Carbon consultant

A leading management consultant has said that we can cut our global energy dependency by half in the next decade or so. So why do only half of managers take sustainable energy seriously?

One of the biggest issues currently facing organisations in the science, engineering and technology sector is how to maintain their commercial sustainability while retaining their corporate social responsibility values. Every day we read reports of company's failing to live up to their public declarations of environmental responsibility.

How seriously is corporate social responsibility really being taken by government, leading companies, management consultants and trade unions? What progress is being made in creating a low-carbon economy, cutting carbon emissions, exploring alternative energy and building more wind turbines to bridge the energy gap?

Management consultant McKinsey confirms the key challenge facing business, governments and non-profit organisations is how to stabilise atmospheric greenhouse gases while still maintaining economic growth. But in plotting the course to a low-carbon economy, a number of methods will have to be weighed in addressing the risks and opportunities.

"Carbon capture and storage (CCS), or, more accurately, the sequestration of carbon dioxide - is an important topic in the emerging field of climate change," the company states in its quarterly report. "It represents one possible approach for stabilising atmospheric greenhouse gases - although there are many economic, technical and legal barriers to its implementation."

According to Cambridge physicist David Mackay in his book 'Sustainable Energy - Without the Hot Air', "We have an addiction to fossil fuels and it's not sustainable. The developed world gets 80 per cent of its energy from fossil fuels - Britain gets 90 per cent. This is unsustainable for three reasons. First, easily accessible fossil fuels will run out, so we will eventually have to get our energy from elsewhere. Second, burning fossil fuels is having a measurable and very probably dangerous effect on the climate; and third, a sharp reduction in Britain's fossil fuel consumption would seem a wise move if we care about security of supply. Continued rapid use of the North Sea oil and gas reserves will otherwise soon force Britain to depend on imports."

Can Britain, well endowed with wind, wave and tidal resources, live on its own renewables? "We need a plan that adds up," says Mackay. "The good news is that such plans can be made. The bad news is that implementing them will not be easy. To provide 4 per cent of our current energy consumption from wave power would require 500km of Atlantic coastline to be filled with wave farms."

Two big contributors would be photovoltaic panels, covering 5 or 10 per cent of the country and off-shore wind farms filling a sea area twice the size of Wales. Such an immense panelling of the countryside and filling of British seas with wind farms may be possible according to the laws of physics, but would the public accept and pay for such arrangements?

"We require a radical reduction in consumption, or significant additional sources of energy - or both," says Mackay.

Energy efficiency

McKinsey research, by contrast, shows that the growth of worldwide energy demand can be cut in half or more over the next 15 years, without reducing the benefits that energy and users enjoy and while supporting economic growth. The key is a concerted global effort to boost energy productivity - the amount of output achieved from each unit of energy consumed.

Next year sees the start of a new phase to reduce carbon emissions through energy efficiency regulation. An estimated 5,000 firms, including supermarket operators, will be subject to the government's Carbon Reduction Commitment, which takes effect from April 2010. The scheme is intended to reward companies that cut their greenhouse gas emissions and penalise those that don't.

"The UK has signed up to some of the most ambitious emissions reduction targets in the world," says Lord Mandelson, Secretary of State for Business. "The Chancellor's revised target now commits us to reducing emissions by at least 34 per cent of 1990 levels by 2018-22. This will require substantial investments in new technology and energy efficiency." He recognises that the government has three priorities here.

"Government has to set its own strategic low carbon priorities, stick to them and ensure that everything it does reinforces those priorities over time-frames of a decade or more.

"Secondly, government needs to ensure that the flow of risk and growth finance to low-carbon companies remains adequate to give private investors confidence. Through its new £750m Strategic Investment Fund created by the Budget and a potential new public-private investment partnership similar to the original Industrial and Commercial Finance Corporation, the government now has a range of tools to help ensure funding continues to flow to green innovators during the credit crunch. It will also actively support the expensive but necessary demonstrator phases of new technologies."

Finally, he accepts the government must provide clear incentives for a shift to energy efficiency to complement those offered by the market. "Our aim," says Lord Mandelson, "is to make the UK the place to research, develop and establish new low carbon technologies and green business."

Last November, as Lord Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, recently recalled, the UK's Climate Change Act became the first piece of domestic legislation anywhere in the world to create binding targets for lowering emissions of greenhouse gases. It also created the Committee on Climate Change, an independent institution reporting to Parliament to monitor and advise on progress. The government has also launched a low-carbon growth strategy and a consultation on heat and energy savings.

These, Lord Stern argued, offered sound foundations, but "do not yet add up to a clear and strong programme of action to meet our targets. Nor do they give the clear and strong signals that industry and the public need to guide their investments and commitments."

He also warned that serious investment in public transport must be at the heart of a coherent climate policy, and that investment in electric cars for the mass market, powered by low-carbon electricity will have to be substantial.

In an interview with McKinsey on connecting climate change and economic recovery, Lord Stern said "we must have in 2009 a strong international agreement to deal with an even bigger crisis (after the economy) which is the climate crisis. The longer we delay, the more the greenhouse gases build up, the more difficult the starting point for action becomes."

The carbon trust

One notable initiative, the Carbon Trust - set up by business eight years ago in response to the first piece of environmental legislation in Britain to tackle climate change - is a private company backed and funded by government to the tune of £100m a year, allocated mainly to reduce carbon emissions or accelerate the move towards a low-carbon economy.

Run by Tom Delay, formerly of Shell and two firms of management consultants, McKinsey and AT Kearney, the Carbon Trust now works with 75 per cent of FTSE 100 companies and 50,000 large and small businesses, reducing emissions by 17 million tonnes and saving more than £1bn in operating costs.

The Chancellor's April Budget earned some praise for backing environmental projects, such as subsidies for new coal-fired power stations and off-shore wind farms, as well as assistance for home owners to fit insulation. The companies behind the London Array, the world's largest wind farm project, say the government's new incentives boost the economics of the scheme and so its commercial viability.

A final investment decision on the £3bn project, comprising 341 giant turbines on the Kent coast is expected soon and construction could start later this year. Yet building wind farms is believed to be on hold because of the financial crisis and the added cost burden of connecting all these wind farms to the National Grid at a cost of several billion pounds.

Of course, the Budget's contribution of £525m financial support over the next two years for offshore wind farm development and the £4bn package from the European Investment Bank for investment in renewable infrastructure projects were welcomed by the British Wind Energy Association.

The government clearly favours offshore wind power, arguing that the country's new nuclear capacity will take time to build and tide power is in the early stages of development. The government's commitment to invest in up to four carbon capture and storage demonstration projects has also been welcomed by Prospect, the union for 102,000 scientists, engineers and managers.

The union's head of research, Sue Ferns, said, "This is not only good news, but essential for the government to meet its carbon reduction commitments.

"As Ed Milliband the Energy Secretary concedes, nobody knows for sure whether CCS will deliver effectively on a commercial scale. Nonetheless many companies are interested in testing the technology and have begun preparatory work. But because of the risks, they will only take forward large projects with proper support from the Government. Today's statement provides a more certain policy framework for this to happen.

"We welcome the prospect of CCS bringing new skills and jobs to regions that desperately need them, as well as to the North Sea industry, for off-shore storage sites.

"But while endorsing the proposal that all new plants must include CCS demonstration, we are concerned about making existing plants retrofit CCS within five years. The government needs to provide proper support to companies to ensure that this does not result in the unintended consequence of plant closures and job losses.

"Whether we like it or not the UK needs coal-fired generation for its baseload supply, to overcome the intermittency problem which affects so many renewables. And whatever happens in the UK, countries like India and china will continue to build coal-fired plant. So we need to set an example by putting our own house in order."

Extreme weather

The Stern report suggests extreme weather might reduce global gross domestic product by up to 1 per cent, and that in a worst-case scenario global per capita consumption could fall 20 per cent.

Broad agreement among climate scientists that global temperatures will continue to increase has led some nations, states and corporations to suggest that causes and effects need to be studied; adaptation to the changing global environment must be another option.

Business response on climate change includes efforts to improve energy efficiency and limited moves towards use of alternative fuels, as well as the EU's introduction of its Emission Trading Scheme which enables companies to cap their emissions or to purchase credits from others below their allowances. Australia announced its Carbon Pollution Reduction Scheme in 2008, while in the US President Obama has announced plans to introduce an economy-wide cap and trade scheme.

A McKinsey survey of more than 2,000 global executives found that while nearly half of respondents said that climate change is a 'somewhat' or 'very' important issue to consider in purchasing and supply-chain management, less than a quarter reported their companies 'always', or 'frequently', take climate change into consideration in these areas. Among high-tech and other manufacturing executives, 54 per cent and 56 per cent of respondents, respectively, say climate change is 'important in purchasing'.

According to McKinsey they may be missing an opportunity. "Our analysis suggests that for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 per cent of a company's carbon footprint resides upstream in its supply chain - from raw materials, transport and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 per cent. Therefore, any significant carbon abatement activities will require collaboration with supply chain partners."

But the really significant McKinsey's research finding shows that growth of worldwide energy demand can be cut in half or more over the next 15 years without reducing the benefits that energy's end users enjoy - and while supporting economic growth. The key is a concerted global effort to boost energy productivity, the amount of output achieved from each unit of energy consumed.

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