| Sectors & Activities/Business For many of our business clients, initiatives to combat climate change have already manifested themselves in the form of higher energy bills and increased red tape. As the emphasis moves from climate change mitigation to adaptation, all businesses (especially those with global activities) will increasingly reconsider their strategies and plans to address the potential physical effects of climate change. These include extreme weather, infrastructure damage, water availability and disruptions to communications and to trade/global markets, not to mention increasingly volatile costs of insurance and capital. But there are opportunities for business, notably in the area of energy efficiency and on-site renewables - which can feed directly to the bottom line in reduced costs - as well as active participation in new and evolving carbon markets. New products, markets and services are also emerging and show signs of massive growth. According to the Stern Report, published in November 2006, the markets for low carbon energy products are likely to be worth at least £300bn by 2050. By way of example, the then DTI's and Carbon Trust Renewables Innovation Review in 2004 concluded that a global market for fuel cells - currently £300m - could be worth £20bn in 2011 and up to £750bn 10 years later. Furthermore, energy management (to promote energy efficiency) is a broad market covering everything from installation of equipment to energy audits and management systems. A study by The UK Centre for Economic Environmental Development (an environmental charity sponsored by DBERR, formerly the DTI) published in November 2006 said that this market was worth £2.65bn in 2005 and would grow to £4.27bn in 2010 and £6.87bn in 2015. The City of London has also emerged as a world-leading centre of excellence for carbon trading. The Carbon Markets Association (CMA), formerly London Climate Change Services is an international trade association representing service providers to the global carbon market and comprising over 40 member companies including: financial institutions, carbon funds, project developers, lawyers, accountants, verifiers, emissions brokers and IT firms . The CMA value the global carbon market at 40 Billion Euros in 2007. All of these relatively new products, markets and services mean new jobs. The energy sector used to be one of the biggest employers in Britain, but ceased to be so in the last couple of decades with mine closures. It is now expected that the trend will reverse, especially in the power generation sector where replacement of ageing plant should create thousands of jobs, with the fastest growth expected in the renewables sector. Simultaneously, Corporate Social Responsibility is increasing in importance. It is multi-faceted, but "being green and being seen to be green" is an important element, and has driven the growth of a new voluntary carbon offset industry. It demonstrably has a positive impact on staff recruitment and retention, and customer choice, as evidenced by the increasingly "green" branding of products and businesses. Correspondingly the financial market has seen recent development of specialised “green” investments/investors and it is now generally recognised that companies can capitalise on the opportunities and go beyond compliance and create economic value, such as energy efficiency and waste reduction savings. However the Government maintains its "carrot and stick" approach to this topic. On the one hand, businesses continue to be taxed on energy use via the Climate Change Levy (CCL), and the coverage of existing and planned cap and trade schemes to control direct and indirect emissions can be confidently predicted to widen. On the other hand, CCL payments can be mitigated by energy efficiency measures, and those same emissions trading schemes offer the potential to generate income on the sale of surplus allowances. The newest cap and trade scheme to control direct and indirect CO2 emissions is the Carbon Reduction Commitment (CRC) announced in the Energy White Paper 2007, which the Government proposes to implement from January 2010. Whereas the EU Emissions Trading Scheme targets energy intensive businesses, such as steelworks and the power industry, the CRC sets its sights on "large non-energy intensive" organisations, which includes large retailers and supermarkets, hotel chains, multiplex cinemas, light industry and manufacturing and mobile phone network operators. Organisations (within the private or public sector) with mandatory half-hourly metered electricity consumption (and 70kVA metering systems in Northern Ireland) exceeding 6000 megawatt-hours (MWh) per year[, which equates to an electricity bill of approximately £500,000] will fall within the scope of this new scheme, the year beginning 2008 being the qualification year. At the start of 2009 organisations will need to gather information on their consumption and will be included in the CRC if they reach the above prescribed cap. We can help business with advice in all these areas, including:
Nick Mallett, Partner Updated May 2008
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