No clear direction

At Bedfordshire-based cardboard manufacturer Abbey Corrugated, a heat recovery system from Spirax Sarco has helped the business become one of the very first UK manufacturers to be awarded the Carbon Trust Standard. With the manufacturing process consuming extensive amounts of steam, the heat recovery system enables the water entering the boiler to do so at a temperature of between 138¡C and 142¡C, a significant increase on the former typical temperature range of 68¡C to 70¡C - and an equally significant reduction in the amount of energy required to convert that water to steam. According to Paul Gale, Abbey Corrugated's facilities manager, the savings from the project are in the region of 25% of the gas formerly consumed by the boiler, and comprise a saving in both reduced energy bills and a lower carbon footprint. "As a business, we've been working at reducing our carbon footprint for the last four years or so," he says. "Over that time, we've reduced emissions by 15% or so." But the sad fact remains that in an environmentally-conscious era, the achievement of environmental standards isn't new, or even especially newsworthy. Going green, in short, has become 'business as usual', no matter how prestigious the award in question. But the Carbon Trust Standard is different - as thousands of manufacturers and other energy-intensive businesses will shortly be finding out to their cost. It has teeth - and costly ones for businesses found lacking. Simply put, when the government's new Carbon Reduction Commitment (CRC) scheme comes into force next year, achievement of the Carbon Trust Standard should automatically mean savings of potentially tens of thousands of pounds in terms of the mandatory carbon emission allowances that businesses covered by the CRC must purchase. "Many businesses haven't really got to grips with the financial consequences of the CRC," stresses Gary Worby, managing director of carbon and sustainability consultancy EnergyQuote. "In April 2011, they'll have to find a sum of money equivalent to 5-8% of their total energy bill, times two - which for some, will comes as a shock." But talk to businesses close to the workings of the CRC - or even those manufacturers directly impacted by it - and it's fair to say that not a little confusion prevails. In launching the CRC, the government claimed it would be 'administratively simple'. The worrying reality, it appears, is that it's anything but. In short, from establishing if a given business is affected, to predicting what the costs of compliance might be, murkiness prevails. Yet the basic idea behind the CRC is simply stated. Recognising that the very largest emitters of carbon dioxide (CO2) into the atmosphere are already covered by two large government-mandated schemes to cut emissions - the Climate Change Agreement and the EU Emissions Trading System - the CRC aims to catch the next layer down. In short, it covers businesses that are significant generators of CO2, but which to date have not been subject to any form of control or compulsory carbon trading. So which businesses, precisely, are affected? Here, the murkiness begins. For a start, what matters is the total energy consumption of the organisation in question, irrespective of how many locations it is spread over. Exceed 6,000 MWh during the reference period, as measured by the half-hourly meters that many large organisations (either compulsorily - as large consumers - or voluntarily) have in place, and compliance with the CRC is mandatory. Loosely speaking, at current energy prices, that's equivalent to an annual spend of £500,000 or so, although the final arbiter is the megawatt-hours figure, not the size of the energy bill. Nor is it just manufacturers that are going to be swept up by the CRC, although energy consumption on that scale is often associated with manufacturing industry. Retail chains, health trusts, and even local governments all find themselves obliged to comply. And the reference period over which qualification was determined was back in 2008 - meaning that if a business is going to be impacted by the CRC, the die is already cast. Businesses presently without a half-hourly meter, or whose consumption falls just beneath the level of compulsory compliance, will be caught by a second qualification period during 2010. "Even though businesses should know by now if they're covered by the CRC, a staggering number are still totally unaware that the CRC is going to impact them," warns Stephen Mooney, vice-president of corporate development at London-based Carbonetworks, a vendor of web-based software which lets business keep track of their energy consumption and carbon emissions. "The lack of awareness is worrying, because there are things that businesses should be doing now, in order to prepare." For businesses close to needing to comply with the CRC, that list of actions includes trying hard to escape its clutches. Halifax-based flooring manufacturer InterfaceFLOR, for example, came close to having to comply, but knew from the outset that it would safely avoid having to register. "From an emission level of 5,000 tonnes of CO2 in 2004, we've achieved a reduction of 600 tonnes through relatively low-cost means such as monitoring and targeting," says engineering director Eddie Bingham. "I know the energy consumption of every department and every process - and if there's an anomaly, such as someone leaving a compressor on over the weekend, I can spot it straight away." Once over the threshold for CRC compliance, manufacturers then find themselves obliged to follow a set course of actions. First comes registration, followed by the mandatory monitoring and reporting of CO2 emissions. Based on respondents' submissions, the government then publishes a 'league table' similar to those published in respect of schools and hospitals - 'naming and shaming' the poor performers, and highlighting the better ones. It's important to note, however, that businesses that are wholly or partly covered by other existing carbon-reduction and carbon-trading schemes can gain whole or partial exemption from the CRC. The utility industry and its supply base, points out Paul McNeillis, director of corporate responsibility at sustainable procurement specialists Achilles Group, is for example is covered by CEMARS (Certified Emissions Measurement and Reduction Scheme). "Among the CRC-related services that we offer is help with registration and exemption," adds Matt Davis, a manager with Milton Keynes-based carbon and energy consultancy IMServ. "It isn't always obvious if a business can gain any exemptions, and it's worth checking. A number of industry-specific schemes exist which are quite outside the scope of the Climate Change Agreement and the EU Emissions Trading System." Abbey Corrugated, it turns out, is a case in point. It's part of the giant DS Smith papermaking group, explains Paul Gale. While the whole company falls well within the scope of the CRC, DS Smith's mills in the south of England are exempted, through membership of a separate carbon trading scheme. And while it's likely that Abbey will fall within the CRC scheme, the exemption takes it closer to the cut-off point - and certainly serves to cut the cost of compliance. Even so, the existence of so many carbon-related schemes is confusing and certainly appears to run counter to the government's stated aim of making the CRC 'administratively simple'. "We have clients affected by all three government-initiated carbon trading schemes - the CRC, the Climate Change Agreement and the EU Emissions Trading System," observes Liz Morgan, carbon solutions manager at Newmarket-based consultants EIC. "Does the country really a need a third scheme? One scheme, covering enough companies, would surely be enough." It's a point given added emphasis when one considers the remainder of the workings of the CRC, as registration, monitoring and reporting is arguably the easy part of CRC compliance. For although the costs of activities such as carbon monitoring aren't insignificant - how does one measure an invisible and odourless gas that is created both on-premise and off-premise? - the next stage of CRC compliance involves parting with more serious amounts of cash. By the end of July each year, organisations covered by the CRC must purchase 'carbon allowances' equal to the amount to CO2 that they intend to emit that year. And if they don't purchase those allowances, they won't legally be allowed to emit that carbon. It's here, too, that the 'double whammy' warned of by Carbonetworks' Stephen Mooney comes into play. The first annual sale of carbon allowances is unique, he points out: "For 2011 only, businesses must purchase one year's allowances retrospectively, as well as one year's allowances in advance. While all subsequent allowances will be purchased in advance, for that first year, businesses will have to pay twice the 'normal' amount." Initially - and here is a particular source of confusion - the price of the allowances is fixed, at £12 per tonne of CO2 released into the atmosphere. It's important to note that this is a transition price, though: after three years, a free market will be introduced, bringing the CRC scheme closer to the operation of established schemes such as EU Emissions Trading System. But to begin with, for those first three years, the CRC isn't a carbon 'trading' scheme and, as such, lacks the favourable environmental impetus of pure trading-based schemes, which match 'polluters' with their greener peers. That said, the CRC isn't entirely without environmental teeth. Intended from the government's point of view to be revenue-neutral, here's where the league table comes in: the good performers don't just get their allowances returned, they get the bad performers' allowances given to them, as well. That's right: it's possible to make a profit from the CRC scheme, in that a business with a good record of carbon-reducing performance can get back from the scheme more than it pays in. Conversely, bad performers must buy allowances, and then see little or nothing by way of a return. So what, precisely, constitutes 'good' performance? Longer term, the intention is to reward continuous reduction in carbon emissions. In the short-term, though, more concrete criteria apply - all two of them. Yes, somewhat alarmingly, the government has decided that only two criteria will count as so-called 'early action metrics', recognised as improvements rewarded by league table positioning leading to allowance repayments - not to mention avoiding naming and shaming. The first of these is signing-up for automatic meter reading of gas and electricity consumption - and doing so by March 2011, a month before the start of the April-July period during which carbon allowances must be purchased. The second? Accreditation to the Carbon Trust Standard, as achieved by Abbey Corrugated, and in the form of a certificate granted by March 31st 2011. In short, these two measures - and these two measures alone - will determine the rebates applicable in the first year of the CRC, say the rules. And the hit for non-compliance, don't forget, is double, in that in the first year of operation, businesses pay both retrospectively, and in advance. Environmental standards are sometimes seen as a woolly soft option, and an occasion for self-congratulatory back-slapping. In this instance at least, that couldn't be further from the truth.