investing in the low carbon journey (executive summary)

8/12/2019 Investing in the low carbon journey (Executive Summary)

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LowCVPLow Carbon Vehicle Partnership

Connect

Collaborate

Influence

Investing in the low

carbon journey

Lessons from the rst decade ofUK policy on the road to 2050

Prepared for the

LowCVP by E4tech with

Cardi Bsiess Sc

Executive Summary J 2014


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A decade of achievement

The last recommendation was taken forwardwith the establishment of the Low CarbonVehicle Partnership (LowCVP) in 2003 which,constituted with an unprecedentedly broadrange of stakeholders, began to create a bridgebetween industry, government and greengroups with a view to reconciling commercialand policy pressures with environmentalimperatives. Subsequently, the cumulative

impact of consistent policy emphasis onenvironmental achievement and green growthhas provided the foundations for a renaissanceof the UK automotive sector. The past ten yearshave seen some great achievements in thesector, despite a global recession and strongcompetitive pressures, leading to benefits forcompanies, drivers and the nation, including:

Automotive manufacturing sector

turnover climbed from 46.3bnin 2003 to 64.1bn in 2013.

Rapid recovery in new car productionfollowing the 2009 global financial crisis,reaching 1.5 million units in 2013, havingfallen to below 1 million in 2009. Productionis now almost back to pre-recession levels.

Exports account for 77% of UK carproduction, up from 70% a decade ago, and

volumes reached a record 1.2 million units

in 2012 and remained at this level in 2013. Major capacity expansions, new model

programmes and reinvestments byBMW, Ford, Honda, Jaguar LandRover, Nissan, Toyota and Vauxhall.

Productivity per worker up45% from 2003 to 2013.

Healthy UK bus and coach sector withnine manufacturers and a total UKmarket of 3,685 vehicles in 2013.

A decade ago the UK automotive sector was in astate of decline and a continuation of this trendwas seen as inevitable in many circles. Factoryand company closures were commonplace,innovation levels were modest, the UKsupply chain had become hollowed out, andenvironmental regulations were seen as athreat by some in the industry. The reactiveera of the early 2000s, when automotive

policy was preoccupied with closures andrestructuring, started to change with the reportof the Automotive Innovation and GrowthTeam (AIGT) in 2002 which stated we believethat the (automotive) industry can have a longterm future in the UK provided that industryand Government work together. The agendaAIGT set out included improving efciency inmanufacturing, supporting commercialisationof technologies and tackling environmental

challenges through a multi-stakeholder group.

Note: References for this summary may be found in the full report downloadable from the LowCVP website: www.lowcvp.org.uk

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Picture opposite: Fords factory, Dagenham, where some of its range of EcoBoost engines are assembled.


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Figure 1: Low carbon investments by year.

291 unique low carbon investmentsby 85 different companies werecatalogued for the period 2003-2013.

Conrmed total value of 17.6 billion inlow carbon investments (approximately40 billion by extrapolation).

Average new car tailpipe CO2 emissions havefallen by 25% to below the threshold of 130g/

km, ahead of the EU-mandated timetable.

Average ofcial new car fuel economyhas risen from 42.2mpg (2003) to 56.3mpg(2013), reducing costs for motorists.

Between 2002 and 2012 privateconsumption of vehicle fuel fell18% in volume terms per head.

Rapid uptake of low carbon buses led toover 1,500 in service by 2013. UK a leader in

low carbon bus manufacture and uptake.

Whether it be the mainstream manufacturingsector or low-volume niche specialists,suppliers or contract engineers, engine plantsor motorsports operations, the sense of adramatic shift into a vibrant, confident andrevitalised industry in the UK is palpable andthis despite the global economic recession of2008/9 from which much of the industry in theEuropean Union is still struggling to escape.

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Figure 2: UK new car average fuel economy performance.

Back then, environmental regulaon was seen as athreat not an opportunity. AutomotIvE R&D SERvICES CompAny


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Background to the study

The turnaround in the auto sectors

fortunes raises some key questions:

How far have low carbon policies

and technologies contributed to theresurgence in the UK automotive industry,and what lessons can be learned for theyears to come? The Low Carbon VehiclePartnership (LowCVP) sits at the nexus

between government, the automotiveindustry and other key environmentalpolicy stakeholders, so is well placedto find the answers. The LowCVPcommissioned strategic consultancy

E4tech and Cardiff Business Schoolto address these questions objectively,drawing upon a wide range of evidence.

The study sought to establish if therehas been a causal link between policiesthat favour low carbon vehicles and therising levels of UK automotive investment.Evidence was gathered via a broad

industry survey, supported by interviewswith senior executives, and extensive desk

research. Together these provided a richevidence base from which several clearmessages emerged. These are presentedin brief in this Executive Summaryand elaborated in the main report.

A new era of cooperation betweenindustry and government

Underpinning the revitalisation of the UKautomotive industry has been a new era ofindustrygovernment relations throughthe Automotive Council, formed in 2009.This has enabled industry to speak with acommon voice, and government to supportindustry in their common objectives ofcreating a compelling investment propositionand supporting low carbon opportunities.

Complementing this, the LowCVP hasmediated a wider debate beyond the specificinterests of government and the automotiveindustry to encompass fuel suppliers, fleetoperators, consumers, NGOs, academics andothers with an interest in future mobility.The seeds for co-operation were sown over adecade ago, allowing the industry to respondeffectively to the economic crisis and maintaincourse despite changes of government:

Automotive Innovation and GrowthTeam (2002) challenged the view of theauto sector as a sunset industry.

LowCVP (2003) provides a focal pointfor stakeholder engagement, includingNGOs, academics, road users and others,as well as industry and government,on low carbon vehicle policy issuesand wider stakeholder engagement.

Technology Strategy Board (TSB) (2007)and Advanced Propulsion Centre (2013)

provide consistent support for innovation. New Automotive Innovation and

Growth Team (2009) dened theindustrys way forward.

Automotive Council (2009) became the focalpoint for industry government dialogue.

Ofce for Low Emission Vehicles(OLEV) (2009) and Green Bus Fund1(2009) create market conditionsfor low carbon vehicle uptake

Regional Development Agencies and,latterly, Local Enterprise Partnershipssupport automotive innovation andmanufacturing at local level.

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1. Note that this policy was implemented differentlyacross UK Devolved Administrations:



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Figure 3: UK automotive sector performance between 2003 and 2013

In addition, the introduction of bindingregulations on new car average CO2emissions in the European Union (EU)(2009) provided the Europe-wide certaintyfor harmonised change for cars (and vans

from 2011), while the longer-term policystability of the Climate Change Act (2008),King Review (2007, 2008) and Stern Review(2006) should not be underestimatedin setting the direction of travel.

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Government policy context and strategic goals andtargets will have a role to play in the investment decisionmaking environment. It may not be the determiningfactor but it will be evaluated posively or negavely.mAJoR AutomotIvE mAnufACtuRER


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Automotive investmentand low carbon policies

total of 17.6 billion. By extrapolation, the

true value of investments is possibly of the

order of 40 billion because the database onlycontains denite values for around 40% of the

identified investments, and does not include

wider multiplier impacts in the supply chain.

Cumulative investments have risen strongly

towards the latter part of this study, suggestingthat funding and policy structures have

gained increasing traction over time.

Low carbon automotive investmentlevels have risen strongly

A strong level of cumulative UK investmentwas identified by the authors, albeit withsome unevenness caused by large investmentannouncements. Considering investments inR&D and manufacturing for lower and ultra-low carbon vehicles, 291 unique investmentsby companies were catalogued for the period2003-2013. These investments were madeby 85 different companies with a confirmed

Industrial policy has helped to turn the tide

The changing relationship betweengovernment and the automotive industryhas been pivotal for the transformation ofthe sector overall. Respondents spoke ofthe fundamental change since the reactiveera of the early 2000s when automotivepolicy was preoccupied with closures andrestructuring. The tide had begun to turn butwas rapidly accelerated by the economic crisiswhich hit the global automotive industrywith force in 2008-10. The UKs responseincluded a proactive focus on support forthe automotive industry, notably in areaswhere the UK had a technological basis forcompetitive advantage, such as powertrainengineering. Several government-supportedentities were established and continue to

play a key role in the automotive industry;the authors heard ringing endorsement forthe Automotive Council in particular, andmany were also grateful for the role playedby the Technology Strategy Board and,latterly, the Advanced Propulsion Centre.

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Figure 4: Low carbon investments by year.

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Low carbon policy has been very influential

UK low carbon policies have emergedstrongly in the past 10 years. The formationof the LowCVP in 2003, arising out of thework done by the Automotive Innovationand Growth Team (2002), can in retrospectbe seen as an important moment for the UKautomotive sector, providing a means forstakeholders to work together to contributeto numerous low carbon vehicle policies,structures and initiatives. The Stern Review(2006), King Review (2007) and ClimateChange Act (2008) put CO2 reduction intolaw, building a sense of stability in climatechange policy with a strong bearing onsubsequent UK road transport sector policies.

Low carbon vehicle policies have had astrong inuence on UK R&D investment in

particular, as illustrated by the survey resultsbelow for example 72% of respondentssaid UK grant programmes for low carbon

vehicles had been inuential in their R&Dinvestments. Other initiatives also emergedand are acknowledged to have provided

strong market pull for low carbon investment,notably the Ofce for Low Emission Vehicles(for cars and vans) and the Department forTransports (DfT) support for low carbon buses.However, the primacy of the EUs regulationsfor new passenger car CO2 has been criticalin providing, a level playing field and longterm certainty across the whole industry.

Confidence is vital for investment

Investment decisions are taken on the basis ofan assessment of risk and reward, and policyconfidence is a vital part of reducing risk,especially for the automotive industry withlong product development times requiringlarge capital commitments. Numerousillustrations emerged of how confidence is aresult of cumulative effects rather than single

policies, with increasingly positive results.In R&D the availability of multi-stage grantprogrammes has encouraged innovators tostart their journey with condence that theywill continue to be supported, if technically

viable. In vehicle deployment, OLEVs

long term commitments to low carbonvehicle support are valuable for investors.In manufacturing, senior industry guresreported that collective and cumulativepolicy measures reinforced the overallcondence that UK Government provides.

In addition to cumulative policy effects,respondents referred to the confidence derived

from having a clear channel for dialogue withgovernment (via the Automotive Council andothers). Furthermore, importance was attachedto the intellectual supply chain that is beingdeveloped in the UK, ensuring that ideas canbe turned into products through an ecosystemof companies and organisations. Finally,respondents pointed to the UKs membershipof the EU as being vital for condence.

Not everything in road transportpolicy has gone smoothly

Not surprisingly, there have also beenareas where public policy in this sectorwas not perceived to have succeeded andit is instructive to learn from these. In the

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automotive sector the abolition of the RegionalDevelopment Agencies caused disruptionat a time when the industry was beingclosely supported in some areas, and newstructures were not able to step in quickly.Truck sector respondents pointed to thedearth of policy to support low carbon truckdeployment, despite incentives to developtechnologies. They also cited the tension

between technologies and engineeringresources required for CO2 reduction, andthose to meet stringent air quality emissionregulations (most recently Euro VI).

The study also examined policy onlow carbon fuels, where changes indirection and the complexity of fuel andinfrastructure investments in general haveprovided a less stable investment climate

for the companies concerned. This is feltparticularly strongly in biofuels whereinvestments have stalled to a large extent.

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Figure 5: Survey responses: Influence of public policy on research and development investment



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Picture opposite: Nissan Leafs 100,000th customer (UK, January 2014)

Recommendations

The authors use the evidence and theirown judgement to make a number ofrecommendations for policymakers,summarised below and explainedin the following sections.

Stay on course:

Automotive policy frameworks are mostlyworking well, in particular due to the sense

of urgency as well as consistency of policy,which should not be allowed to diminish

There are other priorities but low carbonmust remain a vital area of focus

Strong emphasis should be placed on thetransition from low carbon technologydevelopment to manufacturing.

Address remaining automotive sector challenges:

Attracting further inward investment,especially from component suppliers,would increase UK resilience.

Future skills needs throughout thesupply chain should be supported.

Low carbon policies need closer

alignment with air quality issues. A clear framework is required

for commercial vehicle efficiencymeasurement and incentives.

EU regulations play a key role in harmonisingfuture vehicle CO2 (and air quality)performance requirements and companies arekeen to see the UK influencing this agenda.

Build confidence for the low carbon fuels sector:

A collaborative approach is needed todefine the outlook for automotive fuels.

STAY ON COURSE

The initiatives that emerged from the declineof the UK automotive sector and the economiccrisis have proved to be largely successfuland should be built upon. However, there is arisk that the new structures will subsequentlyprove vulnerable if the sense of urgencythat led to their creation declines. This

vulnerability may be to unexpected events(new technologies, competitors or economicconditions perhaps), or to becoming lessagile with time (some evidence was offeredof this already becoming the case). Therecommendation is therefore to maintain asense of focus and urgency and continue tostress test all of the low carbon automotiveapparatus in the UK, ensuring delivery of acommon stakeholder mission and attracting

further investment. Surrounding this it is veryimportant that the focus on low carbon ismaintained, even as other automotive sectorpriorities such as autonomous vehicles emerge.

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At the highest level, the creaon of a level playingeld [CO2 target] by the EC was extremely helpful.A clear long term target is what industry needs it will nd a way to respond. AutomotIvE mAnufACtuRER

Much of the low carbon innovation thathas occurred in recent years in the UK isapproaching technological maturity, but isstill some way from manufacturing maturity.For the UK to gain maximum value this

journey needs to be pursued to the endwith appropriate support, thus ensuring thatbenefits accrue to the UK rather than beingdriven offshore.

ADDRESS REMAINING AUTOMOTIVE

SECTOR CHALLENGES

The UK supply chain should build up itslow carbon (and more general) capabilities,as has already been recognised. The focusof the Automotive Investment Organisation,Automotive Council and others is to reinforcethe automotive supply chain in the UK in line

with the automotive industrial strategy. Thisemphasises that UK policy is creating a pullfor vehicle development and manufacture,which in turn creates a growing need for astrong supply chain. For low carbon vehiclesspecically, the UKs R&D base creates anattractive context for supply chain actors todevelop and manufacture close to what isalso a major low carbon vehicle market.

Several commentators noted that skillsare becoming a challenge for the furtherdevelopment of the UK automotive sector.This relates not just to highly skilleduniversity-level graduates, but also to thefuture technicians for whom apprenticeships

and other training are needed. The industry,government and relevant skills bodies havealready recognised the need to work closelytogether (for example via the SMMT andAutomotive Council) including in the lowcarbon vehicle areas, to ensure that the UKsprospects are not hampered by skills shortages.

The contribution of low carbon policies

to relieving air quality concerns has beenunderplayed. Urban air quality is a growingarea of concern for many cities acrossEurope, with many episodes in which safelevels of pollutants are exceeded. In someinstances the balance between CO2 and airquality needs to be better managed, andsome products can be beneficial on bothfronts. Noise is another feature that shouldbe considered alongside CO2 and, again,

there may be synergies as well as trade-offs.

The pressure for commercial vehicles withever lower air quality impact has had a fuelefciency cost according to some. The ECsframework for measuring and comparing

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commercial vehicle efficiency (currently indevelopment) is required, which in turn willprovide a basis upon which fuel efficiencycould be incentivised or enforced. Thisshould be taken forward by the EC withUK oversight from OLEV, the DfT LowEmission HGV Task Force and the LowCVP.

EU policy plays an important role in

harmonising vehicle CO2 emissions targets,as well as providing funding for research.Active UK participation in shaping theseagendas is important in view of the strengthof other automotive interests within the EU.

BUILD CONFIDENCE FOR THE

LOW CARBON FUELS SECTOR

Low carbon fuels, in particular biofuels,currently do not benefit from the sameclarity of outlook that automotive playersenjoy thanks to the Automotive Council andLowCVP roadmaps. A partnership betweengovernment and stakeholders, ideally with an

EU perspective, to dene the long term outlookfor fuels would be valued by the fuels andvehicles industries. This should build on therecently published LowCVP Fuels Roadmap.

Outlook

This report identifies many things thathave gone right, as well as some thathave gone wrong. However, it is nota manifesto for complacency as the

journey has really only just begun.

The challenges of decarbonising roadtransport are enormous, especially as theUK seeks to capture a growing share of the

industrial opportunities that this presents.Much work is still required to develop lowcarbon vehicles, fuels and technologies,and especially to manufacture themin the UK and deliver them to market.Government and industry, along with otherstakeholders, through collaboration havemade an important start on the journey.

Continuing dialogue, support andaction is required to ensure that UKindustry can deliver upon futuretargets and build both a vibrant andsustainable industry and vehicle fleet.

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Investment decisions are alwaysabout more than incenves policy and stability are vital.mAJoR vEhIClE mAnufACtuRER

Acknowledgments

The authors wish to thank members ofthe Project Advisory Group, includingrepresentatives of the LowCVP, the Societyof Motor Manufacturers and Traders(SMMT), the European Climate Foundation,First Group, Department for Business,Innovation and Skills, Oxford University,

an adviser to Transport and Environment(T&E) and an independent consultant.

The authors are very grateful for thecontributions provided by the manyindividuals who participated in the callfor evidence and those who agreed tobe interviewed during the course of thisstudy. Their contributions have beeninvaluable in informing this work. A listof the organisations contacted may be

found in the full report (Appendix 2).

The LowCVP would like to thank theDepartment for Business, Innovationand Skills and Greener Journeys fortheir support in this project.

Low Carbon Vehicle Partnership

The LowCVP, which was established in2003, is a publicprivate partnershipworking to accelerate a sustainable shiftto lower carbon vehicles and fuels andcreate opportunities for UK business.

Around 170 organisations are engaged fromdiverse backgrounds including automotive

and fuel supply chains, vehicle users,academics, environment groups and others.The Partnership became a not-for-profitcompany limited by guarantee in April 2009.

The LowCVP plays a key role in helpingGovernment to deliver its low carbon transportstrategy. The objective of the strategy is toensure that the UK takes a leading role in theglobal shift towards low carbon transport.

The Partnerships work is coordinated bya permanent Secretariat headed by theLowCVP Managing Director, Andy Eastlake.

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Low Carbon Vehicle Partnership3 Birdcage WalkLondon

SW1H 9JJUnited Kingdom

Tel: +44 (0)20 7304 6880E-mail: [email protected]

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Tel: +44 20 3008 6140 Fax: +44 20 7078 6180

Incorporated in England and Wales. Company no. 4142898Registered address: 60-62 Old London RoadKingston upon Thames, Surrey, KT2 6QZ

www.e4tech.com

Centre for Automotive Industry Research, Cardiff Business SchoolAberconway Building, Cardiff, CF10 3EU, United Kingdom

Tel: +44 29 20 875717 Fax: +44 29 20 874419

Registered charity no. 1136855. Registered address: 7th Floor,McKenzie House, 30-36 Newport Road, Cardiff, CF24 0DE

www.cardiff.ac.uk

LowCVPLow Carbon Vehicle Partnership

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investing in the low carbon journey (executive summary)

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