Power Technology: How serious is climate change and what action needs to be taken by the industry to tackle it?

Phil Woolas: Climate change is the greatest challenge facing the world today. It is a global issue that demands a global response. That action needs to come from all quarters – businesses, individuals, and governments.

Energy companies have an important role to play both in finding innovative ways to produce clean energy and encouraging consumers to reduce energy usage.

Companies should talk to the [UK] Carbon Trust which has a range of packages to help them become more energy efficient.

PT: The UK Government is about to unveil a new carbon trading scheme called Carbon Reduction Commitment (CRC). How will it work and what can energy companies expect?

PW: The Carbon Reduction Commitment is a groundbreaking mandatory emissions trading scheme being introduced by [the UK] Government to cover large non-energy-intensive business and public sector organisations, such as government departments, universities, retailers, banks, water companies, hotel chains and large local authorities.

The CRC sector will be expected to make an equitable contribution towards achieving UK economy-wide carbon reduction goals and is designed to save at least 4 million tonnes of CO2 per year by 2020 – the equivalent of taking more than a million cars off the road.

PT: What changes as a result of the scheme can companies expect in the future?

PW: There has been open and fruitful consultation with public and private sector organisations in developing CRC. It is vital that the government and stakeholders continue to engage on these issues.

We are currently working with the Carbon Trust and the British Standards Institute to develop a system for calculating the embedded emissions within goods and services.

“There are about 2,300 UK companies who contribute around 50% of the CO2 emissions from the business community.”

PT: Is the government looking into any existing or new technology for achieving its aims for CRC? If so, what are they and how exactly will they work?

PW: We have the Environmental Transformation Fund (ETF), which formally began operation in April 2008. It’s a new initiative to bring forward the development of new low carbon energy and energy efficiency technologies in the UK.

It is jointly administered by Defra and the Department for Business, Enterprise and Regulatory Reform (BERR).

The domestic element of the fund aims to accelerate the commercialisation of [these] low carbon energy and energy efficiency technologies in the UK.

PT: What time frame will companies be expected to work towards with the CRC?

PW: Consultation on implementation options, qualification, consultations on draft CRC regulations and raising awareness are all happening this year.

The regulations will come into force next year [2009] when identification of CRC participants will also take place.

The scheme is set to begin in 2010, three years before the first capped phase begins in 2013.

The government has consulted with public and private sector organisations about the design of CRC.

PT: Will there be funding opportunities to help with the CRC? How will it work?

PW: There are about 2,300 UK companies with energy bills over £500k a year and these companies contribute around 50% of the CO2 emissions from the business community.

The Carbon Trust has currently worked with 30% of these – around 700 companies – in order to reduce emissions. The work with these companies will include site surveys, energy audits and the use of ‘strategic insights’ that quantifies opportunities and threats, and aims to identify priority initiatives.

Although no direct funding is available to these companies, the carbon reduction and energy savings will result in lower energy bills.

PW: How will international energy companies operating in the UK be affected?

“The aim of this scheme is to create an incentive for companies to find the most cost-effective way of reducing carbon emissions.”

PT: Overseas ownership was a key issue considered by our consultation. In line with the analysis, government wishes to avoid giving differential treatment to organisations owned by overseas parents.

[The UK] Government has therefore decided that if the UK emissions of the highest parent organisation and its subsidiaries– irrespective of whether it is based in the UK or overseas – exceed the proposed CRC inclusion threshold, then a CRC organisation will be designated to group the UK emissions.

For example, in the case of a US-based parent organisation with multiple UK subsidiaries and operations – where the total UK emissions exceed the inclusion threshold – these UK emissions would be grouped to form a single CRC organisation. Effectively, [this would be] the ‘UK arm’ of the overseas-based business.

PW: How will the government follow the introduction of the CRC? What about the prospect of more green schemes?

PT: The EU Emissions Trading Scheme provides a mechanism for cutting carbon emissions across the EU. We are currently just starting phase 2 [in which carbon credits will be introduced using the EU’s Linking Directive] of the scheme.

Budget 2008 announced that from 2013, large energy producers within the UK including energy companies will have to buy 100% of their EU ETS allowances, if there is scope within the new EU ETS Directive to do so.

The aim of this scheme is to create an incentive for companies to find the most cost-effective way of reducing carbon emissions.

Phil Woolas MP will be addressing delegates at the Corporate Climate Response event in London on 19–21 May 2008.