Sustainability At Law

DWF, the business law firm, hosted a meeting on behalf of GACSO, the Global Association of Corporate Sustainability Officers in Manchester yesterday. Here’s what I learnt.

Ty Jones, Head of Value and Sustainability opened by explaining how sustainability affects a legal practice.

Sustainability is now part of the business plan and is far more than window dressing. It’s a platform for delivering outstanding results and a clear differentiator when every legal practice is trying to promote itself as a deliverer of excellence. The drive to sustainability is led by stakeholder expectations. No client wants to be associated with a supplier with a bad reputation, and vice versa. The question is whether the professional firm is a value limiter or a value creator. The value limiter concentrates on business as usual to the exclusion of all else. The value creator is a thought leader, a strategic thinker and will challenge clients. For credibility, there must come a point where the firm will refuse to do business with clients that are recklessly unsustainable. Even so, the firm will not hold clients to standards that it cannot meet itself. The firm as value creator will add value by challenging clients and thus will limit its clients to the best clients. Equally it will attract and retain the best professional partners to work in the firm.

Until two years ago DWF had no Environmental Management System (EMS). Now it has ISO 14001, as expected by its clients. Clients putting work out to tender are going far beyond asking whether there is an environmental policy. Now they ask for details of the EMS and want to know how it can add value to their own sustainability objectives. Some clients can have rigorous sustainability standards and yet demand less than sustainable service from their lawyers. An example is insisting on face-to-face meetings at remote locations, when the same result could be achieved with a conference call .

It’s important to influence the supply chain as far as a relatively small organisation such as DWF can. The firm has therefore established structured supply partnerships including benchmarks, quarterly reviews and regular discussions.

Employee engagement is important from the moment of induction into the firm. Many people don’t realise that sustainability goes far wider than environmental issues. They also don’t realise that actions with a sustainability consequence – use of materials, use of energy, disposal of waste – also have a financial consequence. Smart use of technology, not just using technology in an unplanned way, can make people’s working lives more sustainable. The recent acquisition of Cobbetts by DWF, involving the absorption of 500 people into existing premises, demonstrated exactly how this can work.

Sustainability is firmly embedded in the DWF business plan.

Later in the session Lynne Cook of DWF spoke about sustainability and real estate and Alan Knight of BITC explained the background and objectives of GACSO. More on this in a later blog.

The Sustainability Challenge for Big Business

The Cantor Business Lecture was introduced on 29 January by Prof Bob Doherty, professor of marketing at the Management School of the University of York. The lecture was delivered by Sir Stuart Rose on the subject of  “The Sustainability Challenge For Big Business.” 

I thought you might be interested in my notes on the presentation.

Stuart Rose was the Chief Executive who introduced Plan A to Marks & Spencer. He started his speech by reminding us that the world will soon be a very different place with a population of over 9 billion by 2030. By then we will need

• ·      50% more food,
• ·      50% more water and
• ·      30% more energy.

Prof John Beddington, former Chief Scientific Advisor to the government, has described this as "a perfect storm." At the moment there is not enough to go round. 

While Marks and Spencer adopted Plan A because there is no Plan B, there is no plan at all for the world at large. Whether capitalism can survive is an open question. David Attenborough has made the point that we cannot grow indefinitely and Tim Jackson, in his book “Prosperity Without Growth”, states that growth will inevitably come to a halt.

Today each of the top 12,000 families in the US owns more than the poorest 10 million inhabitants of the world. Those families control sufficient resources to wipe out global poverty within five years. Warren Buffett and Bill Gates are showing the way, but much more could be done.

Of the 100 largest institutions in the world, 63 are corporations, not governments. Trust is the key. Many businesses are better trusted than many governments.

A child born today in the West can expect to live for 100 years. It’s worth recognising this while remembering that the Bruntland Commission defined sustainable development in 1987 as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Plan A was introduced at Marks & Spencer following an abortive takeover. Stuart Rose read Al Gore’s book “An Inconvenient Truth” and then watched the film. He then showed the film to the top 100 executives at Marks & Spencer. The next day around 70 of them emailed him saying something should be done. Al Gore’s thesis is that sustainable business is more profitable business. Initially Marks & Spencer’s competitors wrote off Plan A as mere greenwash. The company has 2,500 suppliers encompassing 25 million people, all needing to be convinced. The investment community was sceptical. Stuart Rose personally led the internal team and brought staff and customers on board.

After three years, 72 of 100 pledges had been achieved and profitability had improved. Then Walmart and O2 and Unilever and Nike and HSBC all came along asking how they could do the same. Sir Stuart quoted the Chief Executive of Patagonia, an outdoor clothing supplier, who said, “every time we do the right thing we make money”.

At Marks & Spencer Plan A had four effects.

• ·      First it drove cultural change and encouraged people to look everywhere for savings and also to be hungry for more change.
• ·      Secondly, remuneration was tied to the success of Plan A and as it succeeded people were paid more.
• ·      Thirdly, innovation accelerated and
• ·      finally there were far-reaching changes in the  supply chain.

For example, in Bangladesh workers’ incomes, workers’ rights, industrial relations and improved productivity were all targeted. As a result wages were increased on average by 25% but increased productivity meant that Marks & Spencer could continue to use these suppliers and remain competitive.

The company’s current aim is to be the most sustainable organisation in the world by 2015.

In concluding, Stuart Rose said that he believes that in future everyone will have to have fingers on every pulse. Organisations will need to network more. Businesses that create partnerships will succeed, not only through partnerships with competitors, but they will need to work with NGOs to accelerate innovation and to deal with the challenges that face us all.

The question is not whether organisations should do these things but whether they can possibly afford not to try. The imperative is to change radically and change now because we cannot continue as we are. We need to plan and we need to set goals. All this must go on at a time of rapid change in global economic activity and a shift of economic power from one part of the globe to others. People in the third world and in developing countries have expectations equivalent to our own and have the same rights to them, but how we’re going to be able to satisfy them is still not clear. If we are to have any hope of solving the problem we need to start now.

There is a storm starting now for our children, for our grandchildren as well as for us.

It’s time for action.

Here are some of the points from the question session which followed.

Stuart Rose agrees that the government must get involved if we are to succeed, but at the moment they’re not doing anything if it’s going to lose votes. He believes they will eventually be forced to face up to reality.

Incentives are a good way to change behaviour. He once sent a crate of champagne to someone who managed to save one penny’s worth of cardboard from the packaging of every pair of socks. When you’re selling millions of pairs of socks that’s a lot of money.

In other cases firm guidance is important. For that reason he personally chaired the sustainability committee at M&S.

Is continuous economic growth possible? No.

Is sustainability compatible with consumerism? No - unless perhaps the products are truly recyclable so people can renew their wardrobes and their gadgets and everything else, but return the ones that they no longer use.

Sir Stuart believes that George Osborne was too late in implementing many of his cuts. He believes the cuts are necessary and recognises that they are unpalatable, but the alternative of spend, spend, spend, is a reckless road to ruin.

The business of business is no longer just business!

Economics for a Crowded Planet

For Christmas I was given Commonwealth: Economics For A Crowded Planet by Jeffrey Sachs.

This book covers a range of challenges facing the world and is optimistic in suggesting solutions.

Commonwealth  contains a number of startling insights. First, the human domination of major components of our world. Humanity controls 45% of the land, around 60% of the water cycle and nearly 80% of marine fisheries. Agriculture is the principal user of water and uses as much as all the rest of the demand put together. As a result the Ganges, the Yellow River and the Rio Grande no longer reach the sea because the water is abstracted along the way. We are using groundwater, otherwise known as “fossil water” because it’s been trapped underground for millions of years, in the mistaken belief that it’s an infinite resource.

Sachs shows how we can address these problems and in particular the problem of population growth. He shows how government intervention is essential and demonstrates that the free-market economies will not address these problems. He also shows that social welfare economies outspend both free markets and mixed economies on R&D, they contribute more in aid and have the lowest proportion of their domestic population in poverty.

Sachs is an American, but that does not stop him from criticizing his country. He complains that poverty in the US is more widespread than in even the average free-market economy. The US struggles to meet its 0.7% GDP target for foreign aid, yet spent $572bn on the military in 2007. This is nearly as much as the whole of the military spending by all the other countries in the world. Spend on humanitarian and development aid by the US was just £14bn. In Sachs’ opinion, few of the world’s current problems can be solved by military means.

This book was written and published in 2008. It closed on an optimistic note. Sadly the actions which Sachs expected to be taken have not been taken. In many ways the world has gone backwards. He echoes the Stern Report (2006) in saying that immediate action will be much cheaper than if we delay. And yet, instead of a strengthened Kyoto agreement which Sachs looked forward to in 2012, the actual result concluded last December was even weaker than the original agreement, with many decisions postponed for yet more years. Meanwhile, the US shows no signs of moving away from its policy of using military solutions almost regardless of the nature of the problem, the people of Haiti squat in disease-ridden refugee camps still waiting for the aid funds promised more than a year ago and exceptional weather brings fires and flood to Australia, with hurricanes and blizzards attacking parts of the US with ferocity that they’ve never seen before.

I very much hope that Jeffrey Sachs will write a sequel, but we can’t sit around waiting for it. Spread the word. Take action now. At the risk of sounding histrionic, the future of humanity depends on what we do this week, this month, this year. Leave it much longer and it’ll be too late!

Notes on Energy and Carbon

We’ve had the Doha Agreement, an Autumn Statement, an Energy Bill and an Energy Generation Strategy all coming once. What does all this mean?

Doha

COP18, the latest round in the United Nations climate change negotiations, closed in Doha at the weekend. There was strong criticism of the way the conference was run, and agreements were only signed after the conference was extended for an extra day. There was a commitment to extend the Kyoto protocol to 2020 with reduction targets of 18% replacing the previous 5%. Even so, these targets fall well short of what science indicates is needed to keep global warming below 2°C. Most countries which refused to sign the original agreement, including the US and Canada – home of tar sands, still remain outside, but Australia has signed up.

In future, funds will be paid by rich countries to developing countries to help them cope with “loss and damage” due to climate change. The US insisted that there should be no implication of liability, and the funds will be called aid, not compensation. Even so, it’s hard not to see this as developed countries finally making up for their actions, although there will be no central fund and no specific criteria for making payments. It’s not clear whether this will be new money over and above existing aid budgets. Lots to debate at next year’s conference in Warsaw.

The next challenge is to sign a global climate change treaty in 2015, committing both developed and developing countries to emissions reductions. The original 1997 Kyoto protocol applied only to developed countries. At that time China was classed as a developing country. Today it is the world’s biggest CO₂ emitter.

UK Energy Futures

20% of electricity generating capacity will close in the next 10 years. The government’s aim is to introduce energy market reforms which will provide stability in the market and encourage £110bn of investment to keep the lights on and enable us to meet our carbon emission targets.
The reforms are complex, including contracts for difference, a government-backed “counterparty” and a “capacity market” designed both to stimulate investment and ensure that there will always be enough generating capacity. Ofgem, the Office for Gas and Electricity Markets, warned last month that the safety margin – the amount of spare generating capacity – could fall from the present 14% to a risky 4% by winter 2015/16. New power stations just cannot be built fast enough to fill that gap.

A Gas Generation Strategy published at the same time as the Autumn Statement reveals that the Chancellor sees gas as the fuel of the future, with plans for 30 new gas-fired power stations, even though Ofgem’s recent report highlighted the risks to energy security from over-reliance on gas.

Gas is far cleaner than coal with much smaller CO₂ emissions per kWh of output. There is also the prospect of vast gas reserves here at home, drilled from rocks beneath our feet. That looks like a win/win situation – reduced emissions and a fuel source under our control. The reality is not so straightforward.

There is no doubt that we will always need some gas generation for the foreseeable future to cope with the peaks and troughs of electricity demand. It still emits CO₂ and it still – for the moment – relies significantly on imports. Fracking – releasing gas by drilling down and breaking up deep rock layers – is still unproven in the UK. Test drillings in the Blackpool area caused localised earthquakes and disposal of contaminated water from the process is still a problem. A clear incentive for gas, coupled with the government’s tinkering with tariffs which makes renewables unattractive, could lead the UK to the worst of both worlds. In 10 years we might find ourselves with polluting gas power stations and no gas from fracking – because we haven’t found any, because the nimbies have stopped it or because the process is too polluting. We already import 20% of our gas from Qatar on the Persian Gulf. Quite apart from political security, if we continue to buy gas on world markets we will have to pay world prices which are bound to rise in line with demand from China and India, as well as from the rest of the developed world.  At present we also get 20% of our gas from Norway, but at current production levels their reserves will last less than 20 years. Even less, if demand increases.

Other Highlights from the Energy Bill:

Decarbonisation targets will be covered by secondary legislation. No decision before the Climate Change Committee reports in 2016, but the National Grid will be given an “indicative range of decarbonisation scenarios”. Many see this as softening the emissions targets, by a method technically known as Kicking it into the Long Grass.

£7.6bn will be made available to help bring renewables from 11% of the UK energy mix to 30% by 2020. In other words trebling the contribution from renewables in just eight years. With such a clear commitment to gas generation, many organisations are very uncomfortable about risking major investment in renewables.

There will be new nuclear stations and commercialisation of carbon capture and storage (CCS). Controversial or what? Nuclear is no short-term solution and there are still doubts about the technology, designs and costs. It is very safe in operation but has very high whole-life costs and the endless problem of waste. The problem is that we live in such a technological society that we need to keep the lights on at any cost, even if that cost is nuclear. Is CCS the new philosopher’s stone? The philosophers  failed to find the magic ingredient to turn lead into gold, so will we be any more successful at turning CO₂ emissions into benign deposits deep below the North Sea? No-one’s done it yet!

Who cares about the Middle East? (or us Europeans?)

In its World Energy Outlook 2012 the International Energy Agency (IEA) predicts that the United States will be producing more oil than Saudi Arabia within five years. The US already imports twice as much oil from Canada as it does from Saudi and with the completion of the planned Keystone XL pipeline this can only increase. (The Keystone XL pipeline will carry crude oil from the tar sands in Alberta to the refineries in Texas.) Partly due to fracking, the US will be the world’s leading natural gas producer by 2015. All this means that America is likely to be self-sufficient in energy by 2035. It will still be wedded to fossil fuels and committed to continuing CO₂ emissions. It will be using far less coal, but exporting increasing amounts to China. We understand that Chinese power stations emit just as much CO₂ from American coal as American ones do.

2035 is a very long way off. Many of us could be retired by then. But if the US does become energy self-sufficient, why would it want a presence in the Middle East? And what will that do for the UK if it’s still relying on gas from the Persian Gulf to fuel Mr Osborne’s power stations?

Fly with me! And to hell with emissions!

President Obama has just signed into law an exemption for US airlines from the European carbon tax (EU-ETS), despite identifying climate change as a major challenge for his second term. Not sure how the US can exempt itself from the laws of other sovereign states – I suppose it just does. A bit like the way US diplomats never pay the London congestion charge. Although a lot more serious.

Reduce, Re-use, Recycle

We all feel good about doing our bit to recycle. Separating out the newspapers, sorting the glass from the cans, even washing out those foil trays from the takeaway. Yes it’s a good thing to do, but we achieve even more if we reduce. We save the energy and materials involved in manufacture, we save the energy in distribution, we save the energy involved in collecting, sorting and reprocessing.

So let’s make REDUCE our 2013 New Year’s Resolution!

Reduce the energy you use. For every kWh of electricity you use, 3kWh go into the power station as fuel. So when you reduce, the saving at the power station is three times as much as what you save at home. And if we’re talking about fuels that have to be imported, like gas, coal or oil, (yes, we import all of these) savings at the power station mean a better balance of trade. Significant savings mean that we’ll need fewer power stations. How realistic are savings?

The Department of Energy and Climate Change (DECC) has recently published a paper with the snappy title of “How Much Energy Could Be Saved By Making Small Changes To Everyday Household Behaviours?” The top six behaviours they come up with are:

1. Turn thermostat down by 2 degrees from 20°C to 18°C (33TWh saved)


2. Turn thermostat down by 1 degree from 19°C to 18°C (16TWh)


3. Delay start of heating from October to November (11TWh)


4. Wear a thick jumper at home in the heating season (6TWh)


5. Replace standard showerhead with a water efficient shower head and use twice every day
(5 TWh)


6. Use radiator valves to turn off heating in unused rooms (4TWh)

To put all this into context, 33TWh (terawatt hours) is roughly equal to the output of Drax, Britain’s biggest power station, or 7% of the nation’s electricity. Turning down the heating is of course going to save more gas than electricity, but that’s no reason for not doing it. By the way, how many people do you know who have their thermostats set as low as 20°C in the first place?

The Green Deal

REDUCE is clearly the government’s New Year’s Resolution through the Green Deal. This is a scheme aimed at domestic properties – homeowners, landlords and social housing providers – which starts in January. If you install insulation, renewable energy or a new boiler you can get a loan to cover the costs and pay it back through an addition to your electricity bill. The idea is that these energy-saving investments will cut your energy costs, offsetting the extra on your bill, so overall your outgoings are the same. Once the loan is paid off you keep all the future savings for yourself. In fact, as electricity costs rise the money value of the savings will increase. You might be in profit even before the loan is paid off.

The first step is to arrange a Green Deal assessment. This is carried out by a registered Independent Assessor, who draws up a plan and estimates the potential savings and costs. You then have to contact one or more Green Deal Providers, who will give you quotations for the work including the financing costs. At that point you’ll be able to see exactly how much will be added to your bill, whether the project truly is viable and how long it will take to pay off.

REDUCE is critical to energy saving. As we’ve seen, for every kWh we save at home we save 3kWk of fuel at the power station. Arguably the Green Deal is the government’s most important green initiative. It could be complex, it could be targeted by cowboys, but if it works it will make a very significant difference.

And finally…CRC

Not many surprises in the Autumn Statement on the Carbon Reduction Commitment (CRC). Before the Statement the CRC helpdesk told me that the Performance League Table for 2011/12 would be out some time this month. If it does come out it will be the last one as Mr Osborne has said it will be abolished in future. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor announced in the Autumn Statement that CRC would be simplified from 2013, presumably in line with the proposals in the latest consultation. “A full review of the effectiveness of the CRC will be held in 2016 and the tax will be a high priority for removal when the public finances allow.”

Meanwhile, civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. You have to ask how it will work and what it will achieve. Top listed companies have to report on the emissions from all their operations, both national and international. This means that some unlisted companies that are CRC participants, like Thames Water or Yorkshire Building Society, will not be required to report. Others will fall into both CRC and GHG. All will become clear in 2013!

Thank you if you’ve read this far. Have a Happy Christmas and a Sustainable New Year.

 

 

 

 

 

 

 

 

CRC due for a change?

Not much has happened recently on the Carbon Reduction Commitment (CRC). The helpdesk tells me that the Performance League Table for 2011/12 will be out some time this month. No great urgency, then. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor did mutter something earlier in the year about replacing CRC. Will he announce this in the Autumn Statement on Wednesday, 5th December? As far as I can see he has three options:

•       Leave things as they are and let the “tax” keep rolling in


•       Increase the price of carbon allowances


•       Announce the replacement of the scheme, (no doubt preceded by another consultation)

My prediction is that he will do nothing beyond reducing the list of 28 fuels to four, as already suggested . He will not increase the carbon price because he doesn’t believe in restricting emissions if this will restrict the short-term performance of the economy. He won’t replace the scheme because it will take time and whatever he ends up with will have to yield as much revenue as CRC does at present, so why bother? In any case, the civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. Yet.

Let's see what Wednesday brings!

Green Double Whammy for George Osborne

George Osborne has made no secret of his environmental scepticism and claims that emissions targets and environmental measures could damage British industry. He’ll find it more difficult to maintain this position in the face of today’s call from the world's largest investors for more decisive action by governments on climate change.

The letter from global investor networks representing institutional investors responsible for over $22.5 trillion in assets calls for a new dialogue between investors and governments on climate policy.

They set out seven key tasks, including the need to favour low-carbon investment over high-carbon investment and to stop subsidising fossil fuels. This does not fit well with Osborne’s plan to redevelop Britain’s power stations with a new dash for gas!

The investors conclude that “governments are key in reducing the serious risks, losses and damage that climate change will cause, and the risks to the investments and retirement savings of millions of people. While we commend governments that have implemented supportive policy, much further work is needed to decarbonise economies and portfolios and to stimulate private investment in low-carbon solutions.”

At the same time, the influential Environmental Audit Committee (EAC) is urging the Chancellor to “restore investor confidence” in the government’s energy policy with a clear decarbonisation target.

Joining the growing chorus of calls for a 2030 decarbonisation goal for the power sector in the forthcoming Energy Bill, Committee chair Joan Walley MP says:

“The government needs to reassure investors by setting a clear target in the Energy Bill to clean up the power sector by 2030. A second ‘dash for gas’ could lock the UK into a high-carbon energy system that leaves us vulnerable to rising gas prices.”

The Committee wants the Treasury to explain how new incentives for gas-powered energy generation can be compatible with the UK’s legally binding carbon reduction targets.

Walley also alludes to the much-reported rift between the Treasury and the Department for Energy and Climate Change.

“The Treasury must end the uncertainty on energy policy and give investors and businesses the confidence to seize the enormous opportunities presented by new clean technologies,” she adds.

So what future for the “greenest government ever”?

And what future for us?

Scenario Sandy

Do you ever find that audiences react to long-term scenarios with either disbelief or total resignation that they can do nothing about it? Maybe super-storm Sandy will at least act as a case-study and show people how disruption to things we take for granted can have far-reaching consequences.

New Yorkers have found that once the power goes off they can only stay in touch with the world for only as long as their mobile batteries work. That if they live on the 29^th floor there’s no water because the pumps won’t work. That unless they have a gas hob there’s no hot water and no hot food. No way of washing and no way of escape except down multiple flights of stairs. Once at ground level there’s no petrol, either because the tankers can’t get through or because there’s no electricity to pump it. At the moment all seems to be calm, but if frustration spills over into civil unrest in the next 24 hours that’s cooked Obama’s presidential goose!

Isn’t it tempting to say “NOW do you believe me?” Unfortunately until people experience this sort of thing first hand many remain in denial. Even when we persuade them that unexpected things happen it’s difficult to make them realise that while they can’t stop these events they can usually take sensible precautions to mitigate the effects. Of course there doesn’t seem to be much of a lead from the top. I know we now have record stocks of salt around the country - (just as well – it was snowing the south yesterday) -  but if the power goes off there doesn’t seem to be any plan to cope with darkened traffic lights, closed supermarkets or silent petrol stations. Or maybe the plans are there but the government’s keeping them secret. If so, I hope they are better than the ones they had at the time of the 2000 fuel strike! If not – well, it doesn’t bear thinking about.

Last time I made a presentation one of my delegates said, “You know, whenever I hear you talk I just want to go away and slit my wrists.”  It shouldn’t be like that. How do we get people to take a positive and pragmatic view of the future?

Another Dash for Gas!

Gas companies are announcing price increases of up to 9%, but it looks as though gas will actually be providing cheaper electricity - in the short term at least!

Ed Davey, Energy Secretary, has announced a programme of new gas-fired power stations, and at first sight gas is a dream solution to our energy problems.

Unlike wind, wave or solar, a gas-fired power station can run 24/7. Unlike a coal or nuclear station, it can rapidly run up or run down to meet fluctuations in demand. Gas stations are quick and relatively cheap to build. At the end of their lives there’s no dangerous waste to deal with. CO₂ emissions are far lower than from coal, there’s much less of other greenhouse gases like sulphur dioxide and hardly any particulates. The gas comes along a pipe. It doesn’t need railways or roads for transport, so is unlikely to be disrupted by industrial disputes. A perfect solution all round?

We will always need some gas-fired capacity because of its flexibility in load-balancing, but there are many questions about the present policy of major expansion. Britain’s energy policy needs to deliver security, keeping the lights on 24/7, and affordability, minimising fuel poverty and keeping our industry competitive. We also have national emissions targets, and although gas stations are far cleaner than coal they still emit CO₂.

The Committee on Climate Change, an independent panel of advisors to the Government, said last month that investment in more gas-fired power stations was “incompatible” with the UK’s targets for reducing carbon dioxide emissions, which are legally binding under the Climate Change Act.

At the same time the Aldersgate Group, representing M&S, EDF, Aviva and other major companies, has called upon George Osborne for a clear policy on decarbonising electricity production by 2030. They say “It is essential for Government to provide investors with the long-term confidence they need to transform our electricity market and make investments capable of driving wider economic growth.”

This leaves security and affordability. British North Sea gas has been in decline for a number of years. We now import more gas than we produce. About half of imports comes from Norway and just under half comes from Qatar by ship. Norway is a friendly, stable nation but there are strong suggestions that Norway’s reserves will start to run out and production will decline rapidly after 2020. The next big supplier is Russia. There’s plenty of gas there, but we would be at the very far end of the pipeline. In the past Russia has cut off supplies to whole countries, and other countries further down the line have suffered as a result.

Gas from Qatar comes by tanker. Tankers can go anywhere, and as demand and gas prices rise it would be easy to divert the ships to the highest bidder. And then there’s the Straits of Hormuz problem.  This is the pinch-point at the mouth of the Persian Gulf. If Iran or anyone else decides to blockade the straits, the LNG tankers will be unable to get out. (And the oil tankers will be boxed in as well!)

Is fracking the answer? Fracking, the release of gas from deep rock layers, could give us a new source of UK gas. The Institute of Directors believes fracking could create 35,000 jobs and there’s strong support from the CBI. Fracking still remains controversial. People are mainly concerned that their groundwater will be polluted. More seriously, fracking can destabilise the geology and test drilling in the northwest has already triggered earth tremors. At the end of the day the product is still gas, and burning gas still releases CO₂.

Affordability? There is no doubt that energy, along with many other resources, is becoming scarce and expensive. Switching suppliers and setting up buying groups may have some effect on prices, but the underlying commodity prices will always determine what must be paid in the end. In the medium to long term prices will go up dramatically. In the short term a fleet of new gas power stations may seem attractive and cheap, but it’s likely to turn out to be insecure, expensive and polluting.

So what do we do?

 

 

 

 

CRC or GHG? Welcome back to work!

This week’s cabinet re-shuffle is generally accepted as a move to the right and it also looks like a move away from the green agenda. The coalition’s promise of “the greenest government ever” is long forgotten. Boris Johnson has made no secret of his anger at Justine Greening’s removal from Transport. This is because he’s against the expansion of Heathrow and he thinks her departure will lead to the government changing its mind on a third runway. Last week Tim Yeo urged David Cameron (are you a man or a mouse?) to build the third runway without delay. Tim Yeo is chairman of the Commons Select Committee on Energy and Climate Change. You couldn’t make it up!

Of course Boris isn’t against airport expansion – he just wants a brand new airport in the Thames Estuary. Fine for London and the Southeast, but not so handy for the rest of us! That’s not the issue, though. Such an airport will take at least 20 years to build and probably 50 years to pay for itself. In the short term it will create lots of jobs and the economic growth that all politicians are chasing. In the medium and long term it will make it more and more difficult, if not impossible, to reach our carbon reduction targets. More to the point, within 50 years oil is likely to be so expensive that we’ll think twice about even driving to the airport and air travel will once again be only for the rich. Boris Island or LHR3 will be a white elephant. (Remember, a white elephant was given by Indian rulers to courtiers they didn’t like. It costs so much to maintain a white elephant that it’s expected to bankrupt the owner.) Who will own, or at least underwrite, these new airports? Why, the taxpayer. So that’s all right then!

What’s changed on the CRC front?

For the moment, nothing’s changed. Except that a shift to the right makes it more likely that George Osborne will review the CRC scheme with a view to replacing it.  He threatened to, earlier in the year. We should learn more at the Comprehensive Spending Review (CSR), which is likely to take place shortly after 15^th October.

My predictions? CRC will continue for the moment, at least until the end of the first phase. The Chancellor will therefore collect another £750m next July and again in 2014. This assumes that he stays with £12/tonne. He will have to weigh the temptation of extra revenues from a higher carbon price against the pressures from the business lobby. Again, the CSR will reveal all.

And how does GHG reporting fit into the picture?

There’s been a lot of comment over the summer about greenhouse gas reporting. (GHG) We’re told it demonstrates the government’s firm commitment to the green agenda. Am I missing something? From where I’m standing it looks just like greenwash. Why?

▪                GHG reporting will apply to some 1,100 companies and therefore leave out many of the 2,700 CRC participants.

▪                Companies can choose their own reporting formats. They need to be consistent from year to year but do not need to conform with any other organisations.

▪                Companies must report on Scope 1 and Scope 2 emissions and account for the six Kyoto gases, including fugitive emissions. Given the constant attempts to simplify CRC this looks like a highly complex requirement, but if there is no reporting standard how can it be monitored or regulated?

▪                CRC was set up with a financial performance measurement which was turned into a financial levy. GHG reporting has no financial structure or incentive, so it will be impossible for the government to use it to raise revenue. How will they replace the £750m from the CRC if they scrap the scheme – or will they simply retain it and demand GHG reporting as well? Did someone mention cutting red tape?

Have your say!

The original consultation on GHG reporting took place in 2011. DEFRA has published a Summary of Responses here

A succinct summary is available from the Institute of Environmental Management and Assessment (IEMA) here.

Draft regulations have now been published and are open for consultation. Here are some of the key provisions additional to those mentioned above:

▪       An option to delay the introduction of mandatory GHG reporting until October 2013; to tie in with other planned changes to company reporting;

▪       A planned review of the GHG reports published in the first two years and a decision in 2016 whether mandatory reporting should be imposed on all “large” companies;

▪       The regulations will be made under the Companies Act 2006 and enforced by the Conduct Committee of the Financial Reporting Council (FRC). This means your GHG report will have to be audited.

▪       Transparency is a requirement, but not the method of reporting;

▪       Existing data developed for compliance with the current EU ETS, CRC and CCAs can be used;

▪       The report must include an ‘intensity ratio’, using a financial or activity factor;

▪       Emissions must be reported in tonnes of carbon dioxide equivalence;

▪       The emissions data reported in the first year must be reported in subsequent years to allow comparison.

You have until 17th October 2012 to respond.

If yours is not a quoted company then of course you are outside the GHG net. The public sector is completely excluded as well. Apparently the further consultation in 2015/16 could bring another 24,000 organisations into the net. But hey – that’s three years off, and the other side of a general election! Well there’s nothing urgent about carbon reduction is there?

If you’d like to talk about your corporate carbon footprint, about sustainable business strategies or scenario planning for sustainable survival, you can email me or call 07803 616877.

 

Anthony Day

First CRC Penalties

£99,000 of civil penalties have been levied on four participants of the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) for failing to provide reports on time.

The four companies, Saur (UK) Ltd, Henkel Ltd, BI Group plc and Tomkins Ltd were fined £41,000, £38,000, £10,000 and £10,000 respectively and although the fines seem steep they are set as described in the CRC Energy Efficiency Scheme Order 2010. In fact in two of the cases (BI Group plc and Tomkins Ltd) discretion was exercised resulting in a reduction of the penalty imposed. These companies, the administrator judged, had taken all reasonable steps to comply or rectified the failure as soon as possible.

The reports that these companies had failed to provide were those for the first year (2010/11) of phase one, where CRC participants were obliged to provide a footprint report and an annual report by the end of July.

These penalties show that the enforcement agencies are taking non-compliance seriously, in spite of doubts about the future of the CRC.

They also serve as a reminder to participants that annual reports for the reporting year 2011/12 should have been submitted by 31st July 2012, allowances  paid for by 31st July and that the allowances should be surrendered by the 28th September 2012 deadline.