Pulling Ahead - Innovating For Low-Carbon Leadership

Pulling ahead: innovating for low-carbon leadership
CBI on climate change
Contents
Foreword Executive summary Recommendations Focus on priority technology families to maximise UK strengths Develop the conditions to allow business to invest Embrace innovation to drive further business success References Case studies Ford Britain: developing low-carbon engines Ma (Innovation): conceptualising new hybrids Barclays: helping London lead in carbon finance QinetiQ ZephIR wind profiler: applying research RWE npower: investing in offshore wind opportunities BP: benefits of long-term policy Imperial Innovations: promoting incubation Corus: unlocking EU funding Rolls-Royce: investing in low-carbon aviation Graham Construction: low-carbon public procurement Transport for London: procuring hybrid buses Wrightbus: delivering low-carbon public transport Pelamis and E.on: demonstrating marine power AlertMe home smart energy system: skills driving new ideas Sun Microsystems: greening data-centres Ford Britain: reducing emissions through its people Cisco Telepresence: harnessing innovative thinking
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Foreword by Richard Lambert, CBI
We often read about the need to build to a low-carbon economy and hear about the new ideas that will shape the way we live, work and do business in the future. And so we scan the horizons to 2020, 2030 and 2050 and imagine what might change and how. But the reality is that the future is taking shape around us right now. British companies are already investing in new technology, demonstrating the art of the possible; developing, testing and commercialising the technologies that are already setting us firmly on the path to a low-carbon UK. Companies are changing how we get around, with new low-carbon buses and cars coming off the drawing board and on to the roads, and changing how we use energy, with more of our homes getting electricity from wind, and new smart technology helping us cut down our energy use. Firms are also thinking further ahead and investing in new technology to manufacture low-carbon steel and environmentally-friendly aeroplane engines, create new 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 already beginning to change the shape of things to come in design, construction, engineering, manufacturing, ICT, procurement, power generation, services, investment and transport.
But the importance of this report is not just to showcase what is already happening. It is also to galvanise action to ensure we make the most of this start. Government has an important role to play in making sure business is able to build on this beginning. Without action by government to help create the right conditions for investment by supporting new low-carbon technology based on our existing strengths, we risk missing the opportunities that will present themselves up and down the supply chain. We are seeing the beginnings of a new economy developing in front of us but we need to step up the pace to ensure we make the most of our emerging competitive advantage from our world class expertise. Determined action from government and business will create the right conditions for new opportunities at home and abroad, so the UK can take its place alongside the worlds future leading low-carbon economies. This is not a pipe dream the opportunity is here and now so lets grasp it.
Richard Lambert Director-general, CBI
Executive Summary
Innovation will drive the low-carbon journey. Indeed, meeting our long-term climate change obligations and securing future energy supplies will only be possible by rethinking our business models and implementing the next-generation of low-carbon technologies. This transformation presents enormous growth potential: the market for low-carbon and environmental goods and services in the UK is already estimated at 106bn and is expected to grow rapidly throughout the coming decade.1 Globally the market is estimated at 3tn which means that all major economies are considering how they too can manage the transition to a low-carbon economy and build an economic advantage at the same time. It will not be possible for the UK to compete in all low-carbon technologies. This report argues that building a long-term economic advantage will require smart leadership. This means that the UK needs to focus on developing leadership in a number of key low-carbon technologies building on existing expertise. To turn this into an advantage government needs to develop the right conditions to help the private sector commercialise these technologies and export that expertise and technology globally. Support for low-carbon innovation, intelligent public procurement, building the appropriate infrastructure and skills base will all be essential.
Smart leadership also means action from the business community. The case studies in this report demonstrate that many businesses across all sectors are already starting to integrate low-carbon thinking into their business processes, products and services. And as we move towards a low-carbon future, all companies will need to understand the carbon challenge and embed it into their business models to be successful. Careful support from government will make this transition smoother. This report demonstrates that the low-carbon journey in the UK has already begun. Using case studies from pioneering businesses, it confirms that the UK has the ability to innovate and maximise its strengths to play a leading role in the global low-carbon economy. The danger is that without a more sustained effort this advantage could be wasted. So, to ensure that the UK capitalises on progress to date and remains a low-carbon leader we must: Focus on priority technology families to maximise UK strengths Develop the conditions to allow business to invest Embrace innovation to drive further business success
Recommendations
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. 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. 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. Make it easier to get support: consolidate and streamline applications to public agencies for support and press for greater transparency in EU research programmes. 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. 9 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. 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. 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. 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. Support entrepreneurs: help ensure start-up companies have strong commercial management to bring about full exploitation of technological knowledge.
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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. 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. Enable creative thinking: develop a culture of managed risk taking to aid innovation and create incentives that allow employees to experiment and innovate.
Focus on priority technology families to maximise UK strengths

With almost every country embracing the low-carbon economy, it will not be possible for the 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 in sectors with the greatest potential to create wealth for 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 paper Joining 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, while allowing the market to deliver growth in other sectors.
Building on manufacturing and industrial strengths

The 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).
The UK needs to focus on developing a lead in low-carbon technologies with the greatest potential to create wealth for the country
Exhibit 1 Existing UK industrial and manufacturing strengths

Automotive the UK already has large-scale centres of excellence 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 including Hewlett 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 videoconferencing and working remotely to reduce demand for travel (see case study 17). Offshore structure and operations through experience of exploiting 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 measures throughout domestic, public and commercial buildings.
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Case study 1 Ford 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 vehicle emissions 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 2 Ma (Innovation): conceptualising 3 new hybrids

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 the national 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.
Britain 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.
Maximising research and intellectual property expertise
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We need to maximise our core strengths to gain a low-carbon advantage
Case study 3 Barclays: helping London lead in carbon finance

London 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 4 QinetiQ ZephIR wind profiler: applying research

Accurate 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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Britains 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 brief Low-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 strengths outlined 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
Leveraging natural resources
Case study 5 RWE npower: investing in offshore wind opportunities

In 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 from existing 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).
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.
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Recommendation for BIS and DECC:

1
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.
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Develop the conditions to allow business to invest

Although Britain has a number of existing strengths, these are not unchallenged and if the UK does not continue to innovate and embrace these opportunities, we risk losing the ability to create an 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. 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.
Encouraging and leveraging private finance
In order to ensure market confidence and attract private capital into the UK, the government must ensure a degree of certainty by laying out 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.
Recommendations for BIS and DECC:

2
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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Case study 6 BP : benefits of long-term policy

The 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 to advance 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, development and deployment lifecycle
The 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 demonstration stage.12 Thus we argued in our November 2008 brief Low-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 where it has existing strengths.
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Exhibit 3: The innovation chain

General technology readiness levels Government policy interventions
Basic research Concept formulated Applied research and development Validation in laboratory Validation in working environment Prototype Full-scale demonstration demonstration in working in working environment environment Precommercial deployment Semicommercial deployment Commercial -isation
Technology push
Market pull Business and finance community investments
Case study: Facilities to assist wave power

Research councils Research councils Carbon Trust Marine energy accelerator Carbon Trust Marine energy accelerator QinetiQ tank test, Gosport, Hampshire Scalable testing at the NaREC, North East Live testing at European Marine Energy Centre, Orkney E.on testing of Pelamis at EMEC Wavehub in South West Wave farms nationwide
Source: CBI analysis, adapted from Carbon Trust and EMEC
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 and improve. 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 this preparation 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.
Consumers
Research
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Case study 7 Imperial Innovation: promoting incubation

Imperial 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 be captured 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 to help business manage the risks and bring forward low-carbon innovation
Case study 8 Corus: unlocking EU funding

Part 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 9 16 Rolls-Royce: investing in low-carbon aviation

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 to developing 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:

4
Make it easier to get support: applications for research and development support to multiple public agencies should be consolidated 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:

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.
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).
Promoting intelligent public procurement
Government 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.
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Case study 10 Case study 11 Graham Construction: low- Transport for London: carbon public procurement procuring hybrid buses
Victoria 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). With 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 doubledecker 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.
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Case study 12 Wrightbus: delivering low-carbon public transport

Based 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.
Recommendation for the Office of Government Commerce:

6
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 provision and 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.
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Streamlined planning processes and grid upgrades are important for driving demand and innovation
Creating infrastructure to support regional clusters

Creating the infrastructure to enable the deployment of lowcarbon 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 in power 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 enable low-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 roadmap 23 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).
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Exhibit 3: Illustrative regional cluster map indicating possible low-carbon economic areas
Recommendation for DECC:

7
Dont delay on infrastructure: creating the right physical infrastructure is an essential prerequisite to the roll-out of large-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:

8
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.
Marine energy Carbon Capture and Storage Low-carbon vehicles Nuclear energy Financial services
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Case study 13 Pelamis and E.on: demonstrating marine power

The 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 to support innovation
Ensuring 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 sciences at 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 survey 25 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.
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Case study 14 AlertMe home smart energy system: skills driving new ideas
AlertMe 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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Ensuring the UK workforce has the skills to support low-carbon innovation will be necessary to build expertise and export it globally
Whole house electricity monitor Keyfob
SmartPlug
Alertme servers
Your computer or mobile phone
Home appliance
Heating controller
Recommendations for BIS:

9
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 from international supply-chains and global markets. Support entrepreneurs: help ensure start-up companies have strong commercial management to bring about full exploitation of technological knowledge.
10
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Embrace innovation to drive further business success

The CBI believes businesses that value innovation and integrate carbon into their business plans are likely 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. 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 Business

1
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 brief Less is more: building an energy efficient UK 26 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).
Make 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.
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 report All together now: a common business approach for greenhouse gas emissions. 27
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Case study 15 Sun Microsystems: greening data centre

Innovation 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 businessto-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 take account 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 essential precursor 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 levels
Management 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 sustainability 29, 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 and create 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 business

2
Rethink 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 culture
One of the biggest challenges in innovation, especially in established companies, is the attitude to risk and failure. A culture where it is acceptable to experiment and fail (internally) can be difficult, especially in sectors with established, proven processes. But low-carbon innovation will be required across the economy and will require managed risk-taking by companies and procurers who accept that it is OK to learn.
Case study 16 Ford Britain: reducing emissions through its people

In 2006 Ford Britain introduced a strategy to reduce the environmental impact of operations at its Dagenham plant, making operators responsible for shut-off practices and leading an energy awareness campaign. High-use equipment and engineered machines were optimised to reduce coolant flow and compressed air and chilled water requirements. To reduce the impact of fluid use, all hydraulic oils and coolants for new engines are now organically derived: as well as CO2 savings, these were found to do the job better and last longer. Through setting targets for carbon and waste reduction for each business unit and treating carbon as another measurement, shop floor staff have been empowered to find innovative carbon, and therefore cost, cutting measures.
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Businesses are already beginning to change the shape of things to come in design, construction, engineering, manufacturing, ICT, procurement, power generation, services, investment and transport
As the previous CBI report Excellence in service innovation30 found, incentivising innovation is made harder by the fact that there is no single easy way to measure it. While most companies do measure some form of innovation this is often on an informal basis and can range from a gut instinct approach to detailed analysis of outputs and service use. Creating the right incentives for innovation requires companies to allow their employees to experiment and innovate. In our 2001 innovation survey we found that 40% of SMEs and 70% of the largest companies offered either financial or non-financial rewards to encourage innovation (in general rather than specifically on carbon or sustainability). But standalone incentives are generally less important than motivating staff and recognising innovation through the main performance, bonus and promotion systems. A key element of encouraging innovation is having the right overall work experience by encouraging networking and providing training, being flexible to staff needs and focusing on staff morale. For example Arup, the leading engineering, design and consulting firm, is owned in trust on behalf of its staff and has an approach to business very different to many other companies. Instead of concentrating effort on meeting cost and productivity targets they focus on staff morale and development, and by doing so find they easily achieve excellent productivity and profit growth. Giving space for employees to think creatively about how low-carbon products and services can be delivered can improve productivity and cut costs. Ciscos development of TelePresense emerged from its I-Zone idea based on thinking from employees (see case study 17).
Recommendation for business

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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Case study 17 Cisco TelePresence: harnessing innovative thinking

Cisco Systems is a major multi-national computer networking company with over 66,000 employees worldwide, many working directly on research and development. Cisco first launched its TelePresence technology in October 2006. Through providing high definition video and spatial audio this flexible system is designed to link separate rooms in different locations so they resemble a single conference room. The TelePresence collaboration solution was partially developed through Ciscos Idea Zone or I-Zone, a wiki that gives employees the opportunity to submit new product ideas and build on colleagues ideas. Over 20,000 employees have used this interactive online forum, with more than 1,900 edits or comments to more than 500 ideas. All ideas go through an innovation framework, with the best going to a talent development programme aimed at incubating business models to support new products. The best ideas such as TelePresence result in the formation of new business units.31 Historically, widespread adoption of video conferencing has been held back by poor quality images and technical difficulty. Even when purchased and installed it has often not been seen as an enabler or replacement for traditional face-to-face meetings, resulting in utilisation of the service for as little as 2% of the time. When Cisco installed its next generation telepresence suites in the UK it found dramatically increased utilisation rates, averaging almost 50% in the first two and a half years. This leads to reduced travel, increased productivity and significant carbon savings. Cisco has been able to decouple its business growth from increasing travel and has seen a direct correlation between the number of TelePresence units deployed and travel expenditure. In spring 2009 Cisco moved into a new London office with seven TelePresence rooms capable of accommodating between one and 18 people. It currently has 22 TelePresence suites deployed across the UK. As well as reduced travel and carbon emissions, the system has led to an estimated $87m productivity savings and enabled senior executives based in San Jose to conduct much more frequent one-to-one meetings with senior clients around the world. Given the financial and productivity benefits TelePresence has been developed by several businesses worldwide with limited government support. Cisco has found uptake in the UK has been greatest among companies with several business centres for example as a result of a merger which need regular communication. TelePresence in numbers for Cisco: 58,000 $232m $87m 125,000 tonnes 28,500 491 4,500 journeys avoided saved from reduced travel costs productivity increase CO2 emissions saved CO2 equivalent to taking cars off the road TelePresence rooms worldwide average TelePresence meetings each week
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References
Innovas, Low-Carbon and Environmental Goods and Services: an industry analysis, March 2009
18 http://www.guardian.co.uk/environment/2008/oct/20/ travelandtransport-rollsroyce 19 Case Study: Forward Commitment Procurement: http://www.dius.gov.uk/innovation/demanding_innovation/ procurement_policy/forward_commitment_procurement 20 See annex 2 of the Green Book as well as the supplementary Simple guide to value for money and sustainability. http://www.hm-treasury.gov.uk/data_greenbook_index.htm and http://www.hm-treasury.gov.uk/data_greenbook_money_ sustainability.htm 21 http://www.tfl.gov.uk/corporate/media/newscentre/ archive/10631.aspx 22 The RPI-X@20 review and Transmission Access Review 23 CBI, Going the distance: the low-carbon power roadmap, April 2008, http://climatechange.cbi.org.uk/uploaded/CCT_010_02%20 POWER_2v1.pdf 24 http://www.eon-uk.com/generation/1716.aspx 25 CBI, Emerging Stronger: the value of education and skills in turbulent times, April 2009, http://www.cbi.org.uk/pdf/20090406-cbi-education-and-skillssurvey-2009.pdf 26 CBI, Less is more: an energy efficient UK, March 2009 http://climatechange.cbi.org.uk/reports/00167/ 27 CBI, All together now: a common business approach for greenhouse gas emissions, May 2009, http://climatechange.cbi.org.uk/reports/00195/] 28 Greener and Cheaper: Subaru lessons in MIT Sloan Management Review, 23 March 2009, http://sloanreview.mit.edu/business-insight articles/2009/1/5114/greener-and-cheaper/ 29 CBI, Getting involved: a guide to switching your employees on to sustainability, August 2009, http://climatechange.cbi.org.uk/reports/00297/ 30 CBI, Excellence in service innovation, p32-33, July 2008, http://www.cbi.org.uk/pdf/Excellenceinserviceinnovation.pdf 31 http://www.cisco.com/web/about/ac227/csr2008/ our-employees/engaging-our-employees.html
2 CBI, Joining the Dots: how to make the UK the place to do low-carbon business, July 2009, http://climatechange.cbi.org.uk/reports/00280/ 3 http://www.shellspringboard.org/news/51 4 http://www.shellspringboard.org/ This annual programme gives recognition and up to 40,000 to UK low-carbon business ideas 5 E&Y Prospectus for London the Low-Carbon Capital, p12: http://www.london.gov.uk/news/docs/London-low-carbonreport-09.pdf
6 http://www.barcap.com/Client+offering/Global+Markets/ Commodities/Emissions+Trading 7 CBI, Low-Carbon Innovation: developing technology for the future, November 2008, http://climatechange.cbi.org.uk/uploaded/ CBI-LowCarbonInnovation.pdf 8 HM Government, UK Low-Carbon Industrial Strategy, July 2009, http://www.berr.gov.uk/files/file52002.pdf 9 World Energy Outlook 2008, OECD / IEA. http://www.worldenergyoutlook.org/2008.asp 10 CBI, Going the Distance: the low-carbon economy roadmap, http://climatechange.cbi.org.uk/reports/00172/ 11 HM Government, Building Britains Future, June 2009, p51, http://www.hmg.gov.uk/media/27749/full_document.pdf 12 Sainsbury Review of Science and Innovation, October 2007, http://www.hm-treasury.gov.uk/sainsbury_index.htm 13 http://www.emec.org.uk/pathway_to.asp 14 In the UK 17% of R&D expenditure is financed from abroad, the second highest percentage in the OECD and well above the EU average of 8.4% (2006 figures, from p. 16 OECD Main Science and Technology Indicators Vol 2008/2) 15 European Commission, FP6 Final Review: Subscription, Implementation, Participation, June 2008, http://ec.europa.eu/research/reports/2008/pdf/fp6-finalreview.pdf 16 http://www.sbac.co.uk/community/dms/download. asp?txtFilePK=5398 17 http://www.enviro.aero/Aviationindustryenvironmentalnews. aspx?NID=80
Acknowledgements: We are grateful to the many people and companies who provided case studies and photos and gave their time and ideas to help in the preparation of this report. Photo of North Hoyle on page 15 Dan Tower 2004. This report was written by Joel Kenrick, CBI policy advisor.
For further information about CBI work on climate change or a copy of this report in large text format contact:
Naomi Harris Policy advisor Climate change business environment T: +44 (0)20 7395 8051 E: naomi.harris@cbi.org.uk
Climate change: everyones business

The CBI climate change board: building a low-carbon economy The CBI climate change board was set up in 2008 to deliver the commitments set out in the CBI 2007 climate change taskforce report Climate change: everyones business. The report recognised that government, business and consumers all have a role to play in making the shift to a low carbon economy. The board brings together senior business leaders from a range of sectors to demonstrate business commitment to managing the risk of climate change by: promoting business-led policy solutions to realise carbon savings showcasing business opportunities for green growth leading by example on corporate commitments to manage carbon footprint monitoring progress by government and business in realising the UKs carbon targets influencing a post-2012 international climate change agreement.
July 2009 Copyright CBI 2009 The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI. ISBN: 978-0-85201-706-7
Product code: CCT_019
www.cbi.org.uk/climate change

Pulling Ahead - Innovating For Low-Carbon Leadership

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