Green light on carbon
1 Jul 08
Environmental concern has a high priority - literally, with giant turbines often visible for miles, and metaphorically. WIth many companies taking their responsibilities seriously, Richard Goslan reports on the moves already made and the importance of getting a start for those that have delayed
by Richard Goslan
Since the publication of the Stern Review on The Economics of Climate Change in October 2006, it has been impossible for businesses to remain in the camp of climate change deniers and retain their credibility.
Stern’s report emphasised: “Mitigation – taking strong action to reduce emissions – must be viewed as an investment, a cost incurred now and in the coming few decades to avoid the risks of very severe consequences in the future.
“If these investments are made wisely, the costs will be manageable, and there will be a wide range of opportunities for growth and development along the way.
“The evidence shows that ignoring climate change will eventually damage economic growth. Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century.”
If Stern’s strongly-worded report was not enough to shake recalcitrant companies into action, there is an increasing amount of legislation in place at global, regional and national level to force businesses to cut their carbon emissions.
The Kyoto Protocol, named after the environmental summit in Japan dating back to 1997, sets legally binding targets for greenhouse gas emissions on the developed nations which ratified the treaty. The overall target is to cut emissisons by 5.25 per cent from 1990 levels by 2012. The EU signed up for an 8 per cent reduction target. The US is the only developed nation out of the so-called Annex 1 group not to have ratified the treaty.
The European Union has endorsed proposals to reduced greenhouse gas emissions by at least 20 per cent by 2020. The centerpiece of its strategy is the Emissions Trading Scheme (ETS), a “cap and trade” scheme which issues companies in energy-intensive industries with permits to produce carbon dioxide. If they want to emit more than their quota, they can buy more permits from greener companies which have not used their allowance.
And here in the UK, the Climate Change Bill, introduced in Parliament in November, has completed its passage through the House of Lords, and is expected to receive Royal Assent this summer. The bill sets the targets of a 20 per cent reduction in emissions by 2012, 26 to 32 per cent by 2020 and 60 per cent by 2050.
All this puts pressures on companies to seriously address their environmental policies and formulate their strategies for reducing their carbon emissions.
According to John Stocks, manager for the Carbon Trust in Scotland, it is a process which, if not under way already, needs to be on every company’s immediate agenda.
“Across the globe, we have to get emissions down, which means we have to use less energy,” he says. “Our view is that you should first try to cut out the waste of energy, secondly you should try to convert energy more efficiently – so that could mean putting in a low-energy lightbulb – and then think about renewables to decarbonise your supply.”
Among the companies the Carbon Trust has worked with is DuPont Teijin Films in Dumfries. The company produces polyester films for use in food and drinks packaging, construction materials and healthcare products. DuPont invested in an automated energy monitoring and targeting (M&T) system in 2005, to give it a clear idea of how energy was being used on site. By being able to target energy saving measures in specific areas, DuPont estimates it saved £125,000 in energy costs for 2007 (at last year’s prices), and cut its carbon emissions by 1400 tonnes of CO2. The M&T system cost just £34,000 for the hardware, software and installation.
The environmental consultants and engineers, Mabbett & Associates, spent an extra £5,000 on lighting, heating controls and insulation when they were restoring their office in a Georgian townhouse in Glasgow’s city centre. Their annual savings come in at around £2,700, meaning payback on their investment within two years, and they have reduced their emissions by about 13 tonnes a year.
Paul Adderley is business environment manager with the Business Environment Partnership, which provides free and subsidised assistance with environmental management to small and medium-sized enterprises (SMEs) in Scotland. He says the biggest selling point of undertaking an environmental audit is in the potential savings an SME can make.
“Environmental responsibility also means profitability, and ultimately competitive advantage,” he says. “You reduce your exposure to energy prices, or waste disposal costs, and when you reduce that, you reduce the volatility of your profits, it gives you a less risky business and it attracts investment.
“We work out the company’s carbon footprint as the baseline, then we develop a carbon management plan which introduces behavioural changes – quick win things like getting people to turn the lights off – we look at resource efficiency, then renewables, and then after all that, if you’ve still got some carbon left, we consider what offsetting programmes you could use.”
The rush for companies to reduce their carbon footprints by trading emissions has resulted in a booming market. In May this year, the World Bank reported that in 2007, the market in carbon trading doubled compared with 2006, with emissions trading worth around $64 billion (£32.8 billion). The EU’s ETC scheme made up the bulk of the market, but through the Kyoto Protocol, companies can make up part of their targets by funding greenhouse gas reduction schemes, such as wind turbines or solar power plants, in developing countries. These projects are then awarded credits for governments or companies to buy.
The Carbon Neutral Company (TCNC) is one of the leading providers of offsetting solutions, working with companies of all sizes in the UK and around the world to measure their carbon footprints and then set targets on reducing their emissions.
TCNC works with the Edinburgh Centre for Carbon Management, founded at Edinburgh University for the analysis of greenhouse gas emissions from corporate activities, product supply chains and terrestrial ecosystems.
After an analysis of the company’s carbon footprint, taking into account internal and external factors, TCNC can then help to identify target areas where emissions can be reduced, or can help a company to offset its carbon emissions by purchasing carbon credits in environmentally friendly schemes elsewhere in the world.
“We have different accreditations depending on your business,” explains Sharon Corrigan from TCNC. “But we would look at your operations, your business travel, your commuting, operations in terms of energy usage, and your supply chain management.
“You can be a net-zero company in terms of carbon emissions – but you have to do it through a mixture of internal and external reductions.”
The company now has more than 300 large corporate clients, including Honda and BSkyB, and 60,000 consumer clients worldwide.
BSkyB declared itself a carbon-neutral company in May 2006. Measures it took include calculating its carbon footprint based on CO2 emissions from its premises, company vehicles, business travel and the amount of waste going to landfill. The company was able to target emissions by switching to renewable energy in England and Wales, and combined heat and power in Scotland, installing automatic light sensors, increasing the energy efficiency of its set-top boxes and giving staff an incentive to buy low-emission hybrid cars with cash payments and negotiated pricing.
To take responsibility for its unavoidable emissions, BSkyB invested in two renewable offset projects through TCNC, a wind power project in New Zealand and a micro-hydro scheme in Bulgaria.
But offsetting has been criticised on several counts. A survey last year for the technology company Kyocera found that 47 per cent of the UK’s large organisations see carbon trading as confusing and lacking any real value in pursuing carbon emission reductions. A further 24 per cent found that “carbon bargaining” was a poorly conceived idea, that only serves to divert attention from the root causes of climate change.
Tracey Rawling Church, marketing director at Kyocera, says: “The idea that organisations can buy the right to pollute or assuage corporate guilt by planting some trees diverts attention from what should be the real priority – reducing emissions in the first place. Carbon offsetting and trading have their place, but they are in danger of being seen as a panacea for conspicuous commercial consumption.”
Dax Lovegrove, head of business and industry relations at WWF, agrees. “A lot of companies talk a good game on this but there’s still too few with a good climate change strategy which is built into their general business strategy,” he says. “There’s a long way to go before the mainstream business world starts to manage its carbon footprint.
“Our mantra is avoid carbon emissions, reduce, and then offset as a last resort, and that needs to be drilled home – that companies absolutely need to prioritise energy savings to the greatest extent, look to the renewable supply of energy as far as possible, and then as a last resort, offset the irreducible emissions.”
It is an approach that Big Four accountancy firm KPMG endorses. Its carbon advisory group calls on companies to concentrate their efforts in reducing their carbon emissions before paying for offsetting projects.
Russell Hills, who leads KPMG’s environmental services practice in Scotland, says: “Due to increasing pressure from government, investors, employees and customers, many companies have rushed for offsets as a shortcut to reducing their carbon footprints without fully understanding all the associated risks.
“In their haste to become carbon neutral many may have also skipped the crucial first step of adopting internal carbon reduction strategies and modifying their own behaviour to achieve a smaller carbon footprint.”
KPMG also warns that many companies have left themselves vulnerable to financial losses and damage to their brand and reputation as a result of not being able to certify the validity of their offset credits.
The voluntary market, without a single recognised standard, lacks transparency and poses the biggest risk to potential buyers, KPMG warns. It leaves investors open to exploitation by unscrupulous operators who may, for example, sell the same credits more than once, or sell credits for projects that have not created the carbon savings claimed.
“Claiming carbon neutrality based on offset credits bought from the voluntary market can be extremely dangerous if you don’t consider the inherent risks,” says Hills. “Companies wanting to avoid these risks need to check their offset schemes very carefully to ensure that they are actually creating the stated carbon reductions. We expect to see an increase in the number of organisations using the voluntary markets, due to changes in stakeholder expectations combined with the huge uncertainty around what will happen to regulated markets beyond the 2012 Kyoto caps, and also which industries will be regulated under new treaties.”
For Jan Babiak, managing partner of regulatory and public policy at Ernst & Young, the move towards cutting emissions means making a fundamental commitment to alter a company’s behaviour throughout the organisation.
“A company’s commitment to going green must be embedded in the fabric of the organisation for it to really work – every individual and business leader has to support it,” she says. “It is not one set of footprints in the sand that will just get washed away; it’s an entire organisation walking through the sand together to build a force so that they can push back the tide.
“Once the commitment has been made to go green, a plan must be formulated, which has to be measured and linked to reward.“
According to John Stocks from the Carbon Trust, that’s where accountants can play a crucial role.
“Environmental reporting is coming up the agenda, and accountants in the long-term have a role in this,” he says. “They have this responsibility in financial terms of ensuring that we properly account for what we spend, and given that we’re moving into a carbon-constrained world, I think accounting for carbon will soon be as important as accounting for money.”