Low carbon opportunities

Published:  27 July, 2007

Engineering companies are facing challenges on new fronts.  As well as the enduring drive to improve commercial performance and deliver to the bottom line, companies now need to respond to regulatory and societal pressure to improve their carbon emission performance.  Dave Lewis, head of energy solutions at npower business, assesses the situation and suggests that a move to the Low Carbon Economy presents more opportunities than threats.

The Government has laid the path to the Low Carbon Economy signalled by the prominence given to this new way of working in the Climate Change Bill and its recent Energy White Paper.  Legally binding targets for the reduction of CO≤ emissions have been set, positioning the UK at the forefront of emissions reduction.  No other country has set such ambitious targets.  In the next four decades, the UK will have to reduce emissions in a series of tiered targets: 26 to 32% by 2020 and 60% below 1990 levels by 2050. The progress against these targets will be monitored in five-yearly carbon budgets.  More recently, the Energy White Paper pointed to the introduction of the Carbon Reduction Commitment, a mandatory cap and trade initiative for major energy users, developed to remove a further 1.2 million tonnes of carbon from the UK emission table.

The challenge now is achieving these targets and business operations have been identified as one of the key areas for improvement if the targets are to be hit.   While this commitment to bring the environment to the forefront of public and business consciousness is to be applauded, for many businesses, what remains unclear is how to translate this ambition into action and the necessary investment required to reduce emissions.  The reduction of 26-32% in a little over 10 years presents the scale of the challenge being faced.  While the regulatory framework presents both a carrot and a stick to business to reduce CO≤, on-the-ground advice is in many instances lacking.  This gap needs to be bridged if businesses are to change their opinions and practices to start viewing the Low Carbon Economy as an opportunity, where businesses generating less CO≤ achieve a competitive advantage, rather than a future notable only for regulatory burden.

Our own research reveals the size of the steps that need to be taken to achieve this. We recently completed our latest npower Business Energy Index (nBEI), an independent, annual report canvassing opinion from a wide range of companies on energy issues.  A key focus of the report was the Low Carbon Economy; what this meant to businesses and what priority was placed on reducing CO≤. 

A great deal of confusion and a lack of common understanding as to what the term Low Carbon Economy means was shown by respondents. The report also revealed reticence among businesses to tackle climate change, with 60% of all companies in the report stating that reducing CO≤ is not a current business priority, and half of those believing it never would be. The results were better with major energy users where only 40% stated that reducing CO≤  was not a business priority, but the figure is concerning when viewed against the importance being placed on a low carbon future in Britain's future business operations and the economy as a whole.

However, while the top line findings might appear alarming, some consolation is provided in the form of energy management, which is emerging as a key discipline within all businesses.  The number of companies actively seeking to improve the monitoring and management of energy is at its highest level since the nBEI began over two years ago, currently 93.5% of respondents.

The silver lining is somewhat dimmed, however, with the results suggesting that many engineering companies have increased investment in energy efficiency measures only as an attempt to mitigate high energy prices, rather than for long-term efficiency gain and emission reduction.  There is a tendency for companies to adopt measures that provide a quick return on investment.  It appears that a major barrier to further improvements is the short payback that business demand on investment of typically one to two years.  Based on this approach the investment available to make long-term improvements in efficiency and meet the emission targets set out, will always be limited. This type of short payback approach also reduces the long-term risk management benefits provided from improved energy efficiency, which act as a protection against future price volatility.

It seems then, that the major driver behind the rise of energy management is economic, rather than environmental.  In a Low Carbon Economy, this policy will have to change to become one that is more sustainable and moves away from the straightforward bottom line, to the triple bottom line: environmental and social accountability, as well as financial.

Traditionally in energy management, opportunities to invest in efficiency have been in retro-fit, add-on and projects such as improved lighting, better heating controls or variable speed drives.  Today, these should be considered the basics and should be fully implemented in all situations.  Businesses must also undertake a baseline audit of their current energy use to understand the current size of their footprint.  Only by understanding current performance standards can targets for reduction be set and, crucially, measured.  This monitoring and targeting approach should then be used to establish a long term strategy for capital expenditure in energy and carbon reduction which should be maintained over an extended period i.e. a five year programme.

A more sustainable approach to energy management presents the best opportunity to combine economic and environmental concerns in the current climate.  In this scenario, the focus switches to more holistic programmes to re-engineer complete energy systems such as focusing on optimising whole systems instead of just components.  The evidence is that this approach produces a step change in reducing emissions through more efficient energy use and maintenance costs, 50% or more in many cases.  It is not yet widely understood or taught and manufacturers are more interested in using larger capacity equipment which although highly efficient itself, may not be the optimum choice if a more co-ordinated and extensive review method is employed when selecting new plant and equipment.

This is the step change that is called for if the benefits of lower emission operations are to be achieved.  In a Low Carbon Economy, a company investing now in improving energy management and reducing emissions will enjoy the long term benefit over competitors.  This benefit will come in the avoidance of future levies that are being discussed as a legislative pressure on high carbon producers of the future.  There are strong indications that there are market advantages to be had from lower carbon operations.  The supply chains of the large retailers are already beginning to see this as the Sainsbury"s and Marks & Spencerís of this world look for products with a minimal carbon footprint.  This approach is likely to gather pace in other sectors.

The environment will be central to political thinking in the years ahead to ensure that we meet the rigorous targets set out for the forthcoming 40 years. This will be echoed by changing consumer and business demand for companies to demonstrate their green credentials.  A sustainable approach to energy will garner reductions in carbon and cost to enable companies to gain significant competitive advantage in the Low Carbon Economy.

For further information please visit: www.npower.com

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