Sustainable Business Magazine

Paul Ruyssevelt is strategic project director at Camco with extensive experience of carbon management for private and public sector clients, sustainable energy strategies for major mixed-use building developments and post-occupancy evaluation of building performance. SB online May Edition pp25

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The requirement to purchase carbon allowances under the Carbon Reduction Commitment (CRC) in April 2010 will bring the issue of climate change and carbon emissions to the desk of the Finance Director or CFO for first time in many of the thousands of organisations that will be captured by this legislation. The CRC is the subject of a current round of government consultation which is beginning to cause considerable debate and controversy. Despite the overall objective of fiscal neutrality as far as the Treasury is concerned, there will be winners and losers in the business community and the public sector, and what’s more, this information will be in the public domain. The CRC ‘league table’ of performance will add reputational risk to the list of issues that executive boards will need to consider when responding to the CRC.Despite early Government assurances when the CRC began life as the Energy Performance Commitment (a name quickly dropped due confusion with Energy Performance Certificates for buildings) the legislation has become increasingly complex with early mover metrics operating in the first year, a gradual move to cap and trade over time and a move from straight sale of allowances in 2010 to auctions from 2013. Add to this the requirements to obtain, store, manage and report energy data to a standard that goes well beyond many organisations existing practices and we have a scheme that could impose a significant administrative burden.So, is this a millstone or a golden opportunity? There are certainly penalties attached to non-compliance such as fines on directors if data is not readily available for inspection. So achieving compliance is fundamental. However, organisations should be aiming much higher to reach the more substantive financial and reputational rewards that result from successful carbon management. The cash benefits of greater energy efficiency, better resource utilisation and significantly lower overheads are compelling. Typically, energy and resource cost savings, which deliver perpetual rather than one-off benefits, can be in the range of 10-25%. The question for many organisations will be where do we start? A simple 5 point plan might entail:

1. Establish if the organisation is in or out of the scheme. If more than 6,000 MWh of electricity was used on sites with half hourly metering or automatic metering in 2008, you’re in.
2. Having decided that you’re in you need know how much CO2 the company is responsible for emitting from stationary sources (ie: buildings and factories but not cars and lorries). This will determine the number of allowances that need to be bought.
3. Decide if you can implement either of the early mover metrics by achieving the Carbon Trust Standard or installing automatic meter reading systems. This will help the first year league table position.
4. Consider the overall strategy to be employed on a 3-5 year timescale to reduce CO2 emissions by establishing specific targets that will ensure the CRC makes a positive return and long term net cash savings are made on utility expenditure.
5. Identify the range of projects that can be implemented to reduce CO2 across the organisation’s sites and establish a priority ranking for implementation using a Marginal Abatement Cost Curve like the one illustrated below.

If the CRC wasn’t enough to be thinking about there is more on the horizon for the board to think about with the prospect of reporting CO2 emissions in the annual company report from 2012 onwards. Consultation on this policy is expected in May with the Government reviewing the contribution that carbon reporting could make to reducing UK emissions and the attendant costs by December 2010. Given the very real threat of hefty penalties, increasing operational costs and reputational damage, carbon strategy needs to assume a priority status in the boardroom rather than being confined, as it has been historically, to the specialist attention of energy managers. Achieving competitive advantage will require Directors to adopt a transformational shift in their decision-making processes and in their knowledge of organisational exposure to carbon risk. In the run up to 2010, immediate efforts should focus on reviewing their business activities from a Carbon perspective. This will involve using new skills from both within and outside their businesses to review the applicability and scope of their technology and systems, the interdependencies between teams, and the integrity and relevance of their management intelligence. These foundations are necessary to plan investment that will generate the optimal carbon savings, ensuring emissions liabilities are turned into real, lasting and competitive assets. The time to undertake this review is now.