear barrier to additional SME

participation, where the opportunity costs of working on a proposal

can be high.

The CBI believes that the Department for Business, Innovation and

Skills (BIS) should continue to work with the Technology Strategy

Board to identify and remove barriers to UK business involvement

in FP7 and other European R&D and innovation schemes.

In particular we believe the government should push for greater

transparency in funding decisions and ensuring existing schemes

are widely marketed, including to SMEs. Increasing SME

participation through schemes such as EUREKAs Eurostars

programme can help aid early stage innovation and should

be actively supported.

Exhibit 3: The innovation chain

Research

Consumers

Government policy interventions

1 2 3 4 5 6 7 8 9 10

Basic research Concept

formulated

Applied

research and

development

Validation in

laboratory

Validation

in working

environment

Prototype

demonstration

in working

environment

Full-scale

demonstration

in working

environment

Pre-

commercial

deployment

Semi-

commercial

deployment

Commercial

-isation

Technology push Market pull

Business and finance community investments

Case study: Facilities to assist wave power

Researchcouncils

Researchcouncils

Carbon TrustMarine energy

accelerator

Carbon TrustMarine energy

accelerator

QinetiQ tanktest, Gosport,

Hampshire

Scalabletesting at the

NaREC, North

East

Live testingat European

Marine Energy

Centre,

Orkney

E.on testingof Pelamis at

EMEC

Wavehubin South West

Wave farmsnationwide

General technology readiness levels

Source: CBI analysis, adapted from Carbon Trust and EMEC


20/38


Case study 7Imperial Innovation:promoting incubationImperial Innovations was founded in 1986 to protect and

maximise commercial opportunities arising from work at

Imperial College, combining the activities of technology transfer,

company incubation and investment. Despite working with

some of the top scientists in the world, it found that this alone

is insufficient to commercialise innovative technology. Unlike in

other countries notably the USA the UKs venture capital and

entrepreneur community is relatively small. In the absence of a

developed network, organisations such as Imperial Innovations

fill the gap in supporting early stage company incubation.

Imperial Innovations focuses on obtaining the right management

for its early stage companies, and believes this is probably the

single most important factor in its success. It found a major

correlation between the success of its new spin-out companies

and having strong, experienced managers with keen commercial

awareness driving them. Through being aware of how the

optimal management profile will change as a companys

business grows and matures, it has been able to support

companies including Ceres Power a fuel-cell technology

company now listed on AIM.

To succeed Imperial Innovations found that managers need

experience and skills in three main areas:

The entrepreneurial process of bringing a concept

to commercialisation.

Industry knowledge is essential to connect to the market,

and developing demand for a clear end product.

The interaction between business and technology requires

technologists aware not just of the next scientific steps,

but how to build a commercial product.

The aim in commercialising low-carbon technological research

is usually to develop a mass-market product for manufacturing.

Much of the value-chain lies in early stages which can becaptured for example through licensing based technologies

even if factories are located overseas. The work of organisations

such as Imperial Innovation helps provide the entrepreneurial

support to early stage start-ups, as well as the finance to help

make the leap to product deployment.


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Streamlining business support through

the technology lifecycle will be crucial tohelp business manage the risks and bring

forward low-carbon innovation

Case study 8Corus: unlocking EU fundingPart of the Tata group, Corus is an industry leader in steel

manufacturing. Its aim is to reduce carbon use from 1.7t CO2

per tonne of steel by 2012, and 1.5t CO2 per tonne by 2020.

Through the EU Framework Programme (FP) it has taken a leading

role in the 59m EU project on Ultra Low-Carbon Steel (ULCOS),

unlocking funding and making valuable links with researchers

across Europe to develop the breakthrough technologies

necessary to enable Corus to meet its highly ambitious targets.

The need to make European steel production globally cost

competitive under the EU Emissions Trading Scheme has made

such ambitious targets and the ULCOS research programme

a commercially viable long-term project.

Active support and leadership at a CEO and board level among

the core partners including Corus was a key driver in setting

up the first phase of the ULCOS programme, which formally began

in September 2004 and will run until 2010. This encompassed the

research and pilot stage and involved 47 partner organisations.

The second phase ULCOS II is scheduled to run from 2010 to

2015 and will demonstrate the potential and feasibility of some

of the technologies investigated under ULCOS I under large-scale

industrial production conditions.

Agreement of the priority areas across European industry and

gaining political support were crucial in the success of ULCOS.

Before the ULCOS project there was a perception among some in

the industry that steel struggled to get its fair share of EU research

funding. When industry leaders embarked on low-carbon steel

project the scale of the work meant additional funding streams

would be needed. The European Steel Technology Platform

(ESTEP) was created in 2004, bringing together the whole

European steel industry, research centres, member states and the

European Commission. After an extensive roadmapping exercise

and agreeing that ULCOS should be a priority, the programme was

agreed with a budget of 59m over a six-year period, 44% being

contributed through the European Commission.

In addition to the clear benefits in becoming global leaders in

low-carbon steel innovation, there have also been significant

fringe benefits for participants. The proactive and progressive

research agenda has helped to attract and retain leading research

and development professionals and graduates into the industry.

As a result of the roadmapping exercise, additional research

agendas have been identified which are suitable for future

collaborative research.

The experience has been highly positive. The key to turning

this innovation into a competitive advantage will come in the

demonstration stage of ULCOS II. While the costs of piloting each

technology are high over 100m each ultimately UCLOS II

should result in transformational technologies which can be in

production plants over the next 15 to 20 years, resulting in

substantial cost and carbon savings.


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Case study 9Rolls-Royce: investing in low-carbon aviation

16

Rolls-Royce is developing next generation engines with the

potential to reduce carbon emissions by over 25% compared

to equivalent conventional turbofan engines available today.

Rolls-Royce invests around 800m a year in research and

development, a significant proportion of it aimed at improving

the environmental performance of products and operations.

The R&D programme operates at three stages strategic (or

basic) research, applied research and technology validation.

Progressing technology through each stage can take many years.

Rolls-Royce is a key partner in ACARE (the Advisory Council

for Aerospace Research in Europe), which is committed todeveloping technology that can help to reduce CO2 emissions by

50% per passenger kilometre by 2020 relative to a 2000 baseline.

This goal requires improvements to be made in engines and

aircraft as well as air traffic management and operations.

The Environmentally Friendly Engine programme will be a key

contributor to meeting this target by reducing engine emissions

by 10-15%. The 95m programme is led by Rolls-Royce and

includes industrial and university partners throughout the UK.

Over half the investment will come directly from industry with

the remainder funded by government agencies.17

Reducing CO2 beyond 2020 will require game-changing

technologies that are currently emerging or as yet unproven.

One is the open rotor engine, which could save 10,000 tonnes

of CO2 a year per aircraft on a 100 to 200-seater airplane. 18 While

previously researched in the 1980s the technology was never

developed to commercialisation, in part due to lower oil prices

and the significantly higher noise level.

Re-engineering the design and progress in aerodynamic

and acoustic modelling mean the new engine could provide

significant CO2 reductions while also improving noise levels

compared with todays planes. The design uses two sets of

propeller-type rotors which can be positioned at the front or

rear of the engine. These rotate in opposite directions, reducing

energy wasted from twisted air. By increasing the number of

blades, changing their shape and making them thinner,

Rolls-Royce believes the rotors will make less noise by

rotating at lower speeds, while maintaining high efficiency.



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Recommendation for BIS:Make it easier to get support: applications for research and

development support to multiple public agencies should beconsolidated so companies can make just a single application.

Greater use of project or milestone-based funding through

several stages of innovation can help develop innovative

technology at a faster pace.

Recommendation for HM Treasury:Maintain incentives: maintain and improve the R&D tax

credit scheme to ensure companies have confidence that

this vital incentive will continue over the long term.

Promoting intelligent public procurementGovernment and public agencies can play an important role

in encouraging innovation through their purchasing decisions.

In particular by procuring demonstration technology such as

low-carbon hybrid buses in London (see case study 11 and 12), they

can help pull technologies through the demonstration phase where

some often falter due to high risks and costs. This can be a powerful

tool when combined with integrated funding for early-stage research

and development.

To maximise public procurement in pulling through low-carbon

innovation, government agencies should ensure their procurement

processes are open and evidence-based. Avoiding monopoly

provision and maintaining dialogue with a wide range of suppliers including competitors outside the tendering process helps to

spur innovation, ensuring contracts still offer best overall value and

take into account new technologies. Public procurers must also be

actively engaged in new commercial partnerships with the business

community and keep open channels of communication to ensure

potential suppliers are aware of future requirements. Building these

relationships can lead to a better low-carbon outcome and helps

both parties understand and work through barriers.

A more formal way of engaging with the market is through use

of Forward Commitment Procurement (FCP) a model developed

by a joint government-industry advisory group to help create

demand for new products and services. FCP makes the market

aware of needs not in vague, general terms but in the context

of a credible procurement process with a clear offer to buy solutions

that meet needs once they are available at the right price. Innovation

is never without risk but this model can help stimulate innovation

through credible demand, better managing the risk for the consumer,

innovator and supply chain. An example of FCP in use is HM Prison

Service, which used it to procure cost-effective zero-waste mattresses

to end the practice of sending 40,000 used mattresses to landfill each

year.19 It could also be more widely applied to low-carbon technologies.

To be effective in promoting the shift to a low-carbon economy,

procurement must be properly coordinated across government

possibly through the Centre of Expertise in Sustainable Procurement

(CESP) under the Office of Government Commerce and decisions

taken on a whole lifecycle basis. Valuing goods and services on their

whole-life economic and carbon cost will help prevent lock-in to

high-carbon technologies and ensure future taxpayers will not have to

foot the bill for short-term decisions taken today (see case study 10).

The barrier to whole-life costing is often a cultural rather than

policy-based one, with procurers or office-holders unwilling to spend

more upfront in order to demonstrate low cost. But government policy

is that value for money must be assessed over the whole lifetime of

a project, including estimates of the costs and benefits to society as

a whole not simply those directly relevant to the purchaser. These

rules are already embedded in the Treasury Green Book, and should

be used more rigorously.20 Procurers must develop the right contracting

procedures for specifications and evaluation criteria, to ensure a

results-based approach which can capture innovations.

Finally, improving procurement skills could help procurers to

consider the full range of impacts, costs and benefits of specification

and purchasing decisions and allow the quality, cost and carbon

pay-off to be better managed, avoiding simple lowest-cost decisions.

This is an example of where the move to a low-carbon economy will

require the greening of the existing workforce (see also page 29).

4

5


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Case study 11Transport for London:procuring hybrid busesWith an annual procurement spend of 1.6bn, Transport for

London (TfL) is one of the UKs largest public agencies. The

previous and current London mayors both committed to a 60%

reduction in CO2 emissions by 2025, compared to 1990 levels.

TfL supports the delivery of this target through its Climate

Change Mitigation programme which promotes sustainable

travel, more efficient vehicle operations and using improved

vehicles, fuel and infrastructure.

As Londons 8,300 buses account for 5% of the emissions

attributed to service transport in the capital, an important

aspect of TfLs programme is its procurement of an innovative

new generation bus fleet.

Following a three-year trial of hydrogen powered fuel cell buses,up to eight new hydrogen buses will join the bus fleet in 2010.

In addition, Northern Ireland-based Wrightbus Group delivered

the worlds first double-decker hybrid bus in 2007, alongside

12 single-deck versions.

By early 2009 delivery of new single and double-deck hybrid

buses from four manufacturers including an updated double-

decker from Wrightbus saw the number of hybrid buses

increase to 56. TfL has committed to a further 300 buses by

March 2011, and from April 2012 all new buses entering service

will be hybrid including the New Bus for London.21 This is

expected to save 20,000 tonnes of CO2 in 2012.

At a rate of 500 vehicles a year from 2012, TfLs programme is

expected to be the largest roll-out of hybrid buses in Europe.

This clear procurement policy has been an important driver for

manufacturers development of hybrid buses. While the initial

cost is higher than a conventional bus, lower fuel costs mean

the whole-lifecycle cost of the buses will comparable or lower

than traditional diesel buses.

Case study 10Graham Construction: low-carbon public procurementVictoria Primary School in Ballyhalbert (Co. Down) was the first

building in the UK to receive an Energy Performance Certificate

Grade A. The tender specified that the cost of all fixtures and

fittings should be calculated over a 20-year period and had

a clear sustainability agenda. Graham Construction won the

contract, providing written evidence on the lifespan of products

as part of its bid and increasing insulation levels and installing

a biomass boiler to reduce running costs and enable capital

costs to be recouped over the lifetime of the building (further

examples of CO2 procurement will be featured in the CBIs

forthcoming report on low-carbon public services).



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Recommendation for the Officeof Government Commerce:

Be intelligent about public procurement: ensure public

procurement decisions are taken on whole-lifecycle economic

and carbon costs basis. The Office of Government Commerce

should improve skills and remove barriers to whole-lifecycle

costing among procurers. Avoiding monopoly provisionand ensuring procurement process requirements are

evidence-based will also help innovation flow through

the system. Public procurement can also send bold market

signals by supporting large-scale technology demonstration

projects and through the use of Forward Commitment

Procurement.

Case study 12Wrightbus: deliveringlow-carbon public transportBased in Ballymena, Co. Antrim, Wrightbus is the UKs leading

independent supplier of buses. Founded in 1946 and still

family-owned, the firm has grown to become a leader in product

innovation in the transport sector. There are currently over 8,000

Wrightbus-bodied buses in operation in the British Isles. These

include the manufacture of the Gemini HEV (Hybrid Electric

Vehicle) being supplied to Transport for London. The hybrid bus

delivers impressive emissions reductions including a 38%

reduction in CO2 emissions as well as reduced noise levels

and a smoother ride for passengers.

6



26/38


Creating infrastructure to support regional clustersCreating the infrastructure to enable the deployment of low-

carbon technologies is vital to supporting those technologies.

Such infrastructure includes:

Charging points for electric vehicles

Smart meters and investment in power networks

CO2 transport networks for carbon capture and storage

For example if electric vehicles are to be widely available in the

2020s the infrastructure of charging points will have implications

for the ability of the electricity grid in dealing with this extra demand.

Likewise to build smart homes and offices buildings that use IT to

better manage energy demand smart meters must be installed

across the country. Tests are underway on how devices like air

conditioners and fridges could receive automatic signals through

the grid to help balance electricity demand. Further investment inpower distribution and transmission networks will be needed to

deliver the demand management technologies required by variable

electricity generation.

Some progress has already been made developing the infrastructure

for testing new technologies. The European Marine Energy Centre

on Orkney and planned South West Wave Hub for wave and tidal

technologies, are examples of support for testing and demonstration

before technologies are commercialised (see case study 13 and

pages 18-19).

The current planning regime is one of the key barriers to putting

in place the necessary infrastructure and supporting new

low-carbon technologies. Although the 2008 Planning Act is

designed to establish a more streamlined planning process in

the UK for major infrastructure projects like offshore wind farms,

implementation of the act is slow, leaving businesses to question

whether the planning system under the act will really be any more

streamlined than the previous regime.

The Better Regulation Executive should be specifically tasked with

minimising barriers across planning and the broad range of other

regulations affecting low-carbon technologies. For some sectors

such as automotive and aerospace the trade-off between new

and existing regulations on noise, local emissions (such as nitrates

and sulphur) and CO2 emissions must be managed to enablelow-carbon innovations.

Investment in all types of electricity generation is also currently

delayed by uncertainty in the regulatory framework. For instance,

Ofgem is currently reviewing the case for reforming grid regulation

to allow faster connection of new plants.22 These reforms must be

completed to allow grid upgrades to keep pace with nuclear and

renewable deployment. Ofgem is also reviewing the rates and

investment plans that electricity distribution companies are allowed

to make. This review must create appropriate incentives for

low-carbon generation and development of smart networks.

The Electricity Networks Strategy Group estimates investment of

4.7bn by 2020 may be required, but at present it can take many

years for network reinforcements to enable new generation to

connect to the network. These mechanisms must be reformed

so that commercial providers have faith that infrastructure will be

completed or the viability of off-shore wind and other low-carbon

energy generation will be at risk. As the CBIs low-carbon power

roadmap23 makes clear, streamlined planning processes and grid

transmission network upgrades will be crucial for driving demand

and innovation in the renewables sector.

The appropriate infrastructure support will benefit from the

development of hubs, or clusters. For example, the need to access

off-shore wind turbines further off the coast and in deeper waters,

creates additional technology demands, increasing costs.

Technological innovation in offshore wind is possible (such as the

design of new solutions for foundations, operations and maintenance

control systems, and improved systems turbine access) and could

be developed by UK companies. This will mean developing core

services in regional clusters to enable development of port and

harbour facilities, local construction-based facilities and vessel

support services. Clusters are likely to be equally important in the

automotive and CCS sectors.

In delivering the infrastructure, there could be a role for regional

development agencies to build effective partnerships with local

businesses to develop regional capacity, or regional low-carbon

clusters. We welcome the announcement of the first Low-Carbon

Economic Areas (LCEAs), but these must be backed by real support

and drive. Developing a robust supply chain for manufacturing

in LCEAs is one area that will require further work by government

and industry.

The development of an LCEA in the north east, where the regional

development agency ONE is working with the automotive manufacturer

Nissan to develop regional expertise in manufacturing the low-carbon

vehicles of the future, is one example. Other RDAs are also looking

at their low-carbon focus for example around nuclear energy,

marine technologies or clusters of carbon capture and storage

projects around heavy carbon emitting plants (see Exhibit 3).

Streamlined planning processes

and grid upgrades are important fordriving demand and innovation


27/38

8

7


Exhibit 3: Illustrativeregionalcluster map indicating possiblelow-carbon economic areas

Marine energy

Carbon Capture and Storage

Low-carbon vehicles

Nuclear energyFinancial services

Recommendation for DECC:Dont delay on infrastructure: creating the right physical

infrastructure is an essential prerequisite to the roll-out oflarge-scale energy technologies. The regulatory frameworks

for offshore wind, electricity distribution and transmission,

and CO2 transport networks must be finalised to allow early

stage development and demonstration and the commercial

deployment of technologies.

Recommendation for DCLG and BIS:Make planning simpler: implement the 2008 Planning

Act as quickly as possible. Task the Better Regulation

Executive to minimise barriers to innovation for the

low-carbon technology families which will be key to the

UKs economic growth.


28/38


Case study 13Pelamis and E.on: demonstrating marine powerThe European Marine Energy Centre (EMEC) in Orkney is the

worlds leading full-scale test facility for wave and tidal power.

EMECs open water facilities are used to deploy technologies

which have already gone through the rigorous research,

development and demonstration stages (see page 19 for

the innovation pathway).

The EMEC test sites provide the infrastructure for eight wave and

tidal test berths. Each berth is fully connected to the electricity

grid allowing developers to install their device and connect to

underwater cable. Realtime technology and environmental

monitoring can be accessed through the Stromness offices

and data acquisition facilities.

Edinburgh-based Pelamis Wave Power made history at the EMEC

in 2004 when its Pelamis 750 device became the worlds first

commercial scale offshore wave energy machine to generate

electricity into the grid. In February 2009 E.on announced plans

to buy, install and test the next generation of the technology at

the EMEC, becoming the first utility company to test a marine

device at the site.24

The device will be built at Pelamis new facility at Leith Docks

in Edinburgh, and is expected to be fully operational in 2010.

Over the next two years E.on will test and improve the devices

working capabilities ahead of possible commercialisation

in larger arrays around the UK coastline.


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Developing the low-carbon skills base tosupport innovationEnsuring the UK workforce has the skills necessary to support

low-carbon innovation will be crucial if we are to build expertise

and export it globally. This includes building science, technology,

engineering and maths (STEM) skills throughout the curriculum,

ensuring technical training courses anticipate future skills

requirements and ensuring employees throughout the economy

become more green-aware.

Developing economic value in the UK from low-carbon innovation

will not be possible without a breadth and depth of STEM skills

through the workforce.

This means increasing the supply of STEM-skilled people

whether entering the workforce from compulsory education or

higher education. One way to improve the pool of STEM skills is

to increase the number of young people studying all three sciencesat GCSE, as this is the best preparation for further science study.

At graduate level, STEM degrees should meet the needs of

employers and equip graduates to become the next generation

of innovators. The CBIs recent education and skills survey25

indicated that two thirds of employers are experiencing difficulties

recruiting STEM-skilled staff, with a particular concern at graduate

and postgraduate level, while two thirds of science, hi-tech and

IT firms said degree content was not relevant to their needs. The

CBI higher education taskforce will develop recommendations

to address shortages of higher level STEM skills and bring about

the necessary change. The final report will be published in

September 2009.

This must be accompanied by a general greening of further and

higher education, and the existing workforce. For instance, the

government needs to work to increase skills in public procurement

procuring low-carbon goods and services require strong

commercial and technical skills in order to design specifications

and evaluate bids. A national training programme for low-carbon

public procurement, delivered through existing learning networks,

could alleviate the current problem of poor skills.

The UKs strong science and research base results in spin-out and

start-up companies, many specialising in low-carbon technologies.

Many of the next generation of entrepreneurs will come from these

companies (see case study 14). Transformational or so-called

disruptional innovation will have a key role to play, but many of

these companies are initially run by people who though highly

talented, do not have the commercial awareness or managerial

experience to bring these technologies to market. Without these

skills, start-ups have a higher than necessary attrition rate and

cannot reach their potential.

A community of venture capital and entrepreneurs can encourage

the best people into the start-up sector by lowering the risks of

failure. In the absence of a wide start-up community, a sectoral

focus in different regions could enable clusters of related

technologies to form such as IT and biotechnology in the

Cambridge area or automotive companies in the Midlands. This

can benefit start-ups and established companies alike, as well

as allowing talented people to contribute to a range of projects.


30/38


Case study 14AlertMe home smart energy system:skills driving new ideasAlertMe is an award-winning provider of home energy-saving

and monitoring systems. It has built a small but highly skilled

workforce, benefiting from recruiting top graduates from its

base in Cambridge and experienced staff working in high-tech

industries in the region. Despite the economic downturn

AlertMes strong management, technical expertise and innovative

products helped it secure 8m from four leading international

clean technology investors in June 2009. It is in a strong position

to develop links with major utilities as well as delivering savings

direct to consumers.

The company was founded in 2006 by Pilgrim Beart and Adrian

Critchlow, both entrepreneurs and trained engineers. AlertMes

Smart Energy service differs from other smart meters as it allows

users not just to monitor but also to control their electricity and

heating use in a consumer-friendly manner.

Householders currently have no way of knowing how much they

spend each year on powering home appliances indeed most

only receive a single figure each quarter estimating energy costs.

AlertMe aims to give consumers a fully itemised utility bill, and its

simple-to-use website shows consumers exactly how much they

spend on each appliance in real time and real currency. This

means consumers can see the real running costs of fridges,

printers, TVs and other appliances, and lets them take more

informed decisions over replacing inefficient appliances and

ensuring better energy management.

AlertMe uses low-energy wireless networks to monitor how much

energy home appliances are using and flexibly control them

remotely online or by mobile phone. ZigBee a low-cost and

open global wireless standard encourages future innovators to

integrate smart home applications or products into the platform.

Knowing when the house is empty, the system uses SmartPlugs

and a heating controller to automatically turn off appliances or

heating when not needed. It aims to save the average home

around 1tCO2 and 25% of their annual energy bills, paying for

itself in only a year.

AlertMe has already shipped over 15,000 units to domestic

customers since January 2008. This active consumer base

has enabled the company to trial products and develop its

consumer interface.


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9

10


Whole house

electricity monitor

SmartPlug

Keyfob

Your computer

or mobile phone

Heating

controller

Home

appliance

Alertme

servers

Recommendations for BIS:Invest in training: ensure the UK workforce has the

necessary (STEM) skills to be globally competitive, attract

investment to the UK and extract maximum value frominternational supply-chains and global markets.

Support entrepreneurs: help ensure start-up companies

have strong commercial management to bring about full

exploitation of technological knowledge.

Ensuring the UK workforce has

the skills to support low-carbon

innovation will be necessary to build

expertise and export it globally


32/38

In addition, the development of methodologies to understand the

life-cycle emissions of products and services, such as the PAS 2050

standard on measuring embodied greenhouse gas emissions

developed by BSI and the Carbon Trust, will enable business to

explore where it would be most effective to innovate to reduce

emissions. In general, standards can often provide a very simple,

off-the-shelf, quick way of delivering low-carbon innovation. For

example, the MoD is attempting to get the ISO 14001 sustainability

standard used by its suppliers to start delivering a more sustainable

supply chain.

Recommendation for BusinessMake carbon part of core business: take steps to measure

carbon usage and internalise carbon costs into the bottom

line. Clear measurement of both carbon usage and the

reduction potential of innovations can increase uptake

and give businesses a head start of competitors.

1


The CBI believes businesses that value innovationand integrate carbon into their business plans arelikely to adapt quickest and gain most from the

low-carbon economy.In some sectors business is already delivering innovative

low-carbon solutions. In other sectors government needs to put

in place the policies weve outlined to stimulate the marketplace.

In all cases internalising carbon strategies into every business,

rethinking approaches at all levels and incentivising an innovation

culture in business is vital. As the impact of carbon on companies

bottom line is recognised, businesses across all sectors will

need to find innovative ways to reduce their emissions and

engage employees.

Internalise carbon strategies into every business

As carbon is increasingly seen as another commodity or currency,businesses across all sectors are recognising the impact carbon

will have on their bottom line, especially when reducing carbon

is equated to reducing energy use. The recent CBI briefLess is

more: building an energy efficient UK26 found that on average

UK business wastes 10-20% of the energy it buys. The economic

recession and the prospect of higher energy prices in the future is

driving action to improve energy efficiency, which in turn is driving

innovation. Through taking steps to measure and control their

carbon use, companies are likely to gain substantial first mover

advantage (see case study 15).

With the introduction of widespread and standardised carbon

reporting, through the Carbon Reduction Commitment (CRC)and likely introduction of mandatory carbon reporting for some

businesses, it will be possible to measure carbon usage in a more

focused and consistant manner. This will make the measurement

of the carbon reductions emerging from innovations easier and

more transparent. The CBI has set out a simple and common

method for businesses to report their carbon emissions in the May

2009 reportAll together now: a common business approach for

greenhouse gas emissions. 27

Embrace innovation to drivefurther business success


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Case study 15Sun Microsystems:greening data centreInnovation has always been at the heart of the information and

communication technology (ICT) sector, which currently produces

around 2% of global GHGs. The long-term trend for computer

hardware power to double every two years often popularly

known as Moores law has pushed the possibilities of technology

innovation at every level, from laptop computers to huge data

centres. The latter large hubs used to house servers and computer

systems essential to commercial ICT operations often run on a

very large scale and at high temperatures.

Sun Microsystems provides IT products and services on a business-to-business basis. In its Green Data Centre project Sun Microsystems

extracted heat as close to the servers as possible, drastically reducing

cost and energy use. Its recently-built data centre in Santa Clara,

California, reduces the number of servers by 44%, the space needed

by 88% and power use by 78%. As well as a cost saving of $9m a

year, emissions were reduced by 3,227 MtCO2.

Three key drivers have helped spur recent innovation in

greener data centres:

Firstly the rise of energy prices helped focus management on

the need for efficiency savings and to reduce energy costs.

Secondly organisations have increasingly moved to takeaccount of full-lifecycle costing. Previously energy bills and

capital projects were often managed through separate budgets,

leaving little incentive for data centre managers to invest in

costly capital projects. By ensuring energy budgets are

managed in a holistic manner, reducing costs and carbon

emissions in this area is given an appropriate priority.

Thirdly industry collaborated to develop and adopt a simple

matrix to determine the relative energy efficiency of a data

centre, making improvements easily understood and measured

by data centre managers and business consumers. The Green

Grid consortium created the PUE (power usage effectiveness)

ratio to illustrate the proportion of energy used by the essential

computer infrastructure compared to auxiliary services such

as coolers and air conditioning. This very simple model gives a

baseline and enables efficiencies to be easily accounted for.

While these drivers can be acted on at any time, organisations

are often triggered to act through the end of a lease, energy

contract or upgrade in equipment requirements. This was the

case for Sun Microsystems when its 3,000 square feet data

centre in the Netherlands reached the end of its lease. By taking

a top-down approach and engaging people in all parts of the

business, Sun Microsystems conducted a thorough redesign

which achieved an 80% reduction in storage and server space

when the new data centre was developed in Guillemont, Surrey.

A key lesson is that transparent measurement is an essentialprecursor to greater innovation. The PUE is a broad figure which

enables measurement of progress in a given environment. While

the requirements and context of individual centres will vary,

most legacy systems have a PUE of around 2.5:1, while a PUE

of under 1.7:1 is achievable in many circumstances. With the

right conditions and a purpose-built complex such as Sun

Microsystems data centre in Santa Clara figures as low as

1.28:1 have been achieved.



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Rethinking approaches at all levelsManagement leadership is vital in embedding sustainability into

employees everyday work and making it clear to all departments

that these environmental goals are just as important as other

metrics on productivity, quality and safety.28

For example Tescos board agreed in 2006 to alter its performance

management tool the first change for over a decade to incorporate

environmental sustainability. This clear signal from senior

management has helped focus minds and enable collaboration

among departments. The CBIs recent guide on employee engagement,

Getting involved: a guide to switching your employees on to

sustainability29, has further examples.

But only through engagement of frontline staff can workplace

emissions be reduced. For example staff on the shop floor are often

best placed to implement cuts in waste through reducing, reusing

and recycling. They can see the inefficiencies in existing systems andcreate new systems of recycling and processing (see case study 16).

The move to a low-carbon economy also presents substantial

new business opportunities in areas of British strength such as

engineering and construction, information and communication

technologies and financial and professional services. Innovative

businesses are developing new business models for a low-carbon

economy, often moving to an ongoing service model.

For example, pioneering carpet manufacturer InterfaceFLOR offers

a leasing system on its modular carpets. Instead of selling the

carpet as a product, it is leased it as a service, replacing tiles that

have been accidentally damaged, swapping tiles in high traffic

areas with less exposed tiles and maximising the lifecycle of the

product. This incentivises InterfaceFLOR to develop sustainable

ways of providing a long-lasting product, while giving the consumer

an affordable product and a stable service.

Similarly the development of electric cars is likely to be based

around leasing the batteries, in much the same way that mobile

phone contracts currently operate. In the governments recently

announced UK-wide trial of electric cars, many of the vehicles being

trailed are rented to households on a monthly basis. This spreads

the high upfront cost of the battery over its lifetime, helping make

the vehicle more competitive with conventional vehicles on initial

price and running costs.

Finally, in the IT sector moving to a service model rather than

owning the physical infrastructure has enabled management

of data centres to increasingly be passed to those with skills

and know-how to innovate and reduce energy, costs and

carbon emissions.

Recommendation for businessRethink approach to innovation: embrace innovation

by focusing on how frontline staff can reduce emissions,and fundamentally re-thinking at a boardroom level the

impact of the low-carbon economy on existing and new

business processes.

Incentivising an innovation cultureOn

pulling ahead - innovating for low-carbon leadership

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