The Carbon Reduction Commitment Energy Efficiency Scheme (the "CRC"), which comes into effect in April next year, is a rare example of the UK government getting it mostly right (see Part I of this article for an overview of the CRC). For too long has the Labour party held back on introducing major legislation aimed at increasing corporations' awareness of their energy consumption. Now the scheme is close to implementation, they ought to be commended on a scheme which certain other European countries would do well to consider implementing in a form complimentary to their own policy maps.
There is however, as with all things, much room for further improvement. A delicate balancing act has been performed by the CRC's creators, with environmental sustainability, i.e. the imperative for greater energy efficiency on one side of the scales, and economic sustainability, i.e. the importance of not imposing too great an administrative burden on companies in a time of financial crisis on the other. The result is a scheme which dare not ask too much of its participants. The framework of this legislation is, however, ideal for organic growth as soon as prevailing conditions change and it becomes economically sustainable to ask more. As administration of the CRC becomes second nature to businesses, the UK government would do well to recognise the potential for widening the scope of and continuing to reinvent the scheme.
The following are a series of suggestions as to what some elements which make up that trajectory might look like, starting with the inclusion of certain forms of transport within the ambit of the scheme and concluding with the future potential for the CRC to look outside the sphere of environmental sustainability to measure and reward the social efforts of participants.
(i) Modifying the current exclusion for transport
The CRC excludes certain forms of transport from its ambit, so that taxi rides or flights a company's employees take are not accounted for in its annual report on energy use. In terms of ease of administration for the initial phase of the scheme, this was a sensible carve out. However, as the scheme progresses, unsustainable and unnecessary transport is a must for inclusion.
An example of such transport is the hundreds of thousands of taxi journeys firms in the City of London are responsible for each year. Many of these firms will be required to participate in the CRC, and currently have taxi policies which allow employees to opt out of taking a 35 minute bus ride home in exchange for a 25 minute taxi ride when the journey is made outside normal office hours, or allow cabs to be taken to all business meetings during the day. These taxi journeys will receive favourable tax treatment from HMRC, largely on the basis that the audit HMRC perform in order to discern whether they are in fact a taxable benefit can realisitically never be thorough enough to prove that the majority should not in fact qualify for this tax break.
Not only is this having a negative impact, albeit very minor, on puplic coffers, but it also impacts on balance sheets. I would approximate that within my own firm, which will not be dissimilar to many others, around 75% of the journeys made by taxi could be made by public transport with very little or no inconvenience to the employee or the employer in terms of time and comfort.
For example, a return journey between the City and Canary Wharf will cost an oyster card user a fixed £4. In a taxi this journey would cost around £24, rising significantly if a pre-booked taxi is required to wait due to meetings overrunning. There is relatively little business sense in not encouraging workers to utilise London's public transport rather than firms such as Computer Cab when you consider the number of such journeys made each year. If a firm of 2,000 workers allows each member of the work force to make an average of 20 equivalent trips per year that would equal £800,000 of potential savings, lost. The actual figure of potential savings would, I believe, be very significantly higher than this if such an organisation put a halt to all inefficient business travel.
The introduction of a relatively minor amendment to the text of the CRC to include certain modes of transport within its ambit would mean participants would have to better scrutinise their transport policies, resulting in cost as well as carbon savings. The Carbon Trust, who have collaborated with the Government in respect of the CRC, already offer a means to help businesses calculate the impact of their business travel, which could be refined to feed into this part of the scheme.
The complex nature of the different travel arrangements found within the 5,000 or so organisations required to participate in the CRC would require the Government to consult extensively on the inclusion of transport within the scheme. It is submitted that given the case for altering the CRC's current transport exclusion to ensure companies do not continue to permit unnecessary transport, the Government should begin this consultation as soon as possible.
Once the final form of the CRC text is released ahead of it being made law in April, I will take a look at exactly how the wording dealing with sustainability might be altered.
(ii) Making one law a framework for sustainability
The ability to alter the text of the CRC rather than introduce new law should be fully utilised once the scheme is up and running. This rings particularly true where greenhouse gas ("GHG") emissions reporting under the Climate Change Act 2008 is concerned. Labour have recently released their guidelines for voluntary GHG emissions reporting, which may become mandatory in the relatively near future (http://www.defra.gov.uk/environment/business/reporting/index.htm). Sadly, the lack of cohesion between this scheme and the CRC looks set to result in unnecessary administrative complexity for those with obligations under them, and in its current form it should not be too hastily encouraged for that very reason.
Also, whilst a more onerous emissions reporting regime than the CRC provides for is certainly needed, and whilst it is useful to make businesses and consumers more aware of product related emissions, without an attached capping regime these things are only of limited use. Various elements of the envisaged GHG emissions reporting regime could be integrated with the CRC as the scheme moves forwards into future phases, to avoid having two differing reporting requirements.
Not only is the CRC a great base for furthering energy efficiency in the UK, but should the scheme prove successful in practice, its basic structure could be transposed to the worlds of water use and waste creation in order to tackle other growing problem areas. Once organisations have familiarised themselves with the regime in respect of energy use, it would be relatively easy to apply the same reporting requirements to water use and waste creation. Again, it is submitted that the Government should be consulting on this possibility if the early years of the scheme prove successful, as this will require significant work from legislators.
Water is already beginning to look like the next big item on the sustainability agenda for European governments, and whilst a less urgent concern for the UK than that of energy supply, the Government would do well to become more active in this area. Not enough is being done to create single legislative models which have application in more than one sphere, whilst too much is done to needlessly complicate the current sustainable policy sphere. A Water Reduction Commitment ("WRC") would be a great deal easier to administrate than the CRC given the ease with which volume of use can be measured. However, given that water conservation in the UK lacks the urgency and appeal of energy issues, it will take longer to entrench better practices unless high penalties are levied in the early stages of a WRC. On the basis that to do this would be less preferable than to start thinking ahead, it might well be time for DEFRA to put its thinking cap on and consider the potential mechanics of a WRC.
Social sustainability does not have a place in the scheme, which is primarily aimed at helping Britain meet the relatively ambitious targets set in its first 'carbon budget' back in April 2009 (see more on this topic by clicking here). However, a model much like the scheme's various performance metrics for taking into account organic growth or efforts to reduce emissions before the beginning of the scheme could be employed to reward those expending capital on community projects. If the endgame of the CRC is to ensure that UK companies are as energy efficient as they can be, the question becomes how to incentivise those who get there first to continue putting their efforts into sustainability? As the scheme stands, as soon as a participant becomes 'energy perfect' in its approach to its business, it will be penalised. Admittedly, this scenario is a very long way off, but having a CSR metric would enable those who quickly reduce their emissions under the scheme to continue profiting from sustainable behaviour.
Monday, 28 December 2009
Shai Agassi - The new Henry Ford?
This video outlines Shai Agassi's proposed solution to the problem of cars and oil.
For each person that takes up Shai's offer a new car must be built, and an old one resigned to the scrap heap. It will necessitate vast new infrastructure and create a battery disposal problem of unheard of proportions. It is commercially sound, but far from environmentally sustainable. Nevertheless, it is far from a bad idea.
See what you think.
For each person that takes up Shai's offer a new car must be built, and an old one resigned to the scrap heap. It will necessitate vast new infrastructure and create a battery disposal problem of unheard of proportions. It is commercially sound, but far from environmentally sustainable. Nevertheless, it is far from a bad idea.
See what you think.
Saturday, 26 December 2009
The Carbon Reduction Commitment : Part I
A big thing is on its way, and one which could see the beginning of a UK which leads the world on the pathway to greater energy efficiency. The Carbon Reduction Commitment Energy Efficiency Scheme (the "CRC") comes into effect in April 2010; a carbon cap-and-trade scheme which will require all entities or corporate groups whose UK electricity use in 2008 was 6,000MWh or above to report on their annual energy use and buy carbon allowances to cover the coming year's projected emissions.
Once the CRC is up and running, participants will buy allowances from the government each April, with an unlimited number available at a fixed price until the second scheme phase begins in April 2013. Each of these covers one tonne of CO2, and participants will be required to hold and surrender sufficient allowances to cover their actual annual emissions, which they will have to report on after performing an energy self-audit. Inaccurate reporting, or the holding of insufficient allowances will carry significant financial penalties, and publication of the organisation's failure on the Environment Agency's website.
From April 2013, the April sales will become sealed bid uniform price auctions, where a limited number of allowances are offered to all participants. This number will gradually decrease during the lifetime of the scheme. Herein lies part of the reason the scheme is such a big thing; it means UK corporates will, for the first time, have to scrutinise and account for every energy using source within their organisation and reduce this energy use to avoid significant costs in the future. The auctioning and capping processes which starts in 2013 are likely to ensure that the price of allowances rises as time passes.
All scheme participants will then be ranked in a league table according to their performance, published annually by the Environment Agency. Performance is determined largely by looking at an organisation's absolute emissions reductions; this means the organisation's baseline emissions (its average emissions over the past five years) are compared to the figures from their latest emissions report to determine the decrease or increase over the year. Now, here's the rub - the scheme is not a carbon tax. All the revenue raised in the April sales / auctions will be recycled to participants come August, and the amount they receive back will be commensurate with their position in the league table. Those at the top will receive back the money they put in, plus a bonus. Those at the bottom will receive back less than they put in.
The CRC's league table is set to become one of the first objective and easily accessible measures of a company's environmental efforts versus its main competitors. As soon as performance data is published, it will be used by sectors to create their own internal tables to compare like against like. With players in the financial markets already looking for ways to short sell stocks in 'dirty' companies, as measured against new sustainability indices, poor performance may come to do more than damage a company's reputation.
Given we are a long way off seeing each product on the shelves advertise details of its carbon footprint in any meaningful way, this will make it infinitely easier for a growing group of 'green consumers' to consciously patronise brands which are genuinely living up to sustainability statements made in their annual reports and advertising campaigns.
Statements on sustainability within such reports will now come under far greater scrutiny from NGOs, who are likely to use the league table to pick apart the usual inoffensively meaningless environmental statements made by management. It is also quite plausible that activist shareholders of companies purporting to place great emphasis on sustainability at management level, may choose to take action if stock held fails to perform partly due to penalties being incurred in the scheme and an increasingly important group of green consumers looking elsewhere.
Part II of this article on the CRC will follow shortly, and will take a look at where the UK government might take the scheme next.
Once the CRC is up and running, participants will buy allowances from the government each April, with an unlimited number available at a fixed price until the second scheme phase begins in April 2013. Each of these covers one tonne of CO2, and participants will be required to hold and surrender sufficient allowances to cover their actual annual emissions, which they will have to report on after performing an energy self-audit. Inaccurate reporting, or the holding of insufficient allowances will carry significant financial penalties, and publication of the organisation's failure on the Environment Agency's website.
From April 2013, the April sales will become sealed bid uniform price auctions, where a limited number of allowances are offered to all participants. This number will gradually decrease during the lifetime of the scheme. Herein lies part of the reason the scheme is such a big thing; it means UK corporates will, for the first time, have to scrutinise and account for every energy using source within their organisation and reduce this energy use to avoid significant costs in the future. The auctioning and capping processes which starts in 2013 are likely to ensure that the price of allowances rises as time passes.
All scheme participants will then be ranked in a league table according to their performance, published annually by the Environment Agency. Performance is determined largely by looking at an organisation's absolute emissions reductions; this means the organisation's baseline emissions (its average emissions over the past five years) are compared to the figures from their latest emissions report to determine the decrease or increase over the year. Now, here's the rub - the scheme is not a carbon tax. All the revenue raised in the April sales / auctions will be recycled to participants come August, and the amount they receive back will be commensurate with their position in the league table. Those at the top will receive back the money they put in, plus a bonus. Those at the bottom will receive back less than they put in.
The CRC's league table is set to become one of the first objective and easily accessible measures of a company's environmental efforts versus its main competitors. As soon as performance data is published, it will be used by sectors to create their own internal tables to compare like against like. With players in the financial markets already looking for ways to short sell stocks in 'dirty' companies, as measured against new sustainability indices, poor performance may come to do more than damage a company's reputation.
Given we are a long way off seeing each product on the shelves advertise details of its carbon footprint in any meaningful way, this will make it infinitely easier for a growing group of 'green consumers' to consciously patronise brands which are genuinely living up to sustainability statements made in their annual reports and advertising campaigns.
Statements on sustainability within such reports will now come under far greater scrutiny from NGOs, who are likely to use the league table to pick apart the usual inoffensively meaningless environmental statements made by management. It is also quite plausible that activist shareholders of companies purporting to place great emphasis on sustainability at management level, may choose to take action if stock held fails to perform partly due to penalties being incurred in the scheme and an increasingly important group of green consumers looking elsewhere.
Part II of this article on the CRC will follow shortly, and will take a look at where the UK government might take the scheme next.
Re-introducing Sustainability
The short articles which follow are aimed primarily at providing the reader with an introduction to some of the policies and laws which are helping to create a more sustainable UK. It is hoped that this introduction will form the background to suggestions regarding how these instruments might be developed or utilised in order to aid the pursuit of environmental sustainability. I would warmly welcome those with enthusiasm, ideas and a willingness to share these to contribute articles from their own fields of expertise, especially if these encompass economic or social sustainability.
Behind these articles lie a set of basic assumptions, the first and foremost being that much about our current way of life in the UK is unsustainable. What I mean by this not just that it may come to do irrepairable damage to our ecosystems over time. What I mean is that the negative ecological impacts the status quo will bring about, with the associated impacts in the joined spheres of economics and society, will make us less content with our general condition. We will be less happy. As E3G have written:
Even if we conclude that one cannot be quite so definitive about this, our current way of life may nevertheless be environmentally unsustainable: i.e. the negatives may come to outweigh the positives if we credit the likes of the distinguished Intergovernmental Panel on Climate Change ("IPCC") with even the slightest degree of credibility. It follows as much from the weaker as the stronger of these two assertions that we should be doing more to make our way of life sustainable. To say this much is simply to assert that to mitigate against risk is good sense. Moreover, we should be doing more at a time when we in the UK are on the whole content with our general condition. To wait until the imperative of genuine discontent or something as dramatic as uncertainty about energy supply moves us to sufficient action is folly. We are only just starting to recover from the folly of waiting until the imperative of economic fragility imposed upon us the need for stronger and more sustainable policies and ought not to repeat this mistake.
The second assumption is that it is a fallacy for UK businesses to say "to do more will cost more, and lessen our competitiveness within the marketplace". The present inertia in respect of the uptake of more sustainable business practices is based on the premise that until there is a definite business case for allocating capex to sustainability, there is little reason to act. Businesses seem unwilling to pursue this path until certain of profits comparable to other more established activities. It is certainly true that much innovation requires immediate investment for relatively little immediate return. However, with more and more policy aimed at shortening pay-back periods for sustainable investments, and energy prices steadily on the rise, it will not be long before the market responds. When it does, and there becomes less need for the Government to subsidise new and more sustainable technologies and practices, those who did not move first will have lost a window of great opportunity; the opportunity of being paid to innovate.
The third assumption is that our current understanding of the concept of sustainability is deeply unsophisticated. Environmental practitioners within any given sphere of activity will rarely proffer identical or even similar descriptions of what it means to do that activity in a manner which is 'sustainable'. The importance of this is not semantic, but rather greater, and before we move to our fourth and final assumption this requires some attention.
The UK experienced a great industrial revolution in the 18th and 19th centuries, largely due to the efforts of a number of ingenious engineers intent on bettering the way we did things. The way we are heading, if we again lend our ear to the IPCC, this revolution may come to be viewed as one of the most terrifyingly short-sighted achievements in the history of humankind. It is a natural tendency not to question the long term effects of anything which brings with it such evident and immediate benefits, and this a tendency many of those championing the cause of the environment unfortunately share.
Whilst fevour to combat environmental problems such as climate change should be applauded, it is entirely appropriate that we are critical of the new technologies and practices which appear during this brave new era. Many of these will be complex by necessity in order to surmount very significant and pressing challenges, and inherent within the complex and the novel is risk; a risk made all the greater by their being roughly hewn together at great speed.
This very era has so far seen a group of ingenious engineers create the wind farm, and the UK government put its pound behind the deployment of wind power across the country in its first carbon budget. This has been followed by the recent publishing of a study that has the backing of the UK government's former chief scientific adviser, which cautions that wind farms may cause ill-health amongst members of the population in close proximity of one. We have also seen improved energy efficiency requirements for buildings imposed by the legislature, as good at lowering the quality of ventilation in a building as its carbon emissions.
There is little point creating security of energy supply and successfully mitigating global warming if doing so creates an epidemic of sickliness and respiratory problems. In short, that which appears at first to have the power to sustain us, or help us sustain ourselves better should be subject to the greatest scrutiny before being accepted and implemented.
For this reason, whilst work continues on the great fixes to climate change; the development of carbon capture and storage ("CCS") technology, the creation of international legal treatise, we should be looking to buy time in as simple and as risk adverse a manner as possible.
For this reason, the fourth and final assumption is that of pragmatism. There are certain things we cannot do yet, but there is much we can do, and we already have the building blocks - so why seek to make the building higher and more unstable? It is exactly because we have not yet grasped all the complexities of sustainability that we should not act rashly when it comes to instituting complex new ideas.
This idea goes some way to justifying recent delays on a global accord regarding climate change. The discontent that played out on the face of different nations each time the proposed texts of Copenhagen were recalibrated is enough to suggest that reaching a deal in 2009 might have the sown the seeds of international political instabilities with the potential to eclipse the benefits of preventing a two degree rise in surface temperatures. To have agreed too early would have been socially unsustainable.
Whilst Copenhagen's results were certainly less than satisfactory, the trajectory which the very best of hypothetical deals might have made legally enforceable over the coming 3 - 5 years is nevertheless still achievable. My grandmother used to encourage better fiscal management amongst her family by constant reminders of the fact that 'pennies make pounds'. This, to me, is the kind of pragmatism climate change and sustainability policy too often lacks. In aggregate, small alterations to process, which cost very little in isolation may form the basis of the way you manage a problem. This aggregate becomes even greater when you take account of the fact that a number of small changes can trigger second and third waves of change, once the movement created by an initial series of small changes settles and becomes a business or social norm. This applies particularly to energy efficiency, the quick gain in terms of carbon reductions which we are too slowly moving towards.
The first article, to follow shortly, will take the UK's forthcoming carbon cap-and-trade scheme as its central focus. This scheme's reporting requirements will provide the first truly objective measure of UK corporations' efforts to lower their carbon footprint and will in turn empower 'green' consumers looking to patronise brands that make a genuine effort to be more sustainable. It might also provide a model for reducing water use and waste production in the UK, creating a framework for achieving more sustainable business practices in a number of arenas within one single piece of policy.
Behind these articles lie a set of basic assumptions, the first and foremost being that much about our current way of life in the UK is unsustainable. What I mean by this not just that it may come to do irrepairable damage to our ecosystems over time. What I mean is that the negative ecological impacts the status quo will bring about, with the associated impacts in the joined spheres of economics and society, will make us less content with our general condition. We will be less happy. As E3G have written:
National, economic and personal security are all undermined by a degraded environment. Political instability, poverty and ill health all increase as environmental quality declines.
Even if we conclude that one cannot be quite so definitive about this, our current way of life may nevertheless be environmentally unsustainable: i.e. the negatives may come to outweigh the positives if we credit the likes of the distinguished Intergovernmental Panel on Climate Change ("IPCC") with even the slightest degree of credibility. It follows as much from the weaker as the stronger of these two assertions that we should be doing more to make our way of life sustainable. To say this much is simply to assert that to mitigate against risk is good sense. Moreover, we should be doing more at a time when we in the UK are on the whole content with our general condition. To wait until the imperative of genuine discontent or something as dramatic as uncertainty about energy supply moves us to sufficient action is folly. We are only just starting to recover from the folly of waiting until the imperative of economic fragility imposed upon us the need for stronger and more sustainable policies and ought not to repeat this mistake.
The second assumption is that it is a fallacy for UK businesses to say "to do more will cost more, and lessen our competitiveness within the marketplace". The present inertia in respect of the uptake of more sustainable business practices is based on the premise that until there is a definite business case for allocating capex to sustainability, there is little reason to act. Businesses seem unwilling to pursue this path until certain of profits comparable to other more established activities. It is certainly true that much innovation requires immediate investment for relatively little immediate return. However, with more and more policy aimed at shortening pay-back periods for sustainable investments, and energy prices steadily on the rise, it will not be long before the market responds. When it does, and there becomes less need for the Government to subsidise new and more sustainable technologies and practices, those who did not move first will have lost a window of great opportunity; the opportunity of being paid to innovate.
The third assumption is that our current understanding of the concept of sustainability is deeply unsophisticated. Environmental practitioners within any given sphere of activity will rarely proffer identical or even similar descriptions of what it means to do that activity in a manner which is 'sustainable'. The importance of this is not semantic, but rather greater, and before we move to our fourth and final assumption this requires some attention.
The UK experienced a great industrial revolution in the 18th and 19th centuries, largely due to the efforts of a number of ingenious engineers intent on bettering the way we did things. The way we are heading, if we again lend our ear to the IPCC, this revolution may come to be viewed as one of the most terrifyingly short-sighted achievements in the history of humankind. It is a natural tendency not to question the long term effects of anything which brings with it such evident and immediate benefits, and this a tendency many of those championing the cause of the environment unfortunately share.
Whilst fevour to combat environmental problems such as climate change should be applauded, it is entirely appropriate that we are critical of the new technologies and practices which appear during this brave new era. Many of these will be complex by necessity in order to surmount very significant and pressing challenges, and inherent within the complex and the novel is risk; a risk made all the greater by their being roughly hewn together at great speed.
This very era has so far seen a group of ingenious engineers create the wind farm, and the UK government put its pound behind the deployment of wind power across the country in its first carbon budget. This has been followed by the recent publishing of a study that has the backing of the UK government's former chief scientific adviser, which cautions that wind farms may cause ill-health amongst members of the population in close proximity of one. We have also seen improved energy efficiency requirements for buildings imposed by the legislature, as good at lowering the quality of ventilation in a building as its carbon emissions.
There is little point creating security of energy supply and successfully mitigating global warming if doing so creates an epidemic of sickliness and respiratory problems. In short, that which appears at first to have the power to sustain us, or help us sustain ourselves better should be subject to the greatest scrutiny before being accepted and implemented.
For this reason, whilst work continues on the great fixes to climate change; the development of carbon capture and storage ("CCS") technology, the creation of international legal treatise, we should be looking to buy time in as simple and as risk adverse a manner as possible.
For this reason, the fourth and final assumption is that of pragmatism. There are certain things we cannot do yet, but there is much we can do, and we already have the building blocks - so why seek to make the building higher and more unstable? It is exactly because we have not yet grasped all the complexities of sustainability that we should not act rashly when it comes to instituting complex new ideas.
This idea goes some way to justifying recent delays on a global accord regarding climate change. The discontent that played out on the face of different nations each time the proposed texts of Copenhagen were recalibrated is enough to suggest that reaching a deal in 2009 might have the sown the seeds of international political instabilities with the potential to eclipse the benefits of preventing a two degree rise in surface temperatures. To have agreed too early would have been socially unsustainable.
Whilst Copenhagen's results were certainly less than satisfactory, the trajectory which the very best of hypothetical deals might have made legally enforceable over the coming 3 - 5 years is nevertheless still achievable. My grandmother used to encourage better fiscal management amongst her family by constant reminders of the fact that 'pennies make pounds'. This, to me, is the kind of pragmatism climate change and sustainability policy too often lacks. In aggregate, small alterations to process, which cost very little in isolation may form the basis of the way you manage a problem. This aggregate becomes even greater when you take account of the fact that a number of small changes can trigger second and third waves of change, once the movement created by an initial series of small changes settles and becomes a business or social norm. This applies particularly to energy efficiency, the quick gain in terms of carbon reductions which we are too slowly moving towards.
The first article, to follow shortly, will take the UK's forthcoming carbon cap-and-trade scheme as its central focus. This scheme's reporting requirements will provide the first truly objective measure of UK corporations' efforts to lower their carbon footprint and will in turn empower 'green' consumers looking to patronise brands that make a genuine effort to be more sustainable. It might also provide a model for reducing water use and waste production in the UK, creating a framework for achieving more sustainable business practices in a number of arenas within one single piece of policy.
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