Most SME decarbonisation plans I see have a grant somewhere in the middle of them. Not at the start, where the measurement should be, and not at the end, where the payback sits. In the middle, holding up the part of the plan that was too expensive to justify on its own.
That support has largely gone, and a lot of plans have not been updated to reflect it.
What actually closed
On 8 July 2025 the government confirmed that the Industrial Energy Transformation Fund will not continue, and that the planned second competition window of IETF Phase 3 would not go ahead. Projects already awarded under Phases 1, 2 and the first Phase 3 window are being honoured, along with the £163m committed at the Autumn 2024 Budget. Nothing was announced to replace it; further detail on industrial decarbonisation was deferred to the Carbon Budget and Growth Delivery Plan.
The other route people point SMEs towards has closed too. The Made Smarter Innovation competition for SME resource and energy efficiency feasibility studies — £15.5m across two strands, projects of £25k to £150k — closed on 11 December 2025. It is also worth reading its eligibility properly: the lead applicant had to be an SME technology developer. A factory could participate as a collaborator, but it was never a fund a manufacturer applied to directly.
What remains at adoption level is smaller than most people assume. Made Smarter Adoption offers matched grants of up to £20,000, with the manufacturer funding at least half. That is a £40,000 project. It is real, it is useful, and it is not a decarbonisation strategy.
If your roadmap still contains a line item that says "apply to IETF", it is describing a world that ended fourteen months ago.
Why the numbers made this predictable
UK industry emissions fell by 5.4 MtCO2e in 2025 and now sit 56% below 2008 levels. Those are good headline numbers. But 3.2 MtCO2e of that single-year fall came from the closure of the blast furnaces at Port Talbot.
One site. Ahead of electrification. That is what the industrial decarbonisation line on the national chart is mostly made of — structural change at a small number of very large assets.
It tells you almost nothing about what happens in a 40-person factory in the Midlands, and it explains why the policy attention and the money follow the large sites. Meanwhile SMEs account for 37% of total UK greenhouse gas emissions, and within that, the 14% of SMEs operating in carbon-intensive sectors produce around 84% of all SME emissions.
So the emissions are concentrated in a group of businesses that the funding architecture was never really built around, and the one fund that did reach into industrial energy efficiency has been withdrawn. That is the actual position going into 2027.
The uncomfortable part
A decarbonisation plan that only works if a grant arrives was never a plan. It was a funding application with a roadmap attached.
I understand why they get written that way. Capital is tight, the paybacks on heat decarbonisation are long, and a grant is the thing that makes the board paper work. But the consequence is that when the grant disappears, so does the project — and the underlying waste, which was there before any of it, carries on.
The test I would apply to any decarbonisation roadmap right now is simple: remove every line that depends on external funding, and see whether anything is left. If the answer is no, the plan was never about the factory. It was about the fund.
What actually survives the funding disappearing
The work that pays for itself does not need a grant, and it is the work most sites have not finished.
Measure energy against output, not against the calendar. A monthly utility bill tells you what you spent. It does not tell you that one line uses 18% more electricity per unit than the identical line next to it. A plant can hold total energy flat and get steadily less efficient with every unit it makes, and the bill will not say so.
Find the losses that are running when nothing is being produced. Compressed air leaking through the weekend. Ovens heating empty space before shift start. Motors held at full speed by a process that does not need it. Steam and hot water losses that maintenance stopped logging years ago because they became normal. None of this needs capital. Most of it needs somebody to look.
Get the baseline before choosing the solution. Twelve months of electricity, gas, water. Half-hourly data where it exists. An asset list covering the ovens, compressors, chillers, motors and process heat. The production flow mapped against it. Without that, money gets spent in the wrong place — and now there is less of it to waste.
In my own research, combining machine learning with process and thermal redesign produced 29% energy savings, 43% cost reduction and 19% lower emissions. Earlier, applying Lean Six Sigma and machine learning to a production line at Hitachi Astemo cut reject rates by 3% and moved OEE to 85%. Neither came from new capital equipment. Both came from understanding what the process was actually doing.
What I would do in the next 90 days
- Audit your roadmap for dead funding. If it names the IETF or the Made Smarter Innovation feasibility route, those lines are void. Know that before someone else points it out.
- Build the baseline. Energy per unit of output, by line, by shift, by product family. Not site totals.
- Rank by payback, not by carbon. The projects that survive scrutiny are the ones finance would approve anyway. Carbon is the second-order benefit, and framing it that way is what gets it signed off.
- Use Made Smarter Adoption for what it is. Up to £20k matched is a decent contribution to monitoring and diagnostics. It is a poor contribution to a heat pump.
- Stop waiting. The Carbon Budget and Growth Delivery Plan may reopen support for electrification and fuel switching. It may not do so in a form an SME factory can reach. Either way, the compressed air leak is costing money today.
The point
The withdrawal of the IETF is being read as a setback for industrial decarbonisation, and for large sites planning fuel switching it clearly is. For SME manufacturers I think it is closer to a clarification.
It removes the option of deferring the unglamorous work until the funding arrives — the measurement, the baseline, the leak survey, the honest look at energy per unit. That work was always the higher-return half of the problem. It was just easier to postpone while there was a grant to wait for.
There isn't one now. Which makes this a good moment to find out what your factory is actually doing.
Sources
- IOM3, Closure of the UK's Industrial Energy Transformation Fund — announcement of 8 July 2025.
- Innovate UK Business Connect, MSI: SME resource and energy efficiency — feasibility studies — £15.5m, £25k–£150k projects, closed 11 December 2025.
- Climate Change Committee, Progress in reducing emissions: 2026 report to Parliament — industry emissions down 5.4 MtCO2e in 2025, 56% below 2008, 3.2 MtCO2e from Port Talbot.
- British Business Bank, SMEs and Net Zero 2025 — SMEs at 37% of UK greenhouse gas emissions; 14% of SMEs in carbon-intensive sectors producing ~84% of SME emissions.