The green tinge of local manufacturing

National decarbonisation goals are driving a global race in near-shoring, on-shoring and friend-shoring of production, with India actively joining this dynamic landscape

Localised supply chains — which most countries are trying to incentivise — have a cost, but there is an environmental benefit too. “It is pretty impossible to hit decarbonisation targets if you are shipping materials constantly across vast distances,” Hilary Maxson, the chief financial officer of Schneider Electric, told BloombergNEF in a recent interview. The $37 billion energy management and industrial automation solutions company has built regional supply chains over the years to meet sustainability commitments made since 2005, which have also improved its speed to market.

Every country is looking at local manufacturing as the magic mantra. The alluring package of incentives offered by the US through its Inflation Reduction Act has triggered billions of dollars of investment commitments to manufacture locally, and Europe is attempting the same feat with its own set of policies. Companies like Enel’s 3Sun are, therefore, setting up gigawatt-scale solar manufacturing plants in Europe and in the US. The UK is also working on its subsidies, though it will never be able to match US President Joe Biden’s enormous package of green subsidies, UK business minister Nusrat Ghani said in a Bloomberg interview. There is a strong case for collaboration between Europe and the US by forging a “Green Transatlantic Marketplace,” according to Ann Mettler, who leads Breakthrough Energy’s policy team in Europe, and is pushing for a joint approach.

India is in the same arena, with its production-linked incentive scheme for multiple sectors, including solar and batteries. These are intended to “strategically enter certain segments of global value chains, which is expected to transform India’s exports basket from traditional commodities to high value-added products,” Som Parkash, the minister of state for commerce and industry, said in response to a question in Parliament last week.

There is a global race to house manufacturing for the more mature clean energy segments, such as solar and wind, as well as that for emerging green technologies — long duration energy storage, green hydrogen, carbon capture and storage, and sustainable aviation fuel, among others. The US reclaimed the top spot as the world’s largest market for climate-tech venture capital and private equity investment in the second quarter, with startups there raising $3.5 billion in 87 deals, according to BNEF. For the first time, India was the second-largest market by both funding ($1.8 billion) and deal count (31). The number was heavily influenced by the more than $1 billion raised by the diversified clean energy player Avaada Energy. Climate-tech investments typically span energy, transport, industry, buildings, agriculture and carbon.

At the root of these strategic shifts in production are national decarbonisation goals. Countries responsible for 68 per cent of global greenhouse-gas emissions are already covered by a net-zero target, according to BNEF. This could ratchet up to over 90 per cent, if all the plans under discussion are finalised. That means there will be more news of near-shoring, on-shoring and friend-shoring of production.

Some recent announcements of interest include:

* Tata group plans to build a $5.2 billion battery plant in the UK to supply electric vehicles made by Jaguar Land Rover Automotive. JLR and Tata Motors will be the anchor customers for the plant that will begin supplying from 2026. A compelling incentive package was offered by the UK to clinch the deal. Spain reportedly offered serious competition.

* ExxonMobil, which has set a goal of extracting 100,000 metric tonnes of lithium per year, is in talks with car makers and battery manufacturers for supply of the metal, Bloomberg News reported.

* Apple’s reliance on China-based suppliers could persist. While the total number of Apple production sites went down from 745 in 2021 to 735 last year, China’s share of production sites increased from 35 per cent to 38 per cent, according to Bloomberg Intelligence. Japan’s site share increased from 14 per cent to 17 per cent, the US was down from 11 per cent to 9 per cent, while India remained at 2 per cent.

* The Lawrence Livermore National Laboratory near San Francisco that last year reached a long-sought milestone in nuclear fusion — a controlled reaction that yielded more energy than it took to produce — has repeated the achievement after months of near misses. That is a big step forward, but a future powered by nuclear fusion remains years off, if it happens at all.

The writer is New York-based senior editor – global policy for BloombergNEF, vgombar@bloomberg.net