Free Essay

Carbon Strategies

In: Science

Submitted By cswaru
Words 48747
Pages 195
Corporate Carbon Strategies
Threats and opportunities arising from the new energy imperative

Reference Code: BI00036-019 Publication Date: March 2011

1

About the authors
Professor Merlin Stone
Merlin is Head of Research at The Customer Framework. He is author or co-author of many articles and thirty books and also on the editorial advisory boards of several academic journals. He has a first class honors degree and doctorate in economics from Sussex University, UK. In parallel to his business career, he has also pursued a full academic career, holding senior posts at various universities. He is now a visiting professor at De Montfort, Oxford Brookes and Portsmouth Universities, teaches economics for the Open University and marketing for Exeter University.

Jane Fae Ozimek
The author is a writer and researcher in the areas of IT, Business and the Law. Jane is currently editor of the Journal of Database Marketing and has previously published works on the use of statistics in business and Marketing Resource Management. Recent research papers include publications on the misuse of security protocols by major corporations, and a re-evaluation of the Loyalty Ladder concept in marketing theory. Jane was also co-author of the recently published Carbon Trading and the Effect of the Copenhagen Agreement (published by Business Insights, 2010).

2

Disclaimer
Copyright © 2011 Business Insights Ltd This report is published by Business Insights (the Publisher). This report contains information from reputable sources and although reasonable efforts have been made to publish accurate information, you assume sole responsibility for the selection, suitability and use of this report and acknowledge that the Publisher makes no warranties (either express or implied) as to, nor accepts liability for, the accuracy or fitness for a particular purpose of the information or advice contained herein. The Publisher wishes to make it clear that any views or opinions expressed in this report by individual authors or contributors are their personal views and opinions and do not necessarily reflect the views/opinions of the Publisher.

3

Table of Contents
About the authors
Professor Merlin Stone Jane Fae Ozimek Disclaimer

2
2 2 3

Executive summary
Corporate social responsibility: key themes Mapping the energy landscape: the climate change challenge Options for combatting climate change Global drivers to change National policy instruments The role of carbon trading Consumer drivers A framework for strategic compliance Operational approaches to compliance CO2 emissions reduction: case studies The role of marketing Conclusion and recommendations

15
15 15 16 17 18 18 19 20 21 22 22 23

Introduction
Preface and key themes

24
24

Chapter 1 The climate change challenge
Summary
4

25
25

Introduction Climate change as political fact
Emissions impact

25 26
26

Human intervention
Factors undermining the Kaya identity The effect of prosperity on CO2 intensity The relationship between energy intensity and prosperity The impact of recession on CO2 emissions

27
28 29 31 33

Chapter 2 Options for combatting climate change
Summary Introduction Main physical principles involved in reducing CO2 emissions Fuel switching
General principles Fuel switching in practice Power generation Transport Buildings

34
34 35 35 36
36 37 37 38 38

Reducing demand
The mode shift option Optimization and behavioral change Dynamic/integrated optimization Network optimization Smart grid approaches

39
39 40 40 40 41

Adopting more efficient equipment The main alternatives to reducing CO2 emissions
Carbon capture and storage (CCS) 5

43 45
45

Land Use, Land-Use Change and Forestry (LULUCF) Drawbacks to the LULUCF approach

45 46

The principle of adaptation

46

Chapter 3 Global drivers to change
Summary Introduction Global political drivers
Global pressures: the significance of the Kyoto Protocol The Kyoto mechanisms for controlling GHG emissions Monitoring emission targets Reducing emissions from deforestation and forest degradation (REDD) Beyond Kyoto: a failed initiative in Copenhagen Beyond Kyoto: new hope from Cancun, Durban and South Korea

48
48 49 49
49 50 50 51 52 53

Chapter 4 National policy instruments
Summary Introduction
Quantifying the drivers The underlying message behind consumer concern The role of national incentives

54
54 55
55 56 57

Emissions reduction: the regulatory framework
Regulatory Labelling Programs Energy audits Financial measures Fiscal measures Cross-cutting measures 6

58
58 59 60 60 62 63

Evaluation and awareness of energy efficiency programs

64

Chapter 5 The role of carbon trading
Summary Introduction
Carbon tax Effectiveness of direct taxation From cap-and-trade to carbon tax: the UK’s carbon reduction commitment Scheme outline Performance league table

68
68 69
69 71 72 72 73

The theory behind carbon markets
Trading units EU emissions trading system (EU ETS) How the EU ETS works Scale of the EU ETS Business implications The carbon trading loophole

74
74 75 75 75 76 77

Voluntary trading schemes
Slower growth in the voluntary carbon markets Factors impeding voluntary carbon market growth US and China: an “alliance of denial”

77
79 81 82

National perspectives: a round-up

82

Chapter 6 Consumer drivers
Summary Introduction Consumer demand
National difference: the US

84
84 85 85
86

7

What consumers do – not what they say China following in Western footsteps on electric cars

87 90

Perception is key
Consumer mis-estimation of energy usage Numerate environmentalists – and mis-guided consumers Greenwash Consumer hostility UK experience: over-enthusiastic environmentalism Get it wrong – and sorry may not be enough

90
92 94 95 95 96 97

The importance of segmentation The consumer: sophisticated actor in the environmental drama

97 98

Chapter 7 A framework for strategic compliance
Summary Introduction A compliance framework for the whole business
A basic compliance model The core business activity Theoretical underpinning to the business model Focussing the strategic review externally as well as internally Risk assessment and metrics Policy checklist and drill-down The key question Other players offering strategic input and solutions Consultancies: Ernst & Young Other consultancies Academic support Government initiatives: strategic support for CSR Other bodies providing support to business Energy Savings Obligations motivate suppliers

101
101 101 102
103 103 104 105 106 107 108 109 109 110 111 112 114 115

8

Chapter 8 Operational approaches to compliance
Summary Introduction
Technological focus Drill-down energy audit Supply chain focus Energy efficiency within the business environment Packaging focus Global packaging trends Material trends Opportunities – and obligations Legal pressures on packaging Issues around consumer perspectives on packaging Solution and framework for packaging sustainability

117
117 117
118 119 120 122 124 124 124 125 127 128 129

Chapter 9 CO2 emissions reduction: case studies
Summary Introduction Approaches to identifying lead companies in sustainability
The Dow Jones sustainability indexes Adding detail to the Dow Jones Sustainability Index Available indexes in the area of sustainability World leaders Dow Jones Sustainability companies distributed by country Dow Jones Sustainability companies distributed by continent Threat to US role in sustainability

130
130 130 131
132 133 134 135 137 139 140

Other examples of sustainability indexes Non-financial approaches to identifying sustainability leaders
9

141 141

Case studies in sustainability leadership
Sustainability as cross-business objective Wal-Mart Wal-Mart sub-goals for environmental sustainability Wal-Mart sustainability programmes Toyota Toyota approaches to reducing energy consumption Sustainability by tackling supply chain issues PepsiCo Strategic embedding of PepsiCo sustainability initiative Hewlett Packard (HP)

142
142 142 143 146 146 147 149 149 151 153

Sustainability through energy efficiency
United Technologies Corporation (UTC) Bank of America

154
154 155

Packaging and resource efficiency initiatives
Coca-Cola Measuring the environmental impact of its supply chain ASDA Nestlé

157
157 158 159 161

Chapter 10 The role of marketing
Summary Core messages: credible, accurate, informative, clear
Real CSR versus “vanilla” (greenwash) The right way to provide information Branding and communications strategy The role of social media Do Don’t Self-promotion 10

162
162 162
164 165 166 166 167 167 167

O2 eco rating for phone handsets SAP Sustainability reporting The SAP approach to communicating energy information In the news: typical news stories focusing on CSR Awards for sustainable practice Regional trends

168 169 170 171 171 172

Chapter 11 Conclusion and recommendations
Summary Current state
Consumer confusion Business complacency?

174
174 174
175 175

Learnings Actions now Future outlook
Geo-politics Consumer resurgence Competitive issues

176 177 178
179 179 181

Appendix
Scope Methodology
Primary research Secondary research

183
183 184
184 184

Glossary/Abbreviations Bibliography/References
Major Source Works

185 187
187

11

Key companies used for source material Key companies cited in cases

188 189

12

Table of figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: The Kaya Identity Primary energy intensity at 2005 purchasing power parities in koe/$2005p koe/$2005p, 2010 Benefits of eco-efficiency (%), 2010 Examples of energy labeling, 2010 WEC energy efficiency framework selection screen Selection from WEC Base: audits by country Selection from WEC Base: All measures within one country (Switzerland) Effectiveness and scope of emission reduction strategies, 2010 28 31 32 56 60 65 66 67 72 79 80 81 92 93 103 104 115 121 123 134

Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in

Figure 10: Voluntary carbon market trading volumes (MtCO2e), 2010 Figure 11: Transaction volume, (MtCO2e), global carbon market 2007-2009 Figure 12: Transaction value, ($m), global carbon market 2007-2009 Figure 13: Perceptions of energy saved versus energy actually used (Wh), 2010 Figure 14: Perception of perceived versus actual energy saved for automobiles (Wh), 2010 Figure 16: A framework for business energy compliance, 2010 Figure 17: Business compliance framework (core value chain), 2010 Figure 18: Business case for co-generation, 2010 Figure 19: Ernst & Young supply chain analysis tool, 2010 Figure 20: Framework for energy efficiency analysis (buildings), 2009 Figure 22: Sustainability scores for Panasonic Electric Works Co. Ltd, 2010

Figure 15: Perception of perceived versus actual energy saved for beverage containers (Btu), 2010 94

Figure 21: Proportion of glass containers recycled by country (leading European economies), 2009127 Figure 23: Distribution of Dow Jones supersector leaders by country (Number of companies), 2010139 Figure 24: Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010 140 Figure 25: Scheme of Wal-Mart central energy control, 2009 Figure 26: Toyota overview of energy usage through the product lifecycle, 2009 Figure 27: PepsiCo model of supply chain, 2010 Figure 28: Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010 Figure 29: Example of eco-rating label used by O2, 2010 Figure 30: SAP Sustainability Reporting Dashboard, 2011 145 147 151 159 169 170

13

Table of tables
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Temperature increase at equilibrium relative to pre-industrial (°C) Key ratios for energy-related CO2 emissions, 2007 Primary energy intensity at 2005 purchasing power parities in koe/$2005p koe/$2005p, 2010 Benefits of eco-efficiency (%), 2010 Carbon taxes prevalent in Northern Europe, 2010 The carbon market at a glance, volumes and values in 2008-09 Voluntary Carbon Market trading volumes (MtCO2e), 2010 Transaction volumes (MtCO2e) and values ($m), global carbon market 2007-2009 Focus for sustainability consortium, 2009 Example building energy audit, 2010 Ernst & Young supply chain analysis key questions, 2010 Dow Jones sustainability index corporate sustainability assessment criteria, 2010 Dow Jones supersector leaders (2010/11), 2011 27 29 30 32 55 71 76 78 80 112 119 121 132 137

Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in

Framework for identifying key business issues in climate change and sustainability, 2010109

Proportion of glass containers recycled by country (leading European economies), 2009126

Distribution of Dow Jones supersector leaders by country (Number of companies), 2010138 Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010 139 Wal-Mart plan for implementation of sustainability goals, 2009 Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010 143 158

14

Executive summary
Corporate social responsibility: key themes
The underlying theme will be the impact of the politics of climate change on corporate activity, looking at the political and social drivers pushing companies to lower their energy costs, the approaches that they may adopt to do so, and the various positives that may accrue to companies that successfully manage to achieve this. This is an energy report, primarily focused on an energy viewpoint, with particular relevance to consumer and technology companies. It is designed to address questions of how best to reduce a business’s carbon footprint from a strategic point of view – and is neutral on the issue of whether companies should carry out such moves.

Mapping the energy landscape: the climate change challenge
Climate change is a commercial reality – irrespective of what individuals and organizations feel about the issue. The current scientific consensus makes three broadly supported assertions: that an increase in atmospheric greenhouse gases (GHG) is causing global warming, which is a negative consequence; that the bulk of the increase is due to human intervention; and that increased prosperity is broadly associated with greater emission-generating activity. The actual link between GHG emissions and human activity is not simple, with a multitude of national, economic and cultural factors coming into play. The recession has seen a slowing of the rate of increase in GHG emissions and, in many countries, an actual reduction. This is likely to prove a temporary respite, with the upward curve of emissions resuming as economic activity also returns to its previous course. There are fears that this temporary

15

respite will lead politicians and the public to de-prioritize climate change as an activity needing international action, with longer term negative consequences for the planet.

Options for combatting climate change
Organizations need to be aware of the alternatives available to reduce their own CO2 emissions profile or to lower CO2 emissions by supporting activities elsewhere in the world. Not all activities are equally beneficial either in practical terms or in terms of public acceptance or support. There are three principal approaches to reducing emissions: switching to a lower CO2-emitting fuel, reducing the demand for energy use, or switching to more energy-efficient equipment or ways of working. Fuel switching options are not limited to the major energy generators: there are many ways in which organizations can reduce their fuel usage by a change to operational policy in key areas such as transport and building design and use. Reducing demand may be achieved by the simple expedient of down-sizing business operations: a more realistic approach combines elements of three separate approaches, including mode shift (most often applied to transport) and simple optimization of business practices. Dynamic optimization is the third and most significant way to reduce energy use. It involves optimizing of activities across a range of activities and is best represented by the smart grid, although the same principles of dynamic optimization may be seen at work in areas such as network planning. Technological improvements are the third core approach to the reduction in CO2 emissions. These may take place in any part of a business, although the main focus is on improvements in areas such as power generation, transport and buildings. In addition to techniques for carbon reduction two approaches exist for removing carbon from the environment once it has been emitted. These are Carbon Capture and Storage (CCS) and Land Use, Land-Use Change and Forestry (LULUCF). There are concerns that these methods do not remove

16

carbon from the environment permanently, and also concerns LULUCF is not sustainable and inflicts social and economic damage on developing nations.

Global drivers to change
Global pressure to reduce GHG emissions and to take concerted international action has been a long time growing. Concern toward the end of the 20th century resulted in the Kyoto Protocol in 1997, which set fixed targets for developed (Annex I) countries to meet in a first implementation period 2008-12. A key outcome from Kyoto was the agreeing of a number of mechanisms that would assist countries in the task of reducing emission levels. These include Joint Implementation projects (JI), the Clean Development Mechanism (CDM) and International Emissions Trading (IET). International pressure has also been mounting for action on Reducing Emissions from Deforestation and Forest Degradation (REDD). This is a controversial issue: there is broad agreement that action on issues relating to Land Use, Land-Use Change and Forestry (LULUCF) is essential, but REDD in its current form – essentially offsetting emissions in the developed world by locking developing nations into agrarian social and economic structures – has been widely criticized as “exporting the developed world’s problems” and “CO2lonialism”. An alternative approach – REDD+ - which includes issues such as conservation and sustainable management of forests offers a more promising way forward. A series of international meetings - Conferences of the Parties (COPs) - since then have led to a growing consensus around the scale and nature of the problem to be tackled. High hopes for a muchneeded series of binding agreements were dashed when COP 15, in Copenhagen in December 2009, ended with agreement only to note the scale of the issues facing the world. Negotiations appear now to be getting back on track, as COP 16 in Cancun in December 2010 produced a number of key agreements bringing countries’ greenhouse gas emissions reduction targets under the UNFCCC process, ensuring greater transparency in emissions reporting by all countries, establishing a “Green Climate Fund” to help facilitate financial support to developing countries, and the announcement of an agreement on REDD+. 17

National policy instruments
In the absence of global action on climate change, the onus is on individual nations to act. A number of approaches are open to nation-states, alone or in collaboration with their neighbors. The World Energy Council categorize these as regulatory, financial, fiscal and cross-cutting. Globally, governments are increasingly linking legislative and financial reward to “good behavior” over CO2 emissions (particularly in the transport and buildings sector). There are also some calls at an EU level for legislative limits to be placed on CO2 emissions by automotive fleets. Governments using all means available to encourage and re-enforce good behaviour, including regulatory pressure (minimum efficiency standards, specific regulations for designated consumers), financial (subsidies for audits and soft loans), fiscal (tax credits, accelerated depreciation and tax reductions) as well as cross-cutting measures (innovative communication tools and voluntary agreements). In parallel, a number of trading standards, league tables and performance indicators are now being developed to which businesses may choose to sign up to voluntarily. This is broadly welcome, despite some concern that this may encourage a tick-box mentality, with businesses doing what scores points, rather than taking genuine mitigating steps. How countries deal with CO2 emissions varies radically across the globe, usually reflecting differences between nations that tend to prefer centralized control – and those that prefer leaving solutions to the market. An essential tool to understanding how different policy incentives and regulatory regimes stack up is provided by the World Energy Council’s online analysis tool, that allows research of policies by category, by institution, by country and by policy target.

The role of carbon trading
Despite strong economic arguments to the effect that direct taxation is the most effective form of emissions control in scale of results achieved and in the ability of governments to influence behavior to 18

specific goals, this has been slow to take off. However, over the past two decades, carbon taxes have been taken up, primarily in Finland, Sweden and the Netherlands, with the UK and individual states in Canada and the US also showing interest. A significant mitigation mechanism is the creation of carbon markets, which aim to motivate businesses to reduce their CO2 emissions by placing an economic cost on carbon. The largest such system is the EU Emissions Trading System, which currently accounts for over 80% of the world’s traded carbon. Critics have argued that the price of carbon needs to be significantly higher (at least double) to have a major impact on the carbon use, and that carbon trading is a form of colonialism, enabling developed countries to delay implementing measures necessary to avert CO2 emissions, whilst burdening developing nations with the costs of their action. The world’s two largest emitters – China and the US – have consistently opposed taking part in carbon trading, despite several attempts to bring them on board. Official carbon markets are supplemented by the Voluntary Carbon Market (VCM), which is similar in approach to the main compliance markets – although the actual volumes traded are far lower, they are not “fungible” in the same way as credits created in respect of the official compliance markets. The VCM appears to have peaked, for the time being, falling back significantly in 2009 as the pressure for businesses to meet strict compliance targets was reduced through the recession and, in 2010, by the US decision not to go ahead with cap-and-trade legislation. Nonetheless, the VCM is now wellestablished, and this market provides a means whereby businesses can test their ability to meet CO2 emissions targets before they are forced to legislatively.

Consumer drivers
There is a great deal of demand to “do something” about climate change and global warming: although this demand is widespread and global, it also manifests itself differently according to nationality.

19

The demand is very “soft”: whilst consumers demonstrate a great willingness for change, much of the change demanded is in general terms or in terms of its effect on others. Consumers are far less willing to sacrifice convenience, comfort or cost for the global good. Consumer estimation of what actually works in energy-saving terms, is not well-informed, with significant and systematic under-estimation of energy consumed (or available for saving), and consumers readily buying into myths as to what is the most effective route to reduce CO2 emissions. Corporate initiatives that treat consumers with disrespect (e.g. changes to working practice without prior warning) lead to significant negative reactions: the key lesson from a number of cases is that consumers need accurate, timely information and resent anything they perceive as misinformation. This is supported by the rise of a practice termed “greenwash” – organizations making high-level claims as to their green credentials, not backed up by fact. This phenomenon makes life even more difficult for organizations, since it fosters a spirit of cynicism amongst consumers. Research suggests, despite business views to the contrary, most consumers (80%) are not overly concerned. This is not cause for complacency: consumer attitudes to green issues are highly volatile, and a resurgence of interest in a green agenda is likely as the effects of the recession dwindle. Consumers are interested in practical painless options for helping the environment (e.g. via a reduction in packaging): organizations should identify and focus on energy-saving measures that can be presented as win-win. Finally, consumers may not (yet) be actively rewarding organizations for their good behavior environmentally – but they are swift to punish those perceived to be acting badly, as illustrated by the case of BP in early 2010.

A framework for strategic compliance
Businesses need to change their approach to energy policy radically and quickly, away from viewing it as commodity, towards seeing energy – and CO2 emissions – as something that needs to be managed strategically and synergistically across the organization. This cannot be achieved by one individual at

20

middle or senior level, but requires a cross-disciplinary team, reporting at board level. A framework for compliance and a roadmap for change are also essentials. A framework is set out and developed, highlighting the need for businesses to deal not simply with internal issues, but support activities (operations, transport and logistics), supply chain and delivery network as well. For all stages in the delivery process, from product sourcing to customer, organizations need to have adequate metrics in place: they also need to have strategies which allow for risk assessment and management. A policy checklist for compliance is set out. The market for CO2 compliance is increasingly crowded, with consultancies, government, academia, suppliers and clients all offering and providing support for businesses wishing to become to reduce their carbon footprint.

Operational approaches to compliance
Organizations need to determine where they currently sit in terms of development, as the solutions on offer range from whole top-down support for strategic development, through to specific operational initiatives designed to optimize carbon footprint in one or more areas of business activity. Four key areas where specific (niche) initiatives can come into play are technology, supply chain, energy efficiency and packaging. The key point here is that organizations need to be able to assess their own level of competence when it comes to reducing CO2 usage. The range of partners available to support organizations in this respect is far wider than for the strategic overview. Although many niche players are looking to obtain a fee for their advice, many will provie genuine advice and support for free: either this is because it supports their own CSR, by improving the footprint for their supply chain or distribution; or it provides them with the opportunity to sell in other services. Business should not automatically assume it needs to spend significantly for support in this area.

21

CO2 emissions reduction: case studies
A number of mechanisms exist for identifying lead organizations in the field of eco-efficiency and carbon compliance: one of the most significant of these is the Dow Jones Sustainability Index. The existence of a range of other audits and indexes across the world may be a source of consumer confusion. Case studies highlight how the range of organizations now implementing or attempting to implement carbon compliance projects is wide and growing: the view that compliance mostly affects manufacturing is no longer tenable, as in most major enterprises, it is the contribution from premises, transportation and supply chain that is key.

The role of marketing
The role of marketing is examined: in general, the focus needs to be on “walking the walk”. Businesses must make sure that whatever claims are made, they are substantiated by actual facts, are believable, and are communicated to customers in a timely and clear fashion. Businesses need to look out for “greenwash” in their claims: not just hype on their part, but claims that consumers may deconstruct as hype. The drive towards greater availability of information as a requirement of business governance provides an opportunity for companies to use information as a marketing tool. A general list of do’s and don’ts for branding and social media usage are provided. Case studies are outlined of how O2 and SAP use provision of information relating to their CSR position as a marketing tool: other company examples are cited, as well as the use of awards to enhance company positioning. Csr is now a global trend, although its implementation across the world will depend very heavily on national temperament and propensity to use legislative or other means to bring about change.

22

Conclusion and recommendations
There is at present a great deal of pressure from many sources to take action on global warming – and that pressure manifests as political and consumer pressure on business Consumers are less wedded to taking action than many believe: in practice they demand action, so long as it does not affect their personal quality of life: businesses may as a result become complacent, believing that as they are ahead of consumer demand now, they will remain there. Key learnings from this report include: that the largest element of business carbon footprint often comes from its supply chain or distribution network; that systems are complex and interact, making simple solutions difficult; and that long-term the solution almost certainly lies in optimization techniques. Businesses need to fit their response to their current state of readiness. Strategically, they should be looking at audit, partnering, targets, database/information, continuous improvement and identifying quick wins. More accomplished businesses may wish to think in terms of addressing specific niche programmes. The main lesson for the future is that businesses need to plan against uncertainty and a high probability that at some point the demand for sustainability in their way of trasing will go past what is comfortable: businesses that have failed to prepare for that point will be in serious trouble. In the meantime, businesses need to see sustainability as a strategic tie-breaker when it comes to consumer decision-making, rather than a benefit in itself.

23

Introduction
Preface and key themes
The underlying theme will be the impact of the politics of climate change on corporate activity, looking at the political and social drivers pushing companies to lower their energy costs, the approaches that they may adopt to do so, and the various positives that may accrue to companies that successfully manage to achieve this. This is an energy report, primarily focused on an energy viewpoint, with particular relevance to consumer and technology companies. There was some belief that such companies would be in areas with a high public profile: those, for instance, in the food and drink sectors. In practice, though, that is far from the case. Almost all companies that sell product – and almost all those that provide services are major users of energy: and as illustrated by a number of audit frameworks later in this report, a very high proportion of that energy has nothing to do with the manufacture of goods or even the finished product, but lies in areas such as the supply chain: energy used by suppliers to the frontline company; or in transport networks. Government too is highly affected by considerations of sustainability and corporate social responsibility: not because of the energy involved in the service supplied, but because of the scale of operations involved, and the energy consumed by the buildings estate that government tends to occupy. The report will remain neutral as to the absolute desirability of any given outcome, whilst making clear to companies the risks and benefits likely to follow from taking a particular stance in this arena. Issues covered will include how companies can lower their energy costs and how they can market their sustainability, with particular attention paid to topics such as the Carbon Reduction Commitment (CRC) and Corporate Social Responsibility (CSR).

24

Chapter 1 The climate change challenge
Summary
Climate change is a commercial reality – irrespective of what individuals and organizations feel about the issue. The current scientific consensus makes three broadly supported assertions: that an increase in atmospheric greenhouse gases (GHG) is causing global warming, which is a negative consequence; that the bulk of the increase is due to human intervention; and that increased prosperity is broadly associated with greater emission-generating activity. The actual link between GHG emissions and human activity is not simple, with a multitude of national, economic and cultural factors coming into play. The recession has seen a slowing of the rate of increase in GHG emissions and, in many countries, an actual reduction. This is likely to prove a temporary respite, with the upward curve of emissions resuming as economic activity also returns to its previous course. There are fears that this temporary respite will lead politicians and the public to de-prioritize climate change as an activity needing international action, with longer term negative consequences for the planet.

Introduction
Climate change – or more particularly – fears regarding the consequences of climate change is a political fact that has impact at all levels in society, ranging from macro-political intervention, to changing consumer habits. It is not necessary to be climate “experts” to recognize that this is now an issue with identifiable and real consequences for organizations and the way they do business. This is the immediate cause of a growing organizational focus on corporate social responsibility, as exemplified by sustainable business practices. This chapter looks at the nature of the climate challenge, and starts to map the new environment within which organizations now need to work.

25

The key learning here is that the overall picture is complex: that actions that at first sight appear optimal for government and business to be taking may have the opposite effect to that required; and that organizations will end up having to choose between an option that is technically “purer” and more optimal in terms of emissions reduction – and measures that more closely reflect consumer or regulatory demands.

Climate change as political fact
Climate change is political fact, founded on three broad assertions: An increase in atmospheric greenhouse gases (GHG) – and more specifically, the CO2 component of these gases – is leading to global warming; the bulk of the increase can be shown to be due to human intervention (anthropogenic emissions), either directly, by supporting industrial processes that emit GHG’s or indirectly, by supporting practices, such as deforestation, that reduce the re-uptake of GHG’s; increases in anthropogenic emissions are closely related to increasing human prosperity. There is now wide-spread consensus that these processes are real and a cause for concern: far less agreement on the precise nature and scale of any causal linkage. It is neither necessary nor appropriate for business to become over-focussed on the detail of this argument (a scientific debate): they need to be aware of the business consequences of a global political consensus based around it.

Emissions impact
Thus, current models and the scientific consensus reported by various bodies including the Intergovernmental Panel on Climate Change (IPCC) and the Stern Review in the UK suggest that the coming century will see in a rise in average atmospheric CO2 to levels somewhere between 450 and 1,000 parts per million (ppm), compared to levels present before the start of the Industrial Revolution: at present, the level recorded is 379 ppm, which is significantly higher than at any time in at least 650,000 years, and also rising far faster than at any time recorded in that period.

26

As a result of this rise in CO2, the consensus, again, is that the world should expect a mean rise in global temperatures of between 2°C and 5°C, and local hotspots of double the mean temperature rise are forecast. At the same time, there is significant divergence between forecasters as to the relationship between increase in atmospheric GHG concentration and the precise temperature rise to be expected. The Stern Review considered a total of 13 different forecasts in this respect and came up with a very wide range of different forecast outcomes for any given level of increase. For instance, as Table 1 shows, for an increase of 1,000 ppm – widely regarded as being at the extreme end of likely outcomes, forecasts provide an increase in average global temperature of between an increase of between 2.2°C and 17.1°C. Both figures are large enough to cause concern: but the actual consequence is likely to be very different: the former may result in overall discomfort, with some localized benefits, some local disasters, and the latter more likely to lead to effects described as catastrophic or cataclysmic in their impact on the human race.

Table 1: Temperature increase at equilibrium relative to pre-industrial (°C)

Stabilization Level 400 450 500 550 650 750
Source: Stern Review

IPCC TAR (2001) (ppm CO2 equivalent) 0.8 – 2.4 1.0 – 3.1 1.3 – 3.8 1.5 – 4.4 1.8 – 5.5 2.2 – 6.4

Hadley Centre (Wigley and Raper) 1.3 - 2.8 1.7 - 3.7 2.0 - 4.5 2.4 - 5.3 2.9 - 6.6 3.4 - 7.7

Eleven Studies Ensemble 0.6 - 4.9 0.8 - 6.4 1.0 - 7.9 1.2 - 9.1 1.5 - 11.4 1.7 -13.3

BUSINESS INSIGHTS

Human intervention
An understanding of the drivers of climate change is given in very broad quantitative terms by the Kaya identity. This is a mathematical identity, which holds true regardless of the values of any variables that appear within it (i.e. it would apply even to a zero-emissions economy), and expresses total CO2 emissions 27

in terms of key ratios, which include the level of output (which can be further split into population growth and GDP per head); the energy intensity of that output; and the carbon intensity of energy, as illustrated in Figure 1.

Figure 1:

The Kaya Identity
Population

X
CO2 emissions from energy GDP per head x energy use/GDP

X
CO2 emissions/energy use
Source: Yoichi Kaya

BUSINESS INSIGHTS

Factors undermining the Kaya identity
Although this relationship has the advantage of appearing to provide a quantifiable and definitive link between CO2 emissions and other factors, there are many other secondary factors that come into play. Thus, the larger a country’s population, the more likely it is to have a higher use of energy: however, this outcome will be modified by where that country sits in the cycle of industrial development (which in turn affects the level of population growth: emerging nations tend to have expanding populations, some developed ones are contracting), as well as the precise profile of natural resources available to it. Table 2 shows how widely indicators may vary between countries.

28

Table 2: Key ratios for energy-related CO2 emissions, 2007

CO2 per head Country/Grouping US EU UK Japan China India OECD Economies in Transition Non-Annex I Parties World Notes:- tCO2 = Tonnes of CO2 (tCO2) 19.1 7.9 8.5 9.7 4.6 1.18 11 8.6 2.6 4.4

CO2 emissions/ GDP per head ($ppp2000) 37,961 24,991 30,141 28,327 7,509 3,583 27,302 11,392 5,396 9,294 energy use (tCO2/TPES) 58.9 53.3 53.1 57.5 53.2 73.6 56.5 57.6 57.6 57.5 Energy use/GDP (kCO2/$ppp2000) 0.5 0.32 0.29 0.34 0.61 0.33 0.4 0.77 0.48 0.47

TPES = Tonnes of CO2 relative to total primary energy supply kCO2 = Kilogrammes of CO2 $ppp2000 = per $ at 2000 purchasing power parity
Source: IEA Statistics 2009
BUSINESS INSIGHTS

The effect of prosperity on CO2 intensity
In absolute terms, the US and OECD countries remain the world’s largest emitters of CO2, in 2007 burning about 6-10 times the amount of fossil fuels per year as emerging nations such as Brazil and India. At the same time, fast growth tends to accompany earlier stages of the industrialization cycle, with growth later slowing down: CO2 intensity in the US has stagnated, by comparison with peak growth between 1870 and 1920, whilst the fastest growth today comes from developing and newly industrializing countries. Historic and other factors are also key in determining a nation’s carbon use profile: taxation, economic development and access to natural resources are key. Sweden, with roughly the same standard of living as the US, generates just 30% as much CO2 per person, largely due to the major role played by hydroelectric 29

and nuclear power in the Swedish economy. Those countries responsible for most of the world’s CO2 emissions from land use, are also those reliant on farming and agriculture – though they still tend to leave a much smaller carbon footprint than the developed world. In other words, there is a definite relationship between levels of economic prosperity and human activities that lead to increased GHG and CO2, but it is far from simple. The differences between various economies is graphically shown in Table 3 and Figure 2. These show that the general trend for energy intensity has been downward over the last 30 years, with the sharpest falls recorded in those areas where the most rapid development has taken place. However, the average energy usage in each of these areas has broadly increased over the same period.

Table 3: Primary energy intensity at 2005 purchasing power parities in koe/$2005p

1980 Africa Australia CIS EU (27) Latin America Middle East North America OECD Asia and Pacific 0.278 0.241 0.500 0.199 0.151 0.146 0.315 0.170

1990 0.304 0.217 0.506 0.171 0.159 0.234 0.243 0.152

2000 0.294 0.195 0.530 0.143 0.15 0.267 0.210 0.163

2008 0.26 0.176 0.348 0.125 0.142 0.284 0.179 0.146

Note: koe/$2005p = Kilogram of oil equivalent in $ at 2005 purchasing power parity
Source: World Energy Council/Enerdata
BUSINESS INSIGHTS

30

Figure 2:
Primary energy intensity at 2005 purchasing power parities (ppp) in koe/$2005p 0.6 0.5 0.4 0.3 0.2 0.1 0

Primary energy intensity at 2005 purchasing power parities in koe/$2005p

CIS Middle East Africa Latin America Australia OECD Asia/Pacific North America EU (27)

1980

1990

2000

2008
BUSINESS INSIGHTS

Source: World Energy Council/Enerdata

The relationship between energy intensity and prosperity
The relationship between energy efficiency and GDP per capita is also not straightforward, as shown in Table 4 and Figure 3.

31

Table 4: Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in koe/$2005p, 2010

Energy intensity (koe/$2005p) China France Germany India Italy Japan Russia UK US
Source: World Energy Council/Enerdata

GDP per capita $5,511 $31,577 $31,119 $4,027 $28,167 $31,484 $14,917 $33,733 $42,625

0.283 0.136 0.129 0.133 0.106 0.126 0.327 0.101 0.175

Note: koe/$2005p = Kilogram of oil equivalent in $ at 2005 purchasing power parity
BUSINESS INSIGHTS

Figure 3: Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in koe/$2005p, 2010
$45,000 $40,000 GDP per capita in $2005p $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 India China Russia Italy UK US Japan France Germany

Primary energy intensity in koe/$2005p
Source: World Energy Council/Enerdata
BUSINESS INSIGHTS

32

The impact of recession on CO2 emissions
The global recession of 2008-10 has led to marked downward revision of forecasts for short-term CO2 emissions likely over the next decade. In 2009, analysts noted that investment in polluting technologies had been deferred and were forecasting that CO2 emissions could fall in that year by as much as 3% - steeper than at any time in the previous 40 years. This alone would lead to emissions in 2020 being 5% lower – without any additional policies - than the IEA estimated just twelve months previously. Similar results have been reported by a number of bodies, including the US Energy Department (total US GHG emissions in 2008 down by 2.2% from 2007) and by the European Environment Agency's (EEA) (EU-27 and EU-15 GHG emissions both down by 6.9% in 2009 from 2008). Figures from the UK’s Department for Energy and Climate Change (DECC), published in March 2010, also showed a fall in emissions of CO2 of 9.8% in 2009, while overall output of a group of six greenhouse gases fell 8.6%. This is positive news from the perspective of those concerned with climate change, although there are two caveats: the “good news”, combined with concern over the recession itself may have taken the public’s mind off the issue, thereby reducing pressure for necessary action. There is also concern of a “bounce-back” effect once the recession is over, with economies – and emissions – rapidly returning to where they would have been without the effect of the recession.

33

Chapter 2 Options for combatting climate change
Summary
Organizations need to be aware of the alternatives available to reduce their own CO2 emissions profile or to lower CO2 emissions by supporting activities elsewhere in the world. Not all activities are equally beneficial either in practical terms or in terms of public acceptance or support. There are three principal approaches to reducing emissions: switching to a lower CO2-emitting fuel, reducing the demand for energy use, or switching to more efficient equipment or ways of working. Fuel switching options are not limited to the major energy generators: there are many ways in which organizations can reduce their fuel usage by a change to operational policy in key areas such as transport and building design and use. Reducing demand may be achieved by the simple expedient of down-sizing business operations: a more realistic approach combines elements of three separate approaches, including mode shift (most often applied to transport) and simple optimization of business practices; Dynamic optimization is the third and most significant way to reduce energy use. It involves optimizing of activities across a range of activities and is best represented by the smart grid, although the same principles of dynamic optimization may be seen at work in areas such as network planning. Technological improvements are the third core approach to the reduction in CO2 emissions. These may take place in any part of a business, although the main focus is on improvements in areas such as power generation, transport and buildings. In addition to techniques for CO2 reduction two approaches exist for removing CO2 from the environment once it has been emitted. These are Carbon Capture and Storage (CCS) and Land Use, Land-Use Change and Forestry (LULUCF). There are concerns that these methods do not remove CO2 from the environment permanently, and also concerns LULUCF is not sustainable and inflicts social and economic damage on developing nations. 34

Introduction
There are a limited number of ways in which the world can reduce its CO2 emissions: in practice, just three, although within the categories outlined in this chapter, there are many alternatives, all of which are under consideration at the present moment. There are also routes that deal with CO2 emissions once they have been produced. Most organizations, outside of government or primary energy providers, need only a broad awareness of the full range of techniques. However, given that there is growing pressure on organizations at all levels to play their part in reducing CO2 emissions, that awareness and the implications that those alternatives hold for the average business is vital. Even where an organization is not asked to participate directly in one of these alternatives, it is increasingly likely that they will be asked to support schemes that rely, to greater or lesser extent, on one or more of the techniques set out in this chapter.

Main physical principles involved in reducing CO2 emissions
There are in practice three fundamental approaches that lower CO2 and carbon-related emissions: Switching to less carbon-intensive or non-carbon fuels; reducing the demand for energy services; adopting more energy-efficient equipment. Examined separately are alternatives, which involve the removal of emissions from the atmosphere and preventing them from entering the atmosphere in the first place.

35

Fuel switching
General principles
The IEA report that in 2007, hard coal and lignite fuels generated 41.5% of world electricity production with natural gas providing 20.9%, nuclear 13.8%, hydro 15.6%, oil 5.6% and other renewables (fuels not used up in their consumption) such as biomass, geothermal, wind and solar, just 2.6%. In general, switching from fuels rated high in terms of CO2-emissions to fuels that are low in emissions is positive. However, the fuel and energy supply chain is complex and what appears obvious is not always right: for instance, it can be more efficient, in emission terms, to use a high-CO2-emitting fuel close to its point of origin, than a lower-emitting source that needs to be transported further (or transformed). Switching to energy-efficient appliances at the point of end-use may involve greater energy expenditure in production. In general, fuel choice has been dominated by the following considerations: Fossil fuels: in order of emissions produced per unit of energy, coal is far and away the main emitter of CO2, followed by oil, then gas. Switching from coal to gas has a double benefit, as not only is gas a lower emitter, but natural gas combined cycle power plants are more efficient: overall emissions reductions per kWh as high as 50-75% are possible. However, current forecasts suggest that coal will remain viable as a source for energy generation long after oil – and possibly also natural gas – have been expended; nuclear power remains an uncertain option. The risk premium demanded by financial markets causes financial concern. Fuel costs fluctuate significantly. In many countries, there is also widespread popular opposition to the installation of nuclear plant – making this a dubious option for businesses attempting to assert their “green” credentials; renewables are the most climate-friendly alternative, but depend heavily on factors such as proximity to point of delivery and intermittency of the power source (e.g. wind power may range from high to zero, depending on prevailing weather conditions).

36

Three developments have recently led analysts to upgrade their vision of the potential for renewables in combating CO2 emissions: Government investment has been significantly stepped up. REN21 (Renewable Energy Policy Network for the 21st Century) report the amount of new energy generating capacity coming from all renewable sources in Europe and the US topped that coming from fossil fuels and nuclear for the second year in a row in 2009. At the same time, they note a significant rise in substitution in other areas (biofuels in transport, for instance). Renewables accounted for 60% of newly installed capacity in Europe and more than 50% in the US in 2010, with similar trends now visible in major energy consuming countries such as China. In addition to direct investment, government has also been instrumental in legislative pumppriming, with a near-doubling of countries adopting policies that promote renewable energy generation (from 45 in 2005 to 83 in 2009); energy storage is essential to any increase in renewables, which tend to be far more widely distributed and do not match traditional models of large-scale central production. The development of traditional technologies, such as pumped-storage hydropower, compressed-air energy storage and more efficient batteries, as well as the arrival of new, including capacitor and hydrogen storage, is therefore key. In time the growing world fleet of electric vehicles may form an informal pool of energy storage capacity; smart grid technology plays an increasingly important role both in the growth of renewables and the spread of efficiency practices. This is because as well as allowing businesses and home-owners to optimize the efficiency of their energy-use, the smart grid will also, in time, be key to smoothing irregularities in flow of energy produced by renewables, taking from the national grid when local power generation is inadequate – and feeding back in when there is surplus.

Fuel switching in practice
Fuel switching may be deployed at various points within the energy cycle. Power generation Most obviously – and already under consideration in most countries – is a shift from the use of fossil fuel to non-fossil alternatives in terms of power generation. A number of countries are exploring the benefits of 37

combined heat and power (CHP) operations: at present, as much as two thirds of the primary energy used to generate electricity in conventional thermal power plants is lost in the form of heat. Transport A prime candidate for switching to less CO2-intensive fuel is road transport. Uptake of new fuels is likely to depend on the extent to which such fuels are available, availability of the infrastructure to support them, and the degree to which vehicles need modification (or replacement) to take account of the particular fuel. Key candidates for substitution against existing fossil fuels are biofuels, alternative liquid fuels and gaseous fuels: hydrogen is also under consideration. Fuel cell vehicles (FCVs) – based on hydrogen power (hydrogen/fuel cells) have the potential for significantly reducing GHG emissions (by 50–60%), although these are at present limited by the lack of durable, safe, cost-effective and environmentally desirable fuel cell and hydrogen storage systems. Electric vehicles began to appear on the mass market in 2009/2010: the rate at which they are taken up will depend on many factors, including the price of vehicles, the cost of running them and the development of a support infrastructure. Whilst the focus for fuel switching may appear to be road transport, much research is also devoted to other modes. In respect of railways, techniques for converting energy lost to braking back into motive power are being further developed. At sea, new designs that combine conventional energy sources with a combination of solar panels and sails (wind-power) are being considered – though these approaches are unlikely to contribute greatly toward economical CO2 reduction before 2050. Research is also looking at alternative fuels to power air transport. Buildings Much the same principles apply to fuel use within the commercial buildings estate as in respect of power generation. At present, around 50% of building emissions are from combustion of oil, around 40% from gas, and the remainder from coal. Switching to renewable sources is one obvious route: however, as for power generation, the implementation of a smart grid makes it possible for increasingly smaller units to set up their own renewable energy sources on-site.

38

Even where the economics of such an initiative is unattractive to a single business, there is a growing trend towards groups of businesses, in shopping centers or on business parks, getting together in co-operative ventures to implement renewable initiatives.

Reducing demand
The recent economic downturn is a good example of what happens when demand is reduced: longer term, though, the idea of some sort of “global downshift” is unlikely and politically unfeasible. More usually “reducing demand” means achieving the same or economically similar outcomes to those enjoyed at present, but doing so more efficiently and more effectively. This approach overlaps with the third approach – which involves using more efficient equipment, but whilst the latter depends on technological development, demand reduction relies more on intelligent planning and the optimization of existing activity.

The mode shift option
Certain modes of transport are heavier CO2 emitters than others. Thus, in general, collective/public modes of transport tend to generate lower relative emissions than private modes – as does walking and cycling (an exception is the US, where low-load factors on buses make a shift to using public transport a less favourable option). Recent figures for the UK, produced by DEFRA in 2005, suggest that the least polluting mode of transport, in terms of carbon emitted is rail, at 0.04kg/person/km: the most polluting is a large (>2.1 litre) single-occupant car at 0.22kg/person/km. Short haul flight is intermediate, at 0.15kg/person/km. Short sea or ocean-going container ships and bulk carriers exhibit a substantially lower energy demand per TEU(twenty-foot equivalent units)/km or tonnes/km than trucks: ro-ro cargo ships (“roll-on, roll-off”) exhibit a high specific energy consumption, increasing with increasing ship size. In general, mode shifts to light rail transit (LRT) and bus rapid transit (BRT) are both attractive means for reducing emissions dues to private vehicle usage, while mode shifts that include walking or cycling can have an even more dramatic impact on the CO2 “bottom line”. 39

Optimization and behavioral change
US tests by the Oak Ridge National Laboratory have found an average 17.1% fuel economy loss in driving at 70 mph compared to 55 mph: so a shift in focus from speed of delivery to energy efficiency could be a valuable tool for nations and businesses alike. Behavioral change, aimed at bringing about more fuel-efficient driving practices, has a very definite role to play in reducing vehicular fuel consumption. Training in “eco-driving” – which would include smoother deceleration and acceleration, keeping engine revolutions low, shutting off the engine when idling (which consumes significant amounts of fuel in the freight sector, reducing maximum speeds and maintaining proper tire pressure – is believed to be capable of producing an improvement of 5–20% in fuel economy.

Dynamic/integrated optimization
Simple optimization, which focuses on changes to single factors, may impact significantly on the emissions bottom line. However, organizations are increasingly focussed on dynamic optimization, which recognizes the trade-offs between different factors. In the UK, for instance, the decision to open early on a Sunday (opening hours are limited by law on that day, so early opening also means early closing) might be influenced solely by trading considerations, based on the volume of business done in the first half hour of trading versus the last. A more sophisticated approach might also look at the energy used, particularly in the winter months, when later opening means that there is increased energy required to light stores towards the end of the day: is sufficient incremental business done in that time in order to justify the trading decision. Shifting delivery from road to rail may at first sight appear more CO2-friendly: but this will not be the case if the business infrastructure (stores, depots, etc.) is located in places that make them inaccessible to this mode of transport. The key to dynamic/integrated optimization is the recognition that every business decision is made up of many components, each of which may impact on a business’ eventual carbon footprint: optimizing one element in the mix comes may involve sub-optimization for other components. Network optimization 40

In terms of sea and other cargo, this wider approach will include the optimization of vessel routes, speeds and load factors, and effective weather routing. More sophisticated – perhaps more strategic - fleet management strategies include better management of shipping infrastructure, with ports more closely integrated to other modes of transport: the principles involved are likely to combine elements of infrastructure development, dynamic optimization and mode shift to come up with a best overall result. For instance, effective weather routing at sea needs to be far more sophisticated than ensuring that sea freight “avoids the next storm”: as the quality of weather forecasting improves, so it becomes possible to determine the optimum route between weather systems that may be plotted several days ahead and, where vessels are enabled to take advantage of wind power, the optimum route to benefit from that source of energy. Similar considerations apply in terms of the dynamic routing of road transport, which may currently take into account actual traffic conditions, but which is likely, in time, to be based on far more sophisticated optimization algorithms that add in likely traffic build-ups at different times of day in order to plot the best route for a particular delivery. None of this is possible without real-time, sophisticated computer-based algorithms that are constantly calculating a series of optima (route, speed, etc.) and feeding those back into the decision-making process. Network planning cannot be divorced from much wider considerations of infrastructure and customer habits. Similar considerations apply to air transport and air freight, where computer-based optimization may in time allow for the implementation of a number of operational measures, including minimized taxi-time, flying at optimum cruising altitude (for load and mission distance); minimum distance between departure and destination (i.e. great circle distances); no holding/stacking and, most controversially, a reduction in the vertical separation (RVSM) minima between planes from the current 610m (2,000ft) to 305m (1,000ft). Smart grid approaches One of the most significant optimization approaches to emerge in recent years is represented by the smart grid. Global forecasts anticipate $200bn investment as required between 2008 and 2015, with the two lead 41

nations in this area, China and the US, both estimated to be providing around $7bn of state investment in 2010. Smart grid uses enhanced technology – from Intelligent Electronic Devices (IED) to the development of automated and intelligent metering – with the aim of helping users to use energy more effectively, rather than impacting directly on the processes for which energy is used. There are a number of key principles that make smart grid technology attractive as a means to reducing energy use at a global level. Significant are that: It allows for remote control of installations; it introduces significant amounts of data and intelligence into the management of any energy system; it allows the introduction of (intelligent) optimization principles into the management of any energy grid. At the individual homeowner level, advantages to the remote switching ability are instantly obvious, from turning off lights left on by accident, to starting the central heating or setting the evening meal cooking an hour before the householder returns from work. Similar principles are now being applied to buildings, where almost any energy-using device, from lighting, to PC’s to air conditioning, may be switched off remotely. Evidence from pilot projects in domestic settings shows already a strong tendency on the part of consumers to change their habits in order to take advantage of particular pricing deals, or simply to use the energy available to them that much more efficiently. At a business level, increasing knowledge about the interaction between work practices and energy usage, combined with a willingness to think outside the box, is leading to an array of new business and operational practices, from the merging of operations between sites, changing of in-store lighting strategy, or even shifting opening hours to take maximum advantage of daylight custom. An example of optimization being applied at the macro level comes from New York, where it is estimated that using smart technology to turn off business air-conditioning on a pre-set schedule (cycling through blocks of 20% of all AC units, shutting them down for 12 minutes in every hour), would reduce demand by 1,120MW, or the equivalent of two coal-fired power plants. 42

The same principle can be applied across individual plants or work areas. Localized grids can reduce the energy directed to non-essential services at particular times during the day. In fact, this is not different, in principle, from existing technology exists, which uses motion sensors to reduce the amount of ambient light output in a given space when sensors detect the area is deserted. The most advanced smart grids envisage the balancing of energy needs in home, office and industry with energy output from power plant, as influenced by external factors such as weather and temperature. A fully automated grid would simultaneously balance out energy needs with energy production, matching generation to need far more precisely than is currently the case and so reducing excess or waste capacity in the system.

Adopting more efficient equipment
The issue of increasing efficiencies can be applied at every point in the energy production chain, from extraction, to transport, to conversion, to onward transmission and finally to the end-use applications themselves. Many of the most obvious efficiencies derive from technological breakthroughs and advances. However, there are significant benefits to be enjoyed from simply fixing those aspects of existing systems that are not functioning as well as they could. For instance, it has been estimated that simply plugging the leaks from fossil fuel extraction and distribution could reduce global greenhouse gas emissions by circa 4%. According to “The Size of the US Energy Efficiency Market”, a report published in May 2008 by the American Council for an Energy-Efficient Economy (ACEEE), an estimated $300bn was invested in energy efficiency technologies and infrastructure in the US in 2004. This amount is three times the size of investments made in the conventional energy supply infrastructure but represents less than a third of the nation’s total annual energy expenditures. If focus is narrowed to just the premium associated with improvements in energy efficiency technologies, the market (across all sectors of the economy) is roughly $43bn. These investments in energy efficiency technologies are estimated to have generated approximately 1.7 quads of energy savings in 2004 alone, by comparison with 2003: by the end of 2008, the cumulative saving will be roughly 6.6 quads (quadrillion BTU’s) or the equivalent of at least $77.4bn ($ppp2004). 43

Over the same period, the size of efficiency investments varied considerably across energy end use sectors, with approximately $178bn or nearly 60% of total energy efficiency investments going to the buildings sector (of which nearly half (49%) were made in energy-efficient appliances and electronics, 29% were made in energy-efficient commercial building structures and 22% were made in energy-efficient residential building structures). Investments in energy efficiency in the industrial sector were roughly $75bn (around one-quarter of total efficiency investments). $33bn of investments in efficiency went to the transportation sector received (approximately 11%). According to the UK Environment Agency’s Greener Business Report, published in 2010, the failure to embrace energy efficiency measures is costing UK business over £6bn a year. Amongst the main areas of focus at present are: Reducing vehicle loads through use of lighter materials; increasing fuel efficiency by improving drive train efficiency and recapturing energy losses (e.g. from braking); reducing aerodynamic forces by improved vehicle design are at the core of initiatives for all modes of transport (road, rail, sea, air). For a heavy-duty truck, savings of about 15–20% of fuel at a cost of about $5,000 in the near-term are believed to be possible; waste heat recovery in power generation, transport, building design, thereby avoiding the double penalty of energy lost and a need to re-generate the heat lost by other (CO2-emitting) means; zero energy building technologies, ranging from advanced ventilation and windows (in temperate climates) to low-energy dehumidification and cooling technologies (in warmer ones). Other proven existing technologies include passive solar design, high efficiency lighting and appliances, solar water heaters, high-reflectivity building materials and multiple glazing. Overall, the greatest range of cost-effective opportunities for low-cost GHG mitigation is thought to lie in the buildings sector: the largest savings in energy use (75% or higher) will occur for new buildings,

44

although over the next two decades, the largest absolute savings are likely to come from retrofitting of existing buildings. Improvements to manufacturing processes, may appear at first sight to be an issue for manufacturers. However, as argued later in this report, consumers also display concern not simply in respect of a business’s supply chain. Selection of CO2-friendly manufacturers will become an increasingly important part of procurement in future – and an added reason for manufacturers to improve their CO2 efficiency.

The main alternatives to reducing CO2 emissions
Apart from the obvious alternative, of doing nothing and hoping that the end result of increased CO2 emissions will not be as catastrophic as the worst case scenarios predict – as argued by an economic theory known as the Environmental Kuznets Curve (EKC) hypothesis – there are two further options: carbon capture and land-use/land change and forestry.

Carbon capture and storage (CCS)
This refers to a range of techniques mostly in use at the power generation point of the energy cycle, for capturing CO2 emissions at source and then storing them in long-term reservoirs, usually geologically stable formations either underground or in the seabed. Once out of circulation, they may either be treated at a later date (as the technology becomes available) or released into the atmosphere gradually at a point when CO2 emissions are a less serious issue for the world.

Land Use, Land-Use Change and Forestry (LULUCF)
One of the most significant sources of CO2 emissions, as well as one of the most significant means to trap CO2 emissions lies in the vegetation (crops, plants and forests) that cover the planet. The primary mitigation options in the forestry sector include extending CO2 retention in harvested wood products, product substitution, and producing biomass for bio-energy: this CO2 would then be removed from the atmosphere and available as timber, fiber, and energy.

45

The IPCC estimate that reduction in CO2 emissions through the more effective use of agricultural land (soil carbon sequestration, improved crop and grazing land management and the restoration of organic soils) could total 1 to 2 GtCO2 in 2020 at costs of up to $27/tCO2, with a global technical mitigation potential from agriculture (excluding fossil fuel offsets from biomass) by 2030 estimated ~5,500-6,000 MtCO2e/yr. According to the IPCC’s Fourth Assessment Report, there is, even larger potential exists for forestry mitigation: between an average of 2.7 GtCO2e/yr and 13.8 GtCO2e/yr at costs up to $100/tCO2e in 2030.

Drawbacks to the LULUCF approach
LULUCF has encountered opposition from two directions. First, simple (re-)forestation of the planet is not necessarily a positive step when used in combating global warming: whilst forests will soak up CO2 and keep it locked in solid form for decades – centuries, even – global warming is influenced by other factors other than CO2 emission. These include the reflectivity (“albedo”) of the planet, and there is evidence suggesting that too much forestation at the wrong latitude may actively contribute to warming by changing the Earth’s albedo. Second, there are political and economic concerns that placing too much reliance on LULUCF may have a damaging effect on developing countries, encouraging them toward unsustainable or socially and economically damaging practices, and locking them into an agrarian culture for the benefit of the developed world. For this reason, early attempts to bring forests within the remit of the Kyoto protocol through the mechanism of reduced emissions from deforestation and degradation (REDD) and also attempts to trade developed world emissions against Clean Development Mechanism projects that involve forestation, have run into strong political and popular opposition.

The principle of adaptation
Mostly outside the scope of this report is adaptation. This involves anticipating the adverse effects of climate change and taking appropriate action to prevent or minimize the damage caused: in essence, adapting to inevitable change rather than simply attempting to prevent it. Key examples of adaptation measures include using scarce water resources more efficiently and adapting building codes to future climate conditions and 46

extreme weather events. Government and governmental organizations have a key role to play in this respect (often serving to negotiate agreements between conflicting interests) and within the EU, adaptation is supported by the Directorate-General for Climate Action (DG CLIMA), established in February 2010.

47

Chapter 3 Global drivers to change
Summary
Global pressure to reduce GHG emissions and to take concerted international action has been a long time growing. Concern toward the end of the 20th century resulted in the Kyoto Protocol in 1997, which set fixed targets for developed (Annex I) countries to meet in a first implementation period 2008-12. A key outcome from Kyoto was the agreeing of a number of mechanisms that would assist countries in the task of reducing emission levels. These include Joint Implementation projects (JI), the Clean Development Mechanism (CDM) and International Emissions Trading (IET). International pressure has also been mounting for action on Reducing Emissions from Deforestation and Forest Degradation (REDD). This is a controversial issue: there is broad agreement that action on issues relating to Land Use, Land-Use Change and Forestry (LULUCF) is essential, but REDD in its current form – essentially offsetting emissions in the developed world by locking developing nations into agrarian social and economic structures – has been widely criticized as “exporting the developed world’s problems” and “CO2lonialism”. An alternative approach – REDD+ - which includes issues such as conservation and sustainable management of forests offers a more promising way forward. A series of international meetings - Conferences of the Parties (COPs) - since then have led to a growing consensus around the scale and nature of the problem to be tackled. High hopes for a muchneeded series of binding agreements were dashed when COP 15, in Copenhagen in December 2009, ended with agreement only to note the scale of the issues facing the world. Negotiations appear now to be getting back on track, as COP 16 in Cancun in December 2010 produced a number of key agreements bringing countries’ greenhouse gas emissions reduction targets under the UNFCCC process, ensuring greater transparency in emissions reporting by all countries, establishing a “Green Climate Fund” to help facilitate financial support to developing countries, and the announcement of an agreement on REDD+. 48

Introduction
The drive to “do something” about climate change comes from many directions, both top-down (government and legislative pressure) as well as bottom-up (consumer concerns). The challenge facing businesses over the next decade is how they can most effectively connect with the new requirements being placed on them, particularly where those requirements appear to do little more than add cost to the bottom line. Businesses need to develop strategies that balance their response to external pressures, deciding how “green” they actually need to be in terms of energy use. They do not need to conform to the most extreme demands of every environmental pressure group they encounter: they should be aware of new legal requirements, taking a considered view on the compliance implications; and they should be aware of consumer attitudes in this area. The key learning from this and subsequent sections is not that all organizations need to respond in the same way, but that green issues and energy policy are on the agenda, and that organizations need to react.

Global political drivers
Global pressures: the significance of the Kyoto Protocol
The first and most significant international step in respect of climate change was the Kyoto Protocol. This was an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC), setting binding targets for 37 industrialized countries and the European community (Annex I countries) for reducing emissions of four greenhouse gases (CO2, methane, nitrous oxide, sulfur hexafluoride) and two groups of gases (hydrofluorocarbons and perfluorocarbons). This agreement amounted to an average reduction in their collective greenhouse gas emissions of 5.2% against 1990 levels over the five-year period 2008-2012. The Protocol was initially adopted on 11 December 1997 in Kyoto, Japan and entered into force on 16 February 2005. As of July 2010, 191 states have signed and ratified the protocol. The major distinction

49

between the Protocol and the Convention that preceded it is that while the Convention encouraged industrialized countries to stabilize GHG emissions, the Protocol commits them to do so.

The Kyoto mechanisms for controlling GHG emissions
The Kyoto Protocol further put in place a series of flexible mechanisms, which became the basis for global carbon trading. These include: Joint Implementation projects (JI) defined by Article 6 of the Kyoto Protocol, which produces Emissions Reduction Units (ERUs); the Clean Development Mechanism (CDM) defined by Article 12, which produces Certified Emission Reductions (CERs); International Emissions Trading (IET) defined by Article 17. A degree of flexibility is permitted in meeting emissions targets. Net changes in emissions by direct anthropogenic land-use changes and forestry activities may be used to meet the commitment, but since 1990 these have been limited to afforestation, reforestation, and deforestation. Emissions trading among the Annex I countries is also allowed, although rules for trading are to be set by the Conference of the Parties at some later date. Annex I countries are permitted to set up Joint Implementation Projects, so an Annex I country may take emissions credits for projects that reduce emissions or enhance emissions-absorbing sinks, such as forests and other vegetation, in other Annex I countries. The Protocol also establishes the Clean Development Mechanism (CDM), which allows Annex I countries to take credits for projects that reduce emissions in nonAnnex I countries.

Monitoring emission targets
The Kyoto Protocol also provides for a range of mechanisms for monitoring progress. These include: Registry systems to track and record transactions by Parties; an international transaction log to verify that transactions are consistent with the rules of the Protocol; 50

reporting by Parties through annual emission inventories and national reports under the Protocol at regular intervals; a compliance system to ensure that Parties are meeting their commitments and help them to meet their commitments if they have problems doing so. The Kyoto Protocol is also designed to help countries to adapt to the adverse effects of climate change. It facilitates the development and deployment of techniques that can help increase resilience to the impacts of climate change, and has also established an Adaptation Fund to finance adaptation projects and programs in developing countries that are Parties to the Kyoto Protocol. Reducing emissions from deforestation and forest degradation (REDD) REDD sets out a number of steps designed to use market and financial incentives to reduce GHG emissions as a result of deforestation and forest degradation. Although its primary objective is the reduction of GHG emissions, it is also widely recognized as capable of delivering co-benefits, including biodiversity conservation and poverty alleviation – and is closely related to another international concern: Land use, Land-use Change and Forestry (LULUCF). Estimates for the level of emissions brought about by deforestation and forest degradation range from 2025% of total GHG emissions to 15% in recent years: putting in place mechanisms to alleviate this issue has been seen as a significant positive step globally. However, the issue was originally omitted from the Kyoto Protocol, on the grounds that measuring and monitoring for the diverse ecosystems and land use changes was likely to be too complex. The Coalition of Rainforest Nations, a loose grouping of 42 nations with membership covering the three largest tropical forest areas - Amazonia, Congo Basin and New Guinea, plus other nations with rainforest resources – was formed in May, 2005, since when pressure from this group has led to agreement on “the urgent need to take further meaningful action to reduce emissions from deforestation and forest degradation”.

51

Although pressure for such an agreement came from developing nations themselves, there is widespread criticism of the REDD approach. Organizations such as Friends of the Earth International object to the lead role of the World Bank in promoting REDD, whilst indigenous peoples have labeled REDD (and its successor, REDD+) as “CO2lonialism of forests”. This is because REDD, by being linked to carbon markets, appears to allow developed nations, primary culprits as far as CO2 emissions are concerned, to offset their obligations to reducing climate change by paying developing nations to take action for them. At the same time, they are encouraged to put off the longer-term structural change that is needed in their own economies. Despite this criticism, there is wide consensus that some action on REDD will be necessary in order to reach global targets for GHG mitigation: the real question is therefore not whether REDD will take place, but how.

Beyond Kyoto: a failed initiative in Copenhagen
The main gaps in the Kyoto Protocol were the absence of long-term legally-binding emission targets, as well as limited the participation by some of the world’s largest emitters, including the US (which has signed the Protocol, but is the sole remaining state not to have ratified it), China, and other developing countries. There are also concerns as to whether members will abide by commitments. The years since Kyoto have been characterized by a series of international meetings, of which the most significant have been the annual Conferences of the Parties (COP), at which signatories to the protocol have attempted to put matters on a more assured footing and tackle the issues highlighted elsewhere in this report. Much hope was placed in COP15, which took place in Copenhagen in December 2009, and was expected to tackle US commitments, transfer of key technologies from industrialized to developing countries, and the provision of significant levels of funding (a further $100bn, overall, in addition to the $150bn already estimated as pledged). Participants and campaigners hoped that Copenhagen would be a successor to Kyoto, whose first commitment period expires in 2012. What was achieved fell far short of this. The meeting ended in acrimony, as a handful of countries (the US, plus Brazil, China, India and South Africa) acting independently of other 52

delegates, agreed a text, the 12-point Copenhagen Accord, without mandating any solutions. Parties to the UNFCCC merely "noted" the Accord and therefore this document was not legally binding on any countries in terms of action. Since then, there has been some progress, with major emitters talking of taking action. A significant problem, however, is that the Accord is not legally binding – and the main Annex I countries – and China - will all commit to significant binding targets, only so long as every other Annex I country does so.

Beyond Kyoto: new hope from Cancun, Durban and South Korea
Since then, there has been some progress at the COP 16 meeting of Ministers, which took place in Cancun, Mexico, in December 2010. The World Resources Institute (WRI), an environmental think tank that focuses on issues relevant to the future of the Earth, reported a turning point for international climate negotiations and success in putting the process of emissions control back on track, with progress in several key areas: national greenhouse gas (GHG) emissions reduction targets were brought under the UNFCCC process, there will be greater transparency in emissions reporting by all countries, and a “Green Climate Fund” to help facilitate financial support to developing countries. A release put out by the UN on 11 December 2010 trumpeted an “agreement on Reducing Emissions from Deforestation and Forest Degradation and enhancement of forest carbon stocks in developing countries (REDD+)”, further noting that “the COP16 agreement on REDD+ is expected to revitalize and increase funding flows to support REDD+ readiness and invigorate donor pledges for REDD+ that now amount to close to $5bn for early actions until 2012”. The world as a whole is still falling well short of taking the steps that scientists believe necessary to avert the worst impacts of climate change and to support countries in coping with the impacts. However, countries are now agreeing, as opposed to disagreeing loudly and in public, and there are hopes that in 2011 they will both flesh out the details of broad agreements reached at Cancun, and start to set more ambitious targets for 2020 and beyond. Binding commitments are now hoped for at the next meeting of Heads of State – COP 17, in Durban, South Africa in 2011 or even COP 18, which will take place in South Korea in 2012.

53

Chapter 4 National policy instruments
Summary
In the absence of global action on climate change, the onus is on individual nations to act. A number of approaches are open to nation-states, alone or in collaboration with their neighbors. The World Energy Council categorize these as regulatory, financial, fiscal and cross-cutting Globally, governments are increasingly linking legislative and financial reward to “good behavior” over CO2 emissions (particularly in the transport and buildings sector). There are also some calls at an EU level for legislative limits to be placed on CO2 emissions by automotive fleets. Governments using all means available to encourage and re-inforce good behaviour, including regulatory pressure (minimum efficiency standards, specific regulations for designated consumers), financial (Subsidies for audits and soft loans), fiscal (tax credits, accelerated depreciation and tax reductions) as well as Cross-cutting measures (innovative communication tools and voluntary agreements) In parallel, a number of trading standards, league tables and performance indicators are now being developed to which businesses may choose to sign up to voluntarily. This is broadly welcome, despite some concern that this may encourage a tick-box mentality, with businesses doing what scores points, rather than taking genuine mitigating steps. How countries deal with CO2 emissions varies radically across the globe, usually reflecting differences between nations that tend to prefer centralized control – and those that prefer leaving solutions to the market. An essential tool to understanding how different policy incentives and regulatory regimes stack up is provided by the World Energy Council’s online analysis tool, that allows research of policies by category, by institution, by country and by policy target.

54

Introduction
Quantifying the drivers
In this and the two subsequent chapters, the report reviews the drivers pushing organizations to act on climate change and CO2 emissions. A snapshot of where the pressure is perceived to be coming from is provided by participants at IBM’s 2010 Eco-efficiency Jam. Those attending were asked to rank the benefits of eco-efficiency. The result of that ranking is shown in Table 5 and Figure 4.

Table 5: Benefits of eco-efficiency (%), 2010

Benefits of eco-efficiency Competitive differentiation Regulatory compliance Other Shareholder expectations
Source: IBM

Number of respondents 591 182 152 76

Proportion of respondents (%) 59.0 18.2 15.2 7.6

BUSINESS INSIGHTS

55

Figure 4:
100 Proportion of respondents (%) 90 80 70 60 50 40 30 20 10 0

Benefits of eco-efficiency (%), 2010
Shareholder expectations (7.6%), 76 people Other (15.2%), Other (15.2%), 152 people 152 people Regulatory compliance Regulatory Compliance (18.2%),182 people (18.2%),182 people Competitive differentiation (59.0%), 591 people Competitive Differentiation (59.0%), 591 people

Benefits of eco-efficiency
Source: IBM
BUSINESS INSIGHTS

The underlying message behind consumer concern
The clear outcome of what was admittedly a small scale sample drawn from business leaders who already had an interest in eco-efficiency was a sense that the main pressure comes from competitive differentiation – which is, in effect, an admission that customers are demanding it. Regulation comes third, after an assortment of “other” (not broken out), with shareholder expectations coming a poor fourth. This result aligns fairly closely with views now expressed in trade and business literature. Consumers are seen to be demanding action: regulation is seen as a secondary pressure, an obligation that must be fulfilled; and other reasons are far less important. In fact, as this report argues in this and following sections, the real picture may be rather different: businesses perceive consumers to be demanding action: but that demand, as argued in Chapter 6 is far softer. Globally, regulatory pressure is significant, with the imposition of carbon markets in a large part of the developed world also having a major influence. A consideration of the drivers to change starts in this section, by looking at state and official incentives to behavioral change.

56

The role of national incentives
The cost of burning fossil fuels has historically been expressed largely in terms of the production costs, with little or no capture of the costs to the rest of the world in terms of climate change or pollution. The key challenge facing national governments has been in persuading business to rein in its use of fossil fuels in an environment where doing so is not obviously a rational economic choice. The options are limited. Governments may: Impose direct legislative restrictions on what fuels may be used, in what quantity and for what purpose (control), or on the energy usage of individuals and businesses; encourage businesses to be less CO2-intensive through initiatives designed to promote and reward best practice; force businesses to capture more of the costs of using fossil fuels either through the imposition of penal taxation or by creating market that attribute the costs of using such fuels directly to the user; All three of these are currently in use, with the precise mix dictated largely by local politics and the relationship between central government and business: this chapter looks at the first two of these approaches, as they translate into a series of measures designed to promote energy efficiency. The exact approach will vary according to national history (and temperament), with those countries more used to central imposition of control resorting to the legislative “stick” approach: putting in place targets and imposing conditions on how businesses must reduce their energy use and/or improve their energy efficiency or face strict penalties. Others are focussing on the creation of “carrots”: schemes that reward businesses for being more energy-efficient. Even where nations have yet to act, businesses are opting for voluntary measures to achieve the same goals. There are a number of reasons for this: true energy-efficiency is a business strength in itself, reducing overheads, and therefore a means to improve the bottom line by the simple expedient of removing costs from the operation.

57

It is also, as reviewed later, a positive marketing tool, encouraging customers to think well of the business and, ultimately, to choose one company over another less environmentally conscientious one. Finally, such an approach is good discipline: if your business is likely eventually to be subject to legislative constraints, it is easier to adapt gradually than to be forced to do so suddenly. This chapter looks at some of the measures being put in place, and examines tools that may help business to determine the mix of such measures across national boundaries.

Emissions reduction: the regulatory framework
A framework for looking at what requirements are placed on companies and other large organizations is provided by the World Energy Council (WEC). They sub-divide measures into four broad groups: Regulatory; Financial; Fiscal; Cross-cutting. Within each of these categories, the WEC provides examples of additional measures that may be put in place.

Regulatory
Regulation may include: Minimum efficiency standards and labels for electrical appliances (refrigerators, washing machines, AC, lamps, water heaters, motors), cars and buildings (new and existing); regulations for designated consumers: mandatory energy managers, mandatory energy consumption reporting, mandatory energy saving and mandatory maintenance; obligatory energy savings for energy companies at consumers premises.

58

Labelling Programs Labelling programs now play a major part in communicating information to consumers, which is seen as a key in encouraging more energy efficient use of appliances. According to the WEC: “labelling programs and performance standards are effective instruments, which enable authorities to obtain energy savings at a low-cost for the public budget, consumers to spend less on electricity and manufacturers to improve their products and become more competitive against imported, less efficient products”. Increasingly, they are used not just to appliances, but to buildings (in most cases, to new stock) and to automotive vehicles as well. For instance, EU Directive (1999/94/EC) obliges car manufacturers and distributors to display information on fuel consumption and CO2 emissions of new passenger cars in showrooms and within any marketing activity. Despite this, there is some concern as to the degree to which consumers understand these schemes, with a 2010 report from the UK Commission for Employment and Skills (UKCES) warning: “strategies are needed to improve usage and understanding of information. Otherwise, expensive systems may be set up which do not achieve value for money.” Labelling regimes introduced in developing countries are frequently based on the experience of OECD countries and use models that have already been proven. For instance, as shown in Figure 5, the European label (for appliances) has been used as a model in Brazil, Tunisia, and Egypt while the Australian model has acted as a base for labels introduced in Thailand, Ghana and the Korean Republic.

59

Figure 5:

Examples of energy labeling, 2010

Source: World Energy Council

BUSINESS INSIGHTS

Energy audits Mandatory energy audits are currently most prevalent within the OECD area – with buildings as the main target. A number of countries (Denmark, Italy, Romania) have also mandated energy managers in respect of public sector or transport enterprises.

Financial measures
Financial measures include: Subsidies for audits by sector (industry, commercial, public, households, low income households transport); subsidies or soft loans (i.e. loans with subsidized interest rates) for energy efficiency investment and equipment by sector.

60

According to the WEC survey carried out in 2010, around two-thirds of countries made use of such instruments, with subsidies being overall more popular – but significantly more so in the OECD (70%) than in the developed world (35%). In Canada, the Office of Energy Efficiency (OEE) is mandated to strengthen and expand Canada's commitment to energy efficiency in order to help address the government of Canada's policy objectives. Their ecoENERGY Retrofit program provides financial support to implement energy-saving projects, which cover homes (up to CAD5,000), commercial and institutional buildings and industrial facilities (up to a maximum of CAD250,000 per corporation or CAD50,000 per facility over the five year life of the project). Support for auditing has led to the development of a fully-fledged auditing “industry” in most countries. In the UK, for instance, Energize Wales Ltd offers businesses a choice of a walk-through audit, which is a basic visual check of a building's energy systems, and a review of energy usage data, and a standard audit which assesses all equipment and operational systems, provides a detailed calculation of energy use, before identifying potential technical improvements and recommendations based on projected energy and cost savings. In the US, a similar business model is adopted by companies such as Abraxas Energy Consulting, who provide minimal building audits for small businesses and two levels (a simple walk-through and a more detailed audit) in line with audit standards created by the American Society of Heating Air Conditioning and Refrigeration Engineers (ASHRAE). The activity of such companies demonstrates intersection with other trends. Abraxas, for instance, also create building models for ESCOs (Energy Service Companies: businesses that provide a range of energy solutions, from design to implementation of energy savings and conservation projects) and for Leadership in Energy and Environmental Design (LEED) Certification.

61

Abraxas imply savings of up to 40% of energy costs are possible: even if this is over-estimate, there are clearly major benefits to be had from the audit approach, either through direct savings (which is why audits are increasingly adopted as a voluntary tool) or through state incentives.

Fiscal measures
Fiscal measures consist primarily of: Tax credit; accelerated depreciation; tax reduction for efficiency investment, by type of tax (import, VAT, purchase, annual car registration) and by type of equipment (appliances, cars, lamps,). According to the WEC, fiscal incentives include measures designed to reduce the annual income tax paid by consumers who invest in energy efficiency, and may also extend to accelerated depreciation (in industry and the commercial sector), tax credits and tax deductions (households). In terms of prevalence: Tax credits exist only in around 25% of OECD countries, being applied mostly to selected equipment or to building retrofitting; Accelerated depreciation is used mainly in industry and occurs in less than 10% of countries; tax reduction for energy efficient investment/equipments exist in around two-thirds of OECD countries, and apply to selected equipment or to building retrofitting; reduction on VAT and on import tax on energy efficient equipment (e.g. efficient motors) is mostly used in emerging and developing countries. In the UK and elsewhere in Europe, examples of fiscal measures may be found in respect of financial penalties levied on high CO2 emitters (similar in principle to the Carbon Reduction Commitment – as shown in Chapter 5), or alternatively, financial rewards for behaviors that are low- CO2. Thus, the road tax payable for smaller CO2-efficient vehicles is now significantly different for large vehicles, with cars banded according to the amount of CO2 they emit. In 2010, the differential between lowest emitters, who paid zero road tax and 62

heaviest emitters (> 255g CO2/km) was £435. That will now widen for vehicles registered in 2011, to a top rate of £950. A similar approach has been mooted for buildings: in December 2006 the UK government announced a goal of all new homes in England being “zero energy buildings” by 2016, announcing plans to exempt buildings that achieved this from Stamp Duty (a tax levied on the sale of domestic houses in the UK).

Cross-cutting measures
Cross-cutting measures consist primarily of: Innovative communication tools; voluntary agreements. Voluntary measures play a key role in CO2 reduction. According to the American Council for an Energy Efficient Economy (ACEEE), energy efficiency is the least-cost, most quickly deployable CO2 reduction strategy, good for the corporate bottom line and good for corporate image, as well as easy to integrate into ISO-9000/14000 systems. An example of government working in tandem with industry to encourage voluntary action to support emissions reduction is the US Energy Star program. Launched in 1995, and sponsored by the US Environmental Protection Agency (EPA) and US Department of Energy (DOE) Energy Star is a voluntary labeling program designed to identify and promote energy-efficient products to reduce greenhouse gas emissions. From first labelling of computers and monitors Energy Star label is now applied to major appliances, office equipment, lighting, home electronics, and many more varied appliances. EPA also covers new homes and commercial and industrial buildings. In the US the Leadership in Energy and Environmental Design (LEED) certification requires design of new buildings to conform to a check list of design criteria that aim to reduce energy consumption in new buildings. European, Japanese and Korean carmakers are currently implementing a voluntary agreement - the ACEA Agreement - to reduce fleet average emissions: this is an agreement by the European Automobile 63

Manufacturers Association (ACEA) and the European Commission to reduce CO2 emissions rates of passenger vehicles sold in the European Union to a fleet average of 140 g CO2/km by 2008 – as an alternative to growing calls by the EU to impose mandatory limits by law. The Carbon Disclosure Project (CDP) Supply Chain program is a collaboration of approximately 50 global companies, including companies such as Acer (Taiwan), BAE Systems (UK), Carrefour (France) and Dell (US) that have agreed to extend their climate change and CO2 management strategies beyond their direct corporate boundaries to engage with their suppliers.

Evaluation and awareness of energy efficiency programs
A key player in evaluating the outcome from different kinds of stimuli, is the World Energy Council. They maintain, in conjunction with enerdata, a database that monitors national energy efficiency programs and, through follow-up research, are able to monitor the effectiveness of programs by type of policy, by target (buildings, appliances, etc.), by institution and by country. This is the most comprehensive data source available for businesses wishing to understand the regulatory and other policy constraints they may encounter in new national markets. Figure 6 shows the selection screen for WEC’s online query tool. Outputs from this database may be generated as comparative tables: Figure 7 is an extract from the database that looks at the extent to which audits have been put in place in commercial/public and residential buildings across the majority of European states. This view provides a quick reference of which countries are the most, and which are the least regulated in particular respects. Alternatively, it is possible to query individual countries in depth. Figure 8 provides an overview of all the energy-saving measures in place in Switzerland, providing researchers a base for further exploration.

64

Figure 6:

WEC energy efficiency framework selection screen

Source: World Energy Council

BUSINESS INSIGHTS

65

Figure 7:

Selection from WEC Base: audits by country

Source: World Energy Council

BUSINESS INSIGHTS

66

Figure 8:

Selection from WEC Base: All measures within one country (Switzerland)

Source: World Energy Council

BUSINESS INSIGHTS

67

Chapter 5 The role of carbon trading
Summary
Despite strong economic arguments to the effect that direct taxation is the most effective form of emissions control in scale of results achieved and in the ability of governments to influence behavior to specific goals, this has been slow to take off. However, over the past two decades, carbon taxes have been taken up, primarily in Finland, Sweden and the Netherlands, with the UK and individual states in Canada and the US also showing interest. A significant mitigation mechanism is the creation of carbon markets, which aim to motivate businesses to reduce their CO2 emissions by placing an economic cost on carbon. The largest such system is the EU Emissions Trading System, which currently accounts for over 80% of the world’s traded carbon. Critics have argued that the price of carbon needs to be significantly higher (at least double) to have a major impact on the CO2 use, and that carbon trading is a form of colonialism, enabling developed countries to delay implementing measures necessary to avert CO2 emissions, whilst burdening developing nations with the costs of their action. The world’s two largest emitters – China and the US – have consistently opposed taking part in carbon trading, despite several attempts to bring them on board. Official carbon markets are supplemented by the Voluntary Carbon Market (VCM), which is similar in approach to the main compliance markets – although the actual volumes traded are far lower, they are not “fungible” in the same way as credits created in respect of the official compliance markets. The VCM appears to have peaked, for the time being, falling back significantly in 2009 as the pressure for businesses to meet strict compliance targets was reduced through the recession and, in 2010, by the US decision not to go ahead with cap-and-trade legislation. Nonetheless, the VCM is now wellestablished, and this market provides a means whereby businesses can test their ability to meet CO2 emissions targets before they are forced to legislatively. 68

Introduction
The various agreements made through Kyoto and its successors have translated into a range of measures at national level. One key approach that attracts support – and controversy – is carbon trading and the carbon markets set up to support it. The underlying principle behind carbon markets is that putting a price on CO2 emissions, conscripts market forces to focus large organizations on cutting emissions and energy efficiency. Since 2005, carbon markets have become a significant policy instrument across the EU, with a significant number of other countries eager to establish their own markets, or to align their schemes with the European scheme, so as to allow for trading of credits more and more widely globally. Technically, carbon markets are a fiscal measure, within the WEC framework outlined in Chapter 4, in the sense that they are a tax on CO2 emissions. However, they are often not seen as such, as companies are able to reduce their tax obligations by purchasing of credits and/or by trading. An issue affecting the spread of carbon trading is that historically, neither the US nor China have supported carbon trading as an instrument of government policy. Nonetheless, there have been significant steps towards the establishment of voluntary carbon markets across the globe, which are a means for industries to set themselves targets, establish internal discipline and, in some states, to ready themselves for stateinstigated carbon trading schemes.

Carbon tax
Despite the strong economic arguments for direct carbon taxation, few countries have yet embarked on such an approach. The following summary of carbon tax figures globally is taken from a range of sources, including a Report by the Kansas Energy Council Goals Committee and the Carbon Tax Center: Finland is believed to be the first country to enact a carbon tax (in 1990). Based originally on carbon content alone, it was subsequently changed to a combination carbon/energy tax. The tax in 2010 was €20/tCO2 ($27.80 at March 2011 rates), with lower rates for natural gas and peat exempted from 20052010; 69

Sweden followed shortly after in 1991. In 2009, the tax was reported as over €40/tonne ($55.60 at March 2011 rates), but as industries are required to pay only 50% of the tax, the Swedish rate is in effect similar to the Finnish one. No tax is applied to fuels used for electricity generation, and fuels from renewable sources are exempted; The UK introduced a “climate change levy” in 2001 on the use of non-renewable energy by businesses and the public sector. Revenues were initially used to provide offsetting cuts in employers’ National Insurance Contributions and to provide support for energy efficiency and renewable energy, rates in 2010 were set at: 0.470p/kWh for electricity; 0.164p per kWh for mains gas; 1.050p per kg for LPG and 1.281p per kg for any other "taxable commodity"; Boulder (Colorado) implemented the US’ first tax on CO2 emissions from electricity, on April 1, 2007, at a level of approximately $7 per ton of carbon, rising by an estimated 80% in June 2009; The province of Quebec in Canada was the first North American state to charge a carbon tax on “hydrocarbons” on Oct. 1, 2007, (at the low rate of 0.8 cents for each liter of gasoline distributed in Quebec and 0.938 cents for each liter of diesel fuel); British Columbia, also a province of Canada, put in place a more significant carbon tax in July 2008, starting at a rate of CAD10/tCO2, and rising by CAD5/tCO2 annually to reach CAD30/tCO2 in 2012. The carbon tax is revenue-neutral with revenues being returned to taxpayers through personal income and business income tax cuts. Other countries that have expressed an interest in levying a carbon tax, include: New Zealand, whose plans to enact a carbon tax in 2005 were scrapped when a new government decided that emissions reductions were not enough to justify the costs; South Africa’s Budget Review Statement in 2010 introduced carbon taxation as a matter for national discussion; Australia continues to debate the issue energetically. Voters appear divided: not enthusiastic, but, according to reports from sources as diverse as the US Foreign Policy Association blog on World 70

Climate Change, as well as the UK’s Manchester Guardian newspaper, prepared to punish politicians (such as Kevin Rudd) who are too outspoken against the idea. In March 2010, the European Commission revealed plans for an EU-wide minimum tax on carbon as part of the EU's green energy agenda. Also reported as having carbon taxes are Norway, Netherlands and Japan. An overview of some of the existing taxes is given in Table 6.

Table 6: Carbon taxes prevalent in Northern Europe, 2010

Tax rate ($/t C) Denmark Finland Netherlands Norway Sweden $27-$55 $18-$22 $16-$22 $55-$172 $38-$148

Industry exemptions Lower rate and refunds None

Domestic fuel production Oil, gas Oil, gas

Coal% of electricity 76.00% 23.00% 38.00% 0.20% 2.00%

Coal used in industry Lower rate and total tax cap

Oil, gas None

Source: Institute of Environmental Studies

BUSINESS INSIGHTS

Effectiveness of direct taxation
In July 2008 British Columbia introduced what is claimed as the first carbon tax in North America (though this is disputed by Quebec). A paper published in June 2010 by the Victoria Transport Policy Institute argues that carbon taxes are efficient and flexible because they help achieve a wider range of economic, social and environmental objectives (congestion reductions, facility cost savings, accident reductions, reduced sprawl, improved mobility for non-drivers, etc.), than energy conservation and emission reductions on their own, thereby contributing to true sustainable development. However, the maximum benefit from a carbon taxation approach can be obtained where taxes are matched by other policies and programs which together encourage energy efficiency and emission reductions. 71

By contrast, the Policy Institute argues, as illustrated in Figure 9, that cap-and-trade programs, outlined later in this chapter, tend only to support large industrial emission reductions. Carbon taxes are advantageous in that they provide a broad incentive across the board, when it comes to energy conservation: nonetheless, they are criticized as being potentially “regressive” and also as hitting “first mover” nations hardest.

Figure 9:

Effectiveness and scope of emission reduction strategies, 2010
Carbon Taxes Transport Pricing Reforms

Energy Saving Effectiveness

Cap and Trade

LEED Standards

Efficient Vehicle Incentives

(fuel taxes, distance based insurance and registration, parking pricing etc.) Walking and Cycling Public Transit

Non-fossil Industrial Building Fuel Energy Energy Industrial Conservation Conservation Emission Reductions

Transport Congestion Road & Consumer Accident Fitness & Energy & Reduction Parking Savings Reductions Health Emission Cost Reductions Savings

Impacts

Source: Victoria Transport Policy Institute, Business Insights

BUSINESS INSIGHTS

From cap-and-trade to carbon tax: the UK’s carbon reduction commitment
Scheme outline The Carbon Reduction Commitment Energy Efficiency Scheme (CRC), initially set up as the UK’s first mandatory carbon trading scheme, is an unusual instance of a carbon tax being imposed almost by accident. Revenue levied from companies within the scheme was to be re-distributed to the best carbon performers by means of a Performance League Table. However, the redistribution element of this scheme was abandoned in October 2010, converting this from a trading mechanism to a carbon tax, pure and simple. The scheme covers large non-energy intensive business and public sector organizations, including retailers, banks, water companies, hotel chains, universities and local authorities, and is compulsory for large organizations using more than 6,000MWh/year of half-hourly metered electricity – or approximately £500,000 72

in electricity bills. It was anticipated that some 5,000 organizations will fall within scope of the new legislation and they will need to measure and record energy use and calculate CO2 emissions (not including transport emissions). Initial indications were that the price of CO2 would likely be set at circa £12 per tonne, in line with recent trading within the EU ETS. Using average electricity/CO2 conversion factor (0.523 kg CO2/kWh) provided by the UK’s DEFRA, the threshold qualification of 6,000MWh of electricity translates into mandatory carbon credits purchases of about £38,000, with actual cash outgoings being higher in proportion to the exact amount used. Performance league table In addition to financial implications for participants, the government is also committed to raising the public profile of energy efficiency through the publication of a Performance League Table, which now remains as informational tool and potentially a factor affecting brand reputation. The table is based on three metrics designed to gauge the energy saving achievements of companies. These are likely to be: An absolute metric (percentage change of annual emissions relative to the organization’s previous five year rolling average), counting for 60% in the league table initially; a growth metric: (percentage change in emissions per unit of turnover relative to its average emissions per unit of turnover) and counting for 20% of the initial score; An early action metric, covering the extent to which an organization has installed non-mandatory automatic, or ‘smart’ metering, and the percentage of emissions covered by the Carbon Trust’s Energy Efficiency Accreditation Scheme (EEAS) or new Carbon Trust Standard (CTS). The start date for the scheme has been put back from April 2011 to 2012, with revenue from the sale of CRC allowances, totalling £1bn a year by 2014/15, being used to support the public finances. Organizations that fail to comply with CRC will be subject to enforcement action: penalties for under-reporting of emissions (eventually £75 per tonne CO2 from 2013 onwards), make accurate data management systems and carbon assessments key. 73

The theory behind carbon markets
The principle behind emissions trading – as embodied in carbon markets – is simple, and not dissimilar to that which gave rise to sulfur dioxide trading in America. In 1990, the US government set up the acid rain program to reduce annual emissions of sulfur dioxide by 10m tons below 1980 levels. Power plants and factories were required to reduce emissions by a set percentage: however, polluters were allowed to trade permits, so that best practice would be financially rewarded (and worst penalized) – and this was believed a cheaper route than direct regulatory control. At the end of each phase, participants needed to hold the correct number of permits for their emissions or face a fine ($2,000 per ton). The two main approaches to emissions trading are known as "cap-and-trade" and baseline and credit. In the first case, an aggregate cap is set up in respect of all sources: trading between sources is then used as a means to determine how much pollution is emitted by each of the sources. Baseline and credit programs extend the principle established by cap-and-trade, by allowing those polluters who are not subject to the aggregate cap to create credits – otherwise known as offsets - by reducing their emissions below an agreed baseline level. These credits are then open to purchase by those polluters that are subject to an agreed/regulatory limit.

Trading units
A number of units are available for transfer under Article 17 of the Kyoto protocol: each unit is equal to one metric tonne of emissions (in CO2e terms). These may be classified as: An assigned amount unit (AAU); a removal unit (RMU) issued by an Annex I Party on the basis of Land Use, Land-Use Change and Forestry (LULUCF) activities; an emission reduction unit (ERU) generated by a Joint Implementation project in industrialized countries;

74

a certified emission reduction (CER): a credit generated from emission reduction from a Clean Development Mechanism project activity in developing countries. In theory, transfers and acquisitions of these units are tracked and recorded through the registry systems under the Kyoto Protocol. CO2 emitters are allowed to trade permits and, more controversially, emissions from Annex I countries may be offset in Non-Annex I - developing countries via the Clean Development Mechanism (CDM).

EU emissions trading system (EU ETS)
Formerly referred to as the EU Emissions Trading Scheme, the EU Emissions Trading System (EU ETS) is one of the key policies introduced by the European Union (EU) to help meet its GHG targets under the Kyoto Protocol. The EU ETS is widely recognized as the world’s leading carbon trading system, responsible for over 80% of the carbon credits traded globally (as shown in Table 7). How the EU ETS works The EU ETS is a Europe-wide cap and trade scheme that started in 2005 and is the first of its kind. Countries within the EU create a national plan, expressed in terms of EU Allowances (EUA’s) which are distributed by EU member states to installations covered by the EU ETS. At the end of each year, installations must surrender allowances to account for their actual emissions, with those emitting more than their original allocation buying allowances from the market, and those emitting less able to sell surplus allowances. Scale of the EU ETS The EU ETS covers around 11,000 installations which carry out activities listed in Annex I of the EU ETS Directive (including electricity generation and the main energy-intensive industries excluding aviation) accounting in total for about 45% of EU CO2 emissions. It is far and away the largest multi-country, multisector Greenhouse Gas Emission Trading System in the world, both by number of installations included, as well as by trading figures, shown in Table 7, which reveal that in 2009 it was responsible for over 80% of the carbon trades globally.

75

Table 7: The carbon market at a glance, volumes and values in 2008-09

Volume (MtCO2e), 2008 Project-based transactions: Primary CDM JI Voluntary Market Sub-Total Secondary CDM: Sub-Total Allowances Markets: EU ETS New South Wales Chicago Climate Exchange RGGI AAU’s Sub-Total Total
Source: World Bank

Volume Value ($m), 2008 (MtCO2e), 2009 Value ($m), 2009

404 25 57 486 1,072 3,093 31 309 62 23 3,278 4,836

6,511 367 419 7,297 26,277 100,526 183 41 198 276 101,492 135,066

211 26 46 283 1,055 6,326 34 50 805 155 7,362 8,700

2,678 354 338 3,370 17,543 118,474 117 2,179 2,003 122,822 143,735
BUSINESS INSIGHTS

Business implications Any and all installations carrying out activities covered by the EU ETS Directive must hold a greenhouse gas emissions permit. Failure to hold a permit and to comply with the conditions of that permit, including monitoring and reporting of emissions, can result in a range of enforcement activities, ranging from criminal sanctions or civil penalties. In 2009, the EU ETS traded carbon to the value of circa $118bn, at an average price of circa $18.73 per tonne CO2e (that is circa £12 per tonne CO2e or €14.30 per tonne CO2e at December 2010 exchange rates). According to Connie Hedegaard, EU Climate Action Commissioner, speaking in May 2010, for the carbon

76

price to provide an effective incentive for business to invest in low carbon technology, it needed to be at least double the current level, trading at €30 per tonne CO2e or higher.

The carbon trading loophole
A significant critique of Carbon Trading has arisen in respect of the ability of developed/Annex 1 countries to offset their CO2 obligations by funding projects in developing countries. They may do this both through the Clean Development Mechanism (CDM) or through Joint implementation (JI) projects. Both CDM and JI projects must demonstrate additionality: that is, any savings which they generate must be additional to anything that would have happened anyway: and they are subject to a verification and certification process. However, critics of the CDM approach – led by bodies such as Friends of the Earth International (FoEI) wholly reject offsetting, as they believe it puts off real measures to tackle climate change, and detracts from the fulfillment of desperately needed domestic emission reductions. There are further concerns in respect of the role of forestation in the mix.

Voluntary trading schemes
The principle of voluntarism may be seen in the growth of the Voluntary Carbon Market (VCM). This has developed independently of government targets and policies and is a place where anybody, from businesses, to non-governmental organizations, to individuals can participate in the business of offsetting. Within the VCM, parties are able to set self-imposed, legally binding greenhouse gas emissions reductions targets: a leading player in these trades was, until recently the Chicago Climate Exchange (CCX). Such credits are, however, generally non-fungible (i.e. not capable of being exchanged on the open market) and therefore not tradeable between schemes. Compliance market credits created for voluntary offsetting do not go towards assisting or meeting any legally-binding reduction targets. Businesses may invest in the VCM may be for a variety of reasons, from helping organizations to meet selfimposed emissions reduction targets, to helping to address climate change, or reduce the impact of their

77

carbon footprint. The VCM is also a means whereby businesses can gradually acclimatize themselves regulation by opting for self-imposed restrictions. This is clearly the case in the evolution of the VCM in the US. Over the last few years, up to and including 2008, the VCM globally has seen strong year on year growth. Figures from Ecosystem Marketplace, a news and data provider for ecosystem services markets, demonstrate rapid and strong growth year on year from 2003 to 2008, as shown in Table 8 and Figure 10.

Table 8: Voluntary Carbon Market trading volumes (MtCO2e), 2010

Markets Pre-2002 2002 2003 2004 2005 2006 2007 2008 2009

Voluntary OTC 44.0 11.0 6.0 9.0 10.0 16.0 43.1 57.0 51.0

CCX 0.0 0.0 0.0 2.0 1.0 10.0 22.9 69.2 41.0

Other Exchanges 0 0 0 0 0 0 0 0.2 2

Total Voluntary Markets 44 11 6 11 11 26 66 127 94

Source: Ecosystem Marketplace, New Carbon Finance

BUSINESS INSIGHTS

78

Figure 10:
140 Trading volumes in MtCO2e 120 100 80 60 40 20 0 pre2002

Voluntary carbon market trading volumes (MtCO2e), 2010

Other Exchanges CCX OTC

2002

2003

2004

2005

2006

2007

2008

2009
BUSINESS INSIGHTS

Source: Ecosystem Marketplace, New Carbon Finance

Slower growth in the voluntary carbon markets
A large part of this growth has reflected anticipation of global events likely to impact strongly on CO2 emissions: for example, implementation of a strong international regulatory package. There was also much speculative trading in anticipation of a cap-and-trade program in the US: the latter alone - according to a joint report issued by Ecosystem Marketplace and Bloomberg New Energy Finance - accounted for the greatest market share of supply (56%) and demand (49%) of voluntary carbon credits in 2009. However, all changed in that year, when the VCM saw transactions equivalent to 94m tons of CO2 emissions reductions, or, according to a report by Bloomberg New Energy Finance, a 26% drop compared to 2008. The total value of traded credits also declined by 47% in 2009 to $387m in 2009 with the average price of an emission reduction down at $6.5/tCO2e. The decline was hastened, or at least marked, by the announcement by CCX in October 2010 that it was making major changes to its program, and these would include termination of its voluntary emission allowance trading program at the end of 2010. The trend is set out in Table 9 and Figure 11 and Figure 12.

79

Table 9: Transaction volumes (MtCO2e) and values ($m), global carbon market 2007-2009

Markets Voluntary OTC CCX Other Exchanges Total Voluntary Markets

Volume (MtCO2e), 2007 43.1 22.9 0.0 66.0

Value ($m), 2007 262.9 72.4 0.0 335.3

Volume (MtCO2e), 2008 57.0 69.2 0.2 127.0

Value ($m), 2008 420.0 307.0 2.0 728.0

Volume (MtCO2e), 2009 51.0 41.0 2.0 94.0

Value ($m), 2009 326.0 50.0 12.0 387.0

Source: Ecosystem Marketplace, New Carbon Finance

BUSINESS INSIGHTS

Figure 11:

Transaction volume, (MtCO2e), global carbon market 2007-2009
140 120

Other Exchanges CCX Voluntary OTC

Volume (MtCO2e)

100 80 60 40 20 0 2007 2008 2009

Source: Ecosystem Marketplace, New Carbon Finance

BUSINESS INSIGHTS

80

Figure 12:

Transaction value, ($m), global carbon market 2007-2009
800 700 600

Other Exchanges CCX Voluntary OTC

Value ($m)

500 400 300 200 100 0 2007 2008 2009

Source: Ecosystem Marketplace, New Carbon Finance

BUSINESS INSIGHTS

Factors impeding voluntary carbon market growth
Three factors are believed to have played a major role in this collapse. First, the perceived failure of Copenhagen in December 2010, led markets to decided that international pressure on regulation of CO2 emissions would be relaxed, at least in the short term. Second, the global recession has depressed economic activity, leading to a reduction in the value of carbon market permits on the official market, with a knock-on effect for voluntary trading. Finally, much of the pressure in the US was predicated on a market view that there would be legislation in 2010 to impose a nationwide cap-and-trade system on US business. That proposal was already in difficulty in summer 2010 and with Democrat setbacks in the mid-term elections in November 2010, that proposal is now off the agenda for the foreseeable future. The VCM is not dead – but it is likely to prove far less important for the next couple of years.

81

US and China: an “alliance of denial”
The world’s two largest emitters of CO2 – the US and China – are both notable by their disinclination to take positive action on reducing CO2 emission by means of taxation or cap-and-trade approaches (the latest initiative appears to have been killed off in the US following mid-term elections in November 2010). In recent years, China has overtaken the US to become the world’s largest emitter of CO2 in absolute terms (though not per capita: the US lead in that respect is expected to remain for many years to come). This has been used by US corporations to argue that the onus is now on China to act before the US does, whilst industry and government in China are now using US procrastination on this issue to rationalize their own. This mirror image inaction has been described by the New York Times as an “alliance of denial”.

National perspectives: a round-up
Across the world, the national response to the need to reduce CO2 emissions has varied widely. Although the two largest emitters – the US and China – are accused of being skeptics when it comes to taking action (particularly in their attitude towards carbon trading), both can demonstrate a substantial track record of investing in industries, techniques and infrastructure that will in time reduce the overall national carbon footprint. So both are committed to investments of around $7bn in respect of developing their smart grids in 2010, with forecasts of similar or greater amounts for future years. Thus, the US, by pump-priming of free market initiatives and China, by virtue of directing its command economy will both make significant contributions to CO2 emissions reduction over the next decade. For businesses working in these environments, the key to commercial success is to understand the various codes and standards that they will be expected to conform to in order to trade. Other nations and other areas in the world have reacted differently. In Scandinavia, the imposition of direct carbon taxes makes it very clear to business what the cost of their CO2 use is likely to be. Throughout much of the rest of Europe, carbon trading means that businesses are being gradually drawn into a net in which they are required to put a price on their CO2 usage. In fact, the EU ETS is not restricted to Europe, but is increasingly being linked to other schemes, such as the Norwegian and New Zealand ETS. Proposals being 82

discussed within the EU, suggest the EU ETS could be forerunner of an OECD-wide carbon market, expected by 2015, which then would be extended to include economically more advanced developing countries by 2020. Across the globe, a range of trading standards is becoming increasingly visible, increasingly important for businesses wishing to enter particular markets. Sometimes these are backed by legislation, meaning that businesses must conform to local standards simply in order to be able to trade: sometimes they are little more than a branding device – a way of marking out those businesses that have done something about CO2 emissions from those that have not. The impact of such branding is considered in greater depth in Chapter 6 on consumer attitudes. Businesses that meet particular targets may be allowed special privileges that are not allowed to businesses that do not. More subtly, government can and does increasingly influence business by making adherence to particular environmental standards a prerequisite for other privileges, such as bidding for certain government contracts – or even of being granted a license to operate in certain areas. This concept, known as crosscompliance, has been significant in the evolution of Europe’s common agricultural policy, where access to some subsidies requires farmers to achieve certain standards of landscape care: and it is likely that this approach will become increasingly common in respect of CO2 emission standards.

83

Chapter 6 Consumer drivers
Summary
There is a great deal of demand to “do something” about climate change and global warming: although this demand is widespread and global, it also manifests itself differently according to nationality The demand is very “soft”: whilst consumers demonstrate a great willingness for change, much of the change demanded is in general terms or in terms of its effect on others. Consumers are far less willing to sacrifice convenience, comfort or cost for the global good. Consumer estimation of what actually works in energy-saving terms, is not well-informed, with significant and systematic under-estimation of energy consumed (or available for saving), and consumers readily buying into myths as to what is the most effective route to reduce CO2 emissions. Corporate initiatives that treat consumers with disrespect (e.g. changes to working practice without prior warning) lead to significant negative reactions: the key lesson from a number of cases is that consumers need accurate, timely information and resent anything they perceive as misinformation. This is supported by the rise of a practice termed “greenwash” – organizations making high-level claims as to their green credentials, not backed up by fact. This phenomenon makes life even more difficult for organizations, since it fosters a spirit of cynicism amongst consumers. Research suggests, despite business views to the contrary, most consumers (80%) are not overly concerned. This is not cause for complacency: consumer attitudes to green issues are highly volatile, and a resurgence of interest in a green agenda is likely as the effects of the recession dwindle. Consumers are interested in practical painless options for helping the environment (e.g. via a reduction in packaging): organizations should identify and focus on energy-saving measures that can be presented as win-win. Finally, consumers may not (yet) be actively rewarding organizations for their good behavior environmentally – but they are swift to punish those perceived to be acting badly, as illustrated by the case of BP in early 2010. 84

Introduction
On top of the other pressures – from regulation, from increasing costs of CO2-based activities, and from competitors – there is, too, pressure from consumers. In many ways, this is the most significant for organizations, as the process of responding to legislative pressure is well understood and, except for the rare emergency measure (perhaps in response to a public safety issue) businesses are able to predict and plan ahead for regulatory changes. However, if business is about “satisfying customer needs (at a profit)”, then any major shift by consumers towards environmentalism – or energy-saving – could have a major impact on businesses locked into wasteful and environmentally unfriendly modes of trading. However, despite headlines suggesting otherwise, the majority view amongst customers of most businesses is that they either do not care about the environment or they care – but are not prepared to take any action that will reduce their comfort or convenience, or increase their costs. A great deal of research supports some very noble wishful thinking by consumers: but this is not translating into action. There are two exceptions to this rule: first, where action appears possible in ways that are relatively painless (as with agitation for reduced packaging), consumers are taking more active steps to put pressure: and second, even if customers are not actively rewarding companies for good behavior, they are definitely prepared to punish them for bad behavior. The fate of BP following the Gulf of Mexico oil spill in Spring 2010 is instructive: this was a real disaster, but with a price very much escalated by public perceptions that BP had acted clumsily both in causing the initial problem, and in failing to deal with it.

Consumer demand
A key factor that businesses need to remember in their dealings with customers is that “doing good” is neither their raison d’être nor, necessarily, a reason why they will do well.

85

The issues of corporate responsibility, “ethical trading” and, more recently “environment-friendly” business are all now current – but businesses need to decide for themselves how far these are real demand, how far they are merely wishful thinking with low real impact on customer choice. For instance, a survey by Nielsen, carried out in May 2008 polled 28,253 online consumers in 51 countries and suggested strong consumer pressure in favor of environmental and socially responsible programs. They reported that corporate care of the environment and support of socially responsible programs played an increasingly influential role in consumer purchasing behavior. Half the world’s consumers (51%) considered it very important that companies improve their environmental polices: 42% of consumers placed high importance on fostering other programs that contributed to improving society. The danger of placing too much faith in a single report is highlighted by a contrary report - GreenLivingPulse 2009 - produced just a year later by the Shelton Group and based on the views of 1,007 consumers who at least occasionally buy green products, suggesting that consumers put the environment behind the economy, health care and the wars in Iraq and Afghanistan in terms of importance.

National difference: the US
National attitudes are also important. The Green Gauge Global report is compiled by GfK Roper Consulting and monitors consumer values, beliefs and behaviors in 25 countries. The latest report, published in September 2010, shows most Americans are still skeptical of green efforts: the US is one of the more environmentally skeptical nations in the world with only 62% of the population believing that environmental pollution is a serious issue, thereby ranking the US 24th out of 25 markets globally. Most American consumers also doubt the cost and the efficiency of green products, with approximately two in three consumers believing green products are too costly while one-third think they do not work as well as regular products: however, the difference is not as great as at first appears. In terms of cost and efficiency, the US figure is 34% (against 33% globally): and when it comes to cost, the US figure is 66% (versus 58% globally). Nonetheless, these figures are claimed to represent a dramatic increase in numbers for the US from just two years ago. 86

The difference between the US and the rest of the world is further highlighted by a more detailed study, “Understanding Consumer Preferences in Energy Efficiency”, carried out by Accenture in the second half of 2010. The study covered 17 countries including Australia, Brazil, Canada, France, Japan, Singapore, South Africa, South Korea, and the US. Key comparisons included: On average 42%, globally, agreed that “Electricity consumption of individuals has a negative impact on the environment”); most aware were European consumers (59%), especially those in Denmark and Germany, and well below average was the US (36%); the global average for understanding actions available to optimize energy consumption, was 75%, with inhabitants of the Netherlands and France ranked highest at 86% and 85% respectively, with Americans slightly above average at 77%; two-thirds of Americans were unaware of programs that will help them manage and optimize their electricity consumption; globally, the first source of information for information on saving energy was given as utility companies: in the US, however, utility companies ranked just fourth behind environmental associations, academic and scientific associations (only 29% of Americans agreed that they trusted their utility companies to provide such information).

What consumers do – not what they say
In the last three years in the UK, consumer concern over the environment appears to have grown exponentially: at the end of 2009 about three-quarters of people polled in UK said they were concerned about environmental issues, with greatest concern being expressed in respect of climate change, packaging waste and air pollution. Organizations need, however, to be cautious in interpreting such concern. Thus, in mid 2008, Nielsen research found 20% of consumers were ‘ethically enthused’ (individuals with a real willingness to change their behavior to benefit the environment and support ethical issues). By 2010, this had dropped to 11% with many more people being identified as “ethically inert” (care to a degree but not 87

prepared to change behavior). The remaining 80% are those who care somewhat but are not fully committed or ‘ethically ambivalent.’ Another significant change over that period is in the number of people who claim to be willing to pay extra for products that are “kinder to the environment”. Whilst the overall number of people who “try to” buy such products remains unchanged (at 43%), the number prepared to pay a premium for such products has fallen drastically, from 37% in 2007 to 28% in January 2010. Overall, 68% of people say that they would like to buy environmentally friendly products but think they are too expensive. Brand-switching on the basis of ethical credentials is also less likely: 46% of respondents claimed they were prepared to do so in 2007 against 37% in 2010. At the same time, environmentalism appears to be maturing, in the sense that the focus is on realistic, economically achievable goals, as opposed to more idealistic (and expensive) undertakings. In the UK, support for organic produce has fallen away: however, practices that contribute to sustainability have increased in popularity, with consumers more focused on food waste (and committed to reducing the amount thrown away) and switching to low energy light bulbs. Changing behavior is also evident in consumer preferences for products with little or no packaging (attempts to buy such product have risen from 45% in 2007 to 52% in 2010), with a parallel increase - from 38% in 2007 to 43% in 2010 - in the numbers actively trying to buy products in recycled packaging. Elsewhere in the world consumers remain canny in their buying behaviour. A survey by Nielsen in October 2010 suggests that the majority of US and UK consumers would consider purchasing an electric vehicle but would not be willing to pay more for an electric car than for a conventional one (65% of US consumers, 76% of UK). Of those accepting a price differential, a little over half of those polled (51% US, 57% UK) were not willing to pay a premium of more than $5,000 versus the average price of a standard vehicle. Looking in greater depth at the Accenture report - “Understanding Consumer Preferences in Energy Efficiency” – it appears that a fear of higher bills and issues over data privacy would deter consumers from

88

granting electricity providers the ability to remotely limit the use of their home appliances as part of electricity management plans without significant rate discounts. This is significant, given that smart grids, predicated on just this sort of remote access and control, form a major part of the CO2 emission mitigation plans of many nations across the world. Fear that such access would actually increase electricity bills was cited by 46% of respondents – even though the aim of such access is the exact opposite. 41% also said they would be deterred from participating in such schemes if their energy provider sold on electricity “saved” at a profit: 32% gave greater access to their personal electricity consumption data as a deterrent. Price discounts are likely to have some effect in persuading consumers that such an approach would be worthwhile: just 16% of consumers said they would allow electricity providers to remotely limit their use of certain household appliances if they have no option to reverse the action taken by the provider and if no price discount were offered. However, 24% of respondents said they would allow utilities such control when offered a price discount of 10% rising to 35% of respondents in exchange for a 20% discount. Electricity suppliers are mostly not trusted on energy conservation, with newer market entrants even less trusted than established ones. Just 28% of consumers overall claimed they were aware of and understood the programs on offer from electricity providers to help them manage their energy use. However, only 29% of consumers agreed that they trusted their electricity providers to give them advice in respect of actions to optimize their electricity consumption. There appears to be a close correlation between deregulation and trust, with trust lowest in deregulated markets (10% in Germany, 16% in Sweden and 17% in the United Kingdom) and highest in regulated markets (54% in Singapore, 41% in China, 40% in South Korea). At the same time, taking part in such a scheme is viewed as socially desirable, with 65% of consumers claiming that they would have a positive impression of an individual who is on a program. This view varied greatly, ranging from the highest (92% positive impression in Brazil and 85% positive impressions in Italy) which rated about double the ratings for the lowest (46% in Germany and the UK and 48% in the US). 89

China following in Western footsteps on electric cars
A Nielsen survey of Chinese consumers buying intentions demonstrates a greater awareness of environmental concerns combined with a rise in interest in alternative energy technologies, particularly in respect of preparedness to adopt alternative energy sources for automobiles. As elsewhere, a majority responded that they would consider buying an alternative energy car, with many of these outwardly happy to shift from a traditional petrol-run car to a smaller, hybrid car. However, this is still at intention stage and has yet to translate into actual purchase action. Awareness of alternatives continues to be low. Three factors were key in influencing the consumer decision to choose an alternative energy car: ease of use, maturity of the technology and the cost of purchase and maintenance. 20% of consumers wanted government subsidies before they would buy an alternative energy car.

Perception is key
An important pre-requisite to understanding the influence of consumers when it comes to CO2 emissions lies in understanding how they perceive the issues involved. This underscores why businesses cannot – should not – rely on the idea that by “doing the right thing” they will be rewarded for their actions by their customers. A European study conducted by the European Container Glass Federation (FEVE) in early 2009, found nearly 60% of the consumers claiming they pay attention to the environmental friendliness of food and drink packaging materials during their grocery shopping. The corollary is reflected in a recent Aberdeen Group study suggesting that 37% of companies choosing environmental sustainability did so as part of a corporate social responsibility initiative; 35% because green products offer greater competitive product differentiation; and 28% as a result of demands from environmentally conscientious customers. A study that underlines why this is not necessarily the way to go was carried out by The Earth Institute at Columbia University in the US (“Public perceptions of energy consumption and savings”, Attari et al, Proceedings of the National Academy of Science of America, July 2010), with responses from 34 US states. The survey elicited perceptions of energy consumption and savings for a variety of household, 90

transportation, and recycling activities. When asked for the most effective strategy they could implement to conserve energy, most participants mentioned curtailment (e.g. turning off lights, driving less) rather than efficiency improvements (e.g. installing more efficient light bulbs and appliances). This contradicts expert recommendations. According to this study, across 15 different activities, participants underestimated energy use and savings by a factor of 2.8 on average, with small overestimates for low-energy activities and large underestimates for high-energy activities. The degree of under-estimation is shown in Figure 13. The scale used to illustrate this perception is logarithmic. Consumers are not under-estimating by a simple factor of 2 or 3 – but by whole orders of magnitude – ten or, in the case of the electric clothes dryer, fifty. There are two categories of action. Consumers may save energy by, for instance, replacing bulbs with lower wattage, or they can use energy (by using a laptop, dishwasher, etc.) The dotted line represents the line of precise equivalence, at which perception equates to reality. The solid line is what is actually happening.

91

Figure 13:

Perceptions of energy saved versus energy actually used (Wh), 2010

Note: CFL = Compact Fluorescent Light
Source: Attari et al., PNAS, 2010
BUSINESS INSIGHTS

Consumer mis-estimation of energy usage
The degree of mis-estimation is also at work in other areas of life: the private car (Figure 14) and recycling (Figure 15). In both instances, consumers appear to favor the dramatic and possibly popular option over the most effective. In respect of driving, regular maintenance saves significantly more energy than simply reducing speed. Consumers correctly assessed this – but by a margin far narrower than is actually the case. Participants correctly reported that making a can or bottle from virgin aluminum or glass requires more energy than making the same container from recycled materials. However, they incorrectly reported that making a glass bottle requires less energy than making an aluminum can. In fact, a glass bottle requires 1.4 times as much energy as an aluminum can when virgin materials are used, 20 times as much for recycled materials. 92

Figure 14: 2010

Perception of perceived versus actual energy saved for automobiles (Wh),

Source: Attari et al., PNAS, 2010

BUSINESS INSIGHTS

93

Figure 15: Perception of perceived versus actual energy saved for beverage containers (Btu), 2010

Source: Attari et al., PNAS, 2010

BUSINESS INSIGHTS

Numerate environmentalists – and mis-guided consumers
Across several tasks, participants with higher numeracy scores and stronger pro-environmental attitudes had more accurate perceptions. However, participants who reported engaging in a greater number of proenvironmental energy-related behaviors had less accurate perceptions than those who engaged in fewer. This suggests two quite distinct consumer cohorts: those who are generally aware of environmental issues, and who adapt their behaviors, within reason, to match accurately environmental needs; and a second group, enthusiastic about taking action – possibly motivated by the idea of action itself – but who have not engaged in the necessary research to back this up. The report concludes that these findings support the case for well-designed efforts to improve the public’s understanding of energy use and savings. From a business perspective, however, the strongest lesson is 94

that consumers are not experts when it comes to issues related to science and technology: nor do they necessarily make the optimum choice with respect to specific technological issues. Business therefore needs to be aware that it may sometimes be faced with a choice between putting in place optimal strategies for reducing its carbon footprint – and processes that are less effective, but are believed to be more effective by the public.

Greenwash
Findings on consumer awareness also suggest that brands and organizations genuinely concerned about their environmental impact may lose ground to brands that are better at making claims as to their environmental credentials. Business needs to ensure that all claims are credible – and that their overall effect does not undermine genuine claims from businesses that have taken positive and realistic action in respect of CO2 emissions. A new term has entered the marketplace: “Greenwash”, defined in “The Greenwash Report”, produced by Futerra Sustainability Communications in 2008 as “an environmental claim which is unsubstantiated (a fib) or irrelevant (a distraction).” Futerra noted that “so called ‘ethical’ spending in the UK jumped by 81% since 2002, and “according to reports nearly £17m was spent on advertising containing the words ‘CO2’, ‘carbon’, ‘environmental’, ‘emissions’ or ‘recycle’ from September 2006 to August 2007 alone. A similar search for 2003 uncovers only £448k of advertising.” They add: the new spend was coming not from traditionally ‘green’ companies, but from the likes of Veolia Environment, Exxon Mobil, the UK government, BSkyB and Marks and Spencer”.

Consumer hostility
Lack of clarity in respect of green/environmental claims does not help. In the summer of 2010, following a ban by 17 US states on the inclusion of phosphates in dishwasher detergents – because that chemical pollutes inland water systems - manufacturers complied, starting to remove phosphates from their cleansers. Far from being praised for their environmental commitment, research so far suggests a great deal of hostility from the public to this move. 95

A report, from December 2010, by US multimedia news provider, NPR, highlighted consumer discontent and, in many instances, anger. The overall effect of this change to the dishwasher formula is largely negative in performance terms (it takes more washes to achieve equivalent levels of cleanness): but manufacturers did not warn consumers of this in advance and nor did they prepare service staff to handle the questions they would be asked. The net result of this move, although it may reduce pollution in lakes and rivers, appears to be negative in respect of global warming, as it requires dishwasher owners to run their dishwasher two or sometimes three times to achieve the same result as previously – or even to wash dishes by hand. The lesson is clear: US consumers like convenience and comfort. In theory, they would also like to preserve the environment – but their preference for the former outweighs their attachment to the latter. Therefore, any change that increases actual discomfort now against some nebulous future environmental benefit will be hard to sell. If manufacturers really wish to do this, and to avoid backlash, they need to do so openly and by making as much information available as they possibly can. UK experience: over-enthusiastic environmentalism A similarly salutary lesson comes from the UK, where in 2009 the Department of Energy and Climate Change (DECC) created a TV and poster campaign highlighting the dangers of climate change in simple everyday language that all consumers could understand. The campaign, however, was followed by nearly 1,000 complaints to the Advertising Standards Authority (ASA) and to Ofcom (which regulates TV broadcasting in the UK) from members of the public, who criticized the ads on a number of grounds, including that it was misleading, scaremongering and frightening to children. (Note: it is rare for complaints about any single ad to go beyond single figures, so 1,000 represents a very sizeable upset in terms of public opinion). The ASA subsequently ruled two of the print ads had breached guidelines, noting that they “should have been phrased more tentatively”.

96

A number of experts – including scientists concerned about climate change – have since added their weight to criticism of the campaign, with some suggesting that it set back public debate on the subject several years. Get it wrong – and sorry may not be enough A final instance of an organization paying the penalty for losing the reputation battle comes in the case of BP, following the catastrophic leak from one of their oil facility in the Gulf of Mexico in Spring 2010. Irrespective of that organization’s direct responsibility for a massive oil spill, a mixture of hostile press and clumsy public relations meant that very early in the incident, BP lost the battle for public hearts and minds. That, in turn, almost certainly contributed to a campaign in the US to limit BP’s future activities, added to pressure to make BP pay financially – and contributed to the resignation of CEO Tony Hayward and a collapse in its share price over the course of 2010 (a quarterly loss of $17.1bn was posted in July 2010).

The importance of segmentation
Rising awareness and average enthusiasm for doing “something” about CO2 emissions is not universal. If anything, the real danger in respect of environmental issues is that companies are dazzled by the rapid change in interest and awareness and also by the extent to which the environment is on the front pages of newspapers, and overreact: that they fail to deal with this issue as they would with any other. An important start point is segmentation. Although there is general global awareness of the issues, awareness varies greatly by country. To take just a couple of the research findings: There is wide variation internationally as to whether or not consumers would trust their electricity provider for advice on energy saving, ranging from 10% in Germany to 54% in Singapore; the social desirability of participating in an energy management scheme varies widely from 92% positive impression in Brazil to just 46% positive in Germany.

97

Nielsen have segmented consumers globally according to their attitudes to purchasing and the environment. In July 2007 they classified 18% of consumers as "ethically enthused" in respect of purchase behavior. That figure rose to 20% in July 2008: but almost halved as recession deepened, dipping to 11% in January 2010. Over the same period, Nielsen found many more people had shifted to a position characterized as “ethically inert” (care to a degree but not prepared to change their behavior). Overall, however, some 80% of consumers may be characterized as “care somewhat but are not fully committed” or “ethically ambivalent”. Similarly, GfK Roper Consulting’s Green Gauge report, based on the attitudes of some 36,000 consumers globally identified five groups of environmental consumers. These range from the Jaded category (42% of UK consumers), whose members exhibited least concern about the environment, through to the Green inDeed category, who are green in every aspect, both lifestyle and advocacy. The three other categories include Carbon Cultured and Glamour Greens, for those who are concerned about the environment but display lagging green behaviors, and Green in Need, for those who have the desire but lack the means to be environmentally responsible. Most large organizations are likely to find their customers fairly closely reflect this sort of segmentation. Some, with a more niche market, may be biased more heavily towards those for whom environmental issues are a matter of concern; others, again, may find that their customer base is even less concerned with the environment than the average.

The consumer: sophisticated actor in the environmental drama
The clear lesson is not that consumers are more – or less – exercised by green issues and the environment. The likelihood is that they are. Rather, it makes very clear that the overall picture in terms both of consumer attitudes and customer behavior will depend on who they are, where they live, and other personal, social and economic motivations – much as they are in respect of any issue. Organizations should recognize that the majority of consumers are nowhere near as bothered by climate change or global warming as the headlines might suggest, whilst those who are concerned are often very 98

concerned indeed. Again, according to the Green Gauge report, 74% of consumers surveyed in the UK never/almost never do research into companies’ environmental practices. This is a far cry from the highly selective approach of magazines such as the Ethical Consumer, which produces regular buyers reports in which “brands are rated using 19 criticism categories including climate change, animal testing, worker's rights and genetic engineering”. Satisfying that segment of the customer base that subscribes to such views is a worthy and virtuous aim, unlikely to lead to increased business or custom: and there is a danger that if an organization moves too far, too fast to satisfy the needs of a quite radical customers segment, they may only alienate the majority. Key points to bear in mind with respect to consumer attitudes and behaviors are: Environmental concern is headline news, mirrored by expressions of concern by consumers; this concern appears to be quite “soft”: rising and falling rapidly, in response to other issues; there is a major difference between “concern” and a willingness to trade, comfort, convenience or even cost for environmental action consumers are far less aware of what works when it comes to preserving the environment than they think: across a range of actions, they are frequently guilty of serious under- and over-estimates in respect of the effect of any given energy-saving measure; consumers are both skeptical and cynical of hyped claims about the environmental benefits of products: at the same time, such skepticism is no guarantee against the same consumers falling for claims that are inaccurate or misleading; poor information and disinformation are likely to prove very harmful, both to the cause of environmental action and to companies that engage in practices that consumers do not fully understand or, worse, that they see as underhand;

99

all changes to products, service levels and operating procedures likely to impact on customers in any significant way need to be done so clearly and in a manner that errs on the side of caution: i.e. details should not be hidden in the fine print, but made very clear to all those affected; Despite this, businesses would be foolish to take no action in respect of climate change. Consumer commitment to the environmental cause may be more illusory than real, but this could change at a moment’s notice and companies that have not prepared themselves in real terms (changes to operations, structure, etc.) and in positioning are likely to suffer as a result. Moreover, even if customers are not yet prepared to reward companies for good behavior, they are definitely prepared to punish them for bad behavior, as shown by consumer reaction following the environmental disaster in the Gulf of Mexico in 2010.

100

Chapter 7 A framework for strategic compliance
Summary
Businesses need to change their approach to energy policy radically and quickly, away from viewing it as commodity, towards seeing energy – and CO2 emissions – as something that needs to be managed strategically and synergistically across the organization. This cannot be achieved by one individual at middle or senior level, but requires a cross-disciplinary team, reporting at board level. A framework for compliance and a roadmap for change are also essentials. A framework is set out and developed, highlighting the need for businesses to deal not simply with internal issues, but support activities (operations, transport and logistics), supply chain and delivery network as well. For all stages in the delivery process, from product sourcing to customer, organizations need to have adequate metrics in place: they also need to have strategies which allow for risk assessment and management. A policy checklist for compliance is set out. The market for CO2 compliance is increasingly crowded, with consultancies, government, academia, suppliers and clients all offering and providing support for businesses wishing to become to reduce their carbon footprint.

Introduction
In most businesses, energy and energy policy has been seen as a commodity issue – and one managed mostly at a relatively low level within an organization. The issue was frequently left largely, if not exclusively, in the hands of a single senior operations manager – a Facilities Manager, or Buildings Manager, for instance – or not even recognized as a single issue, but simply dealt with as it occurred: by Production Managers, Transport Managers, and so on. Energy was not a core issue: interactions between energy use in different parts of the organization were not taken into account, so the opportunity for synergistic solutions was largely overlooked.

101

This is changing, for a wide range of reasons – from direct regulation, to consumer pressure, as well as a perception that there are cost benefits to be had from greater efficiency in the energy area. The significance of energy policy within a culture of corporate social responsibility is escalating, with the result that best practice now demands either the creation of compliance teams, covering a wide variety of functions, where possible knit together by a single individual with responsibility for all elements of a CO2 strategy at board level. This provides a new and significant corporate strategic imperative to the search for energy solutions. The process is supported in two ways: by the provision of sufficiently all-encompassing analytical frameworks, which enable companies to understand how well they are performing; and by a series of partners, including consultancies, government and academics, which are both capable of providing tailored frameworks and tools to support business, as well as carrying out significant parts of the strategic analysis needed in this area.

A compliance framework for the whole business
It is still early days in terms of shifting to the new compliance agenda: over the coming years, it is likely that mistakes will be made, learnings achieved, and there will be some significant shifts in perception from what is now considered “best of breed” approach, relative to what is eventually recognized as such. In looking at compliance today, two caveats are necessary: Models used are based on best known practice at this moment in time: they may change as corporate experience in this area grows; models must manage a trade-off between specificity (to industry and country) and general applicability. As already noted, the national response, both in terms of government action and consumer perception is variable. That is true of all corporate activity but, given the fact that in some instances the basis for action will be highly influenced by legislative developments, it is likely to rank higher as an issue in respect of response to corporate CO2 emissions.

102

This chapter looks at two different approaches to carbon compliance. First are compliance models, designed to assist businesses in ensuring that all aspects of carbon compliance have been picked up and that they are aligning the totality of their activities, strategically and tactically, towards environmentally-friendly/sustainable objectives. Second, are models now emerging that address one specific aspect of carbon compliance: supply chain, or energy efficiency, for instance.

A basic compliance model
The Porter Value Chain diagram has inspired a number of top-down evaluation tools. The model in Figure 12 summarizes the main areas which should be evaluated.

Figure 16:

A framework for business energy compliance, 2010

Metrics Absolute use Un/avoidable use Ratio (per space, output, input, employee) Against benchmark

External energy/carbon footprint (input suppliers and output users)

Internal energy/ carbon footprint Firm Infrastructure, especially building, IT, power Distributors Support Activities Human resource management especially values, training and support Design and development with strong focus on compliance Procurement including investigation of radical alternatives Inbound Logistics Operations and manufacturing processes

Outbound Logistics

Energy/carbon risk assessment – what could put our approach at risk? Strategic – big external/internal changes Operational – what could go wrong with products and processes, ourselves, upstream and downstream Compliance –legal/regulatory change Financial – cost of strategy/compliance Reputation – how it looks to our stakeholders (customers, suppliers, staff, owners, government, etc.)

Marketing & Sales

Product/service design , packaging and distribution and promotion, including recyclability Primary Activities

Source: Professor Merlin Stone, The Customer Framework

Service

BUSINESS INSIGHTS

The core business activity A key feature of this model is that it looks at an organization and all its activities, together with its primary interactions with customers, suppliers and distributors, as a unified entity. To understand the messages from

103

Final Customers

this framework, it is necessary to focus first on the central elements representing the business itself and its core activities. These are shown in Figure 17.

Figure 17:

Business compliance framework (core value chain), 2010

External energy/carbon footprint (input suppliers and output users)

Internal energy/ carbon footprint Firm Infrastructure, especially building, IT, power Support Activities Distributors Human resource management especially values, training and support Design and development with strong focus on compliance Procurement including investigation of radical alternatives Inbound Logistics Operations and manufacturing processes

Marketing & Sales

Outbound Logistics

Product/service design , packaging and distribution and promotion, including recyclability Primary Activities
Source: Professor Merlin Stone, The Customer Framework
BUSINESS INSIGHTS

Theoretical underpinning to the business model The model starts with the proposition that business activities may be divided into two: primary activities, broadly defined as those designed to source, develop and deliver a product or service to a customer; and support activities, relating to the infrastructure behind the primary activity. There is clearly an overlap: staff 104

Service

Final Customers

attitudes and human resource policies are located under support activity, but employing a workforce committed to reducing an organization’s carbon footprint is inevitably more likely to lead to the development of both product and corporate ethos that will be perceived as environmentally friendly by customers. One way to view this dichotomy is to consider the possibilities now available for creating virtual companies and services. Activities that cannot be “virtualized” are likely to be primary activities: those that could be removed and managed in a wholly virtual way are probably support. Primary services therefore include the sourcing of product, operations and the manufacturing process (where applicable), the logistics of product/service delivery, marketing (both at product and corporate level), marketing and service. Implicit in this view is that features previously seen as neutral in product terms – whether it is sourced from the other side of the world, the type of packaging and the extent to which it is recyclable – now become key. Infrastructure considerations range from the obvious (including building design and location), type of power used, to questions that may not hitherto have been viewed as relevant to energy policy. For instance, staff attitudes and training: significant savings in fuel consumption could be achieved by “mode shift”, by allowing for slightly longer delivery time, but also through behavioral changes, such as improved fuel-efficient driving practices, ranging from smoother deceleration and acceleration to shutting off the engine when idling and maintaining proper tyre pressure. Focussing the strategic review externally as well as internally The model next looks outside the business: at suppliers, and the supply chain, at distributors and distributor network, and finally at customers and customer perceptions. The first two of these factors are likely to be obvious: it is increasingly recognized that an organization is evaluated not simply in terms of how it performs, but also in terms of how it is supported. Positive perceptions in terms of fulfilling corporate social responsibility obligations may nonetheless be let down and undermined by poor support. Given that a major focus for CSR is customer perception it is clearly essential to ensure that work done to build up reputation is not being damaged up- or down-stream by socially irresponsible suppliers or distributors. Finally, the customer must be included in any assessment of how an organization is being viewed in terms of compliance: as already noted, an organization may gain or lose credits not simply for its 105

absolute energy performance or compliance – but also for beliefs about that performance. Nor are customers always the best judges of what is or is not best practice in environmental and energy terms. That may lead to a dilemma for organizations where best practice in terms of legal compliance or reducing carbon footprint is perceived as less positive than inferior practices: how far should an organization bow to misinformed customer pressure? There is no right answer: however, a strategic response is not possible until an organization understands the customer viewpoint and locates that point of view within the overall nexus of obligations. Legislative and regulatory requirements apply throughout this framework, which is why they are not identified separately. It would be a mistake to think that legislation and regulation necessarily align either to value or to savings. In many cases, legal and regulatory requirements focus on the more visible components of the value chain rather than the more beneficial components. A company might be able to make very great savings on use of factory energy, but find that regulatory or legal requirements tend to focus on good inbound and outbound through transport requirements. Again, what the law requires may be at odds with what is most beneficial in cost and bottom line terms. Risk assessment and metrics There are two further components to the model which will assist organizations in locating where they are now – and therefore begin to plan actions for the future. The first relates to those factors which could put an organization’s approach at risk. Factors include: Strategic: could major external/internal changes de-rail the current strategy? operational: what could go wrong with products and processes, with the organization, with suppliers and distributors (upstream and downstream)? compliance: what further legal/regulatory change could impact on decisions taken today? financial: what is the overall cost of strategy/compliance likely to be? reputation: how will our actions be perceived by our stakeholders (customers, suppliers, staff, owners, government, etc.)? 106

Second is the question of what metrics are needed in order to ensure significant compliance is achieved. These will vary from country to country, industry to industry: some will be broadly similar across all businesses: for instance, absolute use, avoidable use, ratio (per space, output, input, employee). Over time, it will be possible – in fact, necessary – to compare these metrics to key benchmarks. At the same time, some metrics will be dictated by specific local legislation – as those for the CRC Performance Table in the UK – or by industry standards. Thus, in the marine transport arena, the Clean Cargo Working Group, sets environmental stewardship guidelines established by Business for Social Responsibility. Members may voluntarily track emissions, set efficiency targets, and examine ways to offset emissions through certified international programs. This is likely to be backed in future by a CO2 emission indexing scheme currently being developed by the International Maritime Organization (IMO). Such approaches undoubtedly provide support for best practice although performing well on such tables is also likely to be a positive in promotional terms. Policy checklist and drill-down The main purpose of such a framework is to ensure that all parts of an organization are thoroughly investigated. Those are likely to include: Supplier management: products, services, behaviors Retailer management: products, services, behaviors Staff management: products, services, behaviors Building and equipment/fittings design (absolutely critical – buildings responsible for large amounts of energy use, and in case of food, chilled supply chain) Purchase policies Other decision-making Within each area, there are significant opportunities for drilling down further, and in developing the framework, the following approach was taken: 107

Identified the main issues that affect compliance in that area of the model; identified the main criteria that affect whether the company is compliant in that issue area; developed metrics that indicate compliance; developed compliance statements that can be used to assess what levels of compliance have been actually achieved, what will be likely to be achieved etc. Thus, under the general heading of “decision-making” a top-down audit will ask questions such as “Has the price of carbon been factored into strategic decision-making?” Such questions are supported by follow-up that drills into the precise detail of what is going on. For example: Is awareness of carbon price the responsibility of a specific manager? Which one? Is carbon price reported within the business? At what level (middle, senior, board)? Is carbon price actively factored into business decision-making? Is the organization presently involved in any carbon trading, either as a result of regulation, or voluntary? If not, does the organization have any plans to do so? By pinning answers to specific actions, it is possible to understand what is going on inside an organization (performance) as opposed to general objectives (intention), and so obtain results that are real and actionable. The key question The point of carrying out an audit of current compliance is to determine, for a given organization, where it sits now relative to best practice, the gap between present performance and best practice, and the likely costs both of closing that gap and – critically – of not closing that gap. That is not the same as a checklist of actions required. In some circumstances, non-compliance with some aspects of best practice may be temporarily unavoidable – or even a strategic choice.

108

That is not an argument against compliance: rather, recognition that there significant costs attach to adopting a full Corporate Social Responsibility (CSR) profile, and that organizations cannot move from where they are now to 100% compliance in one go. It is a change process and as with all such processes, organizations need to decide where they wish to move, and the pace at which they wish to change.

Other players offering strategic input and solutions
Consultancies: Ernst & Young Ernst & Young are just one of the many global consultancies to have become involved in the strategic compliance area. They have constructed a number of frameworks that function at different points and levels within an organization and are designed to help business managers and directors to ensure that their corporate activity is on track with respect to dealing with issues around climate change and environmental concern. At the overall business level, they have identified key areas as set out in the Table 10.

Table 10: Framework for identifying key business issues in climate change and sustainability, 2010

Area Strategy

Key Question Does your company have an overall climate change and sustainability strategy? Does the strategy include all the opportunities to generate revenue and reduce cost?

Risk Regulations Incentives Audit plan Measuring emissions Third party assurance

Have you identified all your risks? How well do you have them controlled? Do you know all the regulations impacting your business? What is your carbon exposure? What is your cost to comply? Have you identified all the business and tax incentives and stimulus funding currently available? Is climate change risk included in your internal audit plan and overall enterprise risk management program? Have you established a baseline for your greenhouse (GHG) emissions as well as a reduction target? Does your organization assure your external sustainability reporting using a third-party auditor?
BUSINESS INSIGHTS

Source: Ernst & Young

109

Other consultancies Ernst & Young is far from the only mainstream consultancy to enter this field or to provide models and frameworks to assist companies in developing their overall sustainability strategy. McKinsey & Co. describe their “Climate Desk” as a simulation platform and expert service to support strategic, investment, and policy decisions on climate change. As well as sponsoring what they refer to as their “Eco-efficiency jam” in early 2010, IBM offer companies an online Green IT return on investment (ROI) facility. This is a complimentary web-based survey and ROI tool designed for companies of all sizes with two tracks one designed specifically for mid-size companies with 100 to 1,000 employees and another track designed specifically for enterprise companies with over 1,000 employees. This assessment and ROI tool enables companies to compare their Green IT position with the Green IT and environmental strategies, capabilities, and technologies used by companies with best-in-class performance. The tool is powered by the fact-based market research and advice developed by the Green IT and Sustainability practice at the Aberdeen Group, a Harte-Hanks Company. Leading providers cited as assisting businesses with IT efficiency, green business processes, and corporate sustainability strategy include Accenture, Atos Origin, Booz and Company: Capgemini, (focused not just on sustainability, but on energy management activities), Cognizant (offering six specific green IT services), CSC (focused on public sector and government accounts), EcomNets, Infosys Technologies (focused on areas including sustainability risk assessment, carbon accounting and reporting and industry-specific supply chain applications), ITC Infotech (mainly focused on Asia Pacific market), KPMG, Logica,

PricewaterhouseCoopers, Tata Consultancy Services (has an Eco-Sustainability unit) and Wipro. Amongst the top consultancies, this is clearly one of the fastest growing areas of interest at the present time, leading to a broad range of new business offerings, as well as mergers and acquisitions. A press release from Deloitte in December 2010 announces: “Deloitte has identified the sustainability services market as a key growth area. As an emerging offering, the acquisitions of specialist consultancies ClearCarbon and DOMANI will further strengthen Deloitte’s ability to help clients drive value, mitigate

110

business risk, and drive growth, efficiency and innovation through improved environmental, social and financial performance.” This is also a space characterized by the entry of innovative and challenging newcomers. Giraffe, for instance, was described by The Manufacturer Magazine in 2008 as “Britain’s leading eco-design consultancy”. Its range of offerings include, but are by no means limited to CO2 management – policy and strategy, carbon offsetting, energy management and sustainable design (strategy and practical implementation). According to their website, in 2008 alone they have helped clients, including commercial, public service and government organizations to save £23m in costs and reduce their CO2 emissions by 89.614tCO2. Their site, too, includes a footprinting tool that will enable organizations to quickly calculate the environmental impact arising from manufacturing and using their mobile phone and personal computer. Academic support Businesses looking for support in order to become carbon compliant should not overlook the academic sector. One initiative that typifies the sort of business-academic relationship that is becoming increasingly common is the Sustainability Consortium, hosted by Arizona State University. The vision statement for this body describes the consortium as “a vibrant research community with unprecedented access to data, and international reach challenged with the opportunity to reframe sustainability as a practice and process. The consortium develops the best system science and empirical based tools for decision makers in industry and government to support sustainable innovations in the development and use of consumer products”. According to the consortium, their aim is to establish partnerships with key firms and industry associations in each high priority sector to understand the state of practice in those sectors. Although the initial focus for this group is academic and researching “around” the area of climate change measures in business, this initiative shows how the division between academia and business is not absolute and the academic skills and insights of organizations such as the consortium also apply commercially.

111

Similar initiatives are commonplace throughout the literature on CO2 emissions reduction. Energy Star (in a 2008 case study highlight how Nissan worked in collaboration with Mississippi state university to achieve significant supply chain emissions reductions. The broad scope of the Arizona consortium’s activities is outlined in Table 11.

Table 11: Focus for sustainability consortium, 2009

Across the lifecycle of business products Energy and Climate Reduce operational and embedded energy requirements and minimize greenhouse gas emissions

Sample topics Efficiencies

GHG emissions Renewable energy Material Efficiency To maximize efficient use of all materials, close material loops and minimize waste. Use/efficiency of all resources other than energy (water, minerals, chemicals, etc.) Waste, re-use and recycling Natural Resources To promote the integrity of nature and a safe, reliable supply of natural resources Water Quantity and Quality

Ecological Services Emissions (solid, air, etc.) Land Use, Land-use Change People and Community Less defined than other categories and may require phased implementation.

Source: Sustainability Consortium, Arizona State University

BUSINESS INSIGHTS

Government initiatives: strategic support for CSR As seen in Chapter 4, government may support CO2 emissions reduction in a number of ways, through making laws and setting targets. Further support comes from initiatives that provide assistance and advice to organizations wishing to reduce their carbon footprint.

112

Thus, in the UK, following the government’s decision to aim for all new buildings to be zero carbon by 2016, The Callcutt Review of House-building Delivery identified the need for a body that would take on day-to-day operational responsibility for co-ordinating delivery of low and zero carbon new homes. The result was the establishment, in June 2008, of the Zero Carbon Hub, a non-profit company limited by guarantee. The Hub supports and reports to the 2016 Taskforce and is chaired by the Housing Minister and the Executive Chairman of the Home Builders Federation. Recent output from this project includes a report - ‘Carbon Compliance for Tomorrow’s New Homes’ – which follows a six-month review of existing compliance modelling tools and their suitability for the future. Such advice is invaluable for businesses wishing to achieve zero carbon goals – and is available without needing to retain large consultancies for the purpose. In the US, in 2004 the Environmental Protection Agency launched SmartWaySM. SmartWaySM functions in two ways: as an innovative brand representing environmentally cleaner, more fuel efficient transportation options. However, the brand also signifies a partnership among government, business and consumers to protect the environment, reduce fuel consumption, and improve air quality. In a case study presented in 2008, SmartWaySM demonstrate how their role includes a major focus on sustainable goods movement, provision of tools to help carriers improve their fuel efficiency, as well as a showcase for best practice. Implicit in their positioning is the view that companies that are concerned by the environment will prefer SmartWaySM Carrier Partners over others. Thus, SmartWaySM encourages shippers to use their partners, as well as make use of data provided to improve their own shipping operations. Carriers gain competitive advantage in terms of preferred status, plus savings through fuel efficiency, and reduced emissions. They are also encouraged to integrate fuel saving technologies and strategies, to modify their logistics operations to improve efficiency and reduce emissions (for example, through inter-modal shipping, full truck loads, warehouse improvements, idle-reduction at docks and reduced package weight and size). SmartWaySM also provide recognition for excellence in CO2 reduction, as well as being a gateway to significant government funding in respect of improvements in transport efficiency (in 2009, for instance, the EPA awarded $20m in Recovery Act funding for the SmartWaySM Clean Diesel Finance Program. 113

SmartWaySM has been a success, claiming in October 2008 to be able to influence the behaviour of: Over 1,114 partners driving approximately 600,000 trucks (7% of industry); travelling over 51bn miles per year (24% of industry); consuming over 12bn gallons of fuel (24% of industry). Forecasts for 2012 are for SmartWaySM partners to help save between 3.3 and 6.6bn gallons of diesel fuel per year, which translates to eliminating between 33 - 66 mmtCO2 and up to 200,000 tons of nitrous oxide emissions per year. This is equivalent to saving 150m barrels of oil per year or taking 12m cars off the road, leading SmartWaySM partners to save nearly $10bn in operating costs. Other bodies providing support to business One of the key messages to emerge from a review of organizations available to support business in reducing its carbon footprint is that the range of bodies offering services in this area is both wide-ranging and not in any way limited to traditional boundaries. Clearly, consultancies, academic institutions and government have a role to play. A number of the case studies in this chapter and the next are provided by organizations (such as Johnson Controls, Enbridge, etc.) whose core business is itself grounded in energy, either as energy supplier, or as a provider of technologies designed to improve energy efficiency. Air Products PLC is a US-based company that serves customers in industrial, energy, technology and healthcare markets globally with a portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services. From a purely business point of view, they promote technologies such as cogeneration (as shown in Figure 18) as a means for business to reduce costs. They also advocate a strong position on social responsibility, promoting their view that any introduction of new technology needs to be based on an understanding of the community in which they are working.

114

Figure 18:

Business case for co-generation, 2010
Efficiency pays:

Cost reduction (200bp) 300 basis point operation margin improvement from Point operation margin

Plant Efficiency (50bp) Improved mix (50bp)

2007 Year
Source: Air Products plc, Business Insights

2010

BUSINESS INSIGHTS

Energy Savings Obligations motivate suppliers According to the World Energy Council, energy savings obligations (ESO’s) are an increasingly popular and innovative measure in which energy companies (supplier/retailer or distributor) have a legal obligation to promote and stimulate investment, which will save energy in their customers’ premises or households. At present, six countries have active and significant ESO’s on energy companies: five in Europe (the Flanders region of Belgium, France, Italy, UK, Denmark) and one in South America (Brazil). ESO’s will be extended to suppliers in Poland in 2010 and similar measures are under consideration in the Netherlands. As a result, significant advice is available from these organizations to businesses that they supply. The European Bank for Reconstruction and Development (EBRD) declares itself committed to developing more efficient uses of energy within its countries of operations. As part of its lending to the corporate sector,

115

the EBRD works with large industrial energy users (in steel, chemicals and other sectors) to promote best practice and encourage companies to implement energy efficiency investments. The EBRD runs a dedicated Energy Efficiency and Climate Change team, whose remit includes the provision of financing and free technical support to help its clients develop and implement energy saving programs. Key players in the task of helping organizations to reduce their CO2 emissions profile include many front-line customer facing organizations. Wal-Mart and Hewlett Packard are just two companies that have identified supply chain energy usage as key to meeting their sustainability targets – and have then worked directly with suppliers, helping with both strategic and technical audits to help them reduce their emissions. The key lesson is that the ubiquity of the energy supply issue means almost any business or organization may have a role to play in helping others to improve their emissions profile. On occasion, this help will come with strings attached: in effect, selling disguised as consultancy or advice. However, there will be many occasions where such advice is exactly what it appears – and businesses should ensure that they are aware of all the sources of advice available to them before spending large sums of money on professionals.

116

Chapter 8 Operational approaches to compliance
Summary
Organizations need to determine where they currently sit in terms of development, as the solutions on offer range from whole top-down support for strategic development, through to specific operational initiatives designed to optimize carbon footprint in one or more areas of business activity. Four key areas where specific (niche) initiatives can come into play are technology, supply chain, energy efficiency and packaging. The key point here is that organizations need to be able to assess their own level of competence when it comes to reducing CO2 usage. The range of partners available to support organizations in this respect is far wider than for the strategic overview. Although many niche players are looking to obtain a fee for their advice, many will provie genuine advice and support for free: either this is because it supports their own CSR, by improving the footprint for their supply chain or distribution; or it provides them with the opportunity to sell in other services. Business should not automatically assume it needs to spend significantly for support in this area.

Introduction
Those businesses that are just beginning to assess their CSR profile need to stop and audit the entirety of their actions. Otherwise, there is a danger that they will start to put in place initiatives that undermine one another. Those that are more competent can focus on specific operational areas, such as supply chain or energy efficiency. In place of the holistic approach favoured by consultancies, businesses have a growing need for specific answers to specific questions. For instance, all members of the Carbon Disclosure Project (CDP) Supply Chain program (see Chapter 4) now have a strategic approach in place to deal with climate change. According to the CDP’s annual Information Request, a majority (63%) have a formal, documented corporate 117

climate change strategy and the remaining (37%) have general guidelines. They have integrated a carbon policy into their procurement organization, and a large majority of them (90%) have a reduction plan in place. In other words, organizational requirements are shifting from overall assessment of compliance to a much more niched approach, focussing on specific areas of the company, or specific parts of their overall activity. In parallel, the range of potential supplies for advice is growing swiftly as well: not just individual consultancies, but niche players such as energy or distribution companies, who have realized they need to have actionable solutions for their business partners as required.

Technological focus
Very different from the strategic assessment is the technological checklist approach: effective if an organization fully understands its needs; potentially disastrous if it doesn’t. As already noted, there are many initiatives current in respect of zero carbon business. A number of building organizations across the developed world will happily provide checklists and standards for builders to adhere to in order to achieve low carbon/no carbon house-building. Such lists range from LEED accreditation, as available in the US, to the sort already noted from specialist auditors (as shown in Chapter 4). Alternatively, audit is now available from a range of companies not widely known as audit specialists. Table 12 is an outline checklist in respect of a Heating Ventilation and Air Conditioning (HVAC) building energy report available from Canadian company, Enbridge. Their historic core business has been gas distribution. However, over the years, that has evolved, so that they are now much more fully involved in areas such as energy auditing.

118

Table 12: Example building energy audit, 2010

High level area Building baseline information (a minimum of one year of data).

Sub-focus Analysis of energy consumptions and building operation Building information Building HVAC equipment listing and assessment Control systems Chillers, cooling towers and packaged a/c units Lighting Electrical demand, power factor and load factor Additional equipment Heat loss/heat gain calculations Ventilation balance

Energy conservation Other energy management and add - load opportunities Safety issues- report on obvious safety defects: Full building energy balance modeling and analysis (optional)
Source: Enbridge

Energy conservation measures Savings and capital cost calculations

BUSINESS INSIGHTS

Drill-down energy audit
For an organization that already knows what areas need to be checked, this is the right entry level. It provides comprehensive coverage of the issues involved – and allows for much more detailed drill-down. Thus, under section 1.1 (analysis of energy consumptions and building operation), the audit will look at: Annual gas consumption (m3 and $); average monthly/daily gas consumption (m3); cost of gas and comments on gas purchase contract; 119

other fuel consumption, oil, coal; an estimate of the annual cost of electricity consumed (kWh and $). Similar drill-down is available throughout, whilst the whole process is supported by a wealth of data collection, from energy and utility billing to building envelope calculations and savings calculations, cost estimates and payback calculations. This is also a good example of the interaction between government incentives and cost-saving: in selling their audit service, Enbridge are highly focussed on the cash incentives that the Canadian government provide (as shown in Chapter 4) for reducing CO2 emissions. Audit is also provided by organizations such as Friends of the Earth: FoE Scotland provide an online audit which helps businesses to focus on issues of recycling and energy efficiency. A similar approach is increasingly available through training or educational institutions: in the UK, for instance, Cornwall College Business is just one of a number of educational establishments to develop a carbon management program, that aimed to support major organizations within the private and public sector in their efforts to comply with the government's Carbon Reduction Commitment (CRC).

Supply chain focus
This creates both challenge and opportunity for Supply Chain Operations managers who need to assess how their organization makes decisions around purchasing, storage handling and asset recovery activities so as to drive down both cost and emissions. Supply chain optimization (SCO) is now much more than an organization’s tactical operation in reducing costs and helping the environment — it now has a strategic role to play in an increasingly competitive landscape. Below is Ernst & Young’s framework for supply chain optimization. At the high level, and for internal audit purposes, they allocate SCO risk to five general categories, as outlined in Figure 19 and Table 13. The real strength and value of this tool lies in the ability to drill down, which is exactly what Ernst & Young permit.

120

Figure 19:

Ernst & Young supply chain analysis tool, 2010
SCO can clearly understand the risks associated with climate change and sustainability by dividing them into five general categories:

Operational

Strategic

SCO Reputational Compliance

Financial
Source: Ernst & Young, Business Insights
BUSINESS INSIGHTS

Table 13: Ernst & Young supply chain analysis key questions, 2010

High-level Focus Strategic

Key Question Does the organization fully grasp the strategic implications of climate change risk to the supply chain? Are these risks incorporated into the company’s risk register and internal audit plan? Is SCO confident that management and the board have a clear understanding of the regulatory initiatives that are underway and could affect the supply chain? To what extent has a possible price on carbon been contemplated in supply chain decision-making? Is reputational risk at the forefront when climate change strategy is developed and implemented within the supply chain? Are there adequate climate change and sustainability initiatives: are they on time and on budget?

Compliance

Financial Reputational Operational

Source: Ernst & Young

BUSINESS INSIGHTS

121

Energy efficiency within the business environment
As previously noted: this is an area where significant savings are possible. A company with a great deal to contribute to the area of energy efficiency is Johnson Controls. Their global profile includes $38bn annual sales, 140,000 employees, and three global businesses focused on sustainability. These are: Building efficiency, covering commercial/residential systems and equipment, technical, workplace and energy services, energy efficiency, comfort and security; power solutions, covering starting batteries – new and replacement, hybrid batteries, battery recycling, reliability and safety; automotive experience, covering seating, interiors and electronics, light-weighting, bio-materials and recycling and fuel efficiency, comfort and safety. In a recent survey (their 2008 Energy Efficiency Indicator Research Report), Johnson found 20% of respondents viewed energy management as extremely important to their organization (an increase of a third compared to the previous year), while 56% expect to make energy efficiency capital investments over the next year. The expectation was that these improvements would reduce energy consumption by an average 9% per year. Johnson provide support to companies looking to improve efficiency through energy and emissions management. They provide focus to their activities by means of a series of frameworks within which they examine actual energy use and emissions profile. An example of the framework used to audit buildings efficiency is shown in Figure 20. The audit process includes: Bill audit, rate/tariff analysis; bill processing and payment; energy forecasting and budgeting; ghg emissions reporting; 122

enterprise energy benchmarking. Solutions, are covered at high level in their overall framework: at a more detailed level, Johnson helps organizations develop net zero energy buildings and smart building integration, delivering benefits such as: Reduced energy usage; peak demand reduction; flattened load profile; greater capacity utilization; cleaner energy profile. Figure 20:
Advisory Services Building Automation Systems Building Systems Integration Energy Efficient Equipment Energy Efficient Retrofits Onsite Renewable Energy Distributed Heat & power Generation

Framework for energy efficiency analysis (buildings), 2009
Energy Solutions

People who design, build, own and operate buildings need to: • Manage Energy Costs • Reduce environmental impact of their buildings and operations • Increase building/portfolio value • Enhance image and reputation Green Building Design & Certification Building System RetroCommissioning

Energy & Emissions Management Workspace & Portfolio Optimization Products & Technology

Facility Management & Operations Equipment Maintenance & Repair Technical Services
BUSINESS INSIGHTS

Source: Johnson Controls, Business Insights

123

Packaging focus
The importance of sustainability in packaging is global and growing – although “obvious” solutions, such as simply reducing the amount of packaging in use may not be optimum. Global packaging trends According to PIRA’s 2009 Market Intelligence Guide for Packaging, the global packaging market was worth $578bn in 2007, with a real annual growth (excluding inflation and exchange rate movements) between 2003 and 2007 of 1.6% per annum. In 2008, that fell to 1.3% (despite a headline growth figure estimated at 9%) in current dollar terms (comparative figures for € values were 2.6% and 1.2%). The fastest growing regional markets for packaging between 2003 and 2008 were Eastern Europe and South and Central America. In real terms, many of the fastest growing markets for packaging are in Asia, including China and India, particularly following China’s emergence as a major exporter of a range of industrial and consumer products, including toys, small electrical appliances and also cosmetics. Material trends Evaluation of packaging trends is difficult, given that the simplest solution (to the consumer) of using less may not always be the most sustainable. Thus, PIRA note that: Rigid plastic packaging has been the fastest growing sector of the market; across the flexibles areas, foil has been the fastest growing, driven by rising demand for blister packaging in healthcare applications; board remains the single largest sector at over $200bn in 2008, but is growing by around 1% per annum which is below market trend; metal cans are losing share to plastics in drinks markets but still seeing demand growth in many markets as off-trade (take-home) sales of drinks rise and the on trade (out of home) loses share; glass is also losing share to plastics in food, drink and other markets, but significant growth in container glass capacity seen in fast-growing markets.

124

Separately, in their report on The Future of Bioplastics for Packaging to 2020, PIRA forecast estimated global bioplastic packaging demand to reach 884,000 tonnes by 2020. A 24.9% CAGR is expected from 2010-15 slowing to 18.3% in the five years to 2020. This trend will be driven by a new breed of bioplastics as packaging market demand gradually shifts from biodegradable and compostable polymers towards biopackaging based on renewable and sustainable materials. Opportunities – and obligations The food and drinks industry is responsible for using over half of the total packaging output of the UK, approximately 4.5m tonnes per year. Packaging therefore represents an extremely important sustainable development consideration acting at all stages of the food chain. Figures from The European Container Glass Federation (FEVE) for just one packaging product, glass containers demonstrate in Figure 21 and Table 14 major opportunities for recycling and waste reduction in many countries.

125

Table 14: Proportion of glass containers recycled by country (leading European economies), 2009

Country Belgium Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Luxembourg Netherlands Poland Portugal Spain Sweden United Kingdom Total EU 27* Norway Switzerland Turkey Total Europe

National consumption (thousands) 310,248 228,936 142,400 60,645 3,200,000 3,122,065 201,000 174,000 158,000 2,138,825 27,111 572,000 777,542 431,500 1,613,000 186,000 2,630,000 16,938,052 61,868 343,210 477,200 17,820,330

Metric tons collected (thousands) 297,312 140,870 124,900 55,545 1,960,000 2,545,441 24,000 42,300 127,000 1,540,000 20,240 461,000 279,959 223,430 972,658 174,000 1,613,310 10,999,716 56,995 325,624 92,340 11,474,675

Recycling rate 96% 62% 88% 92% 61% 82% 12% 24% 80% 72% 75% 81% 36% 52% 60% 94% 61% 65% 92% 95% 19% 64%

Source: The European Container Glass Federation (FEVE)

BUSINESS INSIGHTS

126

Figure 21: Proportion of glass containers recycled by country (leading European economies), 2009
Greece Turkey Hungary Poland Portugal Spain France United Kingdom Czech Republic Total Europe Total EU 27* Italy Luxembourg Ireland Netherlands Germany Denmark Finland Norway Sweden Switzerland Belgium 0 20 40 60 80 100

Recycling rate (%)
Source: The European Container Glass Federation (FEVE)
BUSINESS INSIGHTS

Legal pressures on packaging There are strong legal pressures on organizations to reduce the amount of waste produced. For instance, in the Europe, relevant legislation includes the EU Landfill Directive which aims to reduce and prevent the negative effects of waste to landfill, by introducing stringent technical requirements for waste and landfill and setting targets for the reduction of biodegradable municipal waste going to landfill. Also the EU Waste Framework provides an overarching legislative framework for the collection, transportation, recovery and disposal of waste. This legislation tends to be backed by national laws supporting and in many cases extending the provisions made at the regional level. As in other areas, there is significant support from academia and other bodies for organizations seeking to meet their obligations. So, Michigan State University is building a Center for Packaging Innovation and

127

Sustainability, which will include state-of-the-art technology for bench research and testing of packaging materials, and will offer academic, outreach, and continuing education programs. Issues around consumer perspectives on packaging The difficulty arises over the fact that packaging is used for a number of reasons and the perception of its use varies from business to consumer. According to a PIRA report, Consumer Awareness of Environmental Issues to Drive Sustainable Packaging Development, published in 2011, for the consumer, packaging represents convenience, safety, and comfort. For the business, packaging represents profits and survival. At its simplest, packaging is more than a vehicle for delivering promotional messages: it is, in many instances, essential to the transport and preservation of foodstuffs – and simple reduction of packaging creates other inefficiencies in the supply chain: more wasted food, or higher transportation costs, which in turn are negative components in the sustainability balance. The gap between consumers' ethical attitude and their purchasing decisions, according to PIRA, results from: A lack of communication and understanding regarding the meaning of sustainability; ambiguous promotions regarding these products and the abundance of "green-washed" products; suspicion that sustainable packaging will result in a higher priced product or a product that has less protection and function than before; shopper pre-occupation globally with recycling; packaging producers and consumers using different information sources as a means to judge environmental friendliness. This view is endorsed in a report published in December 2010 by the European Aluminium Foil Association (EAFA) - More is Less: better protection saves resources - which provides fresh insight to the debate of sustainability and packaging. The report highlights major challenges for the food and drink industry, and argues that mass media alarmism, food waste, and over-simplified solutions have confused consumers and 128

stalled industry action. The report concludes that it is essential to assess the impact of packaging in the context of the resources it protects. Solution and framework for packaging sustainability In the long term, many businesses see the solution as educating consumers to focus on Product Lifecycle Management (PLM) solutions. Within the organization and throughout the value chain, PLM can help companies advance their pursuit of innovation by delivering solutions that integrate business process management with cutting-edge tools for design, engineering, and production planning. The UK’s Accounting for Sustainability project encourages organizations to address four key questions. These are: Identify the key threats to sustainability at this stage of the food chain: Specifically, what impact does the form of the packaging used have upon the efficiency of transportation, the ability to recycle the packaging and whether or not the packaging may be reused: what is the availability of recycling facilities; is the product appropriately labelled in order to ensure maximum consumer recycling? minimize the overall environmental impact of packaging in operations: apply the “waste hierarchy”, which sets out the order of preference for actions to deal with waste based on their variable environmental impacts: i.e. avoid packaging wherever possible, reduce the volume of packaging, reuse, and finally (and least optimal) recycle; identify (and comply with) legal obligations; identify and make optimum use of external help (including free/state-subsidized audits and tools);

129

Chapter 9 CO2 emissions reduction: case studies
Summary
A number of mechanisms exist for identifying lead organizations in the field of eco-efficiency and carbon compliance: one of the most significant of these is the Dow Jones Sustainability Index. The range of other audits and indexes across the world may be a source of consumer confusion. Case studies highlight how the range of organizations now implementing or attempting to implement carbon compliance projects is wide and growing: the view that compliance mostly affects manufacturing is no longer tenable, as in most major enterprises, it is the contribution from premises, transportation and supply chain that is key.

Introduction
There are many ways that an organization may be identified as a “leader” when it comes to sustainable development and environmental friendliness. First, a company may make that assertion on its own behalf, in its press and publicity and in its advertising. This is the weakest form of compliance as regards to environmental issues and companies that focus too much on this approach – positioning rather than underlying reality – run a constant risk of being accused of “greenwash”: of being found out and of suffering serious negative consequences in terms of customer reaction when this happens. The second level is achieved when a company finds its activities in the news and publically acknowledged. This is not entirely separate from brand positioning and there are examples of companies who have made great strides in terms of how they are viewed by the media, without aligning the underlying reality. Nonetheless, such an approach is that much more positive, in the sense that any position is established through independent journalism and research. Wilder claims will be questioned and filtered out – and therefore companies that make news are more likely to be doing something that will appeal to consumers than those that are not.

130

Finally, and most valuable in corporate terms, are reputations that are built on the back of genuine independent audits or analysis. The harder the criteria that need to be satisfied, the more valuable the position achieved. Here, a number of the audits tools available are examined, with a detailed focus on the Dow Jones Sustainability Index (DJSI). Companies on the DJSI have undergone a rigorous evaluation procedure and as such their green credentials matter, in the sense that they now form part of decisions taken by investors as to whether or not to invest in them. Individual case studies, where organizations have put carbon reduction into practice and are able to demonstrate real benefits either in terms of cost reduction or customer regard, are also a strong basis for positioning in this area. This section looks, where possible, at identified industry leaders. However, also picked up are instances of organizations whose efforts are considerable, even though they may not have received full public recognition for what they have achieved.

Approaches to identifying lead companies in sustainability
Companies may conform to particular sustainability goals because they have to, or because they see it as providing a business advantage. In practice, the boundary between these two types of driver is not absolute. A specific regulatory requirement that makes companies reduce their emissions to a particular level could be considered to be an external force: a company that decides of its own free will to be energy-efficient might be considered to be doing so for humanitarian or altruistic reasons. In between lie a range of situations, where external pressure is exerted at a level that is less than absolute, but greater than zero. Professional and trade standards, voluntary codes, shareholder influence, customer impact and state regulation may all contribute in different proportions to how a company decides to respond to the call to be more “environmentally responsible” or to pursue sustainable options. In some cases, best practice aligns to additional benefits such as reduced costs and/or increased customer awareness and positivity. In others, the weight of benefits versus costs is more finely-balanced.

131

Where audits are available, these are likely to be a good first approximation to identifying leading and best practice companies when it comes to environmental friendliness.

The Dow Jones sustainability indexes
The ultimate form of audit exists in the form of tailored stock market indexes. In this context, one of the most significant is the family of Dow Jones Sustainability Indexes (DJSI). These are companies identified by Dow Jones, in terms of their Corporate Sustainability, defined as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments”. The indexes are created using an open and robust methodology. Thus, according to Dow Jones, a defined set of criteria is used to assess the opportunities and risks deriving from economic, environmental and social developments for the eligible companies. These are set out in Table 15.

Table 15: Dow Jones sustainability index corporate sustainability assessment criteria, 2010

Dimension Economic

Criteria Codes of conduct/compliance/corruption and bribery Corporate governance Risk and crisis management Industry specific criteria

Environment Social

Environmental reporting* Industry specific criteria Corporate citizenship/philanthropy Labor practice indicators Human capital development Social reporting* Talent attraction and retention Industry specific criteria

Note: those criteria marked * are assessed based on publicly available information only
Source: Dow Jones
BUSINESS INSIGHTS

132

Adding detail to the Dow Jones Sustainability Index
Additional information is gathered through four sources: SAM Questionnaires specific to each of the DJSI sectors and distributed to the CEOs and heads of investor relations of all the companies in the DJSI investable stocks universe. As far as possible, each questionnaire is non-qualitative, limited through use of multiple choice questions; company documentation, including reports on sustainability, environment, health and safety, social, annual finance, plus special reports, and any other sources available, such as internal documentation, brochures and website; media and stakeholder reports as well as other publicly available information such as review media, press releases, etc. produced in the previous year; personal contact with companies. Deloitte carries out external assurance to verify that the corporate sustainability assessments are in accord with the defined rules and to ensure the quality and objectivity of the Corporate Sustainability Assessment. Finally, and on the basis of all of these factors, companies are ranked within their industry group and selected for the Dow Jones Sustainability Indexes, if they are among the sustainability leaders within their field. An example of the typical analysis carried out by Dow Jones is shown in Figure 22, which graphically illustrates the evaluations given to Panasonic, identified as world leader in the construction and materials sector, on the three key dimensions – environmental, social and economic. In addition to the graphic scores, Dow Jones provide key facts on Panasonic, plus a write-up that provides background to Panasonic’s achievements noting a “commitment to sustainable business practices over all dimensions”, “improvements in environmental performance {. . .} supported by a well developed and comprehensive environmental management system” and “an extensive stakeholder engagement process”.

133

Figure 22:

Sustainability scores for Panasonic Electric Works Co. Ltd, 2010

Source: Dow Jones

BUSINESS INSIGHTS

Available indexes in the area of sustainability Indexes available according to the Dow Jones website now include: DJS World Index, which covers the top 10% of the biggest 2,500 companies in the Dow Jones Global Total Stock Market Index (first published in September 1999); DJSI World 80, which is a subset of the DJSI World and tracks the largest 80 sustainability leaders globally, and launched in August 2008; DJSI Europe covers the leading 20% in terms of sustainability of the largest 600 European companies in the Dow Jones Global Total Stock Market Index; DJSI Eurozone is the Eurozone subset of the DJSI Europe: also available since August 2010 are DJSI Europe 40 and DJSI Eurozone 40;

134

DJSI North America covers the leading 20% of the 600 biggest North American companies in the Dow Jones Global Total Stock Market Index; DJSI US is the US subset of the DJSI North America Europe: also available are DJSI North America 40 and the DJSI US 40; DJSI Asia Pacific covers the leading 20% of the 600 largest companies in the developed Asia Pacific markets; DJSI Korea tracks the leading 30% of the largest 200 South Korean companies, whilst the DJSI Korea 20 is a subset covering the largest 20 companies of this index.

World leaders
According to Dow Jones, leading sustainability companies display high levels of competence in addressing global and industry challenges in a variety of areas: Strategy: integrating long-term economic, environmental and social aspects in their business strategies while maintaining global competitiveness and brand reputation; financial: meeting shareholders' demands for sound financial returns, long-term economic growth, open communication and transparent financial accounting; customer and product: fostering loyalty by investing in customer relationship management and product and service innovation that focuses on technologies and systems, which use financial, natural and social resources in an efficient, effective and economic manner over the long-term; governance and stakeholder: setting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting; human: managing human resources to maintain workforce capabilities and employee satisfaction through best-in-class organizational learning and knowledge management practices and remuneration and benefit programs;

135

corporate sustainability performance is an investable concept. This is crucial in driving interest and investments in sustainability to the mutual benefit of companies and investors. As this benefit circle strengthens, it will have a positive effect on the societies and economies of both the developed and developing world. As a result of applying their analysis to companies drawn from the world’s leading companies, they have ended up with 57 sectors defined according to the Industry Classification Benchmark (ICB), and these in turn are rolled up into 19 “supersectors”. Leaders in these are companies whose scores top the league within their own sector and are listed in Table 16 both by supersector and by the country in which they are based.

136

Table 16: Dow Jones supersector leaders (2010/11), 2011

Name Bayerische Motoren Werke AG (BMW) Australia and New Zealand Banking Group Ltd Xstrata Plc Koninklijke DSM N.V. Panasonic Electric Works Co. Ltd. Itausa-Investimentos Itau Unilever Roche Holding AG TNT N.V. Swiss Re Pearson Plc Sasol Panasonic Corp. GPT Group Lotte Shopping Nokia Corp. Telefonica, S.A. Air France KLM Gas Natural SDG S.A.

Supersector Automobiles and Parts Banks Basic Resources Chemicals Construction and Materials Financial Services Food and Beverage Health Care Industrial Goods and Services Insurance Media Oil and Gas Personal and Household Goods Real Estate Retail Technology Telecommunications Travel and Leisure Utilities

Country Germany Australia UK Netherlands Japan Brazil Netherlands Switzerland Netherlands Switzerland UK South Africa Japan Australia South Korea Finland Spain France Spain

Note: this listing is as given on the Dow Jones official site as at January 2011 and is not exactly the same as a list issued in a press release by them in September 2010. The list should therefore be taken as indicative, rather than absolute or definitive.
Source: Dow Jones
BUSINESS INSIGHTS

Dow Jones Sustainability companies distributed by country
Of interest, given that how companies perform in terms of sustainability and environmental credentials may well be an issue in the coming years is how these are dispersed globally, as shown by Table 17 and Figure 23.

137

Table 17: Distribution of Dow Jones supersector leaders by country (Number of companies), 2010

Country Australia Brazil Finland France Germany Japan Netherlands South Africa South Korea Spain Switzerland UK
Source: Dow Jones

Number of companies 2 1 1 1 1 2 3 1 1 2 2 2

BUSINESS INSIGHTS

138

Figure 23: Distribution of Dow Jones supersector leaders by country (Number of companies), 2010
South Korea South Africa Germany France Finland Brazil UK Switzerland Spain Japan Australia Netherlands 0 1 2 3

Number of companies allotted supersector leader status
Source: Dow Jones
BUSINESS INSIGHTS

Dow Jones Sustainability companies distributed by continent
The omission of any US company from the supersector leader board is significant. If the leaders are grouped by continent, as shown in Table 18 and Figure 24, the difference is even clearer.

Table 18: Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010

Continent Africa Asia Pacific Europe Latin America
Source: Dow Jones

Supersector leaders 1 5 12 1

BUSINESS INSIGHTS

139

Figure 24: Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010
South Korea South Africa Germany France Finland Brazil UK Switzerland Spain Japan Australia Netherlands 0 1 2 3

Number of companies allotted supersector leader status
Source: Dow Jones
BUSINESS INSIGHTS

Threat to US role in sustainability
There are two significant out-takes from this. First, if environmental friendliness does become a key driver of consumer motivation in the future, the absence of US companies from the leader board bodes ill for that country’s economy. Second, companies do not achieve a position of leadership overnight: to do so takes time and requires practice and the development of techniques to support a particular approach. Failure to score significantly in the leadership stakes suggests that Europe is developing the skills and disciplines needed to function in a more environmentally focussed world, whilst the US is not. A further out-take from this approach is the effect on companies and their share price of being added to or removed from the Sustainability Index. According to a press release issued in September 2010, 48 companies were added to DJSI World index, while 46 companies were deleted. The largest additions (by free-float market capitalization) included Standard Chartered, Morgan Stanley and ArcelorMittal, while the biggest deletions were Toyota Motor, Royal Dutch Shell and UniCredit. Insofar as investors and consumers are influenced by such factors, the removal of a company from the DJSI is likely to create a perception that

140

that company is less focussed on environmental matters – and this may affect the company adversely, in terms of share price and other matters.

Other examples of sustainability indexes
A similar approach is taken by reports such as the 2010 Clean Capitalism Report, a joint initiative by The Delphi Group and Corporate Knights, which provides insight into the environmental, social and governance (ESG) state of affairs and trends of Canada’s largest companies. Each company on the S&P/TSX 60 was analyzed against 12 ESG indicators: four environmental indicators (energy, carbon, water, and waste productivity), three governance indicators (sustainability leadership, leadership diversity, and sustainability remuneration), and five social indicators (CEO to lowest-paid worker, employee safety, percentage statutory tax paid over four years, defined pension-benefit plan, and pension plan funding). For each of the indicators, the companies were awarded a percentile score based on their normalized performance relative to their global industry peers. There were also two additional metrics included: a transparency modifier which adjusted the final score based on how well a company disclosed its ESG information, and an ESG controversy flag which is defined as any type of negative media, NGO action, or litigation that poses a reputational risk for the company. This report includes detailed information with an analysis on the ESG status of S&P/TSX 60 companies, benchmark rankings, and best practice highlights.

Non-financial approaches to identifying sustainability leaders
A caveat when it comes to identifying lead companies is that there are many criteria beyond the purely financial that may be useful in identifying top performers. In fact, as is clear from the emergence of voluntary certification and compliance codes, organizations may score highly on one scale and do far less well on another. Chapter 10 references an evaluation of sustainability reporting by CRD Analytics, the leading provider of independent sustainability investment analytics which produces a global Top 1,000 headed by 141

Merck and Company Inc (US), International Business Machines Corp/IBM (US) and Novartis AG (Switzerland). None of these feature as supersector leaders on the DJSI: and while Novartis and IBM are included in the DJSI (World), Merck is not, and has only recently been included in the DJSI (North America) – since September 2009, according to a press release put out in that month.

Case studies in sustainability leadership
Sustainability as cross-business objective
A number of companies have taken a view that the best way to tackle sustainability is across the board: to apply a particular goal to every single aspect of their activities – and then to promote initiatives as and when they occur, in order to maximize energy savings/emissions reduction. Two businesses that have taken this approach are Wal-Mart and Toyota.

Wal-Mart
One of the most ambitious projects in the CSR field comes from Wal-Mart. At the heart of what they describe as their “Sustainability Goals” is the ambition “to sell products that sustain our resources and environment”. In 2009, they published aims as listed in Table 19.

142

Table 19: Wal-Mart plan for implementation of sustainability goals, 2009

Strategic aim Be supplied 100% by renewable energy

Quantifiable goal Double our fleet efficiency in the US by 2015 from 2005 levels Reduce GHG emissions from existing stores, clubs and distribution centers by 20% by 2012

Create zero waste

Send zero waste to landfill in the US by 2025 Reduce global plastic shopping bag waste by an average of 33% by 2013 5% packaging reduction by 2013

Sell products that sustain our resources and the environment

Make the most energy intensive products 25% more efficient by 2011 All wild-caught fresh and frozen fish for the US market to be Marine Stewardship Council certified by 2011

Source: Wal-Mart

BUSINESS INSIGHTS

Wal-Mart sub-goals for environmental sustainability Importantly, Wal-Mart have moved beyond broad strategic goals and into a series of sub-goals that are both quantifiable and achievable. This is supported by their “Sustainability 360” approach, which takes in stores, associates, suppliers and consumers. Internally, they have created a dozen “sustainable value networks”, which include: Greenhouse Gas; Sustainable Buildings; Global Logistics; Alternative Fuels; Waste; Packaging.

143

The goal of the Greenhouse Gas Network is to actively reduce Wal-Mart’s carbon footprint and increase renewable energy use. Initiatives include measuring Wal-Mart’s GHG footprint and working with suppliers to reduce energy use and GHGs. This is then pushed down into specific actions such as: Equipping 20 facilities in California and Hawaii with solar panels; adding solar on 10-20 more California facilities in the next 18 months; partnering with one of the largest power companies in the US, Duke Energy. to power up to 15% of the energy load a 360 stores in Texas. In the case of the last initiative, the farm will generate roughly 226m KWh of renewable power each year, equal to enough energy to power more than 20,000 average US homes annually and avoid more than 139,000 MtCO2 emissions per year. The goals of the Sustainable Buildings Network include reducing GHG emissions at existing stores and facilities by 20% by 2012 supported by the design and opening of a viable prototype that is up to 25% to 30% more efficient and produces up to 30% fewer GHG emissions. Initiatives have focussed on retrofitting with energy-efficient technologies, and designing a prototype using successes from experimental stores. In terms of outcome, Wal-Mart have successfully created “High Efficiency Stores”, which can be categorized by the amount of energy saved. HE5 are up to 45% more efficient than 2005 stores: HE6 are up to 30% more efficient than 2005 stores. The entire enterprise is supported in depth by the implementation of smart grid technology and central energy control: for example, as shown in Figure 25, all heating, cooling, lighting and refrigeration of all US stores is controlled 24/7 from Wal-Mart’s home office.

144

Figure 25:

Scheme of Wal-Mart central energy control, 2009

Source: Wal-Mart

BUSINESS INSIGHTS

145

Wal-Mart sustainability programmes The goal of the logistics network is to double fleet efficiency in the US by 2015. Initiatives include retrofitting trucks to increase efficiency, developing innovative solutions that increase efficiency and improved loading and route management. Key actions have focussed on alternative fueled trucks, as Wal-Mart are working with several manufacturers to develop such vehicles, including hybrids, waste grease and liquid natural gas. A core initiative has been Wal-Mart’s Supplier Energy Efficiency Program (SEEP) in which engineers perform energy audits for suppliers. SEEP has found energy saving opportunities in every building audited, and the program has saved participating companies a total of more than 4m KWh of energy annually, and preventing annual emissions of over 3,000tCO2. Wal-Mart is also committed to sharing best practices with public officials to help shape policies that encourage energy efficiency and the development of renewable projects. This approach to sharing of benefits contributes both to Wal-Mart’s bottom line energy saving and to its public profile as an eco-friendly company.

Toyota
The US arm of Toyota (Toyota Motor Engineering and Manufacturing North America, Inc), is a major national enterprise responsible for the production of over 1.2m vehicles/year, and part of a global brand. Within the US, it runs 8 assembly plants, 3 engine plants, 4 Unit Plants, R&D Plants, and has office space housing over 30,000 employees, occupying plant space of 35m square feet. Toyota has adopted a philosophy of reducing energy/CO2 usage backed by firm quantitative targets. Thus, in 2000, Toyota used over 9m BTUs per vehicle produced: in 2002 they set a target for 2011 of 6.3m BTU (approximately a 30% improvement) per vehicle and, according to internal figures, Toyota came close to realizing this goal in 2007. Since then, production slowdowns driven by the global recession have caused the per-vehicle number to creep up, as some energy uses are fixed cannot be throttled back in proportion to production. At a high level, it set out to do this by means of four strands: Company Earth Charter; 146

cost reduction opportunities; company KPI; right thing to do. Their analysis of their energy use is holistic, as shown in Figure 26.

Figure 26:

Toyota overview of energy usage through the product lifecycle, 2009
Energy footprint What is the energy life cycle of our product?

Manufacturing: production and transportation

Parts suppliers: production and transportation

Consumer: use and end of life

Reduce CO2 in all aspects of our product

Source: Toyota, Business Insights

BUSINESS INSIGHTS

Toyota approaches to reducing energy consumption They are prepared to use multiple means in order to achieve their goals, including: Energy reduction:

147

energy conversion; alternative energy; carbon offset. These, in turn, may find expression in projects that involve reducing operations use, building design, reclaiming waste heat, CO2 focused key performance indicators, co-generation, purchase contracts, on-site generation, CO2 capture/store, sequestration – and others beside. In order to implement this approach, key factors on the organizational side were a focus on KPI’s, targets and implementation plans, which focussed on procurement and supply reliability – and were grounded in an approach of continuous improvement or “Kaizen”. These were supported by a cultural shift that emphasized measuring, benchmarking, visualization and reporting, together with awards and recognition. All of these were backed at the highest level within management, with Kaizen groups integrated into all aspects of operations. An energy Kaizen database was created, which in time contained 10,000 Kaizen ideas, together with implementation details, operational projects and capital projects (those with 3 year payback). Each Kaizen idea was supported by a record setting out current situation, opportunity, proposed kaizen and costs and savings. This, in turn, was fed by a team approach involving “treasure hunts”, three-day events to assess plants energy usage, capture opportunities and report back to management. Projects were then implemented on a plant basis. Pilot projects were designed and implemented to prove concepts. Funding and labor was provided corporately: data collection was strictly enforced, implementation results verified and successful pilots were then shared with all plants. One pilot, involving lighting upgrades, resulted in a saving of $0.5m in a single year, while a paint window project, adjusting painting procedures according to season led to a reduction of 1,300 MtCO2 per year.

148

Energy visualization and reporting provided accountability, with monthly/quarterly/yearly energy comparison reports to management, breaking out consumption, CO2 and cost trends against the previous year by plant and shop. Benchmarking was carried out internally against Toyota plants across the world and externally against other transportation companies and other market sectors, with comparison also to Association of Energy Engineers and Energy Star philosophies, concepts, best practices and other members. The result was a significant cascade of energy-saving and cost-reducing measures over a five-year period, coupled with recognition by Energy Star over the same timeframe of continued excellence in respect of energy management.

Sustainability by tackling supply chain issues
PepsiCo PepsiCo had revenues of $43.25bn in 2008, and energy costs (2007) of $1.1bn. Company-wide targets for 2015, using a 2006 baseline, are for reduction in electricity (20%), fuel (25%) and water (20%). Initial efforts to reduce PepsiCo’s carbon footprint were internally focussed, as easier to measure and to affect – even though the biggest wins lay in the supply chain. This was not well understood until a full carbon footprint analysis of Walkers Crisps revealed that only about 30% of the footprint came from the manufacturing. This paved the way for a serious commitment to be made to reduce CO2 emissions for that product, and to break activity down by source of energy use. In 2004, CEO Steve Reinemund organized the Sustainability Task Force as PepsiCo’s global organization. The Environmental Sustainability Leadership Team (ESLT) has since been formalized to focus primarily on water, energy and packaging issues, with the biggest challenges lying around: What metrics to track; how best to measure them; what performance targets to set. 149

It was also agreed that while the supply chain was the ultimate target for sustainability efforts, it was essential first to establish reporting, targeting, and best-practice technology and operations internally, to show PepsiCo’s leadership commitment, and to develop the practical tools they would need to offer suppliers. This was effected through the Measure Up system which is capable of generating numerous report types for individual plants as well as higher aggregations, such as energy performance (on a KWh per package basis) by plants producing similar products. Information allows the rapid identification of disparities and underperforming parts of the enterprise. The ESLT followed up by setting targets, deliberately introduced as stretch goals, which they termed Big Hairy Audacious Goals (known as BHAGs). The aim was to force creativity and innovation across the company. PepsiCo has made significant progress toward internal goals: more than $60m in savings since 2000, at a better than 20% internal rate of return. PepsiCo takes an innovative approach to quantifying and funding energy and water efficiency projects. A basic payback criterion is applied as a standard method. In addition, 2% of the company’s capital budget is targeted to a Sustainability Investment Fund (SIF), creating a defined source of funds for sustainability projects. Every PepsiCo investment project of $5m or greater is screened for its contribution to sustainability. Risk assessment is fully taken into account. A key element in the success of these measures was their team’s encouragement of managers to think outside their traditional box: encouraging plant or building managers, for instance, to look beyond the equipment they were responsible for and to examine basis production processes as well. This approach was supported by sustainability summits: a 2009 event hosted 400 employees from 14 countries in Chicago for four days. PepsiCo has subsequently taken the Walkers life cycle analysis model to other branded products, which quickly revealed (in the case of Tropicana, for instance) the major contribution to the footprint made by the orange-growing element of the supply chain. 150

This led to further efforts to understand the sustainability of the entire supply chain, resulting in the model shown in Figure 27. The model breaks the influence of the supply chain into four quadrants: manufacturing (“Make”), shipping (“Move”), marketing (“Sell”), and Support. PepsiCo then further distinguishes assets (where direct operational changes and technology investments are possible), practices (a mix of direct and indirect influences can be exerted), and external elements, resulting in some 20 potential focus areas for the sustainability team.

Figure 27:
Make

PepsiCo model of supply chain, 2010
Move Carriers Transport Mode Route Optimization Product Design Fleet Practices
Fleet

Agro Practices/ Sourcing Co-packers/ Suppliers Packaging

Assets

Practices External

Plants/ Equip.

Brand Equity

HQ Facility

Product Portfolio Consumer Communication Consumer Initiatives Stakeholder Communication Sell
Source: PepsiCo/Pew, Business Insights

HQ Operations Travel Culture Indirect Suppliers Support
BUSINESS INSIGHTS

Strategic embedding of PepsiCo sustainability initiative The ESLT was then embedded throughout the business, with three councils staffed by personnel within the business units (thereby encouraging collaboration and information-sharing): it is also chartered by and responsible to PepsiCo’s Chairman, CEO and Executive Committee. 151

Once the decision had been taken to bring the supply chain within the remit of the ESLT, many principles and practices developed internally were quickly applied externally: the supplier initiative built on Frito-Lay’s Resource Conservation Model (RECON), which included weekly data collection from utility meters, data reporting on current and Year Ago (YAG) energy performance, benchmarking performance against goals (set as a percentage of YAG energy use). There are also data analysis tools that allow energy usage breakdowns by individual end uses, diagnostic tools for all major energy systems that can detect performance problems and identify efficiency opportunities. Suppliers increasingly have access to the online RECON system, whilst the system itself is supported by the ESLT at supplier sites. A reporting and dashboard framework summarizing results and progress toward goals makes the system that much more user friendly. Suppliers are set quantitative goals (including an overall 4% reduction in energy usage) as well as “green” ratings for complying with steps set by PepsiCo. For instance: Measure and track energy, water use and solid waste metrics weekly and agree to make these metrics available to PepsiCo upon request; develop and implement annual and long-term goals, and integrate these into the business plan; perform regular assessments of energy and water users at each site. A key feature of PepsiCo’s supplier efforts include helping suppliers to obtain accreditation with programs such as Energy Star, whilst supporting suppliers in their efforts to meet Energy Star targets. A direct result of PepsiCo’s focus on the supply chain has been: Identification of more than $6m in energy and water related productivity improvements; 75 suppliers joining the Energy Star program (and significant supplier success stories); involvement by 18 major co-packers in the program.

152

Success means that the ESLT now needs to avoid complacency as well as resist the urge to cut back on the program now that “low-hanging fruit” have been plucked. Further, as the success of the project widens out across the company, so different perspectives on how to meet goals become more widespread – and the ESLT needs to defend its core focus. In terms of lessons learned, the key ones are: Setting challenging goals as a rallying point is important: at the same time, bold energy efficiency goals can drive progress in other areas of the business; suppliers play a key role in energy-saving efforts – but they need support; investment in energy conservation projects needs to be viewed differently from normal business investments, particularly allowing a longer return on capital, given the relatively low risk profile of such projects.

Hewlett Packard (HP)
The company has annual revenue in excess of $110bn, and is a global leader in computing, imaging and printing, software, and IT services. In 2008, HP’s supply chain represented an annual spend of approximately $50bn, over 400 contracted manufacturing suppliers, more than 400,000 workers at audited sites producing HP products and over 1m print cartridges, 110,000 printers, 75,000 PC systems and 3,500 servers shipped daily. HP took on a role as co-leader of the Electronic Industry Code of Conduct (EICC) Work Group on Decarbonizing the Supply Chain, with the key objectives of creating one common measurement approach, and focussing on most impactful environmental opportunities. This it aimed to achieve by creating and sharing best practices and tools, and developing and implementing a common way of reporting CO2 emissions in the Information and Communication Technology supply chain.

153

This work began with the creation of a standard reporting protocol: a standard reporting form was created, and factories were then encouraged to self-report energy use and emissions. Companies could feed reports to a third party or online secure database. Benefits for the suppliers were that data would be available, and efficiency equated directly to dollar savings. Reporting transparency showed absolute emissions, whilst supplier customers were able to aggregate supplier emissions. In 2008, HP asked 80% of its top tier suppliers for 2007 emissions data, allowing them to estimate emissions of some 3.5 mmtCO2e. In 2009, the process repeated, with HP also setting a reduction goal for 2009. Where suppliers could report energy, but not emissions, HP estimated emissions. So far, the result appears to be clear-cut: by introducing a requirement for information and reporting from suppliers, HP is exerting significant downward pressure on a wide range of companies and, by providing reporting tools to suppliers, it is both encouraging the creation of information and challenging suppliers to move towards best practice (or risk losing out to suppliers better able to pick up the challenge).

Sustainability through energy efficiency
Projects focused on energy efficiency are to a degree less complex than other challenges facing a business, in the sense that the majority of issues to be faced are internal - current practice, either in terms of technology used or working practice – and therefore under the direct control of the company concerned.

United Technologies Corporation (UTC)
The UTC group includes hi-tech companies such as Pratt and Whitney and Sikorsky, and was responsible for $58.7bn of revenue in 2008. They set themselves the aim of reducing GHG emissions by 12% over the period 2007-2010. As primary tools for bringing about change, they created internal guides and standards, including Energy and Greenhouse Gas Standard Practice (SP-017) and an energy management guidebook, backed by project modules and workshops.

154

At the heart of SP-017 was a strategy that enforced auditing of existing sites and identifying opportunities, maximizing the efficiency of older systems, as well as the efficiency potential of new systems, new leases and fleet, cogeneration, maximum efficiency for new sites and green buildings/zero-net energy buildings. Since 2007 UTC successfully identified over 900 projects valued at $170m, of which $96m are funded, in areas such as lighting, compressed air, leak management, HVAC systems, process improvements and cogeneration systems. The enterprise was supported by a formal process for project identification and a project database. On North American sites, UTC have adopted the LEED standard, with the aim of achieving LEED Gold on all new construction. In reviewing how progress was achieved, UTC managers point to the establishment of challenging goals from the outset, gaining of senior leadership support, effective communication (supported by guidance, training and tools), co-ordination of efforts and good data collection, supported by communication of results and communication of best practices.

Bank of America
Bank of America announced a $20bn, 10-year environmental commitment in 2007 which included: 10-year commitment to address global climate change through the growth of environmentally sustainable business activity; $18bn to help commercial clients finance the use and production of new products, services and technologies; $1.4bn to achieve LEED certification in all new construction of office facilities and banking centers; $100m in enterprise-wide energy conservation measures; $50m from Bank of America Charitable Foundation to support non-profits focused on forest preservation, innovative energy conservation and developing green affordable housing; eco-friendly credit card: every dollar spent results in Bank of America contribution to environmental organization to combat greenhouse gas emissions; 155

WorldPoints Rewards: cardholders may donate rewards to organizations that invest in greenhouse gas reductions. In support of this commitment, Bank of America set up an Energy Solutions Team, charged with focussing on five activity areas: Invest in efficient technologies: upgrade energy-consuming and energy management equipment in existing buildings; ensure that new construction and major renovations are efficient from the start; improve equipment and facility operations: “Your Energy” drives energy-saving behavior via performance metrics, best practices, education, benchmarks, and incentives; improve line of business operations: support them in their efforts to become more energy efficient; “focus areas” specifically support retail stores and operations centers; provide expert support for revenue generation; energy purchasing: use energy commodity purchasing strategies to lower prices and reduce risk; participate in grid reliability and demand response programs; leverage data: GHG tracking, facility performance, key performance indicators, budgeting and forecasting Key tactics employed by the solutions team involved producing an energy plan checklist, guides and tools for awareness (including a range of energy guides covering key topics for energy managers) and performance tracking. The final area involved using Energy Star performance tracking of the 50 largest sites: local managers were able to enter data into a central base using a simple web based data entry schema, allowing sites to measure their performance against themselves and others. This offered a range of features, including automatic adjustment for weather and space usage and portfolio level views. A command center was established in Charlotte, NC, staffed by HVAC technicians and controls engineers. Data and operations centers permitted real time monitoring and control, data analytics and energy reporting, trending and reporting of kWh consumption and GHG emissions. Also enabled were remote energy

156

management and a facilities maintenance center which monitored and controlled HVAC, lighting and other building systems. In 2007 “Your Energy” program resulted in well over $1bn in energy savings, with all 50 of Bank of America’s largest buildings participating. Over 50% of the largest buildings reduced their run-times by at least 15 minutes, resulting in $200k in savings. Smaller facilities were then benchmarked and “energy work orders” issued identifying potential savings, resulting in 4.9% reduction in energy spend. The result to date has been a significant reduction in occupancy expense, with savings of $8.2bn in energy expenses, exceeding the goal of $6bn. In addition, Bank of America has funded two solar projects to promote innovation in the industry, and several of its buildings are now LEED certificated or en route to certification. Bank of America Tower at One Bryant Park is recognized as one of the world’s most environmentally responsible high-rise office buildings, and the first high-rise pursuing a certification goal of platinum under US Green Building Council’s LEED-CS standard. On completion, the aim is that it will generate 70% of its own electricity. Adelanto Banking Center is the first retail banking center in US built to achieve US Green Building Council's LEED Platinum certification. The centre features a solar paneled roof that will generate 60% of the site’s energy. More than 20% of construction materials were from recycled materials, including insulation made of old blue jeans, and counters made of wheat byproducts. Drip irrigation, low-water landscaping and low-flush plumbing enables the site to reduce water usage by 40% compared to traditional banking centers.

Packaging and resource efficiency initiatives

Coca-Cola
Coca-Cola Enterprises (CCE) is the world’s largest marketer, producer and distributor of Coca-Cola products, operating in 46 US states and Canada, and is the exclusive Coca-Cola bottler for all of Belgium, continental France, UK, Luxembourg, Monaco and the Netherlands. Its sales represent 16% of the Coca157

Cola Company’s global volume, with 2bn physical cases distributed in 2008, equivalent to 42bn bottles and cans and worth over $21bn in annual revenue. CCE is committed to Corporate Responsibility and Sustainability (CRS), which is embedded into every aspect of its business. In 2009, this commitment was stepped up, with a set of goals and targets to achieve by the year 2020 – known as "Commitment 2020" - in five key areas. Overall goals were redefined and, according to a case study reported by food and grocery experts, IGD, in 2010, a roadmap to achieving them put in place. Measuring the environmental impact of its supply chain CCE began with an exercize to measure the impact of its business operations (in terms of carbon footprint) as well as the full lifecycle of some of its lead products. Top-level findings highlighted how CCE produced 796,000 tonnes of CO2 emissions from its business across Europe in 2007, of which 65% was from cold drinks equipment, 22% from manufacturing sites and 13% from transportation of products. During 2008, CCE worked with the Carbon Trust to calculate the carbon footprint of a number of products in UK, including a 330ml can. This revealed packaging to be the largest element of the carbon footprint of some of CCE products, including their 330ml can of Coca-Cola (as shown in Table 20 and Figure 28). By lightweighting, using recycled content and encouraging recycling, CCE estimated that it could decrease the overall carbon footprint of its products by up to 60%. This change to the 330ml can is now under way.

Table 20: Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010

Key elements Packaging Retailer/vending (refrigeration) Ingredients Manufacturing Distribution Consumer use and disposal 158

Allocation of carbon footprint (%) 56.4 17.0 13.3 7.0 5.7 0.5

Source: Coca-Cola

BUSINESS INSIGHTS

Figure 28:

Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010

Consumer use and disposal Distribution Manufacturing Ingredients Retailer/vending (refrigeration) Packaging 0
Source: Coca-Cola

10

20

30

40

50

60

Allocation of total carbon footprint (%)
BUSINESS INSIGHTS

ASDA
ASDA operates some 338 stores primarily selling groceries and apparel, plus CDs, books, videos, and domestic items. As part of the Wal-Mart group, ASDA is committed to significant reductions in its CO2 emissions profile: two of the issues tackled in 2010 as part of this commitment are excess distribution of carrier bags and zero waste to landfill by 2010. The first issue is consistently near the top of the public agenda, with ASDA stores responsible for 2.2bn of the UK’s carrier bags each year (total usage estimates varying from 8 to 17bn): under the Courtauld Commitment, ASDA have pledged to reduce the environmental impact of their carrier bags by 25% by 2011. The issue is problematic for a number of reasons. 19% of the UK population insist on a new bag every time they shop, with over 40% storing more than 40 bags in their home;

159

94% of UK residents understand the need to recycle, but 6bn bags are wasted each year; The bags from different retailers are made from a variety of materials, making recycling problematic for councils; In practical terms, ASDA have now provided a bag recycling facility in every store and offer to collect plastic bags from all online customers. In order to overcome habits all customers are being given a real incentive to change their behaviour (not to use a bag at all or to bring their own bags into stores). To drive change the issue was linked to a scheme designed to benefit local communities: shoppers who didn’t request a new bag were rewarded with ‘green goodies for schools’ vouchers. Local schools could exchange the vouchers for a variety of educational environmental equipment, including aluminum can crushers, bug hotels, ant farms, DIY greenhouses, papermaking kits, and model wind turbines. This was coupled with an 'old bag' amnesty to encourage customers to bring back used bags for recycling. A direct result of this approach was more than 3,000 primary and secondary schools signed up for the scheme, 1m “bags for life” given away; and plastic bag recycling facilities now in all stores The second initiative, Zero Waste to Landfill by 2010 has significantly reduced stores’ waste footprint. However, customers are still concerned by the amount of unnecessary packaging waste generated as a result of supermarket shopping. Using the redesign of own brand packaging as an opportunity, ASDA decided to ensure that within 12 months all own brand packaging would be redesigned, and as part of this process, own brand food packaging weight would be reduced by 25%. In order to achieve this, the redesign of all packaging was subject to three simple principles: Remove, Reduce, Recycle. Key steps taken included the reduction of packaging on ASDA SmartPrice cereals, a reduction of glass thickness of the jars holding ASDA coffee, pasta sauces and organic sauces, exchanging plastic for pulp and plastic film for netting on organic fruit and vegetables.

160

The primary measurable benefit of the redesign was in respect of the direct resource savings achieved: the removal of 23 tonnes of virgin plastic and 9 tonnes of carton board from ASDA products. In addition, less fuel is used in transporting the goods, and less shelf space to display and store them.

Nestlé
Nestlé is the largest food and beverage company globally, producing products ranging from water to coffee, confectionery to dairy products and food for pets. Initiatives to reduce the amount of packaging used by Nestlé began in the 1990’s. Nestlé UK and Ireland has a target to reduce packaging by 10% by 2010, against a 2006 baseline: more than half of Nestlé’s UK packaging is currently recyclable. A series of recent initiatives included: reducing the size for small eggs Easter Eggs between 2006 and 2008 by 30%, gift eggs containing mugs by 14% and adult/premium eggs by 24%; for Easter 2009, reducing the weight of packaging used for small eggs by 30%, medium eggs by 27% and adult/premium eggs by 23%; removing rigid plastic altogether from small and medium range by replacing the plastic (polyester with recycled content thermoforming) with carton-board. In addition to a weight saving of 784 tonnes of packaging, the number of cartons carried by each lorry increased, reducing transportation needs by around 350 trailers. Cartons for all Nestlé Easter eggs are made from cardboard containing at least 75% recycled fibers and can be recycled through local authority collection schemes. Plastic material used for Easter egg packs now uses a minimum of 50% recycled PET from plastic waste, saving hundreds of tonnes of virgin material. Other changes have included changing Quality Street twist wrappers in 2008 to a household compostable material derived from sustainable resources, and reducing the height of large Quality Street tins by 10mm, thereby saving more than 200 tonnes of steel per year. Weight reduction for the small round Quality Street tins saved a further 37 tonnes of steel per year. 161

Chapter 10 The role of marketing
Summary
The role of marketing is examined: in general, the focus needs to be on “walking the walk”. Businesses must make sure that whatever claims are made, they are substantiated by actual facts, are believable, and are communicated to customers in a timely and clear fashion. Businesses need to look out for “greenwash” in their claims: not just hype on their part, but claims that consumers may deconstruct as hype. The drive towards greater availability of information as a requirement of business governance provides an opportunity for companies to use information as a marketing tool. A general list of do’s and don’ts for branding and social media usage are provided. Case studies are outlined of how O2 and SAP use provision of information relating to their CSR position as a marketing tool: other company examples are cited, as well as the use of awards to enhance company positioning. Csr is now a global trend, although its implementation across the world will depend very heavily on national temperament and propensity to use legislative or other means to bring about change.

Core messages: credible, accurate, informative, clear
Given the importance of consumer perception, highlighted in Chapter 6, corporate policy on environmental issues – and particularly on energy-saving is inextricably bound up with its own marketing. The keynote to any and all such marketing is that it must be absolutely credible and it must be fully (reasonably) informative. Credibility is important for two reasons: firstly, there are high levels of distrust of organizations when it comes to carbon reduction measures, both in terms of disbelief that measures mean what they are claimed to mean; and that organizations cannot be trusted to act in a truly altruistic fashion. Savings are unlikely to be passed on to consumers: greenness will be used as an excuse for rising prices. In fact, there is evidence to support 162

both these propositions and – unlike some other areas of corporate activity, where claims may be made with little expectation of being challenged – a number of well-informed activist groups at large in most developed nations see their role as being to deflate exaggerated organizational claims. Misleading claims are, therefore, likely to be found out. Second, companies should also bear in mind that there is little reward to be had simply for appearing to be green. Retailers such as Marks and Spencer and the Co-op in the UK regularly win awards for being environmentally friendly: but both are well down the league table from Tesco, which far outperforms them commercially whilst being rated far less environment-friendly. Green-positive credentials are therefore worth maintaining: but they are unlikely to deliver major benefits in their own right, outside of a very small niche market that is prepared to pay a premium to buy product from businesses perceived to be ethical. By contrast, negatives could well have a major impact, both in terms of negative press and PR and even consumer boycotts. Such images often far outlive the original cause of the negative: for instance, in the UK, in the 1970’s and 1980’s a long-running campaign against apartheid in South Africa made Barclays Bank its focus. Although the immediate effect of this campaign is hard to quantify, even harder to explain to rational marketing managers is that within the UK, there is still a (slight) residual antipathy towards Barclays Bank amongst individuals now aged 40 and over, resulting from this campaign. Any real reason for punishing Barclays Bank has been gone for almost two decades – yet the effect of this negative image lingers on. Where organizations are making changes to their core service or product offering, they must inform consumers up front – not allowing such news to leak out in uncontrolled fashion – and they should also ensure that messages are communicated in a clear, open and non-confusing fashion. The removal of phosphates from dishwasher formula (as shown in Chapter 6) was always going to be a difficult issue to sell to consumers: it was made doubly so first, by formula manufacturers not proactively informing their customers (leading the change to be positioned in the popular media as underhand), and second by manufacturers not having a clear answer ready to customer queries. 163

Real CSR versus “vanilla” (greenwash)
Initiatives designed to showcase an organizations corporate social responsibility credentials must therefore be real as opposed to “vanilla” or, “greenwash”. As with other claims, the measure of realism is how far an organization “walks the walk”, with the strong caveat that the taller a company attempts to walk, the more likely they are to be tripped up if making false claims, and to be noticed if they do fall short of their selfimposed high standards. According to the Greenwash Report, there are ten signs that consumers need to look out for as signs of greenwash: Fluffy language: Words or terms with no clear meaning, e.g. ‘eco-friendly’; green products versus dirty company: efficient light bulbs made in a factory which pollutes rivers; suggestive pictures: green images that indicate a (un-justified) green; impact e.g. flowers blooming from exhaust pipes; irrelevant claims: emphasizing one tiny green attribute when everything else is un-green; best in class: declaring you are slightly greener than the rest, even if the rest are pretty terrible; just not credible: ‘eco-friendly’ cigarettes anyone? ‘Greening’ a dangerous product doesn’t make it safe; gobbledygook: jargon and information that only a scientist could check or understand; imaginary friends: a ‘label’ that looks like third party endorsement …except it’s made up; no proof: It could be right, but where’s the evidence? out-right lying: totally fabricated claims or data. It is against this background that companies need to be aware of their stance on issues such as packaging and waste. These are clearly consumer concerns at present and there are actions that can reduce packaging and waste output. There are also negatives to reducing packaging too far: in some circumstances a direct trade-off between packaging and waste. The corporate marketing function is not to meet some abstract ideal

164

in this respect – but to find a happy medium, and to communicate to the public clearly why this particular balance has been struck and the consequences both for customers and the environment.

The right way to provide information
A growing requirement on companies to provide information for governance purposes, as typified by legislation such as the Sarbanes-Oxley Act in the US, is leading businesses across the world to go beyond separate reports for financial and nonfinancial (e.g. corporate social responsibility or sustainability) results and integrating both into a single integrated report. This was examined recently in “One report: integrated reporting for a sustainable strategy”, published in March 2010, by Harvard Business School Senior Lecturer Robert Eccles, who studied best practice in terms of making public information on sustainability, studying companies that included Philips (the Netherlands), Novo Nordisk (Denmark), Natura (Brazil), and United Technologies Corporation (US). This was supported by a review in the Harvard Business Review, which argues that “integrated reporting is about much more than a single paper document that combines the material measures of financial and nonfinancial (e.g. environmental, social and governance) performance”. Rather, they claim, it is also about using the Internet to: Offer more detailed information of particular interest to shareholders and other stakeholders; provide analytical tools for users of the performance information being provided by the company; provide information in other formats such as videos, images, figures and diagrams, charts and graphs, and spreadsheets; engage in a two-way dialogue with all stakeholders in order to improve the company's engagement with them. Eccles’ book also examines in detail how to use social networking sites, such as Facebook, as a means to support an integrated reporting approach (but, as illustrated in the next section, there are pitfalls to doing this wrong).

165

Branding and communications strategy
From this, it should follow fairly clearly that there are dangers implicit in branding that is over-reliant on highlevel environmental claims. If a company lives up to them, that is good, but there is a danger of a reverse negative: a strongly held consumer belief that environmentally friendly product means higher-priced. There is therefore another balance to be drawn, between benefits that accrue from being perceived as environmentally concerned; and a possible corollary that, by extension, such a company’s products must be more expensive. Again, this is an area where constant research and feedback in terms of what customers are thinking and how this is impacting on buying behavior is key. The role of social media The same rules apply in respect of social media. The issue here is not so much the message, as the fact that many corporate organizations have yet to work out how best to engage with a medium that is instantaneous, not susceptible to direct control, and populated by large numbers of individuals who are essentially cynical with respect to big business. Toyota initially got social media very wrong. In March 2009, Prius owners started to report problems with the brakes on their vehicles through a network of forums and message boards which had themselves been set up by the owners and biggest fans of the car and the brand. Clearly there was a major issue brewing: but Toyota refused to engage, communicating, by their inaction, that they were either not listening or not interested in the views of their customers. Toyota’s determination to stick to traditional media channels was evident later in the same year when an issue arose with the accelerator pedals. Their failure to engage meant simply that the situation would escalate as it did when the stories were eventually – inevitably – picked up by global media. Toyota were forced into a costly re-call, accompanied by a wave of negative sentiment that wiped $34bn from the company’s value. A checklist of do’s and don’ts when dealing with social media was put together by social media strategy group, 20:20, including:

166

Do Put a communications strategy in place; develop a style; strike the right balance between conversation and sales; set limits for what is and is not to be tolerated in any channel. Don’t Use social media for corporate communications; be afraid to vary strategy per channel; forget to update content. Self-promotion A noticeable feature of many advertising campaigns has been the growing use of environmentally-friendly claims. However, consumers are highly suspicious of such claims where they appear to be little more than a determination to use eco “buzz words”, with little substance behind them. Businesses are likely to receive credit where their efforts are effectively SMART (specific, measurable, action-based, realistic and timely): less likely, and in some instances actively penalized, where claims turn out to be just hot air. Thus, good claims in this respect include recent promotions such as Passat, who highlight a number of key CO2-friendly measures implemented in their new designs, including a system that recovers braking energy on their models; the toilet tissue manufacturer, that claims that paper used in their product is exactly matched by new tree planting, and organizations such as John Lewis in the UK who promote their use of Fairtrade and other standards (for instance, their responsible sourcing standard, as well as their Carbon Trust standard) in respect of product selection.

167

O2 eco rating for phone handsets
A significant instance of claims being backed by real measures is the UK’s first sustainable rating scheme for mobile phones, developed in 2010 by Forum for the Future and Telefónica O2 UK. This was a response to research highlighting a demand from customers for information about the sustainability of their handset: the whole picture and not just one or two elements of environmental performance. The two companies worked closely with handset manufacturers to develop a simple rating system that would make fair comparisons between different types of handset to reward and encourage innovation. Eco rating scores handsets out of five according to their environmental impact, how they help people lead more sustainable lives and the ethical performance of the manufacturer. It uses transparent, robust and noncontentious measures to do away with the need for detailed technical data The company launched in O2’s UK stores in August 2010 and means that customers now see a rainbow label (as Figure 29, in which the Sony Ericsson Elm is rated at 4.3 out of 5 on the raft of factors outlined) in stores indicating the sustainability rating of all phones participating in the scheme – more than 90% of those stocked by O2. A key feature of this project was confidential discussions between Forum for the Future and major manufacturers, including HTC, LG, Nokia, Palm, RIM, Samsung and Sony Ericsson to develop the “eco-rating” methodology. O2 reports that customer response has been positive and they are now considering how to implement the approach across the wider group.

168

Figure 29:

Example of eco-rating label used by O2, 2010

Source: O2

BUSINESS INSIGHTS

SAP Sustainability reporting
When it comes to sustainability reporting, SAP is identified as number 22 out of the top 1,000 companies covered in an online ranking by CRD Analytics. SAP are also rated number 1 in the report’s technology subsection. The Harvard Business Review describes the report as user-friendly, as information is presented “in a very clear, uncluttered manner that enables users to navigate via the bottom menu bar and display information in the large white space in the center of the page”, as shown in Figure 30.

169

Figure 30:

SAP Sustainability Reporting Dashboard, 2011

Source: SAP

BUSINESS INSIGHTS

The SAP approach to communicating energy information They add: “While some additional navigation work needs to be done, the simplicity of the SAP system makes it much easier to use and it is certainly more advanced than the majority of CSR reports which are in a PDF or other static document format. The dynamic nature of the website comes to life almost immediately when you begin navigating through the site and notice that rich media is immediately highlighted, with videos hosted on YouTube instead of a proprietary, company-owned platform that could potentially limit their viewership online. “However, the single most user-friendly element on the website is in how SAP reports the core information about its business to the end-user. Instead of long, arduous paragraphs about their current and future performance, SAP presents its core business drivers in the sustainability space with easy-to-understand graphical representations that clearly spell out the respective measurements and the future action plan by

170

the company for either improving or continuing a current trend. If users are interested in longer, more detailed paragraphs the option to drill down is always one-click away.” The SAP approach is also praised for the fact that it is engaging, with numerous ways available for individuals to provide feedback and engage directly with SAP employees, and collaborative, allowing viewers of the report to effectively build their own unique reports, models, etc.

In the news: typical news stories focusing on CSR
Alongside the case studies, there is now a steady stream of news stories about initiatives taken by business to improve carbon compliance. A sample from the first quarter of 2011/last quarter of 2010 include: Procter and Gamble lays down new sustainability targets (October 2010): Consumer goods giant unveils new short-term goals that must be achieved by 2020; Sunlyte introduces first carbon-free compact disc packaging (January 2011): overall result is significant shipping and carbon footprint savings; Wal-Mart to boost buying from small and local farms (October 2010): Wal-Mart will double sales of fresh produce from local US farms by 2015; US aluminum can recycling up 4% in 2009 (September 2010): Nearly 55.5bn aluminum cans were recycled in the US in 2009; Tesco Installs Energy Monitors to Motivate Employees (January 2011): Tesco plans to install touch screen energy boards in 500 stores (out of approximately 2,500) across the UK. The energy boards will be placed in employee areas and will keep tabs on energy use in various store departments. AB World Foods has reduced glass weight per jar by 12% (January 2011).

Awards for sustainable practice
The range and scale of awards for companies perceived to be adopting sustainable processes is wide and possibly encouraging consumer skepticism, similar to a perception of greenwash.

171

Thus, in January 2011, Tesco joined Alter NRG, Baltimore Gas and Electric, Sunvia and Green Gas, taking honors in 2010’s Platts Global Energy Awards: the award for best commercial end-user went to UK retailer Tesco for its leaner, greener status and for its energy-use reduction efforts. However, a month earlier, Marks and Spencer and the Co-op were named the greenest supermarkets in the UK in a report by the Ethical Consumer magazine. Both were praised for their eco-credentials, with special mention being made of the Co-op's policy on sourcing fish and Marks and Spencer's palm oil sourcing. The Co-op was also said to aim to get 98% of its energy from renewable sources at its 5,500 sites around the country.

Regional trends
Given the wide range of ways in which business can be brought to a position of energy compliance, it is possibly mis-leading to attempt to dissect out genuine regional trends. A somewhat clichéd reading of what is going on across the globe would have consumers believe that business (and politics) in the US is less ecofriendly and less bought in to carbon reduction than in the rest of the world. In fact, as case studies highlight, US companies appear to be as switched on to CO2 emissions reduction as companies anywhere else in the world. The legislative approach is different from that in Europe or the Far East – far less direct regulation and more pump-priming by government - but the end result is not dissimilar. Again, there is some evidence for US consumers being less exercized by issues of climate change and global warming, but, that, too, would be a dangerous presumption to make. The message coming through from a range of sources is that a proportion of consumers everywhere (but far from a majority) are concerned by climate change and would like to see action taken: but that proportion reduces dramatically as soon as those consumers are required to take action that may directly impinge on their pockets or comfort. In other words, consumers across the world may express themselves slightly differently – but the message is broadly the same.

172

As highlighted in Chapter 4, the precise drivers towards national action vary from country to country. The US is less keen on direct regulation or centrally imposed targets than Europe – and for that reason has resisted initiatives such as emissions trading schemes. China, likewise, has avoided joining trading schemes – but remains focused on energy efficiency, albeit in a patriarchic fashion: it is far more common for a company to mandate a specific emissions reduction target – and then simply to close down plant and sites that fail to meet the given goal. No part of the world is exempt from the pressure to become more eco-friendly, as the emergence of CSR ASEAN supports. This is a network of CSR Practitioners in ASEAN Countries which is intended to act as a platform for corporate foundations and corporations to integrate corporate social responsibility in their corporate agenda and thereby contribute towards sustainable socio-economic development in ASEAN Member States. Objectives of CSR ASEAN include establishing a database of corporate foundations, corporations and other organizations with CSR initiatives in the region, identifying gaps, and sharing and documenting best practices, new and emerging frameworks and strategies in CSR in the region.

173

Chapter 11 Conclusion and recommendations
Summary
There is at present a great deal of pressure from many sources to take action on global warming – and that pressure manifests as political and consumer pressure on business Consumers are less wedded to taking action than many believe: in practice they demand action, so long as it does not affect their personal quality of life: businesses may as a result become complacent, believing that as they are ahead of consumer demand now, they will remain there. Key learnings from this report include: that the largest element of business carbon footprint often comes from its supply chain or distribution network; that systems are complex and interact, making simple solutions difficult; and that long-term the solution almost certainly lies in optimization techniques. Businesses need to fit their response to their current state of readiness. Strategically, they should be looking at audit, partnering, targets, database/information, continuous improvement and identifying quick wins. More accomplished businesses may wish to think in terms of addressing specific niche programmes. The main lesson for the future is that businesses need to plan against uncertainty and a high probability that at some point the demand for sustainability in their way of trading will go past what is comfortable: businesses that have failed to prepare for that point will be in serious trouble. In the meantime, businesses need to see sustainability as a strategic tie-breaker when it comes to consumer decision-making, rather than a benefit in itself.

Current state
A number of key findings emerge from this report. First, there is pressure from a very wide range of sources for companies to take action over CO2 emissions and to support action designed to help avert global

174

warming and climate change. That pressure begins at the highest political level and then filters down through a variety of international and national agreements to make itself felt at the corporate level. How that pressure makes itself manifest will vary significantly by country – and for that reason, organizations need to be very sensitive to where they are in the world and what the real local drivers for compliance are.

Consumer confusion
There is a perception by many in business that consumers are demanding action on CO2 emissions. That is misleading. There is pressure from a minority of consumers: but that pressure is soft, dwindling or vanishing altogether when consumers are asked to choose between their own finances or comfort and the future of the planet. Matters are further complicated by the fact that in many areas (packaging is a good example), consumer perception of what constitutes best practice is based on partial or poor information. Best-performing companies may not be perceived as such because they have responded to complex issues in appropriately complex ways – and consumers do not understand this. Organizations must therefore be wary of being too careful of the mythical environmentally-conscious consumer. These are few and far between. Far greater, in terms of danger to organizations, is being perceived to be peddling “greenwash” – making exaggerated or false claims about green credentials – or worse, being “outed” as responsible for bad environmental practice. CSR is perhaps less valuable for its own sake: organizations need to be seen to be aware and concerned; but at present there appear to be few prizes for organizations being over-concerned. Consumers are also fickle: they claim green credentials, without being especially prepared to make major changes to their behaviour or spending habits. They certainly do not wish to pay for sustainability. However, they are quick to shift – and equally quick to punish organizations, such as BP, that are perceived to have over-stepped the mark.

Business complacency?
The present situation, far from being one in which virtuous consumers are demanding action from wicked business is quite the reverse, with many major corporations taking significant action to reduce their CO2 emissions ahead of demand. Nonetheless, businesses should be wary of becoming complacent: at present, 175

emissions reduction is being achieved largely through efficiencies and optimization. Virtue is actually good for the bottom line. The danger lies in businesses falling into a mindset that they are doing enough – and being over-taken at some point in the next decade by regulation or a revived consumer demand for action. At that point, energy efficiency and the bottom line will come into conflict, and businesses may need to make much harder choices.

Learnings
The case studies highlighted in this report come from a wide range of businesses and industries – many well outside the traditional retail arena. However, a number of key learnings emerge from these cases: First, an organization’s own activity is often not the place where CO2 emissions are most significant: it is in supplier and distributor behaviour that many of the big wins are to be had, which means that the optimal approach is not to fix on some particular technology or technological approach, as to understand the need for working with suppliers and creating alliances. Often, the best way to improve supplier performance is to provide them with the consultancy they need, locking them into in-house systems and initiatives – and the investment will be repaid many times over. Second, systems are complex: there are some discrete actions that may lead to major reductions in CO2 emissions – a change in lighting technology, for instance. However, a regular finding from the cases highlighted here is how systems interlock and how managing complexity is the key to successful emissions reduction. Reducing packaging, for instance, often leads to further savings in the supply chain, through a need for less transport and storage. Optimization is an approach that applies to a whole network – from infrastructure, to transport modes, to method of doing business – and is best solved holistically, rather than one element at a time. Last but by no means least, emissions reduction must come from the very top of an organization: in the long run, it should represent savings. But because those may be to the whole organization and not collected by 176

line managers responsible for the actions required, it is essential that there is board level focus – even CEO involvement – to ensure that the project is given appropriate priority.

Actions now
In terms of taking action, organizations need to focus on the following areas: Audit; Partnering; TargetsDatabase/information; Continuous Improvement; Best techniques/quick wins. Organizations need to start by carrying out a full top-down audit of where they are now, strategically and in terms of carbon footprint. How much of an audit – and what type of audit the organization carries out – will depend in large part on the current degree of sophistication internally. Those that already have some experience of CO2 emissions reduction may be able quickly to identify key areas where they can make a difference, and therefore by-pass the full audit. Those with little or no experience do so at their peril. One of the key lessons from case studies – particularly that from PepsiCo – is that organizations often do not know, in advance of analysis, where their major energy usage sits. Without analysis, areas such as supply chain could be overlooked entirely. Organizations should look for partners – and understand that partners may come from many places other than traditional consultancies. Partners may be academics, government, suppliers, clients – or even service companies. Advice may be paid-for and expensive or free: it is not always the case that free advice is to be despised (though organizations should look for strings attached where there is no cost).

177

Structuring of the energy “field” comes next. Organizations need to determine what metrics they intend to focus on, what objectives to set: and they need to put in place robust techniques for capturing information from the areas under focus – and then for feeding that information back to those concerned. This is not just an administrative requirement, as feedback of information obtained (preferably in a user-friendly and easy-toaccess format) is a strong involvement device. By contrast, taking information and giving back little is a strong disincentive to co-operation. Whilst targets are an effective way to go, a lot of successes have been noted from companies that have opted for Daizen, or continuous improvement: basically, identify an opportunity and then implement it where that opportunity can be cost-justified. What is striking about many of the case studies is the rapid proliferation of ideas that will help an organization achieve its aims, with most organizations reporting quickly on several hundred ideas available within its databank, and many reaching several thousand. That, in turn, raises the issue of where the focus ought to be – and the answer seems to be that there is no right answer. If an organization has collated ideas, costed them, and identified real payback opportunities, then the “best of breed” items will quickly fall out. Very often, the best ideas have several benefits: thus, reduction in packaging leads to lower costs, in terms of materials used. However, there are also co-benefits, in terms of reduced transport costs and reduced storage and shelving requirements. One finding from a succession of case studies is that there can be such a thing as a free lunch in energy efficiency, in the sense that there is a wide range of optimization techniques, from Smart Grid, to route optimization, that can lead to significant reduction in costs and energy used without in any way changing the underlying business model. Finally, businesses may, if they choose, opt in to voluntary carbon markets: given the general lack of awareness of the consumer base, this is unlikely to prove greatly rewrding on its own – although the fact of adopting such discipline may be helpful in preparing for future change.

Future outlook
This entire area is characterized as being one of uncertainty, with a wide range of drivers not necessarily all pointing in the same direction. In political terms, there is most definitely a head of steam built up behind 178

moves towards more sustainable economic activity. That head of steam is now operating to some extent independently of the underlying climate science, and perhaps justifiably so.

Geo-politics
There can be no certainty about what is going to happen to the Earth’s climate over the next century and as long as there is a realistic prospect that some of the possible outcomes are catastrophic, it is only rational for governments to plan on the basis that they need to take action now to avoid those things happening. It may be, in forty or fifty or sixty years time, scientists will look back and decide that the case for action was illfounded and over-stated. But that is mere speculation, and will make little difference to how businesses need to respond now. Therefore, businesses need to anticipate more and greater regulation over the next ten to twenty years – particularly in those areas of the world which have traditionally relied on state intervention as a means to solve social and other issues. What seems extreme today in Sweden and the rest of Scandinavia is the sort of action being contemplated for tomorrow in Europe and the EU – and whatever happens in those areas is likely to spread across the globe shortly after. The will to legislate has not diminished: rather, some countries have temporarily put back the more radical options for now, as inappropriate at a time of recession, shrinking economies and, more importantly, reducing carbon footprints. Expect all those trends to go into reverse in two to three years time: as the recession draws conclusively to a close and economists stop talking of false dawns, so emissions are likely to return to trend at about the same time as governments regain confidence in implementing measures that are more traditionally deflationary. Business should therefore expect a gentler ride from legislators over the next two to three years, turning distinctly bumpy from 2013/14 onward.

Consumer resurgence
That return to legislation and regulation of business practice is likely to be matched at around the same time by a second, more sophisticated wave of consumer concern. As has been noted in this report, consumer concern for the environment is fickle and ill-informed. However, behind that surface it seems likely that a

179

great deal of (self-)education is going on. As any issue evolves, so those affected by it become relatively more sophisticated in their view of what needs to happen. Phase one of consumer concern is mostly charactierized by negatives: stop emitting; reduce waste packaging; use recycled materials. These are not, as this report strongly argues, necessarily all beneficial in environmental terms. There are trade-offs in terms of energy used and food waste: less packaging may in fact be environmentally unfriendly if it leads to more food going uneaten. A report on the news in the last week of February 2011 suggests that, contrary to popular conception, plastic bags are the least environmentally damaging, followed by paper, with finally “bags for life” the most damaging in the short term. The option promoted as the most environmentally friendly may turn out to be the least. This, reflects the fact that the amount of energy expended, per unit, in creating the supposedly most polluting option is far less than the energy expended on the most environmentally friendly: but the reason “bags for life” are more environmentally friendly is because they are intended to be retained. If consumers simply take one of these items and then treat it much like a simple plastic bag – as disposable – the benefits that could be obtained from using these items will never be realized: thus there is a need not simply for technological change, but behavioral change as well. What emerges here is twofold. First, that obvious answers are not as obvious as they may look: what business does to clean up its act can only work if it is done with the informed support of customers. There is a need here for mutual education between organization’s and their customers. What would certainly not be helpful is the emergence of a situation as applies to health advice in some quarters, where the advice given by “experts” appears consistently inconsistent and contradictory. Not to experts, of course, who understand that what is being delivered is, in most cases, more and more detailed, nuanced advice – but certainly to the patient, who feels confused and alienated by what is perceived as simply conflicting points of view. It is up to business to ensure that this does not happen in this area.

180

The second emerging truth is that the best solutions are those worked out in partnership between businesses and customers – and not those that are foisted one-way. The problem with removal of phosphates from dishwasher formulation was, quite simply, that manufacturers did this without dialogue and without providing information. The net result was both alienation and almost certainly a net disbenefit environmentally, as consumers reacted rationally – but in ways not foreseen. As with government, so with consumers. As the world economy returns to significant growth, expect a significant shift back towards focussing on environmental issues. This time, as it is built on a pre-existing base, expect concerns to go deeper and wider.

Competitive issues
Finally, business cannot, should not, overlook the impact environmental concerns are likely to have on how they operate. They need to be testing environmental approaches now, because when regulation and consumer pressures both operate in the same way once more, these will exert significant pressure on businesses to change. At present, it is business that is largely leading the way. However, that should not lead to corporate leaders being lulled into a false sense of security, believing that sustainability and corporate responsibility is possible with savings on the bottom line and no major impact on trading. In the long run, it will have an impact, and businesses need to start thinking about how much deeper regulatory impacts than those now in play are going to have to be met. Pre-planning is the key, as businesses forced to make major cuts without having first considered the implications are likely to cut the wrong things and to sacrifice strategic position for regulatory compliance. Being prepared for such scenarios makes business sense. Using pressure now toward sustainability to pioneer new approaches (especially through alliances with and mentoring of supply chain and distribution network) makes sense. The technologies and approaches that will be needed in ten or twenty years time will be radically different from those in use now – and businesses that gain first mover advantage will benefit in two very different way. First, they will be better positioned to make use of such technologies. Second, they may find themselves able to sell on their intellectual capital in these areas to other businesses.

181

Organizations rooted in areas, such as the US, where the regulatory touch is lighter should beware: that is not the direction that the rest of the world is going – and adapting only to local conditions could lead to those businesses, in time, excluding themselves from trading across large parts of the globe. At the end of the day, perhaps the most important message comes from the Worldwide Cosmetic Industry Trend blog, which argues: “Companies, rather than expecting sustainability to supplant the consumers’ needs-satisfaction motive, should incorporate sustainability as a product feature that provides a consumer benefit without sacrifice of quality, performance, convenience, and value (relative price). The strategic prowess of sustainability is as a tie-breaker. The product must, at least, be equal to the competition in the above-mentioned parameters, so that sustainability becomes the swaying variable.”

182

Appendix
Scope
The unifying theme for this report is the impact of the politics of Climate Change on Corporate activity, looking at the political and social drivers pushing companies to lower their energy costs, the approaches that they may adopt, and the various positives that may accrue to companies that successfully manage to achieve this result. The primary focus for this report is the use of energy, and in its original conception, it was felt that it would tbe of particular relevance to companies with a high public profile in the food and retail sectors, as well as companies with a major customer-facing profile. In practice, this turned out not to be the case: the approach favoured by most major analysts involves looking at how the totality of a company’s activities impact its brand reputation as far as its customers are concerned. In many instances, even companies that are traditionally grounded in the service sector have a high energy use profile either as a result of their supply chain or their distribution networks. In addition, almost all major companies will be major energy users in respect of their need to locate staff in offices or plant. The central thesis of this report, therefore, is that although certain enterprises – manufacturing industry, the grovery sector, and so on - are clearly major consumers of energy and therefore need to determine what their posture is in respect of the range of issues covered by the banner of corporate social responsibility, the extent to which these issues affect almost all companies is far wider than most would imagine – and therefore the issues covered in this report affect most businesses. Exceptions are defined more by the extent to which a business is able to provide a pure service by virtual means, without any significant reliance on supply chain, physical establishment, or distribution network.

183

Methodology
Primary research
Research to shape the report was conducted by its authors, Jane Fae Ozimek and Professor Merlin Stone, amongst clients with whom they have worked or are currently working in this field. Professor Merlin Stone, in particular, conducted a series of face-to-face interviews with major companies seeking to develop their corporate social responsibility profiles, in order to identify key issues of relevance in this report, and as a means to develop the analytical framework, cited in Chapter 7, and used to shape the structure of this report. Key managers working in this field provided insights and, in some instances, case studies of relevance.

Secondary research
The majority of secondary research was conducted online. This fell into three categories: Open-ended, based on searches around relevant keywords: the most productive phrase in this respect was energy save compliance audit supply value chain with the addition of other terms such as business, and country name; directed, mostly based on insights from the various sustainability managers and experts interviewed as part of the primary research; experience-based: the authors have worked together on a series of energy-focussed reports, and over time have developed an in-depth understanding of the various sources available and the relative value to apportion to each. This experience is valuable both in areas which range from energy supply, at one extreme, which is characterized by an excess of statistical information, in need of weighing up and sorting out, to national legislation, where good information is far harder to come by.

184

Glossary/Abbreviations
AAU: Assigned Amount Unit ACEEE: American Council for an Energy-Efficient Economy ASEAN: Association of South East Asian Nations CCS: Carbon Capture and Storage CCX: Chicago Climate Exchange CDM: Clean Development Mechanism CERs: Certified Emission Reductions – aka “carbon credits” CHP: combined Heat and Power COP: Conference of the Parties CRC: Carbon Reduction Commitment Energy Efficiency Scheme CSR: Corporate Social Responsibility DECC: Department for Energy and Climate Change DEFRA: Department for Environment, Food and Rural Affairs (UK) DJSI: Dow Jones Sustainability Indexes DOE: Department of Energy (US) EEA: European Environment Agency EIA: Energy Information Administration ERU: Emission Reduction Unit

185

ESCO: Energy Service Company ETS: Emissions Trading System EUA: EU Allowance (1 EUA = 1 tonne of CO2) FCV: Fuel cell vehicle FEVE: European Container Glass Federation FoEI: Friends of the Earth International GHG: Greenhouse Gases HVAC: Heating Ventilation and Air Conditioning IEA: International Energy Agency IPCC: Intergovernmental Panel on Climate Change JI: Joint Implementation KOE: Kilogram of oil equivalent KOE/$2005p = Kilogram of oil equivalent in $ at 2005 purchasing power parity kCO2/$ppp2000: Kilogrammes of CO2 per $ at 2000 purchasing power parity LEED: Leadership in Energy and Environmental Design LULUCF: Land Use, Land-Use Change and Forestry PIRA: Printing INdustry Research Organisation PLM: Product Lifecycle Management ppm: parts per million

186

PPP: Purchasing power parity exchange rates REDD: Reducing Emissions from Deforestation and Forest Degradation Quad: Quadrillion BTU’s tCO2: Tonnes of CO2 tCO2/TPES: Tonnes of CO2 relative to total primary energy supply TPES: Total Primary Energy Supply UNFCCC: United Nations Framework Convention on Climate Change US DOE: US Department of Energy VCM: Voluntary Carbon Market VCS: Voluntary Carbon Standard WEC: World Energy Council ZEB: Zero Energy Building

Bibliography/References
Major Source Works
Climate Analysis Indicators Tool (CAIT) on-line database version 3.0., Washington, DC: World Resources Institute CO2 emissions from fuel consumption, (Highlights), IEA Statistics, 2009 Energy Efficiency Policies around the World: Review and Evaluation, World Energy Council, 2010. Available in dynamic form online at http://www.worldenergy.org/publications/energy_efficiency_policies_around_the_world_review_and_evaluation/1230.asp 187

Fortifying the Foundation: State of the Voluntary Carbon Markets 2009, A Report by Ecosystem Marketplace and New Carbon Finance Katherine Hamilton, Milo Sjardin, Allison Shapiro, and Thomas Marcello, 20 May 2009 Fourth Assessment Report of the Intergovernmental Panel on Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. International Energy Outlook 2010 – Highlights, US EIA, 2010 /http://www.eia.doe.gov/oiaf/ieo/highlights.html Key World Energy Statistics, IEA, 2009 State and Trends of the Carbon Market 2010, Alexandre Kossoy and Philippe Ambrosi, World Bank Stern Review: The Economics of Climate Change, Part I: Climate Change – Our Approach, The Science of Climate Change: Scale of the Environment Challenge World Energy Outlook (WEO) 2009, International Energy Agency (IEA) Climate Analysis Indicators Tool (CAIT), on-line database version 3.0, World Resources Institute., Washington, DC, US

Key companies used for source material
Accenture Business Green Dow Jones Earth Institute, Columbia University Ernst & Young GfK Roper Consulting

188

Harvard Business School Nielsen NPR Pew Center for Global Climate Change PIRA The Aberdeen Group (Harte-Hanks)

Key companies cited in cases
AB World Foods Abraxas Energy Consulting Acer Asda BAE Systems Bank of America BP Carrefour Coca-Cola Enterprises The Co-op Dell Enbridge Ltd

189

Energize Wales Ltd European Bank for Reconstruction and Development Hewlett Packard IBM Johnson Controls Marks and Spencer Merck and Company Inc Nestlé Novartis AG O2 Panasonic Electric Works Co. Ltd PepsiCo Pratt and Whitney Procter and Gamble SAP Sikorsky Sunlyte Tesco Toyota

190

United Technologies Corporation (UTC) Wal-Mart

191…...

Similar Documents

Premium Essay

Carbon Footprint

...Carbon footprint. What is your carbon footprint? That’s a question I was not prepared for. I had no clue what a carbon footprint was or how to even answer that question. I was worried I would never understand what was being asked of me. Luckily my sociology teacher provided a website that would give me better understanding of what my carbon footprint was and how to break it down. The Nature Conservancy Carbon Calculator on Nature.org had questions for me to answer that would determine how much carbon I was responsible for. According to the carbon calculator my estimated greenhouse gas emission is 39 tons of carbon dioxide a year whereas the average person releases 27 tons in a year (Nature.org). Out of the estimated tons of carbon I release in a year, 83.3 % has to do with home energy. I have a detached, single family home with 2 bedrooms, and that makes my estimated impact jump to 27 tons of carbon dioxide a year (Nature.org). When I was heating and cooling my home I didn’t think twice when adjusting my thermostat. If I was hot I would turn the air down, when cold the heat went up. By doing that I was causing an estimated impact of 2.5 tons of CO2 per year. (Nature.org). There are other things in which I produce different amounts of CO2, driving my big Ford F150 roughly 30 miles in a week puts out an estimated 1.4 tons of CO2 per year (Nature.org). I eat red meat most days but I don’t eat it with every meal. My red meat consumption has an estimated impact of 4.1 tons of......

Words: 865 - Pages: 4

Free Essay

Carbon Cred

...life appeared on this planet. With the progress of civilization and advancements of topics : scientific knowledge, efforts are being directed 1. Carbon Credits in India 2. Bio-bin composting towards rationalizing and controlling the process in This is in continuance with the topics discussed in such a way as to make it more effective and efficient. Bio-bin is one such system of composting which is our earlier newsletters. effective in terms of time and space. This topic is Day by day the cycle of climate on earth is changing. discussed in our second article, “Bio-bin composting” Global warming has led to season shifting, changing I hope that the newsletter will serve the landscapes, rising sea levels, increased risk of drought and floods, stronger storms, increase in heat purpose of understanding the above subjects in a related illness and diseases all over the world. This better and proficient manner. has resulted due to emissions of Green House Gases – Dr. Amiya Kumar Sahu (GHG’s) from various anthropogenic activities. Since the inception of Kyoto Protocol in the year 1997, Carbon Credits in India countries all over the world have become more Our earth is undoubtedly warming. This concerned about ‘Global Warming’. Industrialized warming is largely the result of emissions of countries are the major contributors to these emissions carbon dioxide and other Greenhouse Gases compared to the developing countries. India being one (GHG’s) from human activities including industrial......

Words: 4079 - Pages: 17

Premium Essay

Carbon Footprint

...The term ‘carbon footprint’ has become tremendously popular over the last few years and is now in widespread use across the media. With climate change high up on the political and corporate agenda, carbon footprint calculations are in strong demand. Numerous approaches have been proposed to provide estimates, ranging from basic online calculators to sophisticated life-cycle analysis or input-output-based methods and tools. Despite its ubiquitous use however, there is an apparent lack of academic definitions of what exactly a ‘carbon footprint’ is meant to be. The scientific literature is surprisingly void of clarifications, despite the fact that countless studies in energy and ecological economics that could have claimed to measure a ‘carbon footprint’ have been published over decades. This report explores the apparent discrepancy between public and academic use of the term ‘carbon footprint’ and suggests a scientific definition based on commonly accepted accounting principles and modelling approaches. It addresses methodological question such as system boundaries, completeness, comprehensiveness, units and robustness of the indicator. >>> Processes causing greenhouse gas (GHG) emissions benefit humans by providing consumer goods and services. This benefit, and hence the responsibility for emissions, varies by purpose or consumption category and is unevenly distributed across and within countries. We quantify greenhouse gas emissions associated with the final consumption...

Words: 2231 - Pages: 9

Premium Essay

Carbon Accounting

...Administration (EMBA) course requirement, we are assigned the topic “Carbon Accounting” by our course teacher for accomplishing our report. 1.2 Objectives of the report ➢ To attain the skill of report writing. ➢ To achieve deep knowledge about Carbon Accounting. ➢ To fulfill the partial requirement of our course of Accounting for Managers. 1.3 Methodology of the report This study was a descriptive research where we have been analyzed mainly secondary data to understand the Carbon Accounting and its application. All the data has gathered for report writing during term. Information collected to furnish this report is mainly from secondary in nature such as related books, journals, periodicals and Websites etc. 1.4 Limitations of the report We have tried our level best to find out the opportunity of work for overcoming the limitation but due to shortage of time, official compulsion and lack of availability of required data it was not possible to collect huge information about the topic. Other limitation is our report is mostly text based. 1.5 What is Carbon Accounting? Carbon accounting refers generally to processes undertaken to "measure" amounts of carbon dioxide equivalents emitted by an entity. It is used by nation states, corporations and individuals. It is the process of measuring, monitoring, benchmarking and reporting an organization Greenhouse Gas Emissions in a defined reporting period. Carbon Accounting is not is a greener form of financial......

Words: 5831 - Pages: 24

Premium Essay

Carbon Footprinting

...CARBON FOOTPRINTS OF STUDENTS OF SCMS-UG, PUNE Name : Amogh Koranmath Class : TY -C PRN No: 11020621035 INTRODUCTION What is Carbon Footprint A carbon footprint is defined as the total amount of greenhouse gases produced to directly and indirectly support human activities, usually expressed in equivalent tons of carbon dioxide (CO2). In other words: When you drive a car, the engine burns fuel which creates a certain amount of CO2, depending on its fuel consumption and the driving distance. (CO2 is the chemical symbol for carbon dioxide). When you heat your house with oil, gas or coal, then you also generate CO2. Even if you heat your house with electricity, the generation of the electrical power may also have emitted a certain amount of CO2. When you buy food and goods, the production of the food and goods also emitted some quantities of CO2. Your carbon footprint is the sum of all emissions of CO2 (carbon dioxide), which were induced by your activities in a given time frame. Usually a carbon footprint is calculated for the time period of a year. A carbon footprint has historically been defined by Championne as "the total sets of greenhouse gas emissions caused by an organization, event, product or person. Greenhouse gases can be emitted through transport, land clearance, and the production and consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services. For simplicity of reporting, it is often expressed in......

Words: 910 - Pages: 4

Free Essay

Nzas Carbon Strategies

...Electricity represents 40% of NZAS cost and close to 15% of New Zealand power consumption. Buying electricity from a low or carbon neutral source is critical to reduce the company’s carbon consumption. Today NZAS is in negotiations with Meridian Energy over a 27-year contract in order to cut costs and save jobs. If successful, as a by product of this negotiations NZAR will reduce it carbon footprint since Meridian generates electricity from renewable sources. The biggest challenge is a reduction in carbon consumption of producing Aluminium. In 2011 NZAS produced 357000 tonnes of metal which released 669000 tonnes of CO2e into the atmosphere at a rate of 1.87 tonnes of CO2e per ton of metal produced (the company’s best ever performance); an encouraging statement. However, another issue must be taken into account like the fact that NZAS is already close to World’s Best Practice. According to a statement released by NZAS in 2007 aluminium producing technology constraints affect achieving further emissions savings. Aluminium is produced through in a “Reduction chamber” an electrolytic process. The first part of the process – Hall-Heroult Process – consists in dissolving alumina in a bath of sodium aluminium fluoride at around 1000 Celsius (heated by burning fossil fuels). The second part consists in passing electricity –at low voltage but at high current – through a carbon anode. It is in this part of the process where the highest amounts of CO2e are released into the......

Words: 1168 - Pages: 5

Premium Essay

Carbon Product

... By taking this in mind, we decided to work under Woolworths and help it to reduce its carbon emission that is affecting the environment and community as a whole. Therefore, our project will be focused on reducing the impact of carbon emission that is emitted from the day to day operation of Woolworths. 2. Project definition Project “Hello Green” will be fully committed towards the green. Therefore this project will be taking substantial steps to address to today’s emission by reducing the energy uses, focusing on recycling and reducing its carbon footprint as per the standard set by the Australian Government that will be helpful in reducing its overall cost of operations. * To assist Woolworths in maintaining sustainable business. * By assist in reducing energy consumption. * By assist in reducing garbage and waste product. * By drawing attention of public through awareness programs. * By saying no to plastic bag and using eco-friendly bags. 3. Project objectives 3.1. Operational Objectives * To reduce its total energy consumption by 50% using energy efficient bulbs and appliances in all store by the end 2013. * To organize green campaign throughout Australia and New Zeeland to raise awareness about carbon emission and it effect on environment among the people by 2015. * To develop and promote green power house and reduce its carbon emission to zero by 2018. * To use 75% recyclable material to assist its day to......

Words: 3456 - Pages: 14

Free Essay

Carbon Trading

...Carbon Trading Jason Sagginario, Perla Plange, Blaine Moran, Daniel Santiago DeVry University With the threat of global warming at our door steps one way that organizations felt they could offset the amount of pollution they produce is to invest into carbon emissions trading. This is done by buying and selling environmental services of greenhouse gases (GHG) from our earth’s atmosphere which is done by eco consulting firms around the world. This trade is done with carbon credits with one credit being equal to one ton of carbon. “This idea is to reduce the amount of carbon an industrial or commercial company processes lowering their overall emissions or carbon footprint.” (Souchik, 2012 This form of trading is a global process where individuals, industries, and countries all over the world share in the fair market trade of carbon. As nations and society progresses in technology and industrial advances we produce more carbon polluting gases that are negatively affecting the earth’s atmosphere. With carbon being the driving force in polluting gases and what to be said as the main cause for global warming, this is where companies felt they could make an impact in the world and also an impact in their pockets. “The main reason for climate change is the increase in greenhouse gases (GHG) emissions cause by anthropogenic activities (IPCC, 2007).” (Smyth, 2013) Greenhouse gases are commonly known as carbon dioxide. This comes from the burning off of fuels. Then from...

Words: 1874 - Pages: 8

Premium Essay

Carbon Lab

...DATA TABLES: CARBON CYCLE LESSON 1 Lesson 1: Step 1 | Gaseous Carbon | Ocean Water | Fossil Fuels | Biosphere Gaseous Carbon | To Year | Atmosphere | Ocean Surface | Deep Ocean | Oil and Gas | Coal | Soil | Terrestrial Plants | 2000 | 375ppm | 1000 | 38000 | 500 | 2000 | 2000 | 700 | 2050 | 446ppm | 1074 | 38189 | 168 | 1818 | 2037 | 752 | 2100 | 754ppm | 1197 | 38699 | 0 | 676 | 2098 | 833 | Lesson 1:Step 2 | Total Carbon Emissions | Gaseous Carbon | Ocean Water | Fossil Fuels | Biosphere Gaseous Carbon | To Year | Smokestack | Atmosphere | Ocean Surface | Deep Ocean | Oil and Gas | Coal | Soil | Terrestrial Plants | 2000 | 0 | 371ppm | 1000 | 38000 | 500 | 2000 | 2000 | 700 | 2010 | 75 | 382ppm | 1031 | 38019 | 452 | 1974 | 2004 | 714 | 2020 | 87 | 398ppm | 1039 | 38049 | 396 | 1943 | 2012 | 724 | 2030 | 101 | 418ppm | 1049 | 38087 | 331 | 1907 | 2020 | 733 | 2040 | 117 | 440ppm | 1061 | 38133 | 255 | 1866 | 2029 | 742 | 2050 | 136 | 466ppm | 1074 | 38189 | 168 | 1818 | 2037 | 752 | 2060 | 157 | 497ppm | 1089 | 38255 | 66 | 1762 | 2046 | 763 | 2070 | 204 | 542ppm | 1108 | 38334 | 0 | 1623 | 2056 | 775 | 2080 | 270 | 604ppm | 1136 | 38433 | 0 | 1353 | 2068 | 792 | 2090 | 313 | 674ppm | 1165 | 38554 | 0 | 1040 | 2082 | 811 | 2100 | 364 | 754ppm | 1197 | 38699 | 0 | 676 | 2098 | 833 | Responses to questions | 1.If only one half of the flora in the world existed in 2100 (perhaps due to deforestation), what do youpredict the......

Words: 579 - Pages: 3

Free Essay

Carbon Fibre

...Carbon Fibre Carbon fibre is sometimes known as graphite fibre, it is a strong, stiff, lightweight material that has the potential to replace steel and is popularly used in specialized, high-performance products like aircrafts, race cars and sporting equipment. Carbon fibre was first invented near Cleveland, Ohio, in 1958. It wasn’t until a new manufacturing process was developed at a British research centre in 1963 that carbon fibres strength potential was realized. Current methods for manufacturing carbon fibre tend to be slow and energy intensive, making it costly for use in mass-produced applications. However engineers have set a goal of reducing carbon fibre production costs by 50 percent, the Energy Department’s new Carbon Fibre Technology Facility at Oak Ridge National Laboratory is working with manufacturers and researchers to develop better and cheaper processes for producing carbon fibres. As part of conventional carbon fibre production, precursors go through several processes that include stretching, oxidation (to raise the melting temperature) and carbonization in high-temperature furnaces that vaporize about 50 percent of the material, making it nearly 100 percent carbon. Carbon fibre can be woven into a fabric that is suitable for use in defence applications or added to a resin and moulded into preformed pieces, such as vehicle components or wind turbine blades. Carbon-fibre composites could reduce passenger car weight by 50 percent and improve fuel......

Words: 384 - Pages: 2

Premium Essay

The Carbon

...starting. Through chaos life would form in so many years no one could count them. It would take a billion men a trillion years to hope to know when the first particles came over. This occurrence brought the pure substance, the first substance, the Great Carbon Essence. The Pure Carbon Essence seeped into our universe and soon there was no more space, so the universe moved. Expansion started as with any known civilization. Soon the Great Carbon Essence had moved trillions of miles and were content, but it was not so forever. For nothing good can stay. Particles were getting bunched, many wanted more space to move free. The universe was to slow. Some Essence took initiative and brought about a change. This was the beginning of change. Some of the Pure Essence exchanged with each other their innards and changed. They slowly began becoming tainted. Soon elements off all kinds formed and the Great Carbon Essence did away with them. There was an attempt to banish them through the cracks in the universe, into the void. These attempts ceased when the tainted became too many and soon the Great Carbon Essence dictated that if change be coming it had better be for a greater good. The tainted essences came together with the Great Carbon Essence and formation began. Particles came together, fused with one another, bonded. Clouds of dust and new gases expanded throughout our universe, all the while pushing outward. The boundaries of our universe continued to expand and these clouds......

Words: 712 - Pages: 3

Free Essay

Carbon Footprint

...Special report│Carbon management Towards a carbon footprint sustainable supply chain As the planet is heats up, so do mandates for manufacturers to reduce their carbon emissions. While manufacturers have been doing their bit in their manufacturing units, their carbon efficient initiatives has ceased to become a mere CSR activity, a movement, or a political leaning. It has transformed into business and economic viability. Today, manufacturers are pushed out of their production silos to consider the entire supply chain and look for new opportunities to erase the carbon footprints effectively – from sourcing to production, to distribution and product afterlife. The need today is for manufacturers to integrate an effective carbon reduction strategy into supply chain to reduce footprint, enhance their corporate image and reap the cost advantage. Attempting to please the ecological police with environmental initiatives and stakeholders with improved savings upon energy consumption, manufacturing companies have come a long way in their energy efficient initiatives. They have come out of their manufacturing facilities’ silos and have started to take an integrated view of their supply chains to erase the most villainous presence of the ‘carbon footprints’. Although manufacturing companies traditionally limited their supply chain optimisation vision to minimising costs to partners in the supply chain and maximising service to the customers, the current scenario is quickly......

Words: 534 - Pages: 3

Premium Essay

Carbon

...The ratio of water loss to carbon gain, or water-use efficiency. suggest a partial closure of stomata1—small pores on the leaf surface that regulate gas exchange—to maintain a nearconstant concentration ofCO2 inside the leaf even under continually increasing atmospheric CO2 levels. photosynthesis indicates that increasing atmospheric CO2 should lead to an increase in both photosynthetic uptake and water-use efficiency4—that is, the ‘CO2 fertilization effect’. These include: climate change; nitrogen deposition and accumulation; changes in leaf area, canopy height, surface roughness and the coupling of the canopy to the atmosphere; and long-term instrument drift. This analysis shows that the general trend and magnitude of the increase inWei is independent of recent changes in environmental factors. The lack of a consistent trend in climatic forcing across all sites (with the exception of vapour pressure deficit, D) further suggests that changes in climatic drivers are not responsible for the consistent increase in Wei. potential drivers of the observed changes in Wei, the only driver that is changing sufficiently and consistently through time at all sites is atmospheric CO2. The direct tradeoff between water loss and carbon uptake through the stomata—equations (1) and (2)—means that, as water-use efficiency increases, either evapotranspiration (Ee) decreases or gross photosynthetic carbon uptake increases, or both occur simultaneously. balance.......

Words: 287 - Pages: 2

Premium Essay

Carbon

...Carbon Emissions Josie Williams Bethel University November 10, 2015 Instructor: Dr. Red Prudhon Abstract Our nation has taken a very important step in slowing the making and use of ozone-destroying chemicals. Some simple things the everyday Americans can do to prevent future damage to the ozone layer and better use or conservation of carbon emissions is to become more educated on how to better make use of the chemicals already present in the environment and not produce more harmful chemicals. There are some simple measures that can be taken by just influencing the ability of natural cures, like rain forest, to remove CO2 from the atmosphere. Carbon Emissions Carbon emissions is one of the main greenhouse gases, it is a colorless, odorless gas that is naturally emitted from the earth’s surface, and through human function, respiration, and plant function, photosynthesis. Carbon dioxide is release when we exhale and is used by plants as necessary part of photosynthesis, which produces glucose, carbohydrate that must be consumed by humans in order to have energy. Also from these natural processes, carbon dioxide is also emitted through the combustion or burning of fossil fuels such as coals, oils, and natural gas. This happens when vehicles are driven as well as when power plants and industrial plants are utilized. Combustion also called burning......

Words: 975 - Pages: 4

Premium Essay

Carbon Accounting

...What is carbon accounting? Carbon accounting is measuring, monitoring, benchmarking and reporting an organizations green house gas emission in a given accounting period. Carbon Accounting is not is a greener form of financial accounting. How do you perform Carbon Accounting? First the type and amount of emissions for which the business is responsible is identified and calculated for tCO²-e (tonnes of CO² or equivalent) using internationally recognised methods. The result is a detailed account or inventory of a Businesses Emissions for a defined period in time. This inventory is then used in reporting emissions internally and recommending possible solutions for reduction of the business exposure to the cost of emissions. We simplify what can be a complex and involved process. * We Collect and Measure your Carbon Footprint using internationally recognised data collection and emissions data calculation standards from the Greenhouse Gas Protocol (GHG), the latest version of the National Greenhouse Accounts (NGA) Factors released by the Department of Climate Change and other reputable Australian and International sources. The Carbon and Carbon Equivalent Emissions are then reported with relevant business indicators which can be easily understood. * We Monitor and Report Carbon Emissions across an entire enterprise or supply chain and report those emissions for compliance, analysis and business forecasting. * We recommend Mitigation Strategies to Reduce Carbon Emissions...

Words: 765 - Pages: 4