The Prime Minister’s Ten Point Plan for a Green Industrial Revolution and the Climate Change Committee’s (CCC) Sixth Carbon Budget have both confirmed, if there was any doubt, the UK’s commitment to Net Zero. The water industry should be strongly commended for taking a bold leading position. Building on its achievements in reducing operational emissions by 45% since 2011, it has now, through the Water UK Net Zero 2030 Routemap, set out a strategy to achieve zero net operational emissions by 2030. This would save about a third of the UK’s greenhouse gas emissions from industrial and waste management processes.
The 2030 deadline is a significant challenge, given that many of the ‘low hanging fruit’ has already been realised in achieving the 45% reduction. The industry will need to work harder and more creatively to achieve target reductions. To this challenge must be added the challenge of meeting full Net Zero by 2050 and the industry should start working towards this now. This will bring in a range of broader initiatives outside the operational sphere. This will stretch the companies, but we strongly believe that these initiatives will, in addition to positioning the industry for 2050, create a positive impact on the 2030 target.
We believe there are six areas which the industry should address.
The consumer must be at the heart of Net Zero. The current strategy describes a ‘collaboration between water companies, policymakers and the supply chain’, but we must add consumers to that group. Profound changes will be required to homes, travel, consumption, and waste management to achieve Net Zero. Winning the hearts and minds of consumers is a collaborative task for us all. Government, consumer groups, business, commerce and educational institutions all have a part to play. This will be a difficult task, as the GB smart metering programme has shown, with substantial resistance to consumers accepting appointments for new meters despite a nationwide awareness campaign.
The time may, however, be right for a change. Ethical consumer spending has hit a record high in the UK of over £41bn; 73% of customers now expect online retailers and brands to use recyclable packaging and 35% state they will only purchase products which have been naturally, locally or sustainably sourced.
Water companies could have a very positive influence. They are largely trusted organisations with a positive consumer acceptance. The industry has already been at the forefront of consumer behaviour change. Many have strong educational campaigns, products and services that help in reducing per capita consumption (PCC). The opportunity for the industry is to move from ‘company-push’ to ‘consumer-pull’, by linking such initiatives to climate change and Government-led marketing and awareness on Net Zero.
The AMP7 period will see substantial projected spending on new and refurbished assets of greater than £50bn. Further, the industry will be decommissioning large- and small-scale infrastructure. It is vital that both these activities recognise the opportunity to minimise emissions, by reducing embedded emissions, using carbon efficient materials, assessing the future carbon impact of the assets, adopting the principles of the circular economy and managing timely decommissioning, with a focus on reduce, re-use and recycle.
Further, there is also the need to adapt current and future infrastructure to both the physical and transitional risks that climate change poses. The Committee on Climate Change reported in their 2017 UK Climate Change Risk Assessment Evidence Report that climate change is expected to lead to an increase in both the frequency and severity of severe and sudden weather events including flooding and drought. There will be a need for balance to both meet the Net Zero target but also to protect business continuity from the physical impacts of climate change.
There would be merit in considering establishing a new ‘Common Framework’ to help address these challenges. This could address both the physical infrastructure and the opportunities of applying the technologies of Industry 4.0 and digital twins to increase understanding and enhance response. The original Common Framework for Capital Maintenance Planning was founded on risk-based principles. It provided an opportunity to synthesise best practice from across the industry and provide the opportunity for a step change in maintenance. That opportunity exists again.
The UK Net Zero system
Net Zero will only work at a UK level if there is a total system view encompassing multiple sectors. There will be transformational changes in transport, energy, industry and homes. These all need to be brought together to ensure there is a coherent overall strategy. For example, the drive for electric vehicles will create increased demand for energy from the grid that needs to be managed. The push for hydrogen to replace gas, could create a 20% increase in demand for water by 2050 - a time when we know water will be becoming increasingly scarce due to climate impacts.
These interdependencies need to be understood and managed through clear cross-sector governance. The Water UK 2030 strategy recognises this, and the industry needs to ensure it is front and centre of appropriate governance. Importantly, there are opportunities to go much further, embracing consumption and the supply chain as part of this system. This allied to consumer awareness already cited, provides major opportunities. There are some horrifying statistics in the supply chain: it takes fourteen litres of water to make one cup of coffee and it takes five litres of water to make a one litre bottle of water. Leading consumer goods companies such as Unilever, P&G, Britvic and Nestle are looking to change this. For example, through more efficient production of water (The Boiling Tap Company, a Britvic Company, takes just one litre of water to produce one litre); P&G, Nestle and Unilever are removing water from some products entirely, leaving it to be added by the end consumer at the point of consumption, thereby reducing the carbon and water transportation in the supply chain. The power of consumer pressure coupled with the water industry working closely with industry, can have seismic planetary and financial impacts, greater than the sum of any single organisation.
The regulators have a challenge in that their terms of reference do not currently include any responsibility for Net Zero. This issue has crystallised in both the recent energy price controls and PR19, where, for example, Ofwat disallowed all spending on smart meters, despite their potential to aid PCC, leakage and incident reduction. In their submissions to the CMA, the companies have highlighted the need to invest now for a resilient long-term future. Failure to do so will create intergenerational unfairness; there is no greater example of this than the need to combat climate change.
This situation needs to change. Encouragingly, the recently published National Infrastructure Strategy proposes that regulators should have a Net Zero duty and the Confederation of British Industry (CBI), in its submission to the Chancellor ahead of the Budget, has stated that regulators must have a ‘clear remit’ to support Net Zero.
Ofwat must get behind Net Zero in PR24 and ideally earlier, with real investment allowances and performance commitments to reward achievement and penalise poor progress towards net zero.
Meeting the challenge of Net Zero will require innovation, creativity, and open minds. It is vital that we break down silos within industries and across industries to maximise learning and opportunity. The water industry has much to learn from other sectors and much to offer. As an example, the work the industry has undertaken on risk and resilience – balancing competing priorities for asset performance and customer service in the context of both short- and long-term pressures – is very strong and comprehensive and already delivering outcomes. In addition, the industry should take its leading Net Zero 2030 strategy to manufacturing and chemical industries. There is a huge opportunity to align all the process emission heavy industries behind this goal and work together on the solutions.
Diversity, and diversity of thought, within organisations is a key ingredient to innovation. The cost of the pandemic has been horrendous in human and economic terms, but it has shown there is a remarkable capacity to embrace change and adapt. As the vaccination rollout liberates us, we must use diversity of thought not to just return to normal, but to create a ‘new normal’ that aids the path to Net Zero.
A digital strategy is one area; the pandemic has shown that much activity can be conducted remotely, and a digital strategy will enable this. This is an area where the water sector can learn from other industries. Real estate is another area where water companies will probably have excess capacity. A creative water company could gift property space to not for profit organisations or start-ups developing tools and technologies to meet Net Zero.
The pandemic presents wider opportunities that go beyond the “E” (environment) of ESG and cross into Social and Governance too. Indeed, achieving net zero means putting a balanced weight and focus on all three aspects. Virtual and remote working has given us access to more of the workforce than ever before whilst also reducing Scope 3 emissions (business travel) and this should be embraced by the industry who can now employ return to work parents, the disabled, those who live in restricted UK geographies and beyond in a more flexible way.
Inclusion and Diversity is increasingly becoming one of the key issues of the sector, and we should look for ways in which to harness the new perspectives the pandemic has given us.
In conclusion, how should water companies be addressing these challenges and opportunities in 2021? The industry is already facing a demanding year, coping with COVID impact on customers and the workforce, meeting the tough new AMP7 regime and commencing its commitment to Net Zero operations by 2030. Is planning for 2050 a bridge too far?
We firmly believe that it is essential for water companies to start planning now. The industry now has a place on the COP26 agenda and an opportunity to show international leadership. Progressing plans will put the industry on the front foot in addressing 2050 and aid preparations for 2030 anyway. We would recommend four key activities.
Firstly, press full steam ahead with the 2030 strategy. This is a bold coherent strategy that will reduce emissions and set an example to other industries. Second, work with stakeholders to identify how to raise the potential and seize the opportunity of ‘consumer-pull’. Thirdly, establish a working group to consider the merits of a new ‘Common Framework’ for Net Zero compliant capital development and decommissioning. Lastly, embrace diversity and the opportunities for change that the pandemic has created; develop a suite of continuous reskilling programmes in line with newly employed technologies and ways of working as historic practices and technologies wane over time.