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LOW CARBON REPORT 2009

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The Low Carbon Report 2009

Contents Page number

Content

Introduction

The Impact of Climate Change

The Low Carbon Report 2009 – Survey Results and Analysis

British Gas Response

Carbon Trust Response

Lotus Cars - Fuelling Change

Precision Engineering Plastics – Energy Efficiency Loan

British Gas Business Advice

Protecting Investments in Greentech is Essential

A Low Carbon Global Economy

Low Carbon Legislation

Capitalise on the Carbon Reduction Commitment

Univar - Carbon Surveys Help

Editor - Tim Brown t.brown@sayonemedia.com

Neither The Manufacturer nor SayOne Media can accept responsibility for omissions or errors.

Sub-Editor - Edward Machin e.machin@sayonemedia.com

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Art Editors Alex Cole a.cole@sayonemedia.com Martin Mitchell m.mitchell@sayonemedia.com Research Manager - Dennis Frize d.frize@sayonemedia.com Publisher - Henry Anson h.anson@sayonemedia.com

The Low Carbon Report 2009

Low Carbon Report Introduction

s Britain’s economy shows signs of strengthening, it is vital that industry, government, and consumers remain commited to the environmental stability of our planet through the development of low carbon economies. The Government has announced energy efficiency investment plans and the next generation of renewables, nuclear and clean coal technologies, with the aim of making Britain a global leader in low carbon. At the Copenhagen Climate Conference later this year, the UK will argue for an ambitious new international deal to combat climate change, consistent with limiting global

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Our economy and society are now conditioned by the urgency of cutting carbon emissions and adapting to the inevitability of global warming

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temperature increases to no more than two degrees Celsius, a target designed to significantly reduce the impact of climate change. The Government is also investing in a low carbon transport system, including a major programme of rail electrification. According to a new government report, ‘Building Britain’s Future’: “Our economy and society are now

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conditioned by the urgency of cutting carbon emissions and adapting to the inevitability of global warming. Our economy must shift away from dependence on fossil fuels to low carbon sources of energy; new industries with green jobs must be created; and our homes, patterns of consumption, and transport will all have to change. The challenges and consequences of moving to a low carbon economy are profound for government, but also for every one of us.” The manufacturing industry is sure to feel the full effect of these challenges as it collectively tries to evolve to be both productive and environmentally conscious. Manufacturing is a energy user by its very nature, but the EU and UK environmental policies have already targeted manufacturing with a series of regulations. However, the stakes are high and more pressure is likely to be applied through even

tighter regulations. In this report we investigate current trends in green manufacturing and clear the air, in seeking to clarify what ‘low carbon’ means for the future of UK manufacturing. The report will also reveal the results from our ‘Low Carbon’ survey, which have formed the basis of an analysis from the world leading Cardiff University. The report has also been supported by the Carbon Trust, the UK Trade and Investment Council, and British Gas, who have each made significant contributions. We hope you find the report informative, and should allow you to evaluate where you sit, compared to others as we move to a low carbon economy By Tim Brown

The Low Carbon Report 2009

The Impact of Climate Change

Changes to temperature and global weather patterns caused by climate change are likely to be extreme but what effect will this have on the bottom lines of UK manufacturers?

ccording to the UK Climate Projections (UKCP09), manmade carbon emissions have already resulted in climate change and a notable change to the environment. Average global temperature and sea level have risen since the late 19th century, and at an increased rate over the past few decades. According to the UKCP09, there is a more than 90% chance that man-made greenhouse gas emissions caused most of the accelerated temperature rise since the mid-20th century.

Sir Nicholas Stern wrote in the The Stern Review: Report on the Economics of Climate Change, “rainfall patterns are changing with increased risks of flooding, glaciers are melting, permafrost is thawing, sea levels are rising, storm surge heights are increasing, ground conditions are changing, causing landslides, subsidence and heave, there is some evidence that the intensity of storms is increasing. Each of these climatic and environmental changes will have a direct impact on business.”

Predictions of future changes resulting from climate change are concerning. With a scenario of medium emission output, UKCP09 predicts a likely mean increase of approximately: 1.4ºC by 2020, 2.5ºC by 2050 and 3.6ºC by 2080.

Stern concluded that whilst the shortto-medium-term costs of investing in the mitigation of climate change are likely to be high (as much as one per cent of global GDP per annum), the longer-term costs of inaction

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could be as high as 20 per cent of GDP. Tourism, agriculture, and other weather dependent industries will be hit especially hard hit as a result of climate change. However, no one would be exempt, and manufacturers will potentially feel the pinch in any number of different ways. Insurance costs To keep pace with climate change, certain sectors of the insurance industry have begun offering newly designed policies like weather derivatives and catastrophe bonds. The Climate Action Programme says that there is growing acknowledgement among insurers that the impact of climate change on future insured losses is likely to be profound. The chairman of Lloyd’s of London has said that

The Low Carbon Report 2009

climate change is the number-one issue for that massive insurance group. According to Dr Evan Mills, staff scientist at the Lawrence Berkeley National Laboratory, Europeâ€™s largest insurer, Allianz, stated that climate change stands to increase insured losses from extreme events in an average year by 37 per cent within just a decade. Losses in a bad year could top US$1 trillion. This would mean both an increase in policy costs, greater difficulty in securing policies and a change in the type of policies available. The potential increase in the destruction of company premises due to more aggressive weather events will undoubtedly also have a considerable impact on the availability and cost of insurance policies. There are already examples of policies being developed in order to fulfil the change in customer demands which may result from climate change. Some manufacturers are protecting themselves by taking out a weather derivatives on their insurance policies so as to protect themselves against a downturn in sales resulting from unusual weather. An example of this would be within the clothing industry. Manufacturers may have to offer retailers a rebate on winter clothes if it turns out to be a mild season and they may be able to insurer against such a circumstance. One manufacturer has already agreed to offer such a returns policy on their winter clothes range. Disruptions to the supply chain and lead times Manufacturers supplying to industry may also be affected by the increased occurrence of bad weather caused by climate change. Disruptions are likely to occur to their longer supply chain and may cause extended contract completion periods due to increased intensity of rainfall or more frequent extreme weather events. It

may also impact on the availability of raw materials due to the closures of mines and disruptions in the delivery process and may particularly impact on companies who rely on offshore, just in time scheduled shipping. The quality and availability of particular foods and ingredients may change as different crops develop different levels of sustainability in certain parts of the world. This will impact greatly on the ability of food and beverage companies to produce their products consistently. Utilities In the United Kingdom, it is predicted that flash flooding will become more of an issue as rainfall becomes heavier due to more severe weather. Industries such as water and electricity suppliers will need to ensure that their systems can cope with the change in rainfall and the likelihood of more violent storms. Flash flooding and lightning strikes can cause problems such as short-circuiting, resulting in power outages, so it will be essential for providers and users of water and electricity industries to ensure that their systems are safe and reliable. The change in rain distribution may also present new water storage problems. Climate change may also have an impact on current non-renewable energy sources. In France, during a hot spell in August 2003, several of their nuclear power stations were forced to operate at a reduced capacity and some reactors had to stop working entirely due to a lack of cold water to cool fuel rods. Increased peak demands on electricity generation and distribution systems electricity due to consistently higher temperatures will challenge system reliability. Since investment needs are strongly driven by peak demand rather than by average levels of consumption, the per unit cost of electricity can be expected to increase in response to the increased peak demand.

Conclusion: this is a reality It is difficult to put a price tag on many of the costs of climate change due to the variations in financial modelling but we are undoubtedly already behind the curve. The potential for climate change to dramatically increase business costs is significant and the cost of trying to curb greenhouse gas emissions considerable. Without an effective government commitment to reach the necessary emissions reduction targets, we are heading for a future of inconvenience and hardship. The

current international commitment to reduce emissions by 80% by 2050 is unrealistic, particularly with the absence of a regulated, incremental target for 2020. To successfully minimise the effects of climate change, it is necessary for governments around the world to lead the way in infrastructure investment, incentives for technological advancements and the policing of environmental policies. However, manufacturers will also certainly play an important role. This report details some of the ways in which manufacturers can decrease their emissions, reduce costs and help limit the environmental and economic impact of climate change. Page 7

The Low Carbon Report 2009 Survey Results and Analysis Low Carbon Manufacturing

Professor Peter Hines Chairman, Lean Enterprise Research Centre, Cardiff University, Chairman, S A Partners

Professor Peter Hines leads Lean & Green LinkedIn group which is free to join at: http://www.linkedin.com/groups?gid=1826144 He can also be contacted at: peterhines@hotmail.com and visited at: http://www.linkedin.com/in/professorpeterhines Since the publication of the Stern Review in 2006 there has been a heightened interest in low carbon manufacturing in the UK and beyond. To gauge this The Manufacturer with the Lean Enterprise Research Centre has conducted a survey of over 100 UK manufacturing businesses. The results are reported here. A key feature of these results is the growing focus on the low carbon agenda with nearly 60% of those surveyed saying that the topic has become a recent issue for them and their business. Sadly however, environmental concern may have slipped slightly down our agendas in the last twelve to eighteen months as many of us struggle with the effects of the current economic crisis. Our survey shows that although most of our sample said that environmental performance was important, it tended not to rank in the top 3 areas. It therefore often came in the 4th or 5th position. This finding is more similar to what we experienced perhaps ten years ago, although we believe that the environment will again rise further up the agenda over the next few years. This will partly be driven by governments, customers, staff and also partly by public pressure.

When would you consider that environmental performance became a key issue for your business?

Not a key issue Key issue

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The Low Carbon Report 2009 Survey Results and Analysis

Environmental Drivers

How would you rate the level of priority your company currently places on environmental performance? Not important

Very important

We believe that attention to this area is essential for the sustainability of business, from both an environmental, social and economic social basis. From an environmental and social perspective it is about reducing the effects of climate change and securing the culture and living environment we all enjoy today. However, with the ever rising cost of energy it offers undoubted economic benefits in terms of cutting costs.

Of the companies surveyed, below is a breakdown of their energy consumption (excluding transport).

For all of us it is about finding our balance position between respect for profit, respect for people and respect for the environment. In order to do this, we at the Lean Enterprise Research Centre find that combining well established Lean approaches with newer environmental approaches can be very effective. We call this Lean and Green. By combining these together we find that companies can achieve significant benefits for their customers, society and their shareholders. A typical application to an unimproved business will yield somewhere between 20% to 30% reduction in CO2 (equivalent). Bearing in mind that almost three quarters of our surveyed companies were spending over ÂŁ100,000 on energy costs in their facilities, the economic, let alone environment benefit, is enormous. Page 9

The Low Carbon Report 2009 Survey Results and Analysis

For those initiatives that have been implemented, has there been an impact on your costs? Additional Cost

Savings 1-10%

Savings 11-25%

Savings 26-50%

Savings >50%

Some firms have found that they can easily harvest these cost savings. The majority of our sample suggested that savings were typically in the 1-10% range, although a few (those perhaps that have taken a Lean & Green approach) have seen much larger benefits with a few reporting 50% plus savings. The largest gains are reported as a result of waste reduction, energy monitoring and carbon emission reduction. At present the financial benefit from the use of new green technologies appears to be somewhat variable.

What are the main drivers behind implementing green initiatives? Not a consideration

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Key driver

The Low Carbon Report 2009 Survey Results and Analysis

Environmental Drivers

The pressure for change comes from both within businesses and outside. For many it is seen as a moral imperative or as a result of pressure from their own staff or indeed a way of differentiating the business. This last feature is interesting and its effect varies by industry. In our wider research we have found that the highest levels of awareness and action is found in retail (especially food retail) and the supply chains linked to these sectors. Indeed, none of us can have failed to see the supermarket firms falling over themselves to be greener than the next one. This impetus is being driven by consumer demand, so the nearer or more visible a manufacturing firm is to the general public, the greater pressure it will be under to go green.

What is your company’s position on the following initiatives? We have no plans to impliment We have implimented We plan to implement

The most popular measures that we see taken by industry tend to combine Lean and Green thinking. For instance: 95% of surveyed firms have cut waste, 81% have raised awareness of the opportunities and 65% have cut carbon emissions. These are all good, if only recent. Indeed, they set me in mind of my very first visit to the Toyota car manufacturing at Burnaston where a sign on the wall politely asked me to switch off the lights when leaving the toilets… that was over 15 years ago. Second, behind this attention to energy usage is attention to water usage, where 60% of respondents say that they have already started to address this area and more are looking to do so. A small percentage of firms have gone further than this focus on wasted energy and water and have started to adopt ‘green’ technologies or use renewable fuels such as solar power or wind power. I believe that this area will increase in the next few years, even if it only in the use of motion activated lighting and solar panels to provide hot water.

Surprisingly lagging in our responses was the greening of the supply chain. Although we ourselves have been active in this area, particularly in various retail and food manufacturing supply chains, we find few others have. A concern here is that we may be in danger of classic ‘Titanic deck chair rearranging’ exercise if we don’t understand the whole system we operate within. An example of this was a recent project by my LERC colleague Keivan Zokaei looking at the bio-diesel supply chain. When considering the (negative) carbon impact of the supply chain, he found that over 70% of it was associated with the manufacturing plant for inorganic fertiliser to put on the fields growing the oil seed rape. So, whilst a reduction in carbon impact of the oil seed rape processing plant, for instance, may have been helpful it might really have missed the point of greening the major impacts in the supply chain.

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The Low Carbon Report 2009 Survey Results and Analysis

Legislation and Compliance

Do you feel that your company is fully aware of impending environmental legislation and enough guidance is readily available?

Who do you think should inform you of current or impending environmental legislation?

Has your business sought the advice of external experts or consultants to help with environmental or energy saving initiatives?

No 15% No response 1.8% Yes 83%

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The Low Carbon Report 2009 Survey Results and Analysis

From whom did you seek advice?

Bearing in mind that some industries have been slow to move down a low carbon approach, the government has started to introduce a series of legislation to push us down the green route. These range from various EU regulations, UK acts and Council directives. Perhaps the most significant of these is the Environment Protection Act (1990) which holds the threat of unlimited fines for failures. Around a third of the surveyed firms did not feel they were sufficiently aware of the legislation. Bearing in mind the new laws coming through this year and next year due to the Climate Change Agreements, this is a cause for concern. The main source of advice in this area is the various government agencies and organisations such as the Carbon Trust: www.carbontrust.co.uk For those of you interested in further information please take a look at: www.netregs.gov.uk, www.envirowise.gov.uk and www.environment-agency.gov.uk

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The Low Carbon Report 2009 Survey Results and Analysis

Investment Plans

How will your company green intitiave investment level change over the next 12 months?

Increase 50% Decrease 3.7% Stay the same 46.3%

What is your company’s current policy with regard to ‘low carbon’ capital investment?

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The Low Carbon Report 2009 Survey Results and Analysis

A good sign within our sample was that half of the firms were looking to increase their spend on green initiatives, whilst only 4% suggested they were going to cut back this next year. The most prominent area here was in replacing old equipment with more energy efficient kit. In summary, it would appear that the Green agenda is still important to firms, but perhaps in these tough economic times has slipped slightly down the importance agenda. It would also appear that firms that have combined Green with Lean have had greater success. Our expectations in the next few years is that the environment will once again rise further up the manufacturing agenda due to a combination of legislation, employee/consumer/customer pressure as well as the potential economic benefits. The next Lean & Green workshop at the Lean Enterprise Research Centre is on 22nd October in Cardiff, see http:// www.leanenterprise.org.uk/content/view/248/259/ for details.

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The Low Carbon Report 2009

British Gas Business Response

Dr Angela Needle Energy360 sector leader for manufacturing, British Gas Business

Environmental performance: Our survey shows that environmental performance has become a key issue for the majority of UK manufacturers in the last five years. In what ways has this change been reflected by an increase in carbon reducing practices by manufacturers? Dr Angela Needle - British Gas Business: Manufacturers are, in fact, pretty savvy when it comes to carbon reducing processes. The majority of the companies that we surveyed have implemented waste reduction measures and offer staff environmental awareness training. They have also increasingly been optmising the existing controls within their production processes at no extra Page 16

cost. Furthermore, they are planning to implement monitoring tools, for example, smart meters to gain more accurate monitoring of where their energy is being used, as well as water management strategies. Initiatives that involve greater investment with a longer payback period, such as the introduction of emerging ‘green technologies’ and the use of renewable fuels, are less of an immediate priority.

Compliance to business: In your experience is there a shift from mere compliance to a real business case for implementing green, lowcarbon initiatives? Give an example. Dr Angela Needle - British Gas Business: Compliance is one of the biggest drivers for implementing green

initiatives just behind the allimportant inevitable cost saving. However, we believe the two are far from mutually exclusive. Let’s take the example of the Carbon Reduction Commitment (CRC), which comes into force in April 2010 for non energyintensive organisations generating 6,000Mw/h or with an annual energy bill greater than £500,000. Companies in this group will have to comply by measuring, managing and reporting their energy consumption and emissions data, and purchasing carbon allowances in line with these emissions. But, manufacturers should view the introduction of CRC as an opportunity to seek business advantage. Manufacturers need to look beyond the environmental implications to take on board the financial and

The Low Carbon Report 2009

reputational implications of the Commitment as these will increase over time. We’d encourage manufacturers to actively reduce emissions ahead of the deadline as those on the cusp may be able to move out of the inclusion zone and others will certainly be able to significantly reduce costs through carbon reduction strategies.

solutions are available from standby savers and energy efficient light bulbs through to microgeneration technologies. All of these tools are available via British Gas Business’ endto-end energy management strategy - Energy360 – which also offers a outsourced energy management service for the energy efficiency technology that businesses implement.

Techniques: What are some of the most frequently missed opportunities for manufacturers to reduce their carbon emissions? How do manufacturers compare to other sectors in implementing carbon reduction? Dr Angela Needle - British Gas Business: Any energy management strategy should start with a system of monitoring and analysis of the energy currently being used, eg the installation of smart meters that allow the manufacturer to see how much energy they are using in real time. Analysis can be provided via the British Gas Business Energy Saver’s Report, a unique, free online tool that provides guidance on energy consumption reduction and helps to evaluate how much businesses’ are spending on energy annually. It also benchmarks a business’ energy efficiency rating relative to other businesses of their size and type. The report offers hints and tips on ways to reduce consumption through both simple behaviour change and by investing in energy efficiency technologies. Businesses can then track progress and plan for changes in their cash flow. For a more bespoke assessment of energy use, manufacturers can benefit from a detailed on-site energy audit from an experienced energy consultant. For those keen to make a demonstrative difference to their energy consumption, a wide variety of energy efficiency

Funding: What funding is available to assist manufacturers to incorporate more environmentally friendly processes? Dr Angela Needle - British Gas Business: There are a number of funding options available. The Enhanced Capital Allowances scheme, which allows businesses to write off 100% of authorised equipment against businesses’ taxable profits in the first year. The DTI’s Low Carbon Building programme provides grants for microgeneration technologies and there are also smaller loans and grants to be had on an ad-hoc basis. Advice is best sought from carbon friendly equipment suppliers. There are also funding options available from the Carbon Trust.

ROI: Many companies reported a minimal saving or an additional cost when implementing carbon reduction practices . What advice do you have for companies to maximise the return on their low carbon investments? Dr Angela Needle - British Gas Business: Savvy analysis of where carbon reduction practices can bring the greatest results can lead to significant savings at no or low cost. Manufacturers have increasingly been

optimising existing controls within their production processes – this is often not a case of needing to buy new equipment, but of using what they have appropriately and correctly, and therefore at no extra cost. Or there has been a focus on low cost technology solutions, such as dealing with compressed air leaks. Practices such as these can bring a high return on investment, and can also help companies build a business case for medium and longer term solutions, where CAPEX may be required.

Most companies reported that they would consider making a low carbon capital investment if it could improve energy efficiency by more than 25% or achieve a return in investment within five years. In your experience, is that target ROI realistic? Give examples. Dr Angela Needle - British Gas Business: In previous years, we would have expected or set a return on investment of 2-3 years for manufacturing organisations. However, in the current economic climate we would suggest that 18 months (and under 12 months where possible) is the target for set for companies to benefit from the savings of the low carbon measures that they have implemented.

The Low Carbon Report 2009

British Gas Business Response – Continued

Government’s agenda, and as such there is a lot of legislation around, so it’s no wonder manufacturers are confused. The three main initiatives are: Climate Change Agreements (CCAs), European Emissions Trading (EUETS) and the Carbon Reduction Commitment (CRC). More information on each of these initiatives is available on the DEFRA and DECC websites.

Very few companies surveyed have implemented the use of renewable energy, such as wind turbines and biomass plants, or emerging green manufacturing technologies . What are some of the options – either for alternative energy or for ‘greening’ production processes – which companies may not know about? Dr Angela Needle - British Gas Business: There are a range of so-called ‘microgeneration’ technologies available, which allow organisations to generate their own energy rather than buying this from the National Grid, which saves money. In addition to cost benefits, microgeneration provides ‘clean’ energy with fewer by-products. Microgeneration technologies include:

Solar Photovoltaic (PV) works by daylight creating a charge within the PV cell which an Inverter can then convert to AC electricity Page 18

for the company to use directly or export to the grid Solar thermal comprises of thermal panels to collect both heat and light which then via a heat transfer system is used to heat water in a cylinder. Ground / Air source heat pumps which uses outside ground / air temperature through a heat exchanger to provide hot water or space heating Wind turbines which use kinetic energy (wind power) to create electricity Biomass boilers use either wood chip or pellets instead of fossil fuels to provide water or space heating.

2 3 4 5

Thanks to British Gas Business for their contributions.

The Low Carbon Report 2009

Carbon Trust Response

Hugh Jones Director, the Carbon Trust

Environmental performance: Our survey shows that environmental performance has become a key issue for the majority of UK manufacturers in the last five years. In what ways has this change been reflected by an increase in carbon reducing practices by manufacturers? Hugh Jones - Carbon Trust: The manufacturing sector accounts for a quarter of UK businesses carbon emissions. With that as a backdrop, there is little doubt that environmental performance has become a key issue for UK businesses, especially manufacturers, over recent years. The improvements in environmental performance have been driven mainly by both legislative and

reputational pressure. Increasingly though, the focus is on simple cost reduction through energy efficiency, given the economic climate we are facing. We’ve seen a real increase in the number of manufacturing companies that we are working with across our range of services, from basic carbon surveys, to interestfree loans, to strategic carbon management.

Compliance to business: In your experience is there a shift from mere compliance to a real business case for implementing green, lowcarbon initiatives? Give an example. Hugh Jones - Carbon Trust: Definitely. With energy costs rising and manufacturers in the UK under extreme economic pressure

to survive, businesses are searching for new ways to proactively increase efficiencies and reduce costs. With the £100m interest-free SMB loans fund, advice and consultancy that are available now from the Carbon Trust, building the business case is becoming simpler. For example, Ipswich-based aluminium foundry, Hadleigh Castings updated its largest compressor with a more efficient alternative using an interest-free loan from the Carbon Trust of £30,000. Installed at the end of 2008, the new compressor is on target to save the company 78.92 tonnes of CO2 a year, reducing the energy bill by £11,000. In addition, Leicesterbased clothing manufacturer, Fanéla used an interest-free £25,000 Energy Efficiency Loan from the Carbon Trust to install new energy efficient light fittings, reducing carbon Page 19

The Low Carbon Report 2009

Carbon Trust Response – Continued

emissions by two thirds. Predictions suggest that they should save nearly £12,000 a year, on today’s prices.

Techniques: What are some of the most frequently missed opportunities for manufacturers to reduce their carbon emissions? How do manufacturers compare to other sectors in implementing carbon reduction? Hugh Jones - Carbon Trust: The biggest challenges are still inertia and knowledge. Whilst most manufacturers regularly audit their energy consumption and carbon emissions to some degree, knowing where to start is still the biggest challenge. As a starting point, the Carbon Trust offers manufacturers free carbon surveys that offer simple and low or no cost measures, as well as an action plan showing the payback period of energy efficiency investments. A longer term path at the other end of the scale provides a five-step process for larger organisation’s carbon reduction journeys in the form of a Carbon Management Programme. Finally, interest-free loans from the Carbon Trust can counteract funding problems for, enabling small to medium-sized manufacturers to implement energy efficiency initiatives with little or no impact on the bottom line.

Funding: What funding is available to assist manufacturers Page 20

to incorporate more environmentally friendly processes? Hugh Jones - Carbon Trust: Many small to medium-sized manufacturing firms have already seen notable savings in their annual energy bills, by installing new energysaving equipment paid for by Carbon Trust interest-free loans. In order to meet the needs of the industry, the Carbon Trust is offering more money through a more flexible range of financial support, where businesses can apply for a micro-loan for as little as £3,000 or as much as £400,000 double the previous limit. In most cases, the savings manufacturing firms make on their energy bills are expected to exceed the cost of the loan repayments. This means that businesses can benefit from brand new equipment, increased efficiency and reduced running costs, all at no expense to themselves.

ROI: Many companies reported a minimal saving or an additional cost when implementing carbon reduction practices . What advice do you have for companies to maximise the return on their low carbon investments? Hugh Jones - Carbon Trust: The simplest piece of advice is to get a professional external perspective on your energy use, at whatever stage of the reduction cycle you are in. There may be many reasons for this

at a project level but like any major business improvement change, the largest carbon improvements take place when senior management see it as a business imperative and key to the future of the business. Also, working towards certification, the Carbon Trust Standard, which publicly recognises commitment to carbon reduction, is a great way to provide structure and focus to projects. Manufacturing companies can also receive a tax break on the purchase of energy efficient equipment through the Enhanced Capital Allowance scheme which provides businesses with 100% first year tax relief on their qualifying capital expenditure. The scheme allows businesses to write-off the whole cost of new equipment against taxable profits in the year of purchase, which can provide a cashflow boost and an incentive to invest in energy-saving equipment.

Most companies reported that they would consider making a low carbon capital investment if it could improve energy efficiency by more than 25% or achieve a return in investment within five years. In your experience, is that target ROI realistic? Give examples. Hugh Jones - Carbon Trust: Yes, in our experience most companies achieve return on investment on energy efficiency equipment between two and four years. Take Leicesterbased clothing manufacturer, Fanéla for example. The company is expected to pay-back an interest-free Energy

The Low Carbon Report 2009

Efficiency Loan of £25,000 for new energy efficient light fittings within 1.8 years, simply using the money saved each year on energy bills.

Legislation: A significant number of respondents said that they did not understand the current and pending environmental legislation and that not enough guidance is available. What information is available and where can it be found? Hugh Jones - Carbon Trust: The Carbon Trust offers guidance and advice to the industry with a dedicated helpline for manufacturing firms to call on: 0800 085 2005, alternatively businesses can visit The Carbon Trust website at : www.carbontrust.co.uk.

and the Low Carbon Industrial Strategy is pushing businesses to use more green technologies and making them more cost-effective through economies of scale and therefore more attractive to businesses. These technologies are moving quickly and awareness of their potential is growing. But whilst these technologies are exciting and are going to have a huge impact on the future of carbon reduction, they are not appropriate for everyone. Much of the manufacturing machinery in the UK is many decades old and so updated, more efficient, equipment can make a big difference to productivity now, which in turn provides the breathing space for businesses to become more self sufficient when it comes to energy use in the future. Thanks to Carbon Trust for their contributions.

Very few companies surveyed have implemented the use of renewable energy, such as wind turbines and biomass plants, or emerging green manufacturing technologies . What are some of the options – either for alternative energy or for ‘greening’ production processes – which companies may not know about? Hugh Jones - Carbon Trust: Most energy efficient technologies are reasonably well understood within the manufacturing industry and there really is no magic bullet for firms. Many renewable energy technologies tend to have longer paybacks which may explain the minimal take up in the current downturn. However, new legislation such as the UK Renewable Strategy Page 21

The Low Carbon Report 2009

Fuelling Change

Lotus Cars has taken a holistic approach to climate change, developing innovations that change both the cars their customers drive, and the way in which they drive them.

otus Cars Ltd has two operating divisions: Lotus Cars, which builds world class, prestige, high performance sports cars; and Lotus Engineering, an automotive engineering consultancy that offers a full engineering service from initial concept and project design through to development and integration of the complete vehicle. Lotus Engineering is committed to driving forward technology for both Lotus Cars and its engineering clients. In recent years, it has worked towards low carbon vehicles, spearheading research into such areas as hybrids, electric vehicles and renewable fuels. Page 22

“We are at the cutting edge of environmental technology and are determined to push forward with our green agenda,” says Simon Wood, Technical Director at Lotus. “The Lotus brand values of lightweight vehicles, fuel efficiency, and high performance are more relevant today than they ever have been. We are keen to ensure that Lotus as a company and its products offer an ethical, green option that appeals to our customers.” Maximising fuel efficiency In 2007, Lotus joined the Renewables Materials LINK programme, which supports collaborative research between industry and the science and

engineering research base. Under the programme, the company works in collaboration with Queen’s University Belfast and now Orbital Corporation Limited Australia to understand the complex combustion processes involved in running an engine on mixtures of alcohol based fuels and gasoline. The result of the research was a new Omnivore engine concept, a flex-fuel engine designed to maximise fuel efficiency when running on renewable fuels or gasoline. “Sustainable alcohol based fuels have the potential to reduce the overall CO2 footprint of internal combustion engines towards zero,” says Simon Wood. “However, one of

The Low Carbon Report 2009

the drawbacks with many vehicles that run on these fuels is that they cannot achieve the performance or fuel consumption of conventional vehicles. The Omnivore engine concept has the potential to significantly increase fuel efficiency for sustainable alcohol based fuels, which should increase the number of miles travelled. This is achieved by incorporating a novel variable compression ratio system together with an exhaust control valve.”

materials has also taken into account carbon footprint, for example with the use of locally farmed hemp to reduce the carbon miles required to produce the car. In design, the car incorporates lightweight wheels and even a lightweight stereo saving around 32 kg altogether, reducing the fuel required to drive the car. Two flexible solar panels neatly embedded in the roof contribute power to the electrical systems and save energy that would otherwise be drained from the engine.

Holistic approach Inspired to become the world’s green automotive consultancy, Lotus Engineering has also come up with the new Eco Elise promoting a holistic approach throughout the lifecycle of the car.

Lotus also designed software to help drivers to maximise the fuel efficiency of the engine, and a green gear change display on the dashboard ensures that gears are changed at the optimum point to reduce emissions and save fuel.

At the production end, the energy expended to manufacture the car has been evaluated, working to the 3R’s:

“This Eco Elise is a great example of the advanced and affordable green technologies Lotus is developing,”

The life of the components has been analysed every step of the way, during the production stage, in-use and at the end of the vehicle’s life. The technology used aims to offer lower emissions of both solvents and CO2 in the lifecycle of the vehicle, with reductions in energy consumed during manufacture.” On site Lotus has used the same attention to detail that it uses in designing its cars in reducing its own carbon footprint. Dramatic improvements to the company’s culture and operations have resulted in staggering reductions in energy. In 2007, at the company’s Hethel headquarters electricity use decreased by 14 per cent, gas by 30 per cent and water by 11 per cent, compared to 2006. In tandem with these advances the company has been improving its recycling record, with 57 per cent of waste product now being recycled. “I’m proud of these achievements delivered with the assistance & willingness of the whole workforce,” says Simon Wood. “It’s important for our social responsibility as well as delivering a bottom line improvement. The founder of Lotus, Colin Chapman, always supported efficiency. His quote from a 1975 Lotus policy document is so true today ‘The most elegantly and traditionally Lotus solution is the one with the least number of parts, effectively deployed’”

reduce, re-use and recycle. Lotus developed sustainable materials, hemp, eco wool and sisal for body panels and trim and used hi-tech water based paint solutions. Sourcing of

says Simon Wood. “The new green materials sourced for this car have been carefully studied to ensure that each technology used reduces the environmental impact of the vehicle.

Contact details Company: Lotus Cars Ltd Address: Group Lotus plc, Potash Lane Hethel Norfolk NR14 8EZ Telephone: (+44) 01953 608000  Website: www.grouplotus.com Page 23

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British Gas Business offers businesses of all types and sizes advice on how to reduce their energy consumption through energy efficiency measures. Meet two experts at British Gas Business who explain that no matter what your business, investing in an energy management strategy will bring results and reduced energy bills faster than you think.

Manufacturers leading the way on energy efficiency but other industries increasingly confused Advises Kanat Emiroglu, Managing Director, British Gas Business The economic storm continues to wreak damage on businesses across the board, with manufacturing businesses hit particularly hard. With energy costs accounting for a higher percentage of a manufacturer’s outgoings than many other sectors of the economy, reducing energy consumption should form an integral part of a manufacturer’s plans for operational efficiency during the downturn. Adopting even simple measures can save companies up to 20% on their energy bills. In fact, the manufacturing sector is more savvy than most when it comes to implementing energy efficiency measures and cost saving is overwhelmingly the biggest driver for implementing these measures. According to recent research , almost all manufacturers have implemented waste reduction and staff education initiatives both low or no-cost steps - that can cut unnecessary energy consumption and can save money. Implementing accurate energy usage monitoring such as smart meters was given the next highest priority with many companies ‘planning to implement’. This initiative certainly needs to be prioritised as if you don’t know where energy is being used, how can you identify areas in which to cut consumption? However, cross-industry research reveals that other sectors are still confused about how to reduce their energy bills. One in four (24%) admit they are at a loss as to how to reduce their energy consumption and nearly a third (30%) have not attempted to find out or are not concerned with how measures to reduce consumption can impact positively on reducing energy bills. So, what can businesses do to keep energy costs as low as possible? There is an almost overwhelming variety of both practical and behavioural approaches to increase energy efficiency for manufacturers – many of whom are operating energy-intensive businesses. Steps can be as simple as insulating windows or switching off lights and machinery. In February this year, as we entered deeper into recession, British Gas Business closely consulted our own customers and the most common requirement was for a single point of information providing advice, guidance, product support and

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even implementation specific to each business’ consumption and requirements. We also estimate that many of our small business customers will at some point require special assistance managing their energy bills. In response, British Gas Business rapidly developed a new support service – SAVE (Small business Advice and Value Expertise). This is designed to make energy management more straightforward to help British Gas Business customers take action to manage their expenditure. British Gas Business has also signed up to the Prompt Payment Code, a UK Government initiative to speed up payments to small businesses. The code, devised by the Institute of Credit Management, means signatories commit to paying on time on the terms agreed at the outset to small business suppliers. The SAVE initiative, launched in March, has several components, including a dedicated personal account manager advising on how to reduce energy consumption. A key offering are the Energy Saver’s Packs, containing energysaving products to encourage businesses to change their energy consumption behaviour. Customers can also access an Expert Credit Solutions team who help advise, support and resolve debt problems for small businesses who are experiencing difficulty paying their energy bills. In addition, SAVE provides all businesses, both customers and non-customers, with a free audit of their energy consumption through the use of a unique online assessment tool. The Business Energy Saver’s Report provides guidance on energy consumption reduction and helps to evaluate how much businesses’ are spending on energy annually. It also benchmarks their energy efficiency rating relative to other businesses of their size and type, so manufacturers can compare their own energy usage against companies of a comparable size. The report offers hints and tips on ways to reduce consumption through both simple behaviour change and by investing in energy efficiency technologies. This should be followed up with the implementation of a smart meter which allows businesses to then track progress and plan for changes in their cash flow. British Gas Business is the largest provider of smart meters to UK businesses and its customers have realised significant savings purely through greater visibility of where their energy is being used. Since the launch of the SAVE initiative, we have worked with a variety of manufacturing businesses from small enterprises right through to medium-sized businesses with a monthly energy bill of £5,000. Through a deep understanding of their issues and needs, and through listening and understanding their circumstances, we’re able to find solutions for each individual business to help them become more energy efficient and to emerge from the recession in stronger shape. For further information on British Gas Business or SAVE, please visit www.britishgas.co.uk/business

Developing an energy management strategy Delvin Lane heads up British Gas Business’ new energy management strategy, Energy360 . He has previously worked within British Gas (BG plc, Transco and National Grid groups), in a wide range of roles including grid operations, market development and corporate affairs. He worked at the Carbon Trust from September 2004 and has sat on various industry panels and steering groups, including the Environment Agency’s Water and Carbon Science programme and Water UK’s Carbon Forum.

What is Energy360?

Energy360 is a new energy management strategy from British Gas Business. We provide businesses with a holistic tailored approach to energy solutions and can advise an organisation on its total energy strategy. In doing so we can assist in the monitoring and management of its infrastructure, energy consumption and carbon reduction measures. Our proposition is unique in the energy management marketplace.

What is your role at Energy360?

As Head of Energy360, I manage a team of energy consultants who have years of experience across a broad spectrum of energy products and solutions. We strongly believe that energy management is more than just about technology. It is also about having a dedicated team ensuring that an energy strategy consistently delivers.

Why should energy managers be looking to reduce their organisation’s energy consumption now?

This differs from business to business, but the three key objectives for manufacturers when it comes to implementing energy efficiency measures are cost savings, legal and regulatory obligations, and corporate social responsibility objectives. In the first instance, one of our British Gas Business energy consultants will always discuss an organisation’s objectives to determine what its requirements are.

What is the key factor preventing organisations from implementing energy efficiency measures? I would say that there are two key issues. The first is a lack of understanding about where energy inefficiencies lie. If manufacturing companies don’t understand where energy is being wasted, they can’t put measures in place to cut consumption. We can advise them on the changes that need to be implemented. The second is the perceived costs involved in implementing energy efficiency measures, particularly during the economic

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downturn, when so many manufacturers have been hard hit. However, organisations should not let initial outlays stand in the way of putting in place measures that will bring vital savings. We promise that our expertise and experience will identify at least 10% savings for any business – so it is well worth investing, even when times are tough.

What technologies are available to help manufacturers manage their energy consumption?

First up, it is vital that manufacturers have an accurate understanding of exactly what energy they are using across their sites. Smart metering provides businesses with the data to establish exactly where and when they are using energy at any given moment, which is vital if organisations are going to establish where energy wastage is taking place. Automatic Monitoring & Targeting (aM&T) is an option for those businesses that rely on manually read energy meters. aM&T automatically collects energy consumption data and analyses it to ensure that you are in line with your targets, as well as identifying any issues. At British Gas Business, once we have monitored a company’s energy use, we will then advise on how to reduce consumption by conducting an on-site audit, implement this through a range of technologies from lighting to air conditioning, heating systems to building management systems, and then maintain the solution through support functions such as the help desk. This four pillar approach is at the heart of how we help organisations to identify at least 10% savings on their energy costs. EEF and British Gas Business have lined up a series of ‘Manufacturing the green economy’ briefings across the country to help manufacturers to cut costs through environmental strategies. For more information on Energy360 or the briefings, please visit www.energy360.co.uk

The Low Carbon Report 2009

Protecting Investments in Greentech is Essential

The green technology (also known as ‘greentech’ or ‘cleantech’) industry is experiencing a high level of organic growth and is being further stimulated by the Government’s increased promotion of investment in this area. To keep the industry viable, the protection of greentech intellectual property is becoming increasingly important.

ue to this sector’s rise to prominence, inventors and manufacturers need to ensure the intellectual property of their creations are protected to secure business profitability and sustainability. It is now clear that the way we conduct our lives and indeed our business operations is not environmentally sustainable. Being that necessity is the mother of creation, our dire need for new environmentally friendly innovations has resulted in a considerable growth in green technologies. With governments and business continuing to offer considerable incentives to stimulate growth in this sector, this is undoubtedly an industry that will continue to flourish. In order for organisations involved in developing greentech to succeed in business they must undertake to have their intellectual property properly evaluated, protected, and commercialised. Despite this clear need, there is still a great deal of unprotected know-how in the market. Some companies develop interesting ‘clean tech’ applications for environmental aims but do not protect them with patents or trademarks. This means that such organisations may Page 28

The Low Carbon Report 2009

not get the funding they require and are risking their futures by having inadequate legal protection if the invention or concept is stolen.

patent protection indicates that the technology is becoming sufficiently financially viable to justify patent enforcement.

According to Coller IP Management, a leading intellectual property specialist, the importance of protecting a company’s IP also extends beyond the typical concepts of copyright. “When intellectual capital – or intellectual property - is mentioned, people usually think of filing patents, and registering trademarks and designs. But it is not just about patents and other formal IP such as trademarks, designs and copyright. A company’s value is contained in its wider intellectual capital, where know-how, branding, skills, policies and processes all have a part to play.”

Governments are struggling to agree on a deal that would restrict emissions and stabilise carbon levels at 450ppm (currently 387ppm). A realistic, internationally binding agreement may still be some way off. Despite this, the continued development of green technologies will ensure at least some headway is made.

Although the sector is growing rapidly, there are various obstacles to progress, many of which are technological. Coller IP says that: “Organisations that solve some of the problems and invent new ways to be green need to be very protective of their IP.” To do this effectively, they must go beyond simply protecting their assets by fully understanding how to actively commercialise them and exploit their real value. This is particularly vital when a company needs to raise finance, develop partnership agreements or when engaging in due diligence to secure venture capital, mergers and acquisition activity or a company sale. Patent applications relating to clean energy have risen 35% over the past few years indicating how seriously IP protection is becoming in the green industry sector. Private equity firm 3i has forecasted that greentech will become one of the biggest creators of wealth and jobs in the 21st century, with a total global market predicted to reach $186 billion by 2012. A rise in recent litigation in greentech

The UK is well-placed to take advantage of greentech. A recent report from analysts Frost and Sullivan suggests that Great Britain could derive 20 percent of its energy needs from ocean power, with electricity production valued at as much as £190 million annually. Internationally wind power, ethanol and biodiesel are now all competing against traditional energy sources, and even solar provides comparatively cheap power in some remote areas. While governments endeavor to come to agreements on emission restrictions, they are also yet to come to an international agreement on the intellectual rights of greentech. According to Mark Esper, executive vice president of the Chamber’s Global Intellectual Property Center, countries such as China and India have indicated interest in exemptions that would let them piggyback on the achievements of U.S. companies without offering adequate compensation. According to Coller IP Management: “The European Patent Office, with the European Commission and the Slovenian EU Presidency, made patents and eco-technology the focus of a European Patent Forum. The forum was the first major conference to tackle the question of how the patent system needs to be adapted to foster innovation in the climate change sector.”

Despite what are promising improvements in IP protection for greentech and an obvious increase in greentech patent applications, without an international agreement, greentech IP is still at risk. The desire by governments across the world to significantly reduce greenhouse gas emissions is going to be achieved largely through significant investments in high-tech advancements. Multinationals like General Electric and Siemens are already investing hundreds of millions of dollars to develop wind turbines, solar panels and other technologies to address climate change. For such investments to be economically viable, a concrete international agreement on the intellectual rights of green technologies is needed. Sharing the intellectual property of these

technologies around the world is undoubtedly a priority to ensure a combined global effort to thwart climate change. If companies can rely on returns on their investments the proliferation of the latest environmentally friendly technology will be distributed around the world quicker and with a greater environmental impact. If they can not, the technology will surely still emerge but it will creep out at a slower rate. For further advice on how to maximise the economic opportunities of greentech, refer to the Government’s Low Carbon Industrial Strategy: http://www.berr.gov.uk/whatwedo/ sectors/lowcarbon/lowcarbonstrategy/ page50105.html) Page 29

The Low Carbon Report 2009

A Low Carbon Global Economy

By 2015 the global market for low carbon environmental goods and services is estimated to be worth some £4.5 trillion.

he UK Government has placed the move to a lowcarbon economy at the heart of its industrial strategy and the Advanced Engineering sector is taking an active role. In driving the move to a low carbon economy, the combination of both the massive dynamism of the private sector and a strategic role for government will

interconnects with other Government strategies such as the Manufacturing Strategy launched in September 2008, which identified five major dynamics that are reshaping global manufacturing, one being the ongoing move to a low carbon economy. An output of the Manufacturing Strategy is the UK Advanced

“

UK Advanced Engineering companies are knowledge-led and that knowledge is being applied in high-value manufacturing and engineering to reduce the carbon footprint of economic activity help ensure that the UK can make the most of the potential benefits for innovation, growth and job creation in Britain.While Government influence and a sense of social responsibility will play a part, companies in the sector must be sure that it is a sensible and commercially advantageous thing to do if we are to maximise the potential of the opportunity. The UK Government is offering guidance and support in a number of ways - most obviously through the UK Low Carbon Industrial Strategy, published in March 2009. Its core objective is to ensure that British businesses and workers are equipped to maximise the economic opportunities and minimise the costs of the transition to a low carbon economy. It Page 30

”

Engineering international marketing strategy, launched in March 2009. The ultimate aim of the marketing strategy is to change perceptions of UK Advanced Engineering around the world through consistent and clear promotion of the strengths of the sector. The international marketing strategy, developed by UK Trade and Investment (UKTI), the UK government’s trade and investment arm, defines ‘advanced engineering’ companies as those involved in the development of products, processes or services that employ research and/ or continuous development capability, which they then apply to numerous sorts of end uses. The core advanced engineering sectors are aerospace,

automotive, design engineering and advanced manufacturing, but can also include many other sectors, such as mining, marine and construction. UK Advanced Engineering companies are knowledge-led and that knowledge is being applied in high-value manufacturing and engineering to reduce the carbon footprint of economic activity. It is significant that the core elements of advanced engineering include the major transportation sectors of aerospace and automotive. The UK hosts market-leading designers, developers and manufacturers of engines and related technologies and is well placed to develop the low carbon engines of the future. The UK automotive industry has extensive capabilities in all the main low-carbon automotive technologies, including lightweight materials (composites); energy storage and release (energy recovery from braking systems, batteries, supercapacitors, flywheels, exhaust gas energy recovery); powertrain efficiency enhancement (advanced engines, battery, fuel cell and hybrid powertrains, energy efficient mechanical and electric drivelines; combustion and fuel processing systems enabling operation on renewable energy feedstocks (hydrogen, bio-fuels, synthetic fuels). The UK’s standing in the field of low-

The Low Carbon Report 2009

carbon automotive received strong confirmation with the announcements, in July 2009, of major new investments in the UK by Toyota and Nissan to build hybrid cars and lithium-ion batteries to power electric cars. In aerospace the UK has companies at the top of global value chains driving and shaping the market. The UK is one of only a small number of countries involved in the design and manufacture of the full range of aircraft products, including Airbus wings, Rolls Royce aero engines, BAE Systems military aircraft and Augusta Westland helicopters. The Airbus A380 – the world’s largest, most advanced and environmentally friendly commercial aircraft – is more than one third UK-made. And UK designed and manufactured engines are in service with more than 600 airlines around the world. Investment in aerospace research in the UK stands at around £3 billion per year. Major R&D programmes include the Rolls-Royce-led Environmentally Friendly Engine and the Next Generation Composite Wing project being led by Airbus UK. The UK is at the forefront of sustainable aviation developments with environmental technology accounting for as much as 75% of R&D spend carried out by UK aerospace companies. These are just a few of the more prominent examples of where UK advanced engineering companies are using their knowledge-based business acumen to help decarbonise the economy. This acumen is a facet of a general UK genius for innovation and progress. Dr Neil Bentley, the Confederation of British Industry’s Director of Business Environment, wrote in The Guardian newspaper recently “From the steam engine to the jet engine,

the UK’s reputation for innovation is truly inspiring. And having driven the development of such worldchanging technologies, we now have a once-in-a-lifetime opportunity to lead the pack in the low-carbon field, a global market that is potentially worth around £3 trillion”.

Engineering sector, with targeted government support, is showing the world how to create a thriving Low Carbon economy, aligning commercial needs with social and environmental responsibilities by placing carbon management in the economic mainstream.

UKTI is determined that the UK will lead the way – in many ways we are doing so already, but we need to stay ahead of the game and ensure that the rest of the world is aware of our capabilities. The UK Advanced

The future global economy is the whole economy but through a low carbon lens – where low carbon permeates all sectors, interactions and transactions. It is therefore everybody’s business and everybody’s opportunity. Page 31

The Low Carbon Report 2009

Low Carbon Legislation

The urgency with which climate change has emerged as possibly the most important issue of our generation has put a considerable amount of pressure on the legislature. The Stern Review estimates that the cost of inaction on climate change significantly outweighs the expected cost of coordinated global action. This understanding, coupled with the realisation that individual efforts alone will not be sufficient to lead to an optimal reduction in emissions, has led to the recent proactive political approach to the issue of global warming.

raft of new legislation, policies, and regulations have already been implemented and considerably more are expected to be introduced over the next ten years in the UK, across Europe and globally. Staying abreast of the existing and impending legislation is a timeconsuming process, and almost 30 per cent of the respondents to our Low Carbon Survey reported that they do not consider themselves fully aware of their new environmentally related legal responsibilities Below is a brief account of the various pieces of legislation that will impact on manufacturers throughout the UK. This is not a complete explanation of the legal ramifications of the various low carbon legislations and regulations, and should only be used as a guide. Direction to the appropriate information is included, and should be utilised if you have any queries.

The Climate Change Act The UK has passed legislation which introduces the worldâ€™s first longterm legally binding framework to tackle the dangers of climate change. The Climate Change Bill was Page 32

introduced into Parliament on 14 November 2007 and became law on 26th November 2008. The Climate Change Act includes legally binding targets for green house gas emission reductions through action in the UK and abroad of at least 80% by 2050, and reductions in CO2 emissions of at least 26% by 2020, using 1990 emissions as the reference level. The Act aims to enable the United Kingdom to become a low-carbon economy, and gives ministers powers to introduce the measures necessary to achieve a range of greenhouse gas reduction targets. Two key aims underpin the Act: To improve carbon management and help the transition towards a low carbon economy in the UK. To demonstrate strong UK leadership internationally, signalling that the UK is committed to taking its share of responsibility for reducing global emissions in the context of developing negotiations on a post-2012 global agreement at Copenhagen later this year.

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Need more information? www.defra.gov.uk

The Climate Change Levy (CCL) The CCL is an environmental energy tax introduced by the government in April 2001. This is a tax on the use of energy in industry, commerce, and public sector. The tax is offset by cuts in National Insurance contributions and additional support for energy efficiency schemes and renewable sources of energy. The levy does not apply to very small firms using only a domestic amount of energy. Who does the Levy apply to? The levy applies to industrial and commercial energy supplies in the following sectors: industry; commerce; agriculture; public service; and service sectors. The levy does not apply to fuel supplies to domestic consumers or the transport sector, or fuels used for the production of other forms of energy (eg electricity generation) or for non-energy purposes. The levy does not apply to energy used by registered charities for non-business use, and domestic level energy supplies used by very small firms (roughly equivalent to the energy used by a six-bedroom house).

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The Low Carbon Report 2009

Taxable energy supplies that are subject to the levy include: natural gas, electricity, petroleum and hydrocarbon gas in liquid form, coal, lignite and coke. The levy does not apply to oils that are already subject to excise duty. What are the current Levy rates? Electricity - £0.00470 per kilowatt hour Gas supplied by a gas utility £0.00164 per kilowatt hour Any petroleum gas, or other gaseous hydrocarbon in a liquid state £0.01050 per kilogram Any other taxable commodity £0.01281 per kilogram The above rates are current as 1 April, 2009. Updates to levy rates can be found at the http://www. hmrc.gov.uk/index.htm. The Levy is added to bills before VAT and, although there is no legal requirement for it to be shown, is likely to appear as a separate item on energy bills. Are there any exemptions? There are several exemptions from the levy, including: Electricity generated from new renewable energy (e.g. solar and wind power) Fuel used by good quality combined heat and power schemes Fuels used as a feedstock (e.g. using propane as part of a chemical process) Electricity used in electrolysis processes

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Need more information? www.defra.gov.uk – Department for Environment, Food and Rural Affairs. www.carbontrust.co.uk – Provides products and services to help businesses reduce their carbon emissions.

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www.eca.gov.uk - Enhanced Capital Allowances (ECAs) enable a business to claim 100% first-year capital allowances on their spending on qualifying plant and machinery. www.hmrc.gov.uk/index.htm, email: Enquiries.estn@hmrc.gsi. gov.uk or telephone: 0845 010 9000 – HM Revenue and Customs can be contacted for specific information on the administration of the levy.

Climate Change Agreements (CCAs) CCAs are negotiated targets on energy efficiency and carbon saving which apply to certain energy intensive business sectors. Those businesses that agree to the challenging targets qualify for an 80% discount from the Climate Change Levy. The Government has recognised the need for special consideration to be given to the energy intensive industries, given their energy usage and their exposure to international competition. Consequently, the Government has provided an 80% discount from the Climate Change Levy for those industry sectors that agree to the challenging targets for improving their energy efficiency or reducing carbon emissions. The mechanism for Government and industry to agree targets and for companies to claim the levy reduction are Climate Change Agreements (CCAs). CCAs have a two-tier structure: A sector-level agreement between Defra and the sector or trade association (known as an umbrella agreement). Individual agreements between Defra and the operator of the facility (known as underlying agreements).

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Who do the CCAs apply to? Climate Change Agreements (CCAs) cover a wide range of industrial sectors, from major energy intensive processes

such as steel, chemicals and cement, to agricultural sectors, such as intensive pig and poultry rearing. Energy intensive industries are defined as industries that are covered by Part A1 or A2, in Part 1 of Schedule 1 of the Pollution Prevention and Control (England and Wales) Regulations 2000 or http://www.opsi. gov.uk/si/si2000/20001973.htm# If you think your business may qualify for a CCA, you should contact your business/trade association regarding application. Non-members of a trade association will be able to join the scheme without having to join the trade association if they wish. In this instance, sector or trade associations may charge additional administrative costs. Defra will not normally accept applications directly from individual companies. Need more information? www.defra.gov.uk – Department for Environment, Food and Rural Affairs.

EU Emissions Trading System (EU ETS) In January 2005 the EU ETS commenced operation as the world’s largest multi-country, multi-sector Greenhouse Gas Emission Trading System. The scheme is based on the European Directive 2003/87/EC, which entered into force on 25 October 2003. Who does the EU ETS apply to? The EU Emissions Trading Scheme (EU ETS) currently applies to energy intensive businesses such as mineral industries and pulp and paper industries. Companies are allocated allowances through ‘carbon auctions’ and must ensure that at the end of the year they have enough allowances to account for their emissions. Current auctions The Government successfully held the first UK auction in the EU ETS, and Page 33

The Low Carbon Report 2009

the first auction in Europe in Phase II of the System on 19 November 2008. Approximately four million allowances were distributed, raising £54m. Since then, Government has held three further auctions, distributing a further 12.4 million allowances. The Government intends to have the non-competitive element in place later in 2009.

all central government departments. Organisations will qualify as a CRC participant based on their half hourly electricity usage. A subsidiary of an organisation, or part of a group, must act

already covered by the EU Emissions Trading System (EU ETS). In addition, any part of an organisation with more than 25% of their energy use emissions covered by a CCA will be completely

together with the parent organisation as one entity in the scheme. In such a case, the parent organisation will normally be the ‘primary member’ who must act on behalf of the group. Qualification for the scheme is based solely on half hourly metered electricity usage.

exempt from the scheme. Only the specific subsidiary with the CCA will be exempt, rather than the entire organisational group. Further details on exemptions can be found in the CRC User Guide

Your organisation will qualify as a participant if during the 2008 calendar year: You had at least one half hourly electricity meter (HHM) settled on the half hourly market across your whole organisation. Your electricity supplier should be able to confirm if you have any half hourly meters settled on the half hourly market. Your organisation had a total half hourly electricity consumption of at least 6,000 megawatt-hours (MWh). Organisations that meet the first criterion but consume less than 6000MWh of half hourly electricity will not qualify as a participant. They will however still need to submit information to the administrator at the beginning of the scheme.

Need more information? www.defra.gov.uk http://ec.europa.eu/environment/ climat/emission/index_en.htm

Carbon Reduction Commitment (CRC) The CRC is a new mandatory climate change and energy-saving scheme for the UK. Starting in April, 2010, it is aimed at reducing carbon dioxide emissions and is likely to affect 1500 manufacturers across the UK. This is a mandatory scheme to promote energy efficiency and help reduce carbon emissions. It is a UK wide scheme which will cover large business and public sector organisations and is the first reputational driver employed by the government. The scheme has been designed to generate a shift in awareness in large organisations especially at senior level, and to drive changes in behaviour and infrastructure. As organisations will have to monitor their emissions, it will also lead to improved understanding of both energy consumption and opportunities for energy efficiency. Around 20,000 organisations may be affected by the scheme. Failure to comply with your obligations will result in penalties including monetary fines. Who does the CRC apply to? The Carbon Reduction Commitment (CRC) will apply to large public and private sector organisations across the UK. Likely participants will include supermarkets, large manufacturers, water companies, banks, local authorities (including state funded schools) and Page 34

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Exemptions To minimise administrative overlap, the scheme will cover emissions outside of Climate Change Agreements (CCAs) and outside the direct emissions

Need more information? www.carbontruststandard.com - Independent recognition for organisations that have genuinely reduced their carbon footprint. It is one of only two early action metrics that improves your ranking in the CRC league table www.defra.gov.uk – Department for Environment, Food and Rural Affairs. www.carbontrust.co.uk – Provides products and services to help businesses reduce their carbon emissions. www.salixfinance.co.uk - Salix are an independent, publically funded company who provide help specifically for the public sector in energy efficiency technologies through invest to save schemes.

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European Directive on Energy Using Products (EUP) The Directive 2005/32/EC on the eco-design of Energy-using

The Low Carbon Report 2009

Products (EuP), such as electrical and electronic devices or heating equipment, provides coherent EU-wide rules for eco-design and ensuring that disparities among national regulations do not become obstacles to intra-EU trade. The Directive does not introduce directly binding requirements for specific products, but does define conditions and criteria for setting, through subsequent implementing measures, requirements regarding environmentally relevant product characteristics and allows them to be improved quickly and efficiently. Products that fulfil the requirements will benefit both businesses and consumers, by facilitating free movement of goods across the EU and by enhancing product quality and environmental protection. The Directive constitutes a breakthrough in EU product policy, and introduces many innovative elements together with concrete application of the principles of the “better regulation” package. Need more information? http://ec.europa.eu/enterprise/ eco_design/index_en.htm

Energy Performance Certificates (EPC) and Display Energy Certificates (DEC) Energy Performance Certificates (EPC) - The EPC is part of a series of measures being introduced across Europe to reflect legislation which will help cut buildings’ carbon emissions and tackle climate change. EPCs are required for: Cover dwellings and commercial buildings. Energy performance certificates have been required since 6 April 2008 when commercial buildings are built, sold or rented.

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Display Energy Certificates (DECs) show the actual energy usage of a building, the Operational Rating, and help the public see the energy efficiency of a building. This is based on the energy consumption of the building as recorded by gas, electricity and other meters. The DEC should be clearly displayed at all times and clearly visible to the public. A DEC is always accompanied by an Advisory Report that lists cost effective measures to improve the energy rating of the building. DECs are required for: Buildings occupied by Public Authorities / buildings used to provide a public service in England and Wales. Public buildings and those occupied by public authorities which have a total useful area greater than 1000m2 and provide a public service to a large number of people and are therefore frequently visited by those people (eg a school, hospital, government or local authority building).

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Who EPCs/DECs apply to? In England and Wales: All commercial buildings require an EPC before they can be marketed for sale or rent All newly constructed commercial buildings require an EPC

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In Scotland: EPCs are required for dwellings and commercial buildings made available for sale or rent. EPCs must be on display for public buildings with a floor space greater then 1000m2

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Need more information? http://www.communities. gov.uk/planningandbuilding/ theenvironment/ energyperformance/

Eco-Management and Audit Scheme (EMAS) EMAS - the Eco-Management and Audit Scheme is a voluntary initiative designed to improve companies’ environmental performance. It was initially established by European Regulation 1836/93, although this has been replaced by Council Regulation 761/01. Its aim is to recognise and reward those organisations that go beyond minimum legal compliance and continuously improve their environmental performance. In addition, it is a requirement of the scheme that participating organisations regularly produce a public environmental statement that reports on their environmental performance. It is this voluntary publication of environmental information, whose accuracy and reliability has been independently checked by an environmental verifier, that gives EMAS and those organisations that participate enhanced credibility and recognition. Environmental management has become a core business issue for many organisations. Minimising the amount of waste that is produced, reducing energy consumption, and making more efficient use of resources can all lead to financial cost savings, in addition to helping to protect and enhance the environment. EMAS are strongly backed by Government and the environmental regulators - organisations who participate are recognised as making strong commitments to the environment and to improving their economic competitiveness. The following link will access the EU web site: Need more information? http://ec.europa.eu/environment/ emas/ http://www.iema.net/ems/emas Page 35

British Gas Business Capitalise on the opportunities offered by the Carbon Reduction Commitment

The advent of the Carbon Reduction Commitment (CRC) brings with it some fundamental questions for the manufacturing industry. One of the most important of these is to what degree businesses should engage with CRC and, with appropriate planning, what are the opportunities to turn its introduction to your advantage.

With many manufacturers receiving the CRC Qualification Packs this September, the aim of this article is to give some guidance to the manufacturers that the CRC will affect. It examines: • • • •

Brief background to CRC Key dates Compliance – how far should you go? Managing CRC to your advantage – who should be involved?

Background

Despite the seemingly never-ending debate on the state of the UK’s economy, the other great issue of our times – climate change – still lurks ominously behind everything. Although the number of column inches dedicated to it may have diminished over the last year, its consequences are still clearly there to see and much is being done behind the scenes to mitigate mankind’s impact. UK government policy sets out a range of mechanisms for business to reduce CO2 emissions, the most recent of

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which is the CRC, which comes into force in April 2010. It is aimed at non energy-intensive organisations (6,000 Mw/h or an annual energy bill of greater than £500,000) and is mandatory for those not covered by other legislation such as the Climate Change Agreements (CCAs) or European Emissions Trading (EUETS). Under the scheme, organisations will be compelled to measure, manage and report their energy consumption and emissions data, purchasing carbon allowances according to those emissions. This money will be repaid annually to participants, with a bonus/penalty depending on their performance, the size of bonuses/penalties increasing over time. This performance will be captured in an annual league table.

Key dates

Many manufacturers will fall under the scope of the CRC and many have already registered and made provision for managing the process.

Key dates are:

1 2 3 4 5

September 2009 – Environment Agency issues CRC Qualification Packs to potential CRC organisations October 2009 – CRC list confirmed by the Environment Agency with confirmation made to participating/non participating organisations April 2010 – CRC starts, committing participants to measure, manage and report their energy consumption/ CO2 emissions April 2011 – fixed price double sale of carbon allowances to cover actual 2010/2011 emissions and projected 2011/2012 emissions October 2011 – publication of first league table and first recycling payment made

Compliance – how far should you go?

With the first league table due in October 2011 (and every October thereafter), it will become critical to identify the likely scenario as early as possible and ensure the organisation’s communications resources are available to deal with it both proactively and reactively to a full range of audiences, once the table is published.

We would encourage those in the industry to actively reduce emissions as early as possible. Some may already have carbon management strategies and management teams in place and will be able to focus their activities on the CRC to deliver real change to their organisation.

It is already possible to take practical steps to boost your ranking before the CRC comes into force by taking advantage of two early action metrics: installing smart meters to cover 90% of your energy consumption across your portfolio; and applying for the Carbon Trust Standard, an accreditation which rewards organisations that demonstrate absolute or relative reductions in emissions over the last three years and takes into consideration both current and future plans to reduce energy usage. Of course, central to the CRC management team should be an environmental manager, who will take overall responsibility for managing the CRC process as part of an overall carbon management strategy, working with a multi-disciplinary team to deliver carbon reductions for the business, meeting both its goals and those of the CRC.

Manufacturers may actually be able turn the introduction of CRC to their advantage with appropriate planning. The implications of the CRC cover not just environmental performance, but also have financial, reputational and HR dimensions.

Key for all will be to recognise that the financial and reputational implications of CRC will only increase over time, with the first three years of the scheme being seen as a ‘learning process’ before the regulations become tougher.

Managing CRC to your advantage – who should be involved?

It is critical that CRC is not seen just as an environmental issue and to ensure businesses gain the most in terms of cost reductions from the regulations, it will thus be preferable to build a CRC management team that covers a range of skills and expertise – or at least which can work closely with these disciplines. From a financial perspective, it will be important to involve senior management and financial functions at an early stage, given the up-front cost and cash flow implications of purchasing allowances.

British Gas Business is the UK’s leading supplier of smart meters and well placed to provide advice and support on energy and fuel efficiency. For further information on British Gas Business or CRC, please visit www.crcguidanceseminars.co.uk

Subsequently, any reductions in carbon emissions should, in the medium term, result in cost savings - from reduced energy consumption, as well as from bonuses accrued through the CRC. The other side of the coin, however, is that any increases in carbon emissions can prove costly both in terms of increased energy costs and the penalties that will become due from the CRC scheme. The financial implications become more pronounced over time and participating manufacturers will need to be mindful of and prepare for this. The bonuses/penalties accrued begin at between +/- 10% of the allowances paid, but these figures increase to between +/-50% by 2014/15. To illustrate with an example, a business generating 10,000 tonnes of CO2 a year, would have to pay £120,000 in allowances for the first year - and could expect to receive this back as a recycled payment adjusted by a maximum bonus or penalty of £12,000 for Year 1. Reputation management will also potentially become an issue. The publication of a CRC performance league table each year will almost certainly put the spotlight onto the best and worst performers, undoubtedly with accompanying positive or negative media coverage. Thus CRC management teams in each organisation should ideally include representatives from communications, PR and/or corporate social responsibility to help plan for these scenarios. Given that bad news still sells newspapers, the onus will be on businesses to defend themselves where necessary, and actively promote their credentials where they can, depending on where they rank in the league table.

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The Low Carbon Report 2009