The UK Government’s Energy Security Strategy has been widely criticised for missing the opportunity to relieve pressure on families and businesses struggling with energy bills. So-called “easy wins”, such as bringing in building insulation regulations and investing heavily in offshore wind, were missed. However, despite this commentary, businesses here have an opportunity to push forward greening themselves through commitments and strategies that in turn chart a course toward loftier goals. One way to do this is to identify opportunities to embed alternative fuels into the value chain and business activities wherever they are most appropriate. Taking advantage of government investment in hydrogen and the continued increase in wind capacity are clear opportunities for decarbonisation across supply chains and wider business operations. Being open and prepared to take early action can increase the benefits to business.
What is an ambition loop?
The concept of the ambition loop has been used to describe the increasing shift towards climate goals and action from governments and business. It contends that strong national policy can encourage businesses to take action which, in turn, provides impetus to move even faster towards a lower carbon economy.
Businesses with strong visions and, crucially, intelligently formulated sustainability strategies can work to close the gap in the ambition loop many describe as being left unfilled by the Energy Security Strategy. A full assessment of the value chain is necessary for businesses to gain a clear picture of the specific opportunities to decarbonise, covering not only Scope 1 and Scope 2 – emissions caused directly by the company’s activities, but also Scope 3 – emissions from the rest of the value chain. Through such introspective reflection, the most significant risks to each business can be identified and many can be alleviated through an openness to alternative fuels. In doing so, the opportunities to make progress through alternative fuels can be realised.
How can businesses help using alternative fuels?
Companies willing to take action on alternative fuels stand to gain the most from recent government investment and can drive further state funding in the future, so the principle of the ambition loop contends. We have seen promises of £4 billion into the UK electric vehicle sector and £240 million into the Net Zero Hydrogen Fund – part of a UK government plan to achieve its target of 10GW of hydrogen production by 2030. The introduction of electric transport into the supply chain is a key change companies can make to decarbonise. This is becoming a more attractive prospect as the proportion of electricity generated in the UK by renewables has been increasing year on year, reaching 43% in 2020.
But it is not just traditional electrification that can provide benefits. A diversified portfolio of alternative fuels at work in the value chain stands companies in the best stead to insulate against energy price fluctuation and supply disruption. As money is poured into the hydrogen sector, the cost is likely to sink. Fuel producers are having to increase the proportion of their yearly supply that can be considered a renewable transport fuel as part of the Renewable Transport Fuels Obligation (RTFO) – the demands of which become greater annually. Suppliers will need to provide more biofuels, but also renewable fuels of non-biological origin (RFNBO), with hydrogen being one of the most viable. As these fuels become more widely available, the cost will decrease, enhancing the benefits of switching to a diverse fuel mix within the value chain.
The risks of failing to reduce fossil fuel dependence where possible are material. Operational and financial benefits of embracing alternative fuels in some areas are clear to see: for example, as more cities implement low emission zones and with company car tax in the UK at just 2% for electric vehicles for 2022/23. Once the prevalence of electric vehicles has increased, these favourable tax arrangements are likely to be reduced or removed.
Reputational risk may also come into play for many businesses, whose customers and investors expect action on net zero – failure to act swiftly may be met with backlash. On the other hand, overblown claims of sustainability and climate-friendliness require rigorous evidence and transparency, or else risk being viewed as greenwash. If strategy can seek to incorporate alternative fuels into the public-facing elements of value chains, companies can reap the reputational benefits.
Thorough analysis of the value chain is the initial stage in identifying which areas of a company require urgent decarbonisation and where the greatest gains are to be made. It is from this starting point that the potential for alternative fuels to drive down costs and increase energy security can be pinpointed within a business.
Sancroft is a leader in ESG incorporation and improvement. If you would like to find out about how we can help you develop your sustainability strategy, please get in touch with our CEO Judy Kuszewski at firstname.lastname@example.org or our Analyst Benedict Greenway at email@example.com.