Green Investment Bank

Written evidence submitted by British Ceramic Confederation (GIB 27)

Executive Summary

· It is important that Green Investment Bank funds are available for industrial energy efficiency and emissions reduction projects as these can offer very cost-effective means of reduction in the UK’s emissions, with relatively short payback times compared to other investments.

· Many ceramic factories have already made some significant investment in energy efficiency measures – in these firms the next series of projects may have longer payback periods which conventional banks (or other sources of shareholder funds) may be unwilling to finance.

· Some of our members have used, successfully, the Carbon Trust interest free loans. Payback out of energy savings made has proved opearable in our members’ experience. Only very limited funding was available, though, and only for SMEs for a limited range of projects. There is therefore real benefit in ensuring all companies can access these funds, with minimum bureaucracy, provided they have a sound case and timing for payback. To ensure value for investors, objective criteria should be used for determining which projects are funded e.g.

o Tonnes carbon dioxide abated (including imported emissions) per £ loan, with priority to short-term pay back periods.

o Products from manufacturing processes that themselves have low lifecycle carbon emissions (for example a highly durable product rather than a disposable / low life one) should also be favoured as these will reduce emissions longer term too and strengthen the UK’s role in rebalancing the economy towards manufacturing. This will also help achieve a change in consumer behaviour.

o Potential for wider application of technology across an industry – e.g. priority for technology demonstrator projects which also meet the above criteria

o Employment of renewable energy generation is acceptable if it also meets all the above criteria (i.e. efficiency of available funds in abating the UK’s emissions quickly is essential rather than focusing solely on the employment of renewable technologies, many of which are not yet sufficiently developed nor have competitive payback periods compared with other potential investments.)

O An objective assessment of credit-worthiness is required. These loans must not affect normal borrowing / access to loans to run the day to day business.


Brief Introduction to the British Ceramic Confederation

1. The British Ceramic Confederation (BCC) is the trade association for the UK Ceramic Manufacturing Industry, representing the common and collective interests of all sectors of the Industry.  Its 100 member companies cover the full spectrum of products and materials in the supply chain and comprise over 90% of the Industry’s manufacturing capacity.

2. Membership of the Confederation includes manufacturers from the following industry sectors:-

§ Gift and Tableware

§ Floor and Wall Tiles

§ Sanitaryware

§ Bricks

§ Clay Roof Tiles

§ Clay Pipes

§ Refractories

§ Industrial Ceramics

§ Material Suppliers

3. The industry is energy-intensive (but not energy inefficient): energy bills / taxes can be up to 30-35% of total production costs. 85% of the energy used is natural gas. BCC is a member of the Energy Intensive Users Group.

Factual information

The significance of any barriers or ‘market failures’ requiring the establishment of a Green Investment Bank, and any risks of not getting this done quickly;

4. Many ceramic factories have already made some significant investment in energy efficiency measures – in these firms the next series of projects may have longer payback periods and larger investments (e.g. all possible improvements in an older plant may have been made, the only option for further improvement is a new, state-of-the-art energy-efficient plant)

5. Conventional banks (or other sources of shareholder funds) have been less willing to finance these types of projects – and the recession and reduction of available funds in banks has exacerbated this problem.

6. Some of our members have used, successfully, the Carbon Trust interest free loans. Payback out of energy bill savings made (as in Carbon Trust loan scheme) has proved operable in our members’ experience. However:

a. Only very limited funding was available, though (maximum loan size currently £100,000).

b. The payback period is limited to 4 years

c. Only SMEs were able to apply: larger firms in a Climate Change Agreement were not eligible.

7. A Green Investment Bank could allow access to these larger loans with slightly longer payback periods. This would help secure investment for capital projects that might otherwise be diverted to other countries – essential in the current economic climate. This investment in more energy-efficient UK factories can also help secure employment.

8. A market failure is emissions in imported goods are currently not assessed under the UK’s Climate Change Act. The Green Investment Bank could help address this oversight - see paragraph 14a.

Recommendations

The objectives and roles the Green Investment Bank should assume, the areas it should operate (and not operate) in, and how its lending and investment decisions should balance green benefits against financial risks

9. It is important that Green Investment Bank funds are available for industrial energy efficiency and emissions reduction projects as these can offer very cost-effective means of reduction in the UK’s emissions, with relatively short payback times compared to other investments.

10. See "funding and governance structures" section. Efficiency of available funds in abating the UK’s emissions quickly is essential rather than focusing solely on the employment of renewable technologies, many of which are not sufficiently developed nor have competitive payback periods compared with other potential investments.

The Green Investment Bank’s investment priorities, and whether and how the bank should support and foster areas where the UK has emerging green technology strengths;

11. Products from manufacturing processes that themselves have low lifecycle carbon emissions (for example a highly durable consumer or construction product rather than a disposable / low life one) should be favoured as these will reduce the UK’s emissions (and other countries emissions in the case of exported products) longer term. [1]

12. This would also strengthen the UK’s role in rebalancing the economy towards manufacturing / improve balance of payments.

13. This will also help achieve a change in consumer behaviour.

The funding and governance structures required to create an effective and accountable body, including the role of ‘green bonds’.

14. To ensure value for investors and the maximum efficiency of available funds in abating the UK’s emissions, objective criteria should be used to determine which projects are funded e.g.

a. Tonnes carbon dioxide abated per £ loaned, with priority to short-term pay back periods. Short payback periods ensure that if funds are limited they can be recycled quickly to other projects. The amount abated should include the abatement of imported emissions – e.g. if products can be made in the UK for local consumption with significantly lower emissions than importing the same product. [2]

b. Products from manufacturing processes that themselves have long life and therefore very low lifecycle carbon emissions (for example a highly durable consumer or construction product that may indeed use more energy in production, but uses this energy efficiently, rather than a disposable / low life product) should also be favoured as these will reduce global emissions longer term.

c. Potential for wider application of technology across an industry – e.g. priority for technology demonstrator projects which also meet the above criteria.

15. An objective assessment of credit-worthiness is required.

16. These Green Investment Bank loans must not adversely affect normal bank borrowing / access to loans to run the day to day business (e.g. "you already have £500,000 of green bank loan for a heat recovery project therefore you can’t have £10,000 of overdraft to buy materials for a new large sales order")

Please feel free to contact us if you require any more information or would like oral evidence.

15 October 2010


[1] Some ceramics examples:

[1] The UK has several world-leading companies manufacturing very long long-life durable catering tableware. These products are widely exported, improving the UK’s balance of trade.

[1] Bricks and other ceramic construction materials have a much longer life than many other construction materials (bricks have a life of over 100 years).

[1] The UK has a niche in some refractory materials – these technologically advanced materials enable a considerable reduction of energy use in production of other essential materials needed in the low carbon transition (e.g. glass and steel). Again, these products are widely exported, improving the UK’s balance of trade.

[1]

[2] A ceramics example:

[2] I nvestment in a highly automated energy efficient ceramics sanitaryware UK plant reduces the net global emissions from firstly, a more energy efficient production process and secondly, from the large amount of emissions in transport if the heavy and bulky product were made in a distant continent and then shipped to the UK.