Andrew Allcock asks whether the legislation-driven greenhouse gas reduction activities of larger companies will trickle down the supply chain. There is a sense of inevitability about it, he suggests
The CRC Energy Efficiency Scheme (CRC) came into force in April this year. Part of the government's Climate Change Act 2008, it seeks to reduce the country's greenhouse gas emissions (see later for more detail).
The scheme is targeted at those organisations that had at least one half-hourly meter settled on the half-hourly market in 2008; all such companies will be required to do something under the CRC. Businesses were given six months from 1 April to determine what they must do, if anything. Government estimates indicate that around 20,000 public and private sector organisations will be required to participate, but there are different levels of participation.
Full participation is required for those that used more than 6,000 MWh of electricity through half-hourly meters in the qualification year - from 1 January to 31 December 2008 - roughly equating to an energy bill in excess of £500,000. There are about 5,000 such affected companies. April 2010 to March 2011 is the so-called footprint year and the first annual reporting year. From April 2011, these companies will have to buy carbon allowances at £12 per tonne of CO2 to cover their emissions. They will also have to report their carbon footprint four months after the end of the footprint year. In the introductory phase, this is 29 July 2011. League tables will be published from 2011 on, too.
Firms already covered by the EU Emissions Trading Scheme are not affected. These include energy-intensive users involved in such things as the production of metals, and where the rated thermal input exceeds 20 MW - rolling mills, re-heaters, annealing furnaces, smitheries, foundries, coating and pickling plants, for example.
And companies that have more than a quarter of their emissions covered by a Climate Change Agreement are also excluded from full participation.
Image: Will suppliers feel the ripple effect?
Apart from the 5,000 companies covered by the CRC above, the legislation also requires companies taking half-hourly metered energy below 6,000 MWh, but above 3,000 MWh, to provide information by 31 September this year on its total annual supply of half-hourly electricity in 2008. Those that consumed less than 3,000 MWh in the qualification year will need to tick the appropriate box on the online reporting form
(all weblinks also at bottom of article), again by 31 September.
All energy users in industry are already hit by the climate change levy (CCL), of course, a tax on the use of non-renewable energy by businesses and the public sector.
There is nothing in the CRC Energy Efficiency Scheme that requires organisations that must fully participate to seek to make their suppliers reduce their carbon emissions, but there are murmurings that there is likely to be a trickle-down effect.
For example, Waypoint-Consulting (www.waypoint-consulting.co.uk) says: "In this initial phase, the scheme will not directly affect SMEs, although two caveats apply: the UK Government is committed to extending the CRC scheme to cover more and more businesses and organisations, eventually covering most UK businesses; as many of us who have ever been part of a larger supply chain know, what affects large businesses tends to be transmitted down to their suppliers."
Elsewhere, Carbon Trust-registered footprinting consultant William Dick (www.beseengogreen.eu), who specialises at the SME level, says this: "So how is this [CRC Energy Efficiency Scheme] going to affect small and medium-sized enterprises (SMEs)? Well, organisations can be considered to be responsible for their emissions in different ways, both directly and indirectly, but it is generally accepted that organisations are expected to have some responsibility for the activities of their suppliers. This means that they are expected to purchase 'ethically', or go somewhere else, so creating pressure on suppliers to be sustainable and ethical.
"Now, the CRC doesn't include any requirement for supply chain emissions to be reported (although it does include subsidiaries of each organisation), but you can rest assured that it will filter down from the participating organisations. This means that, at some point, SME suppliers are going to start being asked questions and those that have answers are going to be considered more favourably when competing for business." Simon Harvey of www.benchmark-software.co.uk echoes Mr Dick's sentiment, but adds: "At this stage, it's still pretty easy for SMEs to ignore all of this."
In fact, Mr Dick says he is already aware the ripple effect, albeit not in engineering companies, but in the construction sector, where a carbon footprint report, according to PAS 2050 (see box item
), has been requested from a supplier.
But he highlighted to Machinery
that the CRC is part of the Climate Change Act 2008
, within which there is a paragraph (page 41, paragraph 85) that indicates that carbon footprint reduction measures will be cast wider. The actual wording is: "The Secretary of State must, not later than 6th April 2012 (a) make regulations under section 416(4) of the Companies Act 2006 (c. 46) requiring the directors' report of a company to contain such information as may be specified in the regulations about emissions of greenhouse gases from activities for which the company is responsible, or (b) lay before Parliament a report explaining why no such regulations have been made." With this in mind, Mr Dick told Machinery
that he had already asked Scottish Enterprise why it was not helping smaller companies get ready for this. The response was that it was years off, he offers.
But earlier this year, a call was made to bring this 2012 date forward. It was made by the so-called Aldersgate Group (www.aldersgategroup.org.uk), which wrote to then Business Secretary Lord Mandelson, saying: "We believe a clearer, stronger signal is needed now for the introduction of mandatory carbon reporting in the UK. For the biggest companies, such legislation should come into force as early as practicable before 2012, allowing the UK to lead international standards on reporting." The group cited the fact that "last year's Carbon Disclosure Project shows that only just over half of the FTSE 350 disclosed their carbon emissions".
The voluntary Carbon Disclosure Project (www.cdproject.net) is yet another driver in all of this. A voluntary scheme, over 2,500 companies globally reported to the Carbon Disclosure Project in 2009 and it also has a supply chain impact, since part of the CDP's activities encompass a supply chain initiative. Over 50 companies currently work with the CDP on their corporate supply chains, of which both the UK's Rolls-Royce and BAE Systems are included. Neither responded to Machinery
's enquiries, but there are statements on the pair's websites.
Rolls-Royce says that during 2008 it ran a pilot programme, engaging 30 suppliers, which "identified significant environmental benefits, which we will continue to develop." Rolls-Royce itself has been participating in GHG reduction measures for some years, in fact (See box item
BAE Systems says: "In 2009, we participated in the UK Supply Chain Carbon Disclosure project with our indirect suppliers (companies who supply goods and services not related to our products). This improved our understanding of their climate change strategies, carbon reduction initiatives, data management and reporting systems." It also says on its website: "Our Sustainable Procurement Working Group has published guidance to help employees carry out supplier sustainability risk and impact assessments. These cover supplier performance on safety and health, environment and business conduct, as well as employee awareness and stakeholder dialogue. Assessments will be carried out as part of our supplier management process from 2010. Sustainability training is being developed in partnership with the UK's Chartered Institute of Purchasing and Supply and the US Institute of Supply Management, and will be launched in 2010."
Wayne Sharpe, CEO of < a href= "http://uk.bartercard.com" target="new">Barter Card and CarbonTradeXchange (see box item
), is suggesting that suppliers will come under pressure from their customers. "It [the CRC] requires the UK's largest energy consumers to report their emissions and that means they must demand this same report from their suppliers who, in turn, will need it from theirs," he writes in company literature. In addition, it mentions legislation in other parts of the world. "Every listed company in the US must file similar reports under the Securities and Exchange Commission (SEC) regulation, plus Environmental Protection Agency (EPA) rules similar to CRC impact a further 15,000 of the USA's largest companies directly, affecting supply chains of circa 10 to 15 million companies worldwide."
Image: Wayne Sharpe of CarbonTradeXchange wants to make it easy for small firms to offset. It isn't costly and companies should start thinking about it now, he says
In speaking to Machinery
, he also instanced Wal-Mart, owner of ASDA, which is to reduce its greenhouse gas emissions by 150 per cent by the end 2015, with help from its supply chain. Where does the supply chain end? Is the mould tool maker that makes the tool to produce a toy that ends up on ASDA's shelves in it, for example? Well not for now, at least. ASDA told Machinery
in response to our enquiry: "As part of this project [150 per cent reduction commitment], 19 product categories have been identified as priorities; and, due to ASDA's farming history, it is expected that its focus will be meat and dairy."
In addition to the US, Mr Sharpe also notes that Japan, China and Australia are all also introducing carbon footprint reporting legislation or reporting requirements. In fact, he says there are "67 pieces of legislation related to climate change in the process of being enacted globally". With global supply chains, it is quite possible that efforts in one part of the world may impact supply chain companies located elsewhere, Mr Sharpe agrees, but says it is complicated and much legislation is new and untested. But he asserts that those companies that act to reduce emissions early will be in the best position when their customers start to ask questions. "Companies should offset to zero, then reduce direct emissions. The issue then disappears. And offsetting will, for most, cost a fraction of a per cent of their turnover. People need to start thinking about this now." CarbonTradeXchange was set up by Mr Sharpe to provide a simple, quick and easy method to offset.
In the long run, there can be no doubt that all UK companies will become engaged in aggressive emissions reduction activities. For the Climate Change Act 2008 says: "It is the duty of the Secretary of State to ensure that the net UK carbon account for the year 2050 is at least 80 per cent lower than the 1990 baseline." That baseline is 773.8 million tonnes of CO2 equivalent ( see box item for unit explanation
), indicating emissions of 155 million tonnes CO2 equivalent; or 419 million tonnes fewer than in 2009; or a reduction of over 10 million tonnes CO2e/annum from this year. By way of comparison, the CRC Energy Efficiency Scheme is expected to deliver 4.4 million tonnes/year saving by 2020.
Box item 1
Carbon footprint reduction standards and guidance
• PAS 2050 – a publicly available standard (PAS) published by BSI, this is aimed at end products (free copy here http://chilp.it/4d1091). Sponsored by Defra and the Carbon Trust, PAS 2050 has been developed in response to broad community and industry desire for a consistent method for assessing the life cycle GHG emissions of goods and services.
• ISO 14064 and 14065 - These newly developed standards provide an internationally agreed framework for measuring greenhouse gas (GHG) emissions and verifying claims made about them so that "a tonne of carbon is always a tonne of carbon". They thus support programmes to reduce GHG emissions and also emissions trading programmes. ISO 14064 is emerging as the global benchmark on which to base such programmes.
ISO 14064 is consistent and compatible with the GHG Protocol published by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). ISO, the WRI and the WBCSD have signed a Memorandum of Understanding to work together to promote their GHG accounting and reporting standards.
The Voluntary Carbon Standard (VCS), developed by The Climate Group (TCG), the International Emissions Trading Association (IETA) and the WBCSD specifically integrates the principles of ISO 14064 and uses the validation and verification requirements of ISO 14065.
• Defra guidance on measuring and reporting greenhouse emissions was issued last year (available here http://chilp.it/057318). One of the opening paragraphs says: "Many businesses have found that once they start measuring their emissions they identify ways they can do things differently that save money, as well as carbon. This applies to any businesses, regardless of size. So this guidance can also help organisations manage their carbon risks and opportunities. This is something customers and investors are increasingly expecting businesses to do."
• Carbon footprinting measurement software is widely available. Start by looking at Carbon Trust http://www.carbontrust.co.uk/cut-carbon-reduce-costs/calculate/footprint-calculator/Pages/footprinting-tools.aspx
• Carbon Trust publication - Carbon footprints in the supply chain: The next step for business http://www.carbontrust.co.uk/Publications/pages/publicationdetail.aspx?id=CTC616
Box item 2
Rolls-Royce greenhouse gas action
In the UK and EU, Rolls-Royce joined the UK Emissions Trading Scheme when it was set up in 2002 by voluntarily signing up to targets for significant reductions in greenhouse gas emissions from 35 of its UK sites.
The Group has also participated in the EU Emissions Trading Scheme and has operated a number of Climate Change Agreements (CCA). Data is independently verified by Det Norske Veritas (DNV). As a result of the continued reduction in energy consumption, the Group has generated surplus credits from these schemes equivalent to 20,000 tonnes of carbon dioxide.
Options for renewable power generation on Group sites are also being assessed. It says it is investigating the feasibility of generating lower-carbon and renewable energy within its sites and decreasing the carbon intensity of its grid-supplied electricity. Currently some 30 per cent of the company's grid-supplied electricity is from carbon-free sources.
In the US, the Group joined in 2003 the voluntary Chicago Climate Exchange (CCX) greenhouse gas emissions trading scheme.
This required participants to secure, by 2006, a four per cent reduction in their emissions, compared to the average achieved over the period 1998-2001.The participating business units (Rolls-Royce Corporation, Energy Systems and Rolls-Royce Canada) reduced emissions by over 30 per cent. The Group has joined phase II of the scheme, which runs from 2007 to 2010.
Box item 3
Trading carbon emissions for small companies
In voluntary carbon markets, activities that reduce emissions produce verified emission reductions that can be sold to companies or individuals wishing to voluntarily reduce their carbon footprint.
The Carbon Trade Exchange (CTX – www.carbontradexchange.com) deals in Voluntary Emission Reductions (VERs), a range of legitimate emission offsets, purchased by companies not regulated under the EU Emissions Trading Scheme, which commenced operation in January 2005 as the largest multi-country, multi-sector such trading system world-wide.
Until now, says CTX, the trading of the majority of VERs, an industry already worth hundreds of millions of pounds annually, has been conducted via over the counter (OTC) trades, which are expensive, cumbersome and incapable of handling the vast number of trades that SMEs and large enterprises now need and demand. On the CTX exchange, a purchase can be completed in seconds – a process that can take weeks or months OTC.
VERs can be generated from projects that: are either based in a country that has not ratified the Kyoto Protocol (eg USA) or does not have the infrastructure to support UN Clean Development Mechanism (CDM) project development; have not yet been registered under the CDM; fall outside the scope of the CDM; are too small to warrant the costs of CDM approval; are specifically developed for the voluntary market.
Box item 4
Carbon dioxide equivalent
The global warming potential (GWP) of a given gas describes its effect on climate change relative to a similar amount of carbon dioxide and is divided into a three-part 'time horizon' of 20, 100 and 500 years. As the base unit, carbon dioxide is 1.0 across each time horizon. This allows the greenhouse gases regulated under the Kyoto Protocol to be converted to the common unit of CO2 equivalent.
Global Warming potentials for the greenhouse gases regulated under the Kyoto Protocol under a 100-year timeframe are as follows*:
Carbon dioxide (CO2) GWP 1
Methane (CH4) GWP 21
Nitrous oxide (N2O) GWP 310
Hydrofluorocarbons (HFCs) 11,700
Perfluorocarbons (PFCs) 9,200
Sulphur hexafluoride (SF6) GWP 23,900
* Variations on these figures do exist
Carbon dioxide constitutes the largest single element in the collection of greenhouse gases (GHGs), about 85 per cent for the UK IN 2008.
The UK's emissions for 2009 for all six GHGs were, according to Department of Energy and Climate Change (DECC), 574.6 million tonnes carbon dioxide equivalent.
First published in Machinery, September 2010