The combination of extensive land resources and access to a ready supply of energy crops and organic waste materials ensures that the agricultural sector is particularly well suited to the installation of renewable energy technologies.

That is the conclusion of a major new renewable energy feasibility study undertaken by environmental consultancy Bidwells for supermarket giant Asda and agricultural firm Fenmarc, which revealed a strong environmental and financial case for investment in renewable energy technologies across the food supply chain.

The study assessed the Asda-Fenmarc supply chain - which supplies the retailer with around 100,000 tonnes of potatoes from over 100 farms in the UK - and found that the installation of renewable energy technologies such as wind turbines, anaerobic digestors, and biofuel powered vehicles could neutralise emissions from the supply chain, cutting its overall footprint by 21,575 tonnes a year.

"Agriculture has land as a resource, organic waste and the ability to grow crops [for biofuels]," observed Greg Hilton, renewable energy consultant at Bidwells. "All industries can benefit from renewable energy, but agriculture is certainly very well placed."

The study argued that farmers had a number of renewable options readily available, such as the installation of wind turbines on their land, development of energy crops to fuel their vehicles and the use of waste organic matter in biomass generators.

It mapped out two scenarios, one designed to cut greenhouse gas emissions by 23 per cent using an anaerobic digestor installed at Femmarc's pack house and a biofuel powered transport fleet, and a second designed to deliver full carbon neutrality through a larger anaerobic digestor, a biodiesel fleet and six wind turbines.

It concluded that both projects would deliver a solid return on investment with the low carbon option delivering an internal rate of return by 17 per cent based on a capital investment of £1.6m and the "carbon neutral" delivering a rate of return of around 20 per cent based on an upfront investment of £19.8m.

"These projects would be very profitable and would deliver returns on investment within around five years," observed Hilton. "We also found these types of initiatives really resonated with customers, many of whom felt that this was the type of thing supermarkets should be doing already."

He added that anaerobic digestors - which effectively act as mini-landfill sites, trapping the methane from waste organic matter and burning it to drive a generator - provided a particularly strong business case for agricultural firms.

"An anaerobic digestor at a pack house can use all the left over waste material to provide energy and also charge gate fees for waste material from other sites," he said. "The technology also generates two units of heat for every one unit of electricity so feasibly a firm could use that heat through an absorption chiller to cool the facility's refrigerators or alternatively co-locate a greenhouse on the site, which would then use the waste heat."

Currently the number of anaerobic digestors installed on agricultural sites in the UK "can be counted on one hand", Hilton said, but he predicted that with the government recently signalling its intention to double the renewable energy incentives supporting the technology interest in the concept will increase.

Posted by James Murray on May 21, 2008 | Permalink | Comments (0)

Tesco has today launched an impassioned defence of its plans to put carbon labels on all its products, rejecting accusations that the labels confuse customers and insisting that its pilot scheme has already delivered significant tangible benefits.

Speaking as part of a panel discussion at today's Corporate Climate Response conference in London, Philip Cullum, acting chief executive of the National Consumer Council argued that the practice of putting carbon data on products, as currently being trialled by Tesco, Walkers Crisp, Innocent Smoothies and Boots as part of a Carbon Trust orchestrated project, is confusing customers.

He cited research from the Carbon Trust which claimed that while customers welcomed having environmental information on products a large majority admitted to not knowing what the carbon footprint figure meant. He added that the practice of communicating carbon data to customers was a "side issue" in relation to retailers' broader efforts to curb carbon emissions.

However, in a tense exchange Tesco's director of government affairs and corporate responsibility David North launched a fervent defence of the policy, challenging Cullum to identify exactly what it was he felt was confusing about the carbon labels currently being carried by 20 Tesco products.

Quoting William Tyndale, the 15th Century scholar who first translated the bible from Latin into English and was martyred for the privilege, North argued that it was invariably in the social interest to support the dissemination of information and challenge those elites that "keep the world still in darkness, to the intent they might sit in the consciences of the people".

Dr Steve John, corporate affairs director at Walkers' parent company PepsiCo, downplayed concerns over customer confusion, arguing that understanding of carbon labelling would evolve over time. "It's true that consumer understanding of the figure was not high, but that is exactly where you'd expect it to be at the start of the story," he said. "Also all our quantitative and qualitative research showed that while they may still be unfamiliar with the figures customers welcomed the information being there."

Supporters of the scheme also insisted that the practice had already delivered tangible benefits. North said that it was too early in the trial to report on the impact on sales, but he admitted that the results looked "pretty encouraging so far". He added that the process had also delivered data that could help shape consumer decisions, revealing, for example, that concentrated washing liquids have a lower footprint than powders.

He further argued that the practice of measuring carbon emissions had allowed the company to identify a number of areas where it could deliver improvements in the carbon efficiency of its supply chain. "The process allowed us to identify hot spots within the supply chain," he said. "For example, we were able to uncover one supplier whose refrigeration units were far less efficient than those of a rival and were therefore able to work with them to rectify that."

John agreed that the practice of measuring a product's footprint combined with the public commitment to ensure that the figure falls over the next two years had already impacted on the firm's supply chain. "Every capital expenditure and business decision is now looked at through the lens of the push to reduce CO2 over the next two years," he said, adding that carbon labels could potentially have a similar impact on food companies as nutrition labels – instigating an arms race between competitors to achieve best in class performance.

Moreover, the process has proved more cost effective and less time consuming than originally expected, according to North and John, with the standardised approach to carbon measurement developed alongside the Carbon Trust allowing firms to complete calculations within a matter of a few months. "We were told this would cost us £50,000 per product, but the cost is now down to £2,500 per product and falling," observed North.

However, Dr Brenda Boardman, senior research fellow at Oxford's Environmental Change Institute, argued that while the emergence of carbon labels was welcome there are numerous technical problems that need to be addressed if carbon labels are to prove effective at changing consumer behaviour.

She observed that there needed to be an agreement on where the boundaries for carbon footprint calculations are drawn, arguing that such measurements should not extend "beyond the shelf" and should only focus on areas the supplier can directly control. "I don't want companies telling me that if I wash my hair with cold water that will lower the shampoo's carbon footprint," she said.

She also argued that carbon labels will only prove truly effective when consumers can compare carbon footprints using an A-G colour rating system similar to that shown on electrical devices. However, she warned that the development of such an approach would only be possible if agreement is reached on how to categorise products. "We have to ask if all meat products will go into the G band, or if beef goes in the G band and chicken goes in a lower band, or if just the most carbon intensive beef goes in the G band with other beef products going elsewhere," she observed.

Firms also have to balance the advantages of carbon labels against the need for other labelling schemes, according to Richard Naylor, UK environment manager at drinks firm Scottish & Newcastle. He said that the company was unlikely to carry carbon labels on individual beer cans as it also had to make space for responsible drinking labels and did not want to overwhelm the customer with information.

However, Tesco's North insisted that carbon labels were already delivering numerous consumer and business benefits and confirmed that the company remained committed to its long term goal of carrying carbon labels on all its products. He also urged other firms to join the pilot scheme, arguing that it is only through collaboration that such initiatives can maximise their success. 

Posted by James Murray on May 21, 2008 | Permalink | Comments (0)

Defra has today moved to quell fears that its new cap-and-trade scheme could result in cash flow issues for some firms, detailing new plans designed to minimise any disruption to corporate balance sheets arising from the scheme.

The Carbon Reduction Commitment (CRC) has been designed to be "revenue neutral" to those 5,000 organisations involved. Participants will be required to buy carbon credits each year only to have the money returned by the government the following year with an adjustment made for penalty or bonus payments arising from their relative efforts to curb electricity use.

Speaking at the Corporate Climate Response conference in London today, Dr Phillip Douglas, head of branch for the CRC at Defra, said that the scheme had been designed in this manner to ensure that "all the revenue is recycled to the participants", and as such it can not be positioned as tax.

However, some organisations had expressed concern over the timeline for these various payments, arguing that the government could benefit from considerable interest payments during the period that it holds the money raised through the CRC.

Under the original plan, participants would have to pay the government for their carbon credits each January and then wait 18 months until the following year's July to receive their adjusted return payments. Critics argued this approach would not only maximise interest payments for the government but also result in cash flow problems for participating organisations.

Douglas said that the government had responded to this feedback and would now ensure that it makes every effort to minimise cash flow issues. He explained that under the revised plans firms will pay for the first tranche of carbon credits in January 2010 and then pay for the second year's credits in January 2011 as originally intended. However, they will then receive back all the money they are owed for the two years in July 2011 with adjustments for bonuses and penalty payments made based on their performance in 2010. He said that such a move would "drain the pot" of money held by the government, minimising cash flow issues for firms by ensuring that the Treasury only ever holds the money raised through the CRC for six months at a time.

The changes are just one of a number of reforms that the government has made in response to its CRC consultation, according to Douglas. He also cited plans to impose an initial fixed price for carbon credits of £12 and proposals for a simple sealed bid auction for credits from 2013 as evidence of the government's commitment to ensure that the scheme does not prove onerous to businesses.

However, some delegates at the conference continued to express concerns over the structure of the CRC. Several attendees criticised the Treasury's refusal to guarantee that any interest raised during the period the government does hold CRC payments will be returned to the scheme's participants, while others expressed disquiet over Defra plans to level administration charges at those organisations involved.

Moreover, Gaynor Hartnell, deputy director of the Renewable Energy Association (REA), reiterated calls for Defra to change the legislation to take account of energy organisations generate using on site renewable energy technologies.

She said that under current CRC proposals electricity generated from onsite renewable technologies such as solar panels or wind turbines will be assigned the same emissions as energy taken from the grid. She argued that this could result in the "absurd" scenario where a firm switching from using natural gas in a combined heat and power (CHP) system to using biomass would see CRC costs increase as the electricity generated from the biomass would have a higher emissions value attached under the CRC.

Hartnell said that the REA had joined with Asda, B&Q, BT, Dalkia and the Co-operative Group to write a joint letter to Defra voicing its concerns about the issue, but had not yet had a response.

Defra officials have said that accounting for onsite renewables under the CRC would unduly complicate the legislation and overlap with existing incentive schemes for renewable energy.

Posted by James Murray on May 20, 2008 | Permalink | Comments (0)

Officials at Defra are hoping that the shame of being labelled one of the worst performing organisations in the UK at curbing energy use will drive firms to invest in energy efficiency measures.

Under its planned Carbon Reduction Commitment, organisations will be rated in a new league table based on their ability to cut electricity use and the government is confident that the "reputational risk" of being amongst the worst performers will be central to the cap-and-trade scheme's success.

The carbon trading scheme is designed to be "revenue neutral" and as such firms can expect to see the bulk of the money they pay for carbon credits returned at the end of each year with initially just 10 per cent of that sum at risk of being lost through penalty payments in the event that they perform poorly.

Whitehall accepts such modest sums are unlikely to instigate major behavioural change in large corporate environments, but is hopeful that the associated brand risks will increase focus on energy saving measures.

"For many organisations electricity bills are just one per cent of operational costs so putting additional financial costs on them [through the CRC] does not necessarily change much," admitted Ian Trim, senior policy advisor at Defra. "The reputational element attached to the league table will be the driver for change."

Defra officials said that positions in the league table will be assigned based on three weighted metrics: an absolute metric, based on annual emissions relative to the organisations proceeding five year average; a voluntary early action metric, based on the extent to which organisations have invested in energy efficiency measures such as smart meters prior to the CRC launching; and a growth metric that measures emissions per unit of turnover and therefore accounts for firms that see their carbon footprint grow as a result of expansion.

Ray Gluckman, consulting group director at Enviros, said that as an organisation's position within the league table will be relative to that of its peers it will face genuine competitive pressure to curb carbon emissions. "Someone has to come bottom and some companies will perform badly," he warned. "Even if they perform quite well and cut emissions, they might still have performed worse than everybody else."

One delegate agreed that the brand risks associated with ending up near the bottom of the league table would provide a greater incentive for action amongst those firms that exceed their emissions cap than the prospect of having to buy in extra carbon credits. "Within hours of the league table being published for the first time we're going to know the best and worst DIY chains, the best and worst pub chains and so on," he said. "There will be these sub league tables within the overall league table and as such we shouldn't underestimate the reputational risk factor."

However, Gill Hall, director of the Carbon Centre of Excellence at IT giant IBM, warned that while the CRC league table would force chief executives to take the issue seriously the extent to which poor performance in the table causes brand damage to a firm will only be determined by the credibility of the metrics involved. "The league table must be seen as fair," she said, adding that if there are concerns about the "perceived fairness" of the table then companies would be able to minimise any brand damage from performing poorly by simply arguing that they support alternative environmental metrics and standards.

Moreover, Gluckman advised that firms should not ignore the financial element of the CRC altogether, noting that with the government committed to increasing the proportion of money that will be witheld as a penalty or returned to the best performers as a bonus the scheme could also have a significant financial impact within five years.

Posted by James Murray on May 20, 2008 | Permalink | Comments (0)

Environment minister Phil Woolas has today admitted that climate change "terrifies" him, warning that there is a tendency for people to ignore the full scale of the geo-political risks posed by global warming.

"We're all used to seeing pictures of melting ice caps and polar bears and thinking about rising sea levels, but we don't see pictures of melting glaciers in the Himalayas," he said, adding that if those glaciers melt they will disrupt the flow of river systems, including the Yangtze and the Ganges, that provide water to 4.5bn people across "three nuclear-armed countries" in the form of India, China and Pakistan.

Speaking at the Corporate Climate Response conference in London, Woolas said that in the light of these realities, "if the government appears zealous on [the climate change] issue, it is with good reason".

The minister's comments echo a report last month from former senior advisor to the UK Prime Minister's Strategy Unit, Nick Mabey, which warned that a failure to curb climate change could result in century long conflicts on a scale similar to the two World Wars.

However, despite these threats Woolas expressed confidence that disastrous levels of climate change could be avoided, primarily through the construction of a "new economy" built around carbon trading and emission reductions.

"The fear factor [over climate change] is not the main message," he said. "The main message is that it is cheaper [to cut energy use]. If you want to get the price of fuel down then go green."

Woolas argued that carbon cap-and-trade schemes could help accelerate emission reductions and released new figures showing that despite widespread criticism of the first phase of the European Emissions Trading Scheme (ETS) total carbon emissions for firms covered by the scheme fell 2.9m tonnes in 2007 on a like-for-like basis. He admitted that the savings were modest when total emissions for firms in the scheme remained over 250m tonnes, but insisted the reduction in total emissions provided evidence that emissions trading can work to help "turn the oil tanker around".

The minister also argued that the extension of carbon trading in the UK through the government's new Carbon Reduction Commitment was part of a wider trend which should soon result in the formation of a global carbon market – one which he hoped the City of London will sit at the hub of.

"It was hugely encouraging to see John McCain endorse a cap-and-trade plan, which means all three candidates now support the idea," he said, adding that with a new scheme being prepared in Australia and South Korea also considering such a mechanism the groundwork was being laid for a genuinely global carbon market.

For many observers the cloud on the horizon remains the difficulty of engineering a UN-backed international agreement that would see all countries, including China, India and the US, endorse the binding emission caps required to make such a global scheme work.

However, Woolas again argued there was cause for optimism over the negotiations. "The good news is the US election and the fact that the Chinese government is part of the solution and not part of the problem," he said. "The Chinese economy might be part of the problem, but the Chinese government gets this issue – not least because of the damage climate change and pollution is doing to their country."

He identified an agreement on tackling deforestation as a top priority for the on-going talks, arguing that the issue was too readily ignored by many commentators. "Carbon emissions from the deforestation that happens every 24 hours equate to flying 25m people across the Atlantic," he said. "This issue dwarfs the debate over aviation [and] we have to get deforestation into the agreement."

Posted by James Murray on May 20, 2008 | Permalink | Comments (0)

The government is preparing a major publicity campaign to promote the planned introduction of a new carbon cap-and-trade scheme that will impact over 5,000 UK organisations from 2010.

Speaking at the Corporate Climate Response (CRC) conference in London, environment minister Phil Woolas said that the government would roll out a major "information and awareness campaign" before the end of the year designed to raise awareness of the legislation and ensure public and private sector managers are well prepared for its introduction.

"Although two years may seem like it is a long way off, in business planning terms it is not," he said, adding that the extension of mandatory carbon trading to impact "mid-sized organisations", including hotels, supermarkets, hospitals and Whitehall departments, would force "carbon management" principles into many organisations for the first time, affecting "hundreds of thousands of employees and millions of customers".

The upcoming awareness campaign is expected to be followed in early 2009 by a major Defra programme to identify which organisations use over 6,000MW of electricity a year - roughly equivalent to electricity bills of over £500,000 - and as such are legally obliged to enter the CRC. "Every half hourly meter in the country will be written to as part of a reconciliation process to determine whether it is above the threshold or not," explained Ray Gluckman of consultancy Enviros, which is working with Defra on the implementation of the scheme.

Woolas advised however that there was not a huge amount execs could do currently to prepare for the CRC as the government is still trying to "put the jigsaw together" and finalise the legislation.

But other speakers at the event advised that firms could and should act early to prepare for the CRC by recording and reporting their energy use and instigating strategies to enhance energy efficiency.

Defra is currently requiring larger firms to assess their electricity use for calendar year 2008 in readiness for those firms that qualify for the scheme to formally report their electricity use data in 2009. In addition, Jim Butler, head of marketing strategy at energy giant EDF, said that "early birds" would prove the "winners" under the CRC. "Those sites that will win will be well organised with their data, will know whether they are in or outside the scheme, and are planning now," he added.

Officials from Defra also confirmed that many energy saving measures undertaken now will be accounted for when organisations' energy performance is assessed under the CRC.

Posted by James Murray on May 20, 2008 | Permalink | Comments (0)

Hello and welcome to BusinessGreen.com's all new blog, which we'll be using to report live from next week's Corporate Climate Response conference in London.

On Tuesday we'll be blogging on the countdown to the Carbon Reduction Commitment, before posting on the food industry's steps to tackle climate change on Wednesday.

It may come as something of a surprise to many, but the UK is just over 18 months away from the introduction of one of the most daring and potentially influential pieces of environmental legislation in history.

The catchily-titled Carbon Reduction Commitment may have not have been widely publicised - in fact, some critics, myself included, would argue it has barely been publicised at all – but it is no exaggeration to claim that it could redefine many businesses relationship with both energy use and climate change.

Defra may have recently got cold feet over plans for personal carbon trading, realising that such a move would represent another act of political suicide at a time when plenty of voters would already like to see the prime minister metaphorically retire to the drawing room with a bottle of scotch and a pistol. But it is still fully committed to extending carbon trading across vast swathes of the economy.

In essence the CRC, to give it its acronym, is a basic cap-and-trade scheme whereby firms' carbon emissions are capped at a set level with those exceeding that target having to buy in extra emission credits from those who do not use up their full allowance. But while it is tempting to portray the system as simply an extension of the European Emissions Trading Scheme (ETS) it is far more wide reaching and complex than that.

Whereas the ETS focuses on heavy industrial polluters and energy companies - all of which typically have a relatively small number of sites to collect emission data from - the CRC will cover any firm or organisation with an electricity bill in excess of half a million quid. That equates to around 5,000 of the largest organisations in the UK, including supermarkets, hotels, multinationals, government departments, hospitals and... well, you get the idea – a lot of people are going to be affected.

Moreover, the CRC starts now.

From this year these 5,000 or so organisations will be legally obliged to report electricity use and associated emissions from all their facilities, in order to provide Defra with the information it needs to set the emission caps at the right level when the scheme starts in earnest. Then, from 2010 they will each have to fork out £12 per tonne for enough carbon credits to cover their expected emissions, before buying in extra credits if they exceed their cap.

Of course, it would all be far too simple to just leave it at that with a system in place designed to ensure each firm pays based on the carbon it emits. So, in order to avoid the charge that it is guilty of imposing an extra tax on businesses, the government has designed the CRC to ensure it is broadly "revenue neutral". In practice, this means that at the end of each year firms will surrender their carbon credits to Defra and get their money back.

However, to further incentivise the firms involved to actually start cutting their emissions the money that is returned will be adjusted to include a bonus or penalty payment based on how they have performed in a "CRC league table" set up to track their emission reduction efforts.

Initially, the companies that perform worst will see up to 10 per cent of the sum handed over to the government at the start of the year disappear, while the best performing firms will get a bonus payment similarly worth 10 per cent of their initial outlay. In short, those firms that cut emissions will make money, those that don't will face fresh costs on top of their energy bills.

Which all sounds great, expect unfortunately, as with all government legislation since time immemorial, there are flaws.

As we have previously reported at BusinessGreen.com, the scheme will focus on energy use rather than carbon emissions and as such does not recognise where firms use renewable energy. The rather perverse result is that some firms that procure green energy could end up paying more under the CRC than those firms that buy standard energy from the grid.

Moreover, the initial sums involved in the penalty and bonus payments are so paltry as to undermine any sense that those firms that fail to curb their energy use will soon face significant financial hits. In fact, in the first year of the CRC's operation a firm spending £500,000 on electricity and performing poorly in the CRC league table would, by the government's own calculations, face a maximum penalty payment of just £3,756.

And yet, despite these issues the direction of travel is clear.

The initial sums involved may be pretty modest, but under the government's long-term plan both the penalty and bonus payments will increase incrementally for the first five years of the scheme's operation until 50 per cent of firms initial carbon credit outlay is at jeopardy if they fail to perform. Assuming a carbon price of £13 a tonne that means that by 2015 the best performing firm will receive a minimum bonus payment of £18,780 based on an electricity bill of £500,000, while the worst performing will lose the same amount in penalties. And of course those organisations with higher electricity bills will see far larger sums involved.

Moreover, from 2013 the set £13 price for carbon credits will be replaced by an auction, potentially pushing to cost of credits up further still, while the government has also not ruled out eventually delivering bonus and penalty payments to the tune of a 100 per cent of organisations inital outlay. At that point the costs and bonuses from the CRC would suddenly become a significant component of any firm's balance sheet providing a huge financial incentive for organisations to cut their energy use. 

It might take five or even ten years before it fully comes of age, but in this light it really is no exaggeration to describe the CRC as potentially one of the most important pieces of environmental legislation ever introduced.

So what should firms be doing to prepare for it, how can they keep their compliance headaches to a minimum and what can be done to ensure that when it is introduced they end up as one of the winners raking in bonus payments and not one of the humiliated losers having to effectively fork out money to reward their more energy efficient rivals.

That is what we'll be trying to find out next week.

Posted by James Murray on May 16, 2008 | Permalink | Comments (0)