climate change

climate change




how UK businesses can benefit

by reducing carbon emissions




how UK businesses can benefit

by reducing carbon emissions

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sales manager:

publishing director:

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Prime Minister Tony Blair set up the Carbon Trust four years ago as an independent

not-for-dividend company that would spearhead low carbon innovation and help

Britain lead the way in the international fight against climate change.

Fundamental to achieving all these goals is the creation and establishment of

the UK low carbon economy.

Our role is to help all businesses and public sector organisations, whatever their

size or location, make a difference and integrate proactive carbon management

and energy efficiency strategies into their everyday operations. We also need

to help Britain’s business leaders to understand the benefits to be gained and

savings to be made, as well as the corporate risks to be avoided. Consumers,

investors, shareholders and other stakeholders will increasingly focus on

carbon emission reduction as a priority concern.

We work with UK business and the public sector to help them cut carbon by

creating practical business-focused solutions to carbon emission reduction,

encompassing both energy efficiency and carbon management. We also invest

in the development of low carbon technologies, which will have a crucial role to

play in the future energy mix.

Our annual funding is in excess of £69m in grants from the Department for

Environment, Food and Rural Affairs (Defra), the Scottish Executive, the Welsh

Assembly Government and Invest Northern Ireland. We also promote the

Enhanced Capital Allowance (ECA) Scheme for energy saving investments on

behalf of Defra and manage the associated Energy Technology List.

For further information on the Carbon Trust, our products and services, please visit

our website at or call the helpline on 0800 085 2005.




no time for complacency ______________________________________________________________________ 5

Miles Templeman, Director General, IoD


cut carbon now____________________________________________________________________________________ 7

Dr. Garry Felgate, Director of Delivery & External Relations, the Carbon Trust











the big picture ______________________________________________________________________________ 9

Professor Michael Grubb, Associated Director of Policy,

the Carbon Trust

a burden or opportunity ____________________________________________________________ 16

Gail Rajgor, energy and environmental journalist and News Editor

of Windpower Monthly

leadership and people ________________________________________________________________ 25

Gail Rajgor

cutting energy costs for SMEs______________________________________________________ 31

Part one: taking action

Part two: a checklist

John Worrall, energy and business writer

additional help for SMEs ______________________________________________________________ 41

John Worrall

best practice for larger businesses ______________________________________________ 45

Phil Jones, Building Energy Solutions & visiting research fellow at

London South Bank University

help for larger businesses ______________________________________________________________ 53

Phil Jones

emissions trading __________________________________________________________________________ 59

Gail Rajgor

renewable energy comes of age ____________________________________________________ 64

Gail Rajgor

looking to the future________________________________________________________________________ 72

Gail Rajgor

further sources of information ________________________________________________ 79



no time for


Miles Templeman, Director General

Institute of Directors

Climate change has global, regional and local significance. According to the

consensus of scientific opinion there has been a sustained increase in global

average temperatures that may already be beginning to have an effect on the

Earth’s climate. This has led public policy makers to draw up ways of coping with

the consequences. Thus 2005 has seen major discussion by leaders of the G8

group of nations, by the European Union and within the UK.

Business plays an important role in many aspects of environmental policy. This

is not only in engaging with market-based mechanisms such as carbon trading.

It is delivering innovative products and processes that should have a positive effect

on environmental performance. These range from fuel-saving and more energy

efficient goods to new ways of dealing with waste and recycling.

Business is also heavily involved in providing the technologies used to monitor

the state of our planet's environment. These include the satellite remote sensing,

data-logging devices and information and communications technology that

help inform the scientific understanding of climate change.

There has been a policy focus on dealing with greenhouse gases such as carbon

dioxide, on energy efficiency measures and on renewable energy technologies,

for example. At the same time there have been new environment-related rules and

regulations affecting employers, such as the EU Directives on Waste Electrical

and Electronic Equipment and on the Energy Performance of Buildings. Both

are scheduled to come into force from 2006. Employers must increasingly get

to grips with the environmental agenda in one way or another.



cut carbon now

Dr. Garry Felgate, Director of Delivery

& External Relations, the Carbon Trust

In the 2003 Energy White Paper, the government set out its aim to reduce carbon

emissions by 60 per cent and to create a low carbon economy by 2050. There

are few who would dispute that climate change is already affecting us, which

throws achieving these goals into ever-sharper relief.

The overwhelming majority of experts worldwide now accept the science behind

climate change. The evidence of melting glaciers, freak weather conditions and

changing ecosystems leaves little room for doubt. This is why businesses, which

in the UK alone produce more than half of all carbon emissions, need to take

action now. There are three broad foundation stones upon which the UK can build

to become a low carbon economy and cut its carbon emissions by 60 per

cent or more by 2050:

an economy with lower energy consumption per unit of GDP (Gross

Domestic Product)

better use of energy through greater energy efficiency

increased usage of lower carbon energy sources and low carbon


The eventual balance of these will depend on cost, security of supply and public

acceptance of the need to take action. The ongoing debate about the future of

nuclear power, for example, shows how varied – and strongly held – opinions

can be on the best way forward.

Even though many business owners and managers acknowledge that we must

move to a low carbon economy, our research shows that they cite ‘perceived’

cost and damage to their business interests as major obstacles to taking the next

step. Others claim confusion and not knowing what to do as being a barrier to



taking action. Most worryingly, however, there is also a sense of fatigue among

the business community with some people claiming that there is no point in doing

anything, as it would make no difference.

None of these obstacles are insurmountable and, in the case of believing that you

will not make a difference, I urge you all to take action now as anything you do, no

matter how small, will make a difference and help to cut carbon emissions. The socalled

‘perceived’ costs are minimal and we are working with businesses to help them

understand how carbon emission reduction offers real business opportunities.

The Carbon Trust has set in train a number of practical initiatives and incentives

to help businesses through what can be a difficult transitional phase to a low

carbon economy and reduce the confusion that currently exists. For instance, we

provide free help and advice, interest-free loans, produce energy efficiency

audits, conduct climate change risk assessments and make research and

development grants. We also have an independent venture capital arm that

makes investments in new low carbon technologies.

In our work we hear from businesses that making an investment in energy

efficiency with a possible pay back of two or three years, when the acceptable

pay back is often a year or less, is difficult. But thinking further ahead is crucial

if we are to become a low carbon economy.

We have companies that are already working with us, driving programmes

and initiatives to achieve the right results. Recognising the benefits, many UK

businesses, from the large – Boots and Sainsbury’s – to the small, have pledged

to reduce their emissions.

However, it is not enough for the Carbon Trust simply to work with companies

that ask us for help. To deliver the radical change needed, the Carbon Trust must

also build awareness in the entire business community of the opportunities

and risks associated with climate change.

Ultimately, it is business that will be the engine of the transition to a low carbon

economy. Only business will develop the products and services that use less

energy and energy sources that emit less carbon dioxide. Let’s hope that this is

recognised so that we can make the progress needed to achieve the low carbon

economy, in a way that is good for business and good for the environment.



the big picture

With business producing almost half of the UK’s carbon

emissions, it is time for boards to put climate change mitigation

at the top of their agendas, says Professor Michael Grubb,

Associated Director of Policy at the Carbon Trust

There is a growing consensus among scientific and political commentators that

climate change is the biggest environmental threat modern society faces. This

is why the UK government, as leader of the G8 Summit in Gleneagles, put the

issue at the top of the international agenda this year. Government, business and

our wider society will all be affected by climate change and all have a role to play

in tackling it.

why climate change

mitigation matters

Emissions of various gases from industrial

and other human activities – mainly the use of

fossil fuels for energy and long-term

deforestation – are changing the world’s

atmosphere. These gases are commonly

known as greenhouse gases (GHGs).


climate change and associated

responses are already having a

significant financial effect on many

of today’s companies

climate change was formally

recognised as a global issue in

1988 through the establishment

of the IPCC

The Kyoto Protocol came into

force in Feb 2005 and legally

binds countries to reduce their

‘Global warming’ or ‘climate change’ is GHG emissions against targets

caused by higher than natural levels of The UK’s target is to reduce its

GHGs being released into the atmosphere. carbon emissions by 12.5 per cent

below 1990 levels over 2008-12

These gases have a ‘greenhouse warming’

impact, trapping heat within the earth’s

atmosphere. Their growing concentration causes a gradual rise in temperature,

and impacts on precipitation (rain and snow) patterns, and the frequency of



extreme events, such as extreme temperatures, flooding, storms and drought.

In the UK and across Europe, the increased incidents of serious storms and

flooding are indications of the changes that are already occurring in our climate.

In its 2004 report, A Changing Climate for Insurance, the Association of British

Insurers (ABI), notes that claims for storm and flood damages in the UK doubled

to over £6bn over the period 1998-2003, with the prospect of a further tripling

by 2050. Indeed, a government Foresight report on future flooding estimates

that annual average damage from flooding could increase dramatically by the end

of the century if no action is taken. (Source: Future Flooding, Office of Science

and Technology Foresight Programme, April 2004.)

As the Carbon Trust notes in its Investor Guide to Climate Change briefing

pack (January 2005), the effects of climate change present the most direct

financial risks to the property and insurance sectors, although any company with

a sizeable property portfolio could also be affected, depending on its location.

Other business sectors, such as water and waste treatment, are also facing

specific challenges, given changes in precipitation patterns and more frequent

extreme weather events. Moreover, many companies will be subject to higher

insurance costs and other premises-related compliance costs. Significantly, not

all losses are insurable, spreading the risk profile further.

There is little doubt, then, that climate change is already having a significant

financial effect on many of today’s companies. It can affect profits, liabilities and

overall risk profile (see chapter 2). Effects on business can come from:

the carbon rationing policies being put in place to address climate change

the financial impact of the physical effects of climate change

corporate social responsibility pressures; attention from the media,

pressure groups and the public alike will become an increasingly

important factor in managing brand value

However, the challenges surrounding climate change mitigation open up a range

of opportunities for new areas of technology and business, as discussed in

later chapters.




The following have been predicted by climate scientists with more than 90 per cent


higher maximum temperatures: more hot days and heat waves over nearly all land areas

higher minimum temperatures: fewer cold days, frost days and cold waves over

most land areas

intense precipitation events: increased floods, landslides, avalanches and mudslide

damage, with more soil erosion and flood run-off

Source: IPCC 3rd Assessment, Report on Impacts, Adaptation, and Vulnerability

targeting emissions

Governments across the world are thus taking action. The first step in

addressing climate change as a global issue came in 1988 when the

Intergovernmental Panel on Climate Change (IPCC) was established to help

governments across the world investigate and understand the science,

issues and impacts of this phenomenon. Then, in 1992, the signing of the UN

Framework Convention on Climate Change (UNFCCC) took place. This

international treaty formally recognised the concern over climate change, and

established non-legally binding targets to return developed world greenhouse

gas emissions to 1990 levels.

Today, the UNFCCC remains the framework for international agreement and

discussions on this subject. It meets through periodic Conferences of Parties

(COPs). With the IPCC noting for the first time a ‘discernible human influence’

affecting climate change – and with most industrialised countries failing to deliver

on their voluntary reduction agreements – the Kyoto Protocol was adopted

under the UNFCCC in 1997.

The Protocol, which came into force in February 2005, contains legally binding

targets for each country in the developed world to reduce greenhouse gas

emissions by 2008-12 to 1990 levels. The European Union’s target, which is

shared among its 15 original (pre-2004) member countries, is for an eight per

cent reduction on 1990 levels. The UK’s target is a 12.5 per cent reduction (see

box on the following page).




The following is a breakdown of each country’s GHG reduction targets (relative to 1990

levels) under the EU15 Burden Sharing Agreement (1990-2008/12):

Austria -13 per cent Italy -6.5 per cent

Belgium -7.5 per cent Luxembourg -28 per cent

Denmark -21 per cent Netherlands -6 per cent

Finland – Portugal +27 per cent

France – Spain +15 per cent

Germany -21 per cent Sweden +4 per cent

Greece +25 per cent UK -12.5 per cent

Ireland +13 per cent EU total -8 per cent

Countries can meet their targets by either achieving reductions on their domestic

emissions, or through the use of ‘Flexible Mechanisms’ by trading Joint

Implementation and Clean Development Mechanism credits (see box below).

The UK government was quick to act, publishing a climate change programme

in 2000 and introducing a package of measures designed to help it meet its Kyoto

Protocol obligations. It followed this up in February 2003 with an updated

climate change strategy and published its Energy White Paper, Our Energy

Future – Creating a Low Carbon Economy.


Joint Implementation (JI) and Clean Development Mechanisms (CDM) both enable a

country to receive emissions credits for an investment in a greenhouse gas-reducing

project in another country – the ‘host’ country.

The process is defined as Joint Implementation when the host country is a developed

world country (‘Annex B’) with an emissions target of its own. Projects in developing

countries, with no targets, are covered under the Clean Development Mechanism.

The issuing of credits in respect of the reductions achieved is conditional on the projects

resulting in real, measurable and long-term climate change benefits. This condition or

clause is referred to as ‘additionality’.




over the past 100 years, average global temperatures have risen by 0.6º C

the hottest years on record have been since 1990, including each of the past five years

according to the Association of British Insurers, 2000 was the wettest year in almost

300 years, with heavy rainfall resulting in £1bn in claims

the world’s population is predicted to rise by three billion, to nine billion, by 2050

world energy demand is expected to double, if not triple, by 2050

every year, for every individual on the planet, an average of around three tonnes of

CO2 is produced from burning fossil fuels. Half remains in the atmosphere and the

rest is reabsorbed by the oceans and biosphere

if the Greenland ice sheet melted the average global sea-level would rise by seven


Carbon emissions are a key cause of climate change – accounting for more than

80 per cent of all greenhouse gas emissions in the UK – so are the area we

need to focus most of our attention on. There is growing scientific evidence of

their causal effect on the climate, and it is now apparent that the release of

carbon emissions needs to be controlled.

The White Paper made clear the government’s intention to go beyond its legally

binding Kyoto target by achieving a 20 per cent reduction in carbon emissions

by 2010. It also set a further goal to achieve a 60 per cent reduction by 2050.

To achieve its goals under the Kyoto protocol and its domestic climate change

and energy programmes the UK has introduced numerous regulatory and fiscal

measures over the last decade. Moreover, the UK Climate Change Programme

is being reviewed again during 2005. This is expected to lead to the introduction

of more, significantly stronger climate change mitigation policy measures and

initiatives. The aim is to encourage:

greater implementation of energy efficiency practices and solutions to

reduce energy consumption and emissions. This is recognised as being

the easiest and most cost-effective way to mitigate against climate change

greater deployment and use of fuel sources and technologies that are more

sustainable and less polluting, in order to meet our long-term energy needs



To achieve effective climate change mitigation and make the transition to a low

carbon economy, it is essential that we take a multi-faceted approach. This

requires using a range of policy measures – such as voluntary agreements,

trading and taxation – and combining these with the widespread adoption of

energy efficiency measures and low carbon energy technologies. Using any one

in isolation will not be effective. For the same reason, action must be taken by

multiple players, including government, business and individuals.

why a boardroom issue

With business producing almost half of the UK’s carbon emissions, climate

change mitigation must be put at the top of the business agenda. According to

Business for Social Responsibility, 80 per cent of the Financial Times Global 500

companies now acknowledge the importance of climate change as a

business risk. This is encouraging, but businesses of all sizes must act if the UK

is to be truly effective in meeting the climate change mitigation challenge.

For this very reason, business has been a key target for policy intervention. The

government’s initial climate change strategy, for example, included the climate

change levy (CCL) on non-domestic fossil fuels, which came into force in April

2001. All UK non-domestic users including the public, industrial and commercial

sectors, pay the CCL via their energy bills (with a few exceptions). For companies

that fail to take action to reduce their energy consumption and emissions, the

CCL typically adds around 15 per cent to their energy bills (see chapter 2).

In addition to the CCL and related agreements, there are a number of other

policies that will have a similar financial impact on companies that fail to take action

to reduce their carbon emissions. These include:

the European Union Emissions Trading Scheme (EU ETS), the first phase

of which came into force earlier this year. The EU ETS is at the heart of

Europe’s current climate change mitigation strategy and, as such, will

have a significant impact on all businesses (see chapters 2 & 8)

the Renewables Obligation, which is a mandatory target that companies

are being set to generate an increasing proportion of electricity from

renewable sources – 10 per cent by 2010 (see chapter 9)



broader energy efficiency initiatives, such as energy labelling and

tougher requirements for buildings fabrication and performance

With the UK Climate Change Programme Review in progress, further such policy

measures targeting the business sector can be expected. However, it must be

stressed that the risks associated with failing to act go beyond financial, since

how a company addresses the challenge of climate change will increasingly affect

its reputation with the investor community and end customers alike.

While these policies present some significant risks, they also represent new

opportunities for businesses that adopt the right attitude. These opportunities

– which are discussed in later chapters – include the development and

application of technologies that will lead to the low carbon economy.

Those companies that act quickly will gain considerable competitive advantage

and find their skills and products in demand, not just in this country but all over

the world.

support from the Carbon Trust

The Carbon Trust is here to support businesses to make the most of such

opportunities. Its primary purpose is to work with companies and organisations

of all sizes to reduce carbon emissions. As an independent organisation, the

Carbon Trust, when necessary, calls on government for sustained action on behalf

of business to remove the technical, economic and regulatory barriers that

could impede the transition to a low carbon economy.

It also offers expertise, advice and support through an extensive range of

services and products. These are referred to throughout the guide and in a

dedicated section on page 79.

The year 2005 should be remembered as a year of change. The UK leadership

of the G8 Summit has put climate change at the heart of the international

debate. The introduction of the EU Emissions Trading Scheme and the coming

into force of the Kyoto Protocol have put reducing carbon emissions at the top of

the global business agenda. By acting now to cut carbon emissions, companies

can contribute to the revolution that is needed to achieve a low carbon economy.



a burden or


While climate change mitigation measures will increase some

costs for business, they also represent a range of opportunities

to make and save money, says Gail Rajgor, energy and

environmental journalist and News Editor of Windpower Monthly


the Climate Change Levy will impact

on all businesses. The more energy

you use, the greater your levy

the European Union’s Emissions

Trading Scheme (EU ETS) was

introduced at the beginning of 2005

to tackle carbon dioxide and other

greenhouse gas emissions

EU ETS is expected to change the

political landscape of many industries

it also offers companies that meet

their carbon emissions targets an

opportunity to make money by

selling on surplus allowances

In today’s commercial environment

businesses are susceptible to a number of

variables of which climate change

mitigation is only one. However, in the

coming years its impact will grow

significantly, as policy makers around the

world adopt more progressive strategies

to encourage greater efforts to reduce and

manage carbon emissions (see chapter 1).

Climate change mitigation thus requires

forceful attention at senior management

level in all organisations, if the opportunities

it presents are to be realised and the risks

associated with it avoided or minimised.

the key drivers

The many drivers for reducing carbon emissions include legislative measures,

corporate governance responsibilities and customer expectation. It also makes

economic sense, with bottom line benefits to be gained.



the political landscape

There is now international consensus that human activities are contributing

significantly to global climate change. This consensus led to the formation of the

Kyoto Protocol (see chapter 1), which came into force this year. The UK has

pledged to go beyond its own legally binding Kyoto target to reduce greenhouse

gas emissions by 12.5 per cent between 2008-12, aiming instead to achieve

a 20 per cent reduction in carbon emissions (the most damaging of the

greenhouse gases) by 2010. And, the government’s Energy White Paper, Our

Energy Future – Creating a Low Carbon Economy, published in February 2003,

sets a goal to achieve a 60 per cent reduction in carbon emissions by 2050.

To meet these goals, the UK’s heavy use of energy generated from fossil fuel

sources – oil, coal and gas – urgently needs to be reviewed. These produce

significant amounts of the carbon emissions that are largely responsible for

global warming. Critically, we need to reduce consumption by using energy

more efficiently to ensure less carbon emissions in the future, and to move

towards more sustainable, renewable energy fuel sources which produce few,

if any, carbon emissions. These targets for change are widely recognised as being

the easiest, most cost-effective way to reduce carbon emissions.

Every one of us has a part to play in managing our carbon emissions. However,

the business sector is largely expected to lead by example. According to

government, businesses account for almost half of the UK’s total carbon

emissions, with small and medium-sized enterprises (SMEs) accounting for

almost a third of all business carbon emissions.

legislative requirements

In recent years the government has introduced a range of legislative measures

and fiscal incentives, including the Climate Change Levy (CCL), climate change

agreements and the voluntary UK emissions trading scheme, to encourage

climate change mitigation action. More such measures are in the pipeline.

The CCL, which came into effect on 1 April 2001, was one of the original

cornerstones of the government’s climate change policy to meet the UK’s Kyoto



obligation. The levy is a tax on gas, coal and fossil fuel generated electricity

consumption that is added to non-domestic electricity bills. It, therefore, impacts

all businesses. So, the less energy used, the smaller the levy.

The levy has already encouraged numerous companies to assess their energy

use and, consequently, reduce consumption. Others have opted for energy from

fuel sources that are exempt from the levy altogether because they produce few

or no carbon emissions, such as electricity generated from renewables or

good quality combined heat and power.

Those companies that do not take action will suffer financially as a result of this

and other policies. Typically, the CCL adds around 15 per cent to the nondomestic

electricity bills of all businesses, according to the Carbon Trust.

Furthermore, the Department of Trade and Industry (DTI) reports that in the

last quarter of 2004 alone, the levy has increased the average prices of fuels to

industry by 11.5 per cent for coal, 5.3 per cent for electricity and 4.7 per cent

for gas. (Source: DTI Energy Trends and the Quarterly Energy Prices bulletin,

March 2005.)

only the start

The impact of future policies is forecast to be significantly greater. The latest

available projections from the Department for the Environment, Food and Rural

Affairs (Defra), published in March 2005, show that with current policies, UK

carbon dioxide will be 13-14 per cent below the 1990 level, and that emissions

of all greenhouse gases will be around 20 per cent below 1990 levels by 2010. The

UK is therefore well on track not just to meet but exceed its Kyoto commitment

to reduce greenhouse gas emissions by 12.5 per cent between 2008 and 2012

(see series of graphs on pages 19-20).

However, Defra’s projections also show the UK falling short of its domestic

goal for a 20 per cent reduction in carbon emissions by 2010. The figures for

carbon dioxide increased 2.2 per cent between 2002 and 2003.

In light of this increase, the government has launched a review of the UK

Climate Change Programme to examine existing policies and consider further

reductions. The review, it stresses, will provide the opportunity to introduce











commercial and other


Final consumption of

electricity rose by 2.0

per cent in 2004 as a

whole compared with

2003. Domestic use

was up by 1.6 per cent

while consumption by

commercial, public


transport and

agricultural customers

was up by 2.0 per

cent. Industrial use of

electricity was 2.4 per

cent higher.


| | | | | | | | | | | | | | | |

2001 2002 2003 2004

Source: DTI Energy

Trends March 2005










| | | | | | | | | | | | | | |

1990 1992 1994 1996 1998 2000 2002 2004

power stations Industry


services and land use change



other sectors

Source: DTI Energy

Trends March 2005














| | | | | | | | | | | | | | |

1990 1992 1994 1996 1998 2000 2002 2004

Improved efficiency in generation

Saving due to change in fuel mix

Actual emissions

new policies or strengthen existing ones if the conclusion is that more needs

to be done to meet the UK’s domestic goal. It is intended that a revised

programme will be published during 2005.

trading impact

Even if regulations were to remain unaltered for now, the European Union’s

Emissions Trading Scheme (EU ETS), which was launched at the start of 2005,

is expected to have a significant impact on business practice in the long term (see

chapter 8). Companies in certain sectors have been set mandatory emissions

reduction targets. Those that fail to meet these will face financial penalties.

Those companies not specifically targeted by the EU ETS in the first phase are

not off the hook. Indeed, the scheme is widely expected to radically alter the

competitive landscape of many industries. It will be a long-term fixture and is

forecast by a number of commentators to have significant ramifications for



production costs and commodity prices. Many UK businesses that currently

source their supplies (in particular, electricity) from EU ETS participants are likely

to see their energy costs rise as a result of the scheme. Investment in improving

energy efficiency (thereby reducing energy consumption) will help to minimise

this. In addition, companies that actively manage their carbon emissions could make

money from the EU ETS (see below and chapter 8).

Beyond the EU ETS, there are UK and EU-wide plans already in the pipeline that

will lead to tougher energy efficiency requirements in building regulations,

more stringent waste regulations, tougher transport policies and a host of other

regulatory measures. The full force of these could prove a financial nightmare for

any business that fails to curtail its energy use and carbon emissions.

high cost of doing nothing

There are significant economic benefits for companies that implement carbon

management and mitigation measures successfully. Currently, more than £1bn

of the annual energy bill for the UK’s small and medium-sized businesses (SMEs)

is wasted. In effect, an average SME is losing nearly £7,000 unnecessarily. That

equates to approximately 20 per cent of the energy they pay for and is a

significant chunk of potential profit that could be saved through some quick and

simple energy efficiency and carbon mitigation measures. These can reduce

energy use and emissions overheads greatly, cutting energy costs by around

20 per cent through implementing cost-effective measures (with paybacks

under two years). This has a direct impact on bottom line profits and in many

businesses can equate to a five per cent increase in sales.

Moreover, the corporate social responsibility requirements of key stakeholders,

including customers and investors, will augment the financial impact of climate

change mitigation policies. Increasingly investors are taking into account risks

and benefits posed by climate change and government policies – existing or

forecasted – in their investment decisions.

A recent report from the Carbon Trust entitled Brand Value at Risk from Climate

Change, notes that, “climate change could become a mainstream consumer issue

by 2010.” If this happens, it says, “there will be reputational implications for many



sectors not seen to be addressing the issue appropriately. In some sectors, the lead

time for action could be several years, leaving unprepared companies at risk.”

The study analysed the potential impact on six sectors. Those with the highest

intangible value at risk were airlines and food & beverages, with 50 per cent and

10 per cent of market value, respectively. Interestingly, this was more than oil & gas.

The results for the other four sectors – telecommunications, oil & gas, retail, and

banking – were much lower at less than two or three per cent of market value.

“However even this small percentage can still equate to several billions of

pounds in value in the UK market (FTSE All Share) alone,” the report stresses.

In the light of this, the ‘do nothing’ option is no longer viable for any business.

To read the report in full, it can be downloaded from the Carbon Trust website.

turning risks into opportunities

When it comes to the issue of climate change mitigation, businesses can take

one of two approaches – either disregarding it as a critical business issue or,

realising that it presents an opportunity to make and save money.

However, there is little point in adopting the first view, since legislation is set to get

tougher, as is the environmental scrutiny of corporate policy and practice by

stakeholders, financial institutions and regulators alike.

There are also implications and risk adjustments already in place by force of

legislative measures and corporate governance drivers. Climate change risk is

now already factored into everyday business things such as insurance premiums

and even stock evaluations. We have now entered an era where carbon has

become a quantifiable, financial cost that will have significant ramifications for

all businesses, one way or another.

The risks can, however, be easily mitigated, as the following chapters discuss

in more detail. In many cases loans, such as those offered by the Carbon

Trust, are available which can help companies make significant improvements

either at minimal or no cost. Government has also introduced a significant tax

incentive measure – the Enhanced Capital Allowance (ECA) scheme – which helps

organisations invest in energy saving equipment in a cost-efficient way (see

chapters 4-7).




The following questions address the key areas of focus for senior management of UK


what are the beneficial and commercial reasons for acting, and acting now

can we really afford not to act

if we’ve already taken some action, has it exploited all the opportunities available to us

will these help sustain our business for the long term – whether five, ten years or

even further into the future

If you have answered ‘no’ to any of the last three questions, use this guide to turn each

of those answers into a ‘yes’ and safeguard your business for the future

ECAs are just one of a number of options available to help companies minimise

the impact of legislation and improve their energy efficiency and carbon

management performance. It is also worth referencing the Carbon Trust guides,

which can be downloaded from its website

Climate change, then, presents both immediate and long-term gains. Monitoring,

managing and reducing your carbon emissions, particularly where reductions

in energy use are achieved, not only delivers immediate cost savings, but is also

important for the longer term finances of any organisation, taking into account

factors such as reputation, risk management, carbon management and

environmental responsibility.

Many investors and consumers are beginning to demand a new kind of social

and environmental responsibility. New share indices such as FTSE4Good and

the Dow Jones Sustainability Index measure organisations’ social and

environmental performance and, with many companies adopting environmental

management standards such as ISO 14001, sustainability has become an

important part of the business agenda. Becoming more energy efficient can help

improve an organisation’s reputation as well as its profitability.

new sources of income

There are also new commercial opportunities to be exploited. The EU ETS, for

example, offers a new source of income for companies that exceed their



mandatory emission reduction requirements, since they can sell on any

surplus allowances (see chapter 8). In addition, the introduction of the scheme

(along with numerous other energy/carbon reduction policies both in the UK and

overseas) presents many opportunities for companies to develop new products

and services that help to cut carbon emissions, increase energy efficiency and

provide a more sustainable supply of energy.

Green power markets, for example, are forecast to grow substantially and

present significant opportunities for developers, energy suppliers, an array of

component suppliers and engineers, marketing professionals and a host of

others along the supply chain. In June 2005 the government announced a

new Carbon Abatement Technology Strategy, kicking off with a £40m

package for emerging low carbon technologies. The aim is to stimulate

demonstration projects for cleaner electricity generation from coal and gas as

well as for hydrogen and fuel cells (see chapter 10).

a matter of necessity

Clearly, the commercial risks facing businesses are greater as a result of the climate

change agenda. However, once identified, these risks can be safeguarded

against easily and cost-effectively, and even capitalised upon.

Developing a sensible, practical strategy for managing carbon emissions that suits

your business is the way forward.




and people

Successfully reducing your

carbon emissions relies on board-level

buy-in and the involvement of all staff,

stresses Gail Rajgor

The business case for carbon mitigation is clear – money, reputations and a secure

future for the business will be lost or made by the attitude taken by companies

on implementing measures to meet existing and pending carbon reduction


How individual businesses fare will depend

on to what extent their managers and, just as

importantly, their employees are prepared

to buy into that future. There are countless

practical measures – including no and lowcost

ones – which can be taken to achieve

carbon reductions and energy savings.

Furthermore, these actions can enhance

bottom line profits in the process. However,

without clear leadership from the top, and the

subsequent involvement of staff throughout

the hierarchy of the company, achieving

the maximum gains at minimal cost to your

business will prove difficult.


this issue is here to stay. It needs

to be understood and supported

by members of the board

the board must set the tone and

engage with its workforce in a

meaningful way

it should appoint a board-level

energy champion and/or an

energy manager

the bigger the company, the more

important it is to formalise your


After all, it is the simple actions that all employees can take that have the ability

to reduce a company’s energy bills and carbon emissions in an instance, and



at no cost. For example, measures such as turning off lights, making better use

of natural daylight and putting computer screens on idle when not in use, can

cut up to 20 per cent off annual utility bills (see chapter 4, part two).

The challenge faced is undoubtedly hard; changing attitudes and behaviour so

that energy saving habits become as natural as brushing your teeth in the

morning will take significant effort. Of course, such a change in behaviour will

not come overnight, but it is incumbent on business leaders to guide their staff

and lead by example on the issue of carbon management to ensure a healthy

future for their companies.

planning your way to success

There are many ways to cut carbon emissions and reduce energy consumption

that apply just as well to a small corner shop as they do to the multinational

conglomerate. However, they depend on participation from all employees.

The ultimate key to success is to have a plan – to take it forward and to remain

flexible at all times, so as to be ready to take advantage of opportunities as they

present themselves.

First off, you need to develop a business plan or strategy that is supported at board

level. The executive board members not only have to set the tone at the very

highest levels but they must also engage with their workforce in a meaningful way.

Ideally, the company should designate a board-level energy ‘champion’ or

representative, and/or an energy manager who is responsible for day-to-day

energy management. But that is only the starting point. It is up to the directors

and the energy managers to give a lead on how all employees need to adopt more

environmentally friendly work habits.

The bigger the company the more important it is to have a formal policy on how

to become a low carbon leader (see chapter 7). This means that besides

designated energy directors and managers, works councils and unions should

be closely involved in the discussions and the decision-making processes.

Everybody, from mailroom to boardroom, has a part to play and should be

encouraged to do so. Some of the best ideas come from employees on the front

line of a business.



It is important to be clear that active participation in carbon mitigation by

employees at all levels does not have to mean sacrificing efforts in what are

perceived as the core areas of business.

At the same time as introducing measures that will specifically help with

reducing carbon emissions the company can take further steps to become

more environmentally friendly, by implementing policies such as providing

recycling bins within easy access and using recyclable paper for company

business letterheads, compliments slips and brochures.

It is also important to review company car policies and decide whether the

most environmentally friendly and fuel-efficient vehicles, for which there are

now tax incentives, are being used.

Buildings and office premises are another fundamental issue for board members

to consider, especially if they are planning a move or refurbishment. A low

carbon building not only saves money by being more energy efficient but also

helps to create a favourable impression with visitors and employees, branding

the company as progressive, forward thinking and dynamic (see chapters 6-7).

an efficient supply chain is key

An efficient supply chain with good communication is key to energy efficiency.

When sourcing raw materials or goods, both the source of the goods and the

supply chain should be checked rigorously.

Every building is delivered in a supply chain, in a process involving several

stages. The supply chain comprises all the players that contribute to the final

building and the work and operations that go on within it, and the relationships

between them.

The client plays a central role in this process by initially defining and then

managing the supply chain, either directly or through a representative.

The Energy Performance of Buildings Directive, which is due to take effect

from January 2006, is likely to affect a large number of organisations. The

Directive will require all new and existing buildings to eventually have an

accredited energy (or carbon) certificate when they are sold or let.



The Carbon Trust has a number of guides that can help businesses to better

manage their supply chain process. These can be accessed via its website at


communicating positive messages

A critical part of any energy saving strategy is to ensure that information is

communicated to the workforce in ways they can relate to.

For example, a good housekeeping campaign will recognise the importance of

cleaning and security staff, particularly as they are often the first and last people

in the building, so will be responsible for switching on and off lights, heating and

other equipment.

While cost savings are a critical motivator for management, they are far less so

for staff in general. This means the energy manager must find ways of convincing

staff that energy efficiency is worthwhile.

It is also important to offset messages about curtailing behaviour – don’t drive,

don’t fly, switch it off – with more ‘positive’ ones, possibly in the form of regular

progress updates. These can set out in clear terms the costs that have been saved

or the amount of material that has been recycled every month. This data can then

be compared with performance benchmarks on targets set within the company

so that everyone can see that their individual contributions – no matter how

small – do make a difference.

For further help and guidance on raising staff awareness and motivating your

workforce to save energy, visit the Carbon Trust website.

spreading the word

In 2003, the Carbon Trust, in cooperation with the Sunday Telegraph, launched

the Carbon Trust Innovation Awards. The awards are designed to recognise the work

of organisations that are developing and deploying innovative technologies or

energy efficiency measures that help reduce the UK’s carbon emissions.



It is interesting to note the range of companies that have participated in the

awards. Many are not firms whose core commercial activities would normally be

associated with the field of energy or carbon management. For example, high

street giant Marks & Spencer, was the 2005 winner of the Innovation in Energy

Efficiency award, for putting in place a cohesive system that manages remotely

the refrigeration, heating and ventilation units at 350 stores in the UK and

Ireland. The system, which is monitored from Glasgow, can dial into stores in real

time, to check units, back-up pumps, boilers and chillers. And, if something goes

wrong in a particular store, such as an unusual temperature movement, the store

can automatically dial Glasgow.

But what made M&S stand out as a winner was that from the boardroom

down it has encouraged staff to become involved and to help save energy by

turning off lights and participating in other initiatives. The individual branches that

make the savings receive benefits in different forms or can choose to give the

money to charity. The retailer also has a designated energy manager who reports

to a director and operates within the group’s Corporate Social Responsibility


(For more details about the awards, see the Carbon Trust and Sunday

Telegraph web sites or www.telegraph.

Ultimately, it is business leaders and their employees who will deliver the transition

to a low carbon economy. They are the ones that will develop the products and

services that consume less energy and use a wider variety of energy sources

that either emit less carbon dioxide or come from renewable sources, such as

wind, sun, waves and tides.



cutting energy

costs for SMEs

part one: taking action

There are many simple, no or low-cost

measures that smaller businesses can implement to

cut their energy costs and carbon emissions, says

John Worrall, energy and business writer

The UK’s small and medium-sized

enterprises (SMEs) are frittering away as

much as 20 per cent – and many are wasting

as much as 50 per cent – of their energy.

These are the findings of the Carbon Trust,

an independent organisation established by

the government to cut carbon emissions

and encourage the development of a lowcarbon



many savings can be made simply

by changing work practices, rather

than having to spend money

those measures that do require

capital outlay have a short payback

period – usually one to two


checklists of ‘energy wasters’ and

top energy saving tips from the

The combined annual energy bill for this Carbon Trust

sector is £3.5bn, which means that, typically,

SMEs are losing around £7,000 a year. That is money straight off the bottom line,

as well as a lot of unnecessary production of carbon emissions.

A considerable part of the problem is that many businesses perceive energy as

an uncontrollable overhead, rather than a manageable cost. Around 40 per

cent of businesses have not set about finding a better deal for their energy



supply since deregulation of the market. Many also have yet to implement

simple, no or low-cost energy efficiency measures that could reduce energy

consumption and carbon emissions, and save money.

A simple walkabout survey is often sufficient to identify some low-cost/nocost

measures and areas. Part Two of this chapter identifies specific areas

and types of equipment that should be assessed and monitored regularly.

Such an exercise can be of great benefit to SMEs – and similarly larger


In addition, The Carbon Trust has a free guide called FOCUS – A Practical

Introduction to Reducing Energy Bills, which also offers in-depth advice on

what to look for during your energy walkround.

no-cost measures

There are many straightforward no-cost measures that businesses merely

overlook. Some simply require changing established attitudes or behaviour:

‘if you don’t measure it, you can’t manage it’

A regular check on electricity, gas and oil consumption is important, as is

ensuring that bills relate to actual usage, rather than estimates. Compare

consumption against the last year or quarter to identify any new and/or

unnecessary costs that may have crept in. This is a useful way of seeing

where savings can be made

switch off lights in empty rooms

It is a misconception that it’s not worth switching off lights – and fluorescent

lights, in particular – when leaving the room because they “use so much

electricity in the start up phase”. Even though fluorescent lights do use

very slightly more power during start up, it is never cost-effective to leave

them on. Also, use just the amount of light needed; non-working areas

do not usually need as much light as working areas

fit energy-saving light bulbs

While these are more expensive to buy, they last eight to ten times

longer than standard bulbs and use 75 per cent less electricity to

provide the same amount of light





Leaving the lights on in the office overnight wastes sufficient energy to heat water for

1,000 cups of tea

compressed air

A compressed air leak the size of a match head wastes enough energy in a day to

toast 444 slices of bread

office equipment

Switching off non-essential equipment in an office overnight saves enough energy

to run a small car for 100 miles


Leaving a PC monitor on overnight wastes sufficient energy to microwave six



A photocopier that is left on overnight will use enough energy to produce over

1,500 copies

switch off PCs

There is another myth, about not switching off a PC, say at lunchtime,

because it shortens the screen’s life and doesn’t save much energy.

In May 2005, the Carbon Trust noted that office equipment left on

standby during bank holidays and weekends will cost a typical SME

office-based businesses nearly £6,000 over the course of a year.

Older cathode ray tube screens, in particular – as opposed to the more

expensive flat screens – use anything between 30W and 200W while in

operation which, even in a small or medium-sized office, adds up to

sizeable energy consumption. They also use the same amount in screen

saver mode and although they may power down to sleep mode typically

after 20 minutes, they are still using some energy to no great effect. There

are also commercially available software packages that shut down systems

when not needed, even if the PCs are networked

keep windows closed in cold weather

Make sure all windows and doors are draught-proofed. If staff are too

warm, turn the heating down. Set the thermostat at 19°C, since costs

can rise by 8-10 per cent for every one-degree increase




always switch monitors off when not in use. They can account for almost two thirds

of a computer’s energy use

a simple seven-day timer on shared equipment, such as printers, vending machines

and water coolers will ensure they are not left on overnight and at weekends. These are

relatively cheap to buy and can save up to 70 per cent on energy costs

avoid placing ‘hot’ equipment, like photocopiers near to cooling vents, as the

system will have to work harder to cool the area

give an individual or small team responsibility for driving energy measures forward

maintain the heating system properly

Failing to maintain equipment properly can increase heating costs by up

to 10 per cent

don’t heat unused space

Storerooms, corridors and areas where there’s heavy physical work can be

set to lower temperatures. Reduce heating during holidays and weekends

thermostat location

Check that thermostats are sited away from draughts and cold or hot spots

keep radiators clear

don’t block them with furniture as this reduces efficiency

keep motors maintained, where relevant

A badly maintained motor and drive system will drive energy costs up

supervise running time of machinery, where relevant

Check for motors (fans, pumps, etc.) that are running when they are not

needed. A motor running without load can still use as much as 40 per

cent of the full load power. Likewise, turn off everything that is not

needed in the evenings, and whenever the building is not in use

consult colleagues

As chapter 3 explains, where energy efficiency is concerned, the more

the merrier. Ask colleagues where they think energy is being wasted.

Encourage all staff to think about ways of making savings. Set, and

work towards, energy reduction targets and chart progress



low-to-medium cost measures

As well as the no-cost measures, there is a range of low-to-medium cost

options that SMEs can take that are highly cost effective. While these require some

upfront capital investment, they have a quick pay back period – typically one to

two years – and can cut energy consumption by up to 20 per cent.

building solutions

A good time to look into simple new technologies is when refitting or refurbishing

a building. Energy demand from office buildings has risen dramatically over the

last three decades. And, today’s buildings specifications are so much higher, with

more intensive space heating, cooling, light and IT. Air conditioning, in particular,

has contributed dramatically to increased carbon emissions levels. Low-cost

solutions include:

infrared movement detectors, which can control lighting in areas that

are not in continuous use, such as toilets

photocells, which automatically trigger internal lighting to switch off if

natural light is adequate

replacing old lighting systems; any over five years old are already obsolete

using proper insulation – poor heat insulation can be the biggest waster

of all



part two: a checklist

The following are some of the key areas of concern you should look out for

when carrying out an energy walkround.

As the pattern of energy use will differ throughout the day, it is advisable to

repeat the exercise at various times of the day so that you gain a better picture

of when and where energy might be being wasted.

It is helpful to plan future walkrounds for dates such as when the clocks

change and at the beginning and end of the heating season. This will ensure that

controls are set correctly for the time of year. Ask key members of staff to

accompany you, both to help identify problems and opportunities, and to

ensure they feel part of the process.

equipment and heat usage

heating costs can increase by 30 per cent or more if the boiler is poorly

operated or maintained. Ensure heaters and boilers are serviced at least

annually and adjusted for optimum efficiency

are portable heaters being used If so, install time switches so that they

turn themselves off after a designated period

are heaters and air-conditioning units operating simultaneously in the same

space This is a common practice and wastes a lot of money

how is the hot water provided Installing local instantaneous water

heaters where small quantities of hot water are required a long way from

the main heating plant may mean the main boiler can be switched off in

the summer. Insulate all hot water tanks, boilers, valves and pipework,

unless they provide useful heat to occupied spaces

do all areas have the same heating requirements Consider heating the

building in zones to allow heating to be adjusted for each area



controls and timing

are thermostats set correctly Generally, they should be set at 19-20°C

for heating office spaces. Install thermostatic radiator valves, to make

local control of radiators possible and make sure they are used correctly.

Are thermostats placed in the correct locations, away from draughts

and direct sunlight and at a distance from any heating sources Zone

controls allow heating or cooling of different parts of a building at

different times and different temperatures

how are extractor fans in toilets, etc. controlled Fans left running waste

money. Time switches or occupancy detectors can be fitted

opportunities to reduce lighting bills

are you still using the old large diameter fluorescent tubes Slimline

fluorescent tubes (26mm diameter) use 10 per cent less electricity and

are cheaper than the older 38mm tubes. Installing new high frequency

fluorescent lighting eliminates hum and flicker, extends lamp life and can

often reduce consumption by around 25 per cent

are lamps, fittings and rooflights clean Dirty shades and roof lights

greatly reduce lighting levels

do you still use standard light bulbs These should be replaced with more

efficient compact fluorescent bulbs, which last 8-10 times longer, lower

maintenance costs and use up to 75 per cent less energy

how are light switches arranged Banks of lights are often controlled by

a single switch. Consider installing more switches or pullcord switches

to improve control of individual fittings

is the exterior lighting always switched off when it is not needed

are your lights switched off when the premises are not occupied A lot

of energy is wasted when unnecessary lights are left on out of hours.

Carry out an out-of-hours check to see if this is a problem

consider posters and stickers available from the Carbon Trust to raise

awareness in your workplace



in the office

have the computers got built-in energy saving features The best-known

energy label for office equipment is the Energy Star rating, which prompts

equipment to switch automatically to a low-power mode after a pre-set

amount of time. However, these savings can only be achieved if the

software has been enabled. Screensavers do not save energy

are computers left on overnight By switching computers off at nights and

weekends, rather than leaving them running, their energy consumption

can be reduced by 75 per cent a year. If the monitor is also turned off when

not being used (including lunchtimes, etc.), and the standby options are

activated, energy consumption can be reduced by 90 per cent a year

are photocopiers placed in areas that are naturally ventilated, where

possible This will help avoid any air-conditioning plant having to

compensate for the associated heat gains. Run copies in batches to

reduce the amount of time the machines are running in idle mode,

before and after use. This will allow machines to remain in ‘Power save’

mode for a higher proportion of the day. (A photocopier left on overnight

uses enough energy to make over 5,000 A4 copies.)

is other office equipment left on unnecessarily Activate energy saving

mode where available on printers and fax machines, as this will allow the

machine to automatically power-down after a set time period. Don’t forget

to switch off cold drink vending machines and water coolers at evenings

and weekends too. You should also check what equipment is being used

in the office kitchen as it might be worth investing in a new energy efficient


in the factory/warehouse

compressed air

check for wasteful leaks in the compressed air system (30-50 per cent

leakage is not uncommon) and repair them immediately. Listening for

leaks is most easily done during quiet periods when there is no demand

for air. This simple measure could produce dramatic savings



does the compressor run when not needed Many factories run their

compressor for most of the day, even when compressed air is not

needed, and are unaware of how much this is costing them. Encourage

staff to switch the compressor off when not in use

electrical equipment

is equipment left running when not in use Conveyor systems, machine

tools and other equipment should be switched off when not being used

are Higher Efficiency Motors fitted Higher Efficiency Motors now cost no

more than ordinary models and can save between two and six per cent

of the running cost

have you considered fitting Variable Speed Drives (VSDs) to equipment

In many cases, using a VSD to reduce the speed of a pump or fan by

just 20 per cent can halve its running cost


are the seals on refrigerated areas/equipment in good condition Replacing

worn or damaged seals can drastically reduce refrigeration costs

make sure that doors to refrigerated areas are being kept closed. If they

are left open, even for short periods, costs can rise significantly. Are the

doors adequate to prevent warmer air entering the chilled space

is the refrigeration equipment well maintained Badly maintained chiller

plants will increase energy consumption. Are chiller units free of ice

build-up and are they regularly serviced Is the chiller outlet free of

debris and blockages



additional help

for SMEs

There is a wide range of services and initiatives

offering the smaller business support with energy

management, says John Worrall

For small and medium-sized enterprises (SMEs) wanting to cut energy costs and

reduce carbon emissions there is a huge amount of help available. Their first step

should be to contact the Carbon Trust, which offers a range of different

services for growing businesses. This includes a free energy helpline that

provides advice to tens of thousands of callers a year on how they can save money

through energy efficiency (0800 085 2005).

The Carbon Trust’s website – – offers advice,

energy surveys and details of available financial support and tax breaks.

Businesses can also download sector-specific fact sheets and publications and

develop a tailored energy efficiency action plan. GPG367: Better Business Guide

to Energy Saving is specifically designed for use by anyone new to energy. It will

help you undertake an energy walk-round in order to identify measures where

energy and cost savings are easily achievable with little or no cost.


For every unit of electricity we consume we emit almost half a kilogram of carbon dioxide.

A 4,000m 2 non-air conditioned office will typically emit around 300 tonnes of CO2 each

year and an air-conditioned one, 50 per cent more. One tonne of CO2 is enough to fill a

10-metre diameter balloon…imagine hundreds of those pouring out of your buildings.




The Regency Laundry has been in business for 125 years, servicing leading hotels and

restaurants in the Bath area.

Each year the company handles approximately 2,000 tonnes of laundry. In recent years, it

has invested heavily in energy saving equipment such as batch washers, self-dimming shop

floor lights, heat recovery from waste water, and has replaced traditional machine controls

with those using inverters. Even so it was still spending around £84,400 each year on energy.

Regency requested a site visit from one of the Carbon Trust’s survey consultants. Following

the visit, the consultant’s primary recommendation was to replace the existing mechanical

steam valves with newer, more energy efficient steam traps. The company applied for an

interest-free loan from the Carbon Trust of £14,000 to pay for the upgrade.

The change in valve type has saved the company around £3,650 each year, allowing it

to payback the loan through the savings made in under four years, after which time any

further savings go directly to the bottom line. Furthermore the estimated reduction in the

laundry’s annual energy saving equates to a carbon saving of 17.5 tonnes.

Another guide, which is more applicable to larger SMEs is GPG376: A

Strategic Approach to Energy and Environmental Management. It outlines a fivestep

approach to introducing energy and environmental management, which

has been tried-and-tested by hundreds of organisations in the UK.

Other help offered by the Carbon Trust includes its Energy Survey, which

involves a specialist consultant carrying out a review of energy use for a site, and

presenting the findings to the company in the form of a practical action plan.

Surveys are subject to availability and eligibility.

financial support

Some businesses will also qualify for an interest-free Energy Efficiency Loan, to

replace existing equipment with more energy efficient versions. Businesses

can be awarded a loan of up to £100,000 to purchase equipment such as

lighting, boilers or insulation. To be eligible, companies must be able to save at

least £1,000 per year of their energy use.

More generally, some products qualify for Enhanced Capital Allowances (ECAs)

that carry 100 per cent first-year tax write-downs. The Energy Technology List




Passion of Life Healthcare made a 25 per cent saving on its energy bill following

Carbon Trust advice that highlighted lighting as a key area for potential savings.

Better energy management now means the company saves more than £800 a year.

Sui Generis International is a fibreglass and moulding specialist employing 50 people

in Colchester, Essex. Since implementing advice received from the Carbon Trust, the

company’s £3,200 annual energy bill has been reduced by 14 per cent. The Trust’s

recommendations were simple enough:

adjust the heating temperature in the workshop, which was operating at 4°C

above the recommended level for the type of activity involved

adjust the timer switch controlling the office boiler to match operating hours

Philips Semiconductors received a free energy survey by the Carbon Trust, which

flagged up potential savings at its Milton Keynes headquarters. “The measures that

the Trust recommended have been very useful,” said Andrew Rimmington, Business

Development Director. “We hope to save around eight per cent on our electricity bill

simply by adjusting the time schedule settings on our air conditioning.”

Porters Horticulture, a producer of bedding and pot plants for companies across the

country, employs 30 people and has three offices in the North-West. The Carbon

Trust surveyed the company’s Moss Side site and also supplied publications on

general energy efficiency and good practice guides specific to its industry.

Porters implemented a new programme for its two boilers and made them more cost

and energy efficient by increasing the lagging of heating pipes. It now has its boiler

serviced twice a year – instead of once – but by shopping around it found a cheaper

deal, despite the extra servicing. Overall, the changes led to a 20 per cent reduction

in the company’s gas consumption and significant cost savings at the Moss Side site.

(ETL) is a good place to look for energy saving kit that qualifies companies for

ECAs and loans, and can save them money.

other useful links

Department of Trade and Industry:

Department for Environment Food and Rural Affairs:

World Energy Council:

UN Framework Convention on Climate Change



best practice for

larger businesses

Planning is essential to achieving an energy efficient workplace.

Phil Jones, Building Energy Solutions & visiting research fellow at

London South Bank University, sets out a ten-point plan to guide

larger companies through the key steps of carbon management

Politicians and scientists are now saying that the single biggest problem the world

faces is climate change (see chapter 1). What is little understood is that energy

efficiency is the most effective way of addressing this problem.

It is also the most cost-effective way for


businesses to meet their carbon mitigation

obligations, since many energy saving the first step in the ten-point plan is

measures involve little or no capital cost.

to adopt a realistic carbon strategy,

usually for the next five years

Yet, some leaders of larger businesses hold

appointing an energy manager and

the misguided view that since energy

securing the input of all staff will

represents a relatively small part of their give you the greatest chance of

turnover, its not worth managing.


it is important to set specific goals

What they are overlooking is that most large and regularly monitor progress

businesses and public sector organisations against them

could easily cut their heating, lighting and

power bills by up to 20 per cent. How many companies dare ask: “How much

additional business would my company have to do to add the equivalent of

that to the bottom line”

However, even those companies that are wise to the benefits are not always sure

how to achieve an energy efficient workplace.



The essential starting point for any company wanting to cut their carbon

emissions is to be more energy efficient. This needs proper planning. The

following ten-point plan outlines the priorities.

1. develop a corporate carbon strategy

Adopting a realistic strategy to tackle carbon emissions is the first step to

delivering energy savings and will provide a clear sense of direction. It should:

establish senior management’s commitment to carbon management

and energy efficiency

improve the overall approach to energy management

help to keep the main objectives in full view

maximise the use of resources, both in time and money

provide goals against which to monitor progress

provide a clear direction for the energy team

give senior management a way forward

The strategy ought to cover an initial five-year period, which should be reviewed

annually. The strategy document will have to be supported by other material that

provides detail on activity over a shorter time scale. For example, an annual

action plan might show specific energy saving projects with target dates and

costs, and a list of those employees charged with the actions.

There are a number of Carbon Trust publications that can help companies to

develop effective strategies. For advice and support that is aimed specifically

at larger businesses, see box on page 45 or visit the Carbon Trust’s campaign

site (www.the carbon and go to the section on Carbon Management.

2. appoint an energy manager

Allocating responsibility for the process is a key part of initiating an energy

efficiency programme. Energy management needs to be an integral part of

your general management structure, with recognised reporting lines to senior



management. And, while someone needs to have overall responsibility for

energy, all managers and employees will have a role to play (see chapter 3).

Larger organisations should consider setting up cost centres, where line

managers are responsible for their own energy costs leading to improved

local energy management. An energy committee with representatives from all

departments may also be worthwhile.

The energy manager should:

develop the energy strategy to gain senior management buy-in

co-ordinate day-to-day energy management

collate energy consumption and cost data/develop monitoring systems

provide feedback and report on energy use

identify and evaluate opportunities to improve energy efficiency

(see chapter 4, part two for a detailed checklist)

prepare investment plans and implement agreed measures

promote energy awareness and develop staff motivation

gain the acceptance and support of staff at all levels

educate employees in energy management techniques and efficient

operating practices

ensure adequate control and monitoring facilities are available

review any historical energy data and examine the projected energy

costs for a building

It is crucial that the energy manager gets the support and agreement of all

colleagues at each annual review, particularly senior management. As chapter

3 stresses, without top-level support the programme is unlikely to succeed.

3. invest in the energy campaign

Before any benefits can be realised you will have to invest time and money to get the

campaign rolling. As a guide, the level of investment in energy management that can

be economically justified each year is around 10 per cent of the annual energy bill.




The Boots Group is the UK’s leading high street chemist with approximately 1,400 stores

in the UK and Ireland and sales of £5.3bn per year. The company has an annual energy

bill of approximately £20m.

Boots’s interest in carbon management is threefold. First, it regards being environmentally

friendly as an essential part of modern retailing, recognising that both its customers and

investors are interested in environmental and CSR matters. Second, the group believes it

makes sound business sense; with wholesale energy prices increasing by over 40 per

cent, control of energy use is important. Third, its carbon management activity keeps the

group ahead of legislation, such as the EU Emissions Trading Scheme and the 2005/6

Building Regulations.

Within the Boots Group, carbon management activities are aligned with its corporate

objectives for CSR, energy and transport. The group is in the initial stages of implementing

its 5-10 year carbon management strategy, having conducted a series of site surveys

that identified a list of specific carbon abatement projects.

As a result of its strategy, Boots reports cost-saving opportunities worth between £1-2m

and a carbon emission reduction of over 10,000 tonnes.

Energy managers should have direct control of their own capital investment

budget. The same return on investment criteria should apply for energy

investment as in other areas of business planning. Planned capital investment can

produce rapid revenue savings. If current accounting practices restrict funding,

new procedures should be considered, such as allowing a share of the energy

cost savings to be used for other purposes by those who achieve the savings.

It is also essential to invest employee time in energy management. A useful

rule of thumb is a minimum of one full-time member of staff for every £1m of energy

expenditure, up to £3m. Beyond this, it is advisable to have one full-time member

of staff for each additional £2m up to £10m and, above that, there should be one

for every extra £4m. If energy costs are less than £1m a year, organisations

should consider appointing a part-time energy manager.

4. identify specific measures

Energy consumption of existing sites can be reduced by up to 20 per cent by

introducing simple and cost-effective measures, usually with payback periods



of less than two years. Many of these measures require little or no design input

and can be implemented by the energy manager using contractors.

These energy saving measures can be picked up through energy audits and

surveys, such as those offered by the Carbon Trust (see page 53). These are

investigations of site energy use specifically aimed at identifying measures for

energy/cost savings. They are an essential part of effectively controlling

energy costs and should be undertaken regularly – typically every three to

five years.

A detailed survey will be required to identify and assess more complex and

costly measures. The practical measures should be categorised as no-cost,

medium-cost and high-cost options, versus the benefits that will accrue.

To identify where energy savings can be achieved you need to look at how

energy is being used in your business. Doing a walk-round with a checklist will

help you to do this. The areas to look at are heating, lighting, office equipment and,

if applicable, factory and warehouse equipment. Part two of chapter 4

comprises a detailed list of the types of checks you should be making during such

an exercise.

5. implement the savings

A report will need to be produced on completion of the inspection. This should be

regarded not as the end of the exercise, but as a step towards implementation.

Next a plan should be developed that identifies those options that will be


This must specify:

what action is required, eg. design, tendering, installation, supervision, etc.

who will carry out the tasks

who should be informed or may be affected

in what order each measure will be implemented

It will be the energy manager’s responsibility to ensure savings are achieved.



6. monitor against targets

Regular monitoring against targets – or M&T as it is known in the energy business

– for reductions in energy cost and carbon emissions ensures energy resources

are used to the maximum economic advantage. The key steps are:

establishing current energy consumption

comparing this with historical data and benchmarks

setting future targets

comparing current consumption with the targets

identifying trends in consumption

producing exception reports when targets are exceeded

Half-hourly meter readings, which can be provided by utilities, will also help

businesses work out where to make savings. Businesses need to regularly plot

energy use against production, floor area and other key criteria. This will provide

valuable information with which to better manage energy. Where consumption

is identified as excessive or above the norm, swift action is required.

M&T also provides useful evidence of what an organisation has been doing to

reduce its carbon emissions as part of its corporate social responsibility


7. change employee behaviour

The value of making energy a management issue and reliant on people, as well

as the technical solutions, cannot be over-emphasised. This topic is discussed

in detail in chapter 3.

8. purchasing policies

Getting a good deal from your utility supplier is an easy way to reduce costs. The

energy and purchasing managers should periodically review the arrangements

for purchasing energy, as should the company’s providers of sub-contracted

services and equipment. There is a wide range of energy supply contracts

available, with significant cost saving possible through judicious competitive



tendering. Whilst this does not generally affect energy consumption, it can

alter the energy supply tariff structures, and this can have a knock-on effect for

energy management procedures.

Managers should also set criteria for purchasing specific equipment. In particular,

the most efficient office equipment should be specified, with the energy

consumption and energy saving features established before purchase. All

new and replacement plant should be specified with high efficiency motors as

they now carry little or no additional capital cost leading to an improvement in

efficiency from two to six per cent.


Simply Fresh Foods in Manchester produces pre-prepared foods for supermarkets.

The company is based at two different sites – one for growing food produce and the

other for processing those foods.

One of its main products is beansprouts, which need heat and water to grow naturally. Since

the UK climate does not provide sufficient heat year-round, the company relies heavily on

electricity and gas to ensure that its produce can grow well, whatever time of year.

Each year the sites use over 50 million gallons of water and have energy costs of more than

£250,000. Alistair Clark, the company’s Engineering Manager, contacted the Carbon Trust to

take advantage of one of its free surveys, signing up both of the company’s sites for an

evaluation. The survey recommended a series of energy saving measures, including:

increasing the evaporating temperature of the main glycol chiller

minimising chilled water loss from the bean washer

switching off the water circulation pump of vegetable washers when not in use

introducing a regular compressed air leakage survey and carrying out repairs promptly

supplying tray washers with hot water from the heat recovery scheme

installing automatic lighting controls

recovering heat from air compressors for general heating

insulating the feed water tank and pipe work in boiler house

reclaiming the heat from waste water for pre-heating water

So far the company’s energy bill has been reduced by £30,000 a year. Moreover, as a

result of the Carbon Trust surveys, staff at both sites have become more energy conscious.

“Since the survey a water company has visited us to do some training on water awareness,”

says Clark. “Staff now understand that water, gas and electricity are not free but a

precious resource that we pay for.”



9. consider renewables/combined heat and power

Renewable energy produces few, if any, harmful emissions and is now

becoming a realistic option (see chapter 9). You can also make a step change

in emissions by purchasing green energy from your utility supplier.

Where possible, consider generating electricity and heat onsite using combined heat

and power (CHP). This offers a highly economical method of providing both heat and

power that is less environmentally harmful than conventional methods. There

are a variety of technologies available from large-scale industrial gas turbines and

engines through to small-scale engines and micro CHP (see chapter 7). CHP that

is shown to be ‘Good Quality’ is exempt from the Climate Change Levy.

10. introduce a carbon emissions trading strategy

The European Union’s Emissions Trading Scheme (EU ETS) is now in effect. Large

energy users have mandatory emission reduction targets to meet, and smaller

companies are expected to face knock on effects from the scheme (see chapter 8).

Focusing on energy efficiency and climate change mitigation often has major

spin-off benefits, aside from reducing carbon emissions and reducing energy

bills. Improved manufacturing processes and better buildings to work in can lead

to enhanced process and staff productivity, with further gains to the bottom line

(see chapter 3).

Moreover, business leaders are having to become more aware of Corporate Social

Responsibility (CSR). Those that do badly could be named and shamed into

action (see chapter 1). On a more positive note, sustainable businesses are

now beginning to attract additional business and investment. In its recent

report, Brand Value at Risk from Climate Change, the Carbon Trust states

that, “climate change could become a mainstream consumer issue by 2010.” If

this happens, it says, “there will be reputational implications for many sectors not

seen to be addressing the issue appropriately.” (The full report is available

from the Carbon Trust website at

Cutting energy and reducing emissions is sound business practice. Introducing

practical energy efficiency measures that are economical and better for the

environment can help turn an average business into a market leader.



help for larger


There is a raft of help and advice available

that specifically focuses on helping

bigger companies to develop their carbon

management policies, says Phil Jones

If you are going to introduce an energy management campaign properly in

your organisation then you need the right support. The Carbon Trust should be

the first port of call for any larger business seeking help. It can provide free,

practical advice that is tailored to your needs, to help you cut your carbon

emissions and reduce energy use.

energy surveys

The Carbon Trust provides free surveys to

organisations with a significant energy

spend. Surveys are conducted by an

independent accredited consultant who

will produce a practical action plan that is

tailored to your organisation’s needs.

There are already thousands of companies

that have identified savings of 10-30 per cent

of their energy bills through this scheme. The

recommended measures include many no

and low-cost actions that pay for themselves

immediately or within a few months.


free energy surveys for heavy

spenders on energy

support from the Carbon Trust’s

Carbon Management Programme

the Enhanced Capital Allowance

(ECA) scheme provides tax breaks

the Energy Efficiency Accreditation

Scheme recognises achievement

in energy reduction

the Carbon Trust’s CHP Club can

assist companies using combined

heat and power

transport-related initiatives



The service offers a range of different survey types:

initial opportunities assessment – reviews all significant energy use as

the first step to cutting energy costs for inexperienced organisations

specific opportunities assessment – for organisations that have already

implemented energy efficiency measures and wish to build on their


multiple site assessment – for organisations with more than five sites

and a substantial overall energy bill

other services include specific advice on combined heat and power

(CHP), design advice for energy efficient and environmentally sound

building design, and energy management assessments for organisations

that already have an energy strategy but need additional advice

See for more information on these service

or contact the helpline on 0800 085 2005.

the Carbon Management Programme

The Carbon Trust’s Carbon Management Programme can help larger

organisations work out the best ways to cut carbon emissions and mitigate the

impact of climate change. This technical and change management process starts

with the development of a carbon strategy and works through to the

implementation of an operational plan (see box opposite) .

It is a consultancy process, tailored to the needs of individual companies. It can

first help them to understand the key strategic drivers for carbon management:

reducing costs, improving reputation and complying with legislation. Once

awareness and understanding of the risks and opportunities of climate change

have been established, the programme can then provide practical advice on

how to manage and utilise energy consumption, reducing costs and carbon

emissions, benefiting the environment and enhancing corporate reputation.

Eighty per cent of the Financial Times Global 500 companies now explicitly

acknowledge the importance of climate change as a business risk (source:




Key steps in the Carbon Trust’s Carbon Management programme include:

understanding the carbon emissions footprint

developing a business case for change

developing a strategic framework to manage carbon as an ongoing activity

introducing methodology to prioritise carbon saving projects

preparing a detailed carbon saving implementation plan

monitoring the impact of the programme and quantifying the benefits

integrating carbon management into existing business practices

Business for Social Responsibility) and the Carbon Trust is already working

with over 200 leading organisations, including 16 of the FTSE 100. Sixty of

these organisations have undergone an in-depth carbon management

review, using the Carbon Management Programme’s comprehensive step-bystep

process. These have shown that it provides a thorough and systematic

approach to managing the risks that climate change poses to businesses,

and to realising the opportunities that it presents.

For more information on the Carbon Management Programme, visit the

Carbon Trust website ( or call 0800 085 2005.

enhanced capital allowances

Where energy efficiency measures require investment, the Enhanced Capital

Allowance (ECA) scheme can provide tax breaks on energy saving equipment.

This allows businesses to write off 100 per cent of the cost of energy saving

equipment against their taxable profits within the first year. This can deliver a helpful

cash-flow boost, as well as shortening the payback period.

Only investment in products that have been approved for the Energy Technology

List (ETL) can qualify for an ECA.




JB Controls Systems in Swansea manufactures control panels for the rail industry. While

installing a new high efficiency boiler the company took a look at its heating system and, in

particular, the positioning and control of radiators.

Over the following year its energy bill was reduced by 18 per cent and it hopes to achieve

a further saving by installing improved draught-proofing measures and by increasing staff

awareness of energy efficiency issues.

The energy saving plant options include:

automatic monitoring and targeting equipment


combined heat and power

compressed air equipment

heat pumps for space heating

HVAC zone controls



pipework insulation

refrigeration equipment

solar thermal systems

variable speed drives

warm air and radiant heaters

The ETL can serve as a useful reference for any company that wants advice on

procuring energy saving equipment, whether of not they intend to apply for an ECA.

The list is also a useful marketing tool for suppliers, who can use the ETL label.

The Energy Efficiency Accreditation Scheme

The Energy Efficiency Accreditation Scheme (EEAS) is the UK’s only independent




St Davids Assemblies provides protection controls for car engines and electric kettles. Its

installation of energy efficient lighting resulted in a 21kW reduction on electricity saving

£4,500 per annum. Further savings were planned to be achieved through the extended

lamp life leading to a reduction in maintenance requirements.

award that recognises achievements in reducing energy use. Independent,

experienced assessors carry out the evaluations, examining the organisation’s

performance in a number of areas.

The Carbon Trust has overall responsibility for the scheme, and accreditation

is awarded by the Energy Institute. To date, over 200 organisations have gained

accreditation by reaching the standards set.

combined heat and power (CHP)

Combined heat and power (CHP) is the simultaneous generation of electricity

and heat for use in buildings and processes.

The best sites for CHP are usually those where there is a demand for heat all year

round, such as at industrial processes, hospitals, leisure centres with swimming

pools, etc.

The CHP Club is an initiative from the Carbon Trust which is aimed at assisting

existing and potential users in getting the maximum benefits from CHP.

Membership of the club is aimed at energy managers, site engineers and other

decision-makers in UK organisations that either operate CHP schemes or are

investigating the possibility of introducing CHP.

The benefits CHP Club members receive include:

the publication The Manager’s Guide to CHP

free site specific advice

a champion’s network

an Internet forum



a regular newsletter


All of the advice and services available, including forums and advice facilities on

CHP-related topics, are impartial, professional and free of charge. Visit the club

website or the CHP Association website


Transport accounts for over a quarter of our carbon emissions and is on the

rise. Help is at hand from the Energy Saving Trust through schemes such as

PowerShift and Clean Up. PowerShift is a programme of grants that offsets the cost

of buying new cleaner vehicles or converting existing vehicles to run on cleaner

fuels. CleanUp is a grant programme to cut harmful emissions from commercial

diesel vehicles. Its grants are fixed and cover a range of emission reduction

technologies. For more information on CleanUp and Powershift funding,

contact telephone 0870 241 2089, email or visit

the website

Other initiatives include TransportEnergy, which is a major source of free,

impartial information and tools (hotline 0845 602 1425). It can help you

develop an effective travel plan to encourage the use of cleaner modes of

transport, such as sharing a car, public transport, walking and cycling. Fleet health

checks are also available to help you to understand the current efficiency of your

fleet and to develop and implement an effective fleet management plan.

And, finally, Motorvate, which is a fee-based membership programme that

helps organisations achieve significant reductions in fleet costs, through

benchmarking and auditing processes.

Improving the efficiency of your vehicle fleet delivers financial savings, and can

reduce carbon dioxide emissions, improve local air quality, enhance driver

safety and reduce downtime associated with accidents.

The grants, advice and support for energy efficiency is wide ranging and can help

you save money but the bigger prize is a better environment and a more

sustainable planet.



emissions trading

Any company that has met or exceeded its emissions

reduction targets can make money by selling on

surplus allowances, reports Gail Rajgor

Emissions trading is designed to provide an incentive to industry to reduce

carbon emissions, while enabling it to do so at least cost. This practice is at the

heart of UK and wider European action to tackle climate change generally and

meet obligations under the Kyoto protocol (see chapters 1 & 2).

The European Union’s Emissions Trading

Scheme (EU ETS), which came into effect on

1 January 2005, is the first such multilateral

scheme in the world. All 25 EU member

states are required to adhere to it, with each

country devising a National Allocation Plan

(NAP) that sets out its emissions allowances

and reduction targets.

Many UK businesses will need to take

additional and sustained action to reduce

their carbon emissions to comply with its

requirements. In all, the scheme will affect

between 12,000 and 15,000 individual sites

across the EU, of which 1,055 are in the UK.


the EU ETS scheme is being

introduced in phases, with the first

one running from 2005 to 2007

the UK has been allocated 736

million allowances in Phase I

it is being operated on a ‘cap and

trade’ basis, with companies having

to meet mandatory emissions

reduction targets

over time the scheme will affect all

businesses, one way or another

According to Defra, the installations covered by the EU ETS were responsible for

around 46 per cent of UK carbon dioxide emissions in 2002. (The term

‘installation’ refers to any building, site, plant works, office complex, power

station, factory, etc. that are subject to the EU ETS.) In May 2005, Margaret



Beckett, Secretary of State for Environment, announced that the scheme

would “become one of the main ways to cut carbon dioxide emissions, while

maintaining economic growth.” According to the DTI, the scheme is set to

help the UK reduce its emissions by around 65 million tonnes of carbon

dioxide. That represents around eight per cent below projected emissions of the

installations covered by the scheme over the next three years.

EU ETS roll-out

The EU ETS legislation will be a long-term fixture and is forecasted by a number

of commentators, including the UK government, to have significant ramifications

for production costs and commodity prices.

The scheme is being implemented in a number of phases, the first of which

runs from 2005-07. The second phase will run from 2008-12 to coincide with

the first Kyoto commitment period. Further five-year periods are expected.

The companies that have been targeted in the first phase are those with

operations in highly energy intensive industrial sectors and are considered to be

the greatest emission generators. They are:

power and heat generation

ferrous metals

oil refining

pulp and paper

mineral products

Longer term, the scheme’s scope will widen to include other carbon and

energy-intensive industries.

In 2004, the Carbon Trust issued an analysis of the scheme prior to its launch.

It concluded that, if properly implemented, the EU ETS would not pose a

significant threat to the competitiveness of most industrial sectors in Europe.

Furthermore, it stressed the potential for several sectors to profit from the

scheme. Nonetheless, it acknowledged that at an individual company level

there would be some winners and some losers.



The winners will be those companies that take advantage of the new sources

of income by actively managing their carbon emissions. The losers will be

those that do nothing. (See for further details on the

Carbon Trust’s report: The European Emissions Trading Scheme: Implications

for Industrial Competitiveness.)

how it works

The scheme is being operated on a ‘cap and trade’ basis, with companies being

set mandatory emissions reduction targets that they can meet either directly by

reducing emissions, or indirectly by purchasing emissions allowances from

other trading participants. (They can also meet their targets by investing in

carbon mitigation projects outside the EU.)

allocation of allowances

In Phase I, the UK has been allocated a provisional total of 736 million allowances

that have been approved by the European Commission.

Each allowance represents a tonne of carbon emissions equivalent. The number

of allowances allocated to each installation for any given period is specified in

the UK NAP. According to Defra, the total allocations are 45 per cent of the

projected ‘business as usual’ emissions that would occur during Phase I. (For

details of the UK NAP for Phase I see


Under the UK plan, 93.7 per cent of all allowances are being allocated to

existing installations, and will be issued for free in three equal instalments. The

remaining 6.3 per cent will form a new entrant reserve (NER) of 46.8 million

allowances. These will be made available to new installations and certain

existing installations that will be given access to the NER. Any remaining NER

allowances from Phase I will be auctioned.

The allowances are being issued by the UK Emissions Trading Registry – a webbased

registry that records carbon dioxide allowances held in firms’ accounts




a two-fold incentive

The incentive for businesses to act is two-fold. The most obvious is financial, since

companies exceeding their emissions limit will face financial penalties. These will

come in the form of charges – €40 per tonne of carbon dioxide from 2005,

rising to €100 per tonne of carbon dioxide from 2008 – or in the cost of buying

credits from companies that have successfully reduced their emissions over and

above their targets.

The other side of the incentive is the opportunity to make money. With carbon

now valued in real financial terms, it is a commodity just like any other product.

So, those companies that meet or even exceed their emissions reduction targets

can generate income by selling the extra allowance credits they’ve earned. In

the scheme’s first few months, carbon was trading at around €7-9 per tonne,

but has already reached highs of around €19 per tonne.

the wider impact

Over time, the EU ETS will affect all businesses, leaving no room for complacency

among businesses that are outside the remit of the current legislation. UK

companies that source their supplies – electricity, in particular – from EU ETS

participants will almost certainly see their production input costs rise as a result

of the scheme. The government, in its Regulatory Impact Assessment of the EU

ETS (May 2004), for example, acknowledges that, “in the long run, most

businesses in the EU will be affected by the EU ETS in one way or another due

to an expected rise in electricity or product prices.”

Electricity prices are expected to increase between six and 30 per cent over the

period 2005-10, while gas could go up between 7.5 and 38 per cent. With these

increases passed on, conservative estimates by government suggest overall

industry costs could increase 0.4-three per cent as a proportion of value added,

although in some sectors they could be as high as 15 per cent. In terms of

industry sales, costs could go up anywhere between 0.1 per cent and 8.2 per cent,

depending on which sector you are in.

Furthermore, UK businesses will face increasing competition in third markets

from companies operating in non-EU countries.



In its analysis, the Carbon Trust suggests that energy intensive sectors (either

covered or not covered by the EU ETS scheme) will see input costs rise if they

fail to reduce their energy consumption. And, while its industrial electricity price

increase estimates are at the lower end of the scale – around 10 per cent – it

nonetheless stresses that “even at this lower level the impact of the scheme on

electricity prices represents a greater cost risk to many sectors than the direct

impact of the scheme.”

As daunting as it may seem, the impact of EU ETS can be alleviated or minimised

relatively easily by any company. The core requirements are an improvement in

energy efficiency or a change over to using greener fuel sources.

To find out more about the EU ETS and how it will affect your business, go to



renewable energy

comes of age

With the UK’s supplies of traditional fossil fuels

diminishing, now is an ideal time for businesses to switch

to renewable energy alternatives, says Gail Rajgor

With demand for energy increasing every year, the UK needs to take steps to

ensure that it continues to have the energy that is vital to its economy. This is

especially pressing, since within a few years, this country will no longer be

self-sufficient in energy.


renewable energy sources produce

few – if any – carbon emissions

financial support is available to

businesses and consumers that

opt for renewable power

Alongside issues of supply, the UK needs to

switch to less polluting means of generating

energy in order to fulfil its climate change

mitigation objectives. Security of supply is

also proving to be an increasingly important

issue for government.

many other renewable technologies In the meantime, the energy industry itself is

are expected to become cost

still relying on finite, diminishing sources of

competitive with fossil fuels within

10-20 years

fossil fuel such as coal, oil and gas. Just

investing in your own renewable under three per cent of the UK’s energy

energy plant is another option for demand in 2004 was met by renewable

larger businesses

sources. Greater use of the UK’s indigenous

renewable sources of energy will reduce its

dependence on imported fossil fuels and bring diversity and security of supply

to its energy infrastructure.

Furthermore, as energy demand increases, UK energy prices are rising sharply,

and further hikes are predicted. The Office of Gas and Electricity Markets




A typical small office uses around 15,000 kWh of electricity a year. Generating this

energy from fossil fuels adds nearly 6.5 tonnes of carbon dioxide into the atmosphere.

With renewable electricity, it would be zero.

(Ofgem), the UK’s energy regulator, predicts electricity prices could rise by 20

per cent or more by the end of 2005 alone.

And, environmental taxes such as the Climate Change Levy (CCL), have simply

increased the financial burden on those companies that have done little in

terms of carbon management. Using less pollutants and adopting alternative

energy sources will become essential if the long-term climate change mitigation

agenda is to be met. Moreover, there are financial incentives to consider.

policy developments

Renewable energy is that which is generated from green sources such as wind

power and solar photovoltaics. These produce few – if any – carbon emissions.

As part of its goal to reduce emissions, the government has set a target that 10

per cent of UK electricity should come from renewable sources by 2010. (There

is also an aspiration to double this by 2020.)

The government has already put in place a number of mechanisms to support

technologies that will deliver in the longer term (chapter 10). It is also offering

incentives to suppliers and consumers to achieve the 10 per cent by 2010 target

and financial support to businesses, homeowners, communities and schools.

the Renewables Obligation

This support is set against the Renewables Obligation (RO), which was

introduced in 2002 and extends until 2027. The RO requires all licensed

electricity suppliers in England and Wales to supply a specified and growing

proportion of their electricity from renewable sources, and provides financial




Changing to renewables can offer a wide range of benefits to your business, including:

increased security of your energy supply and less reliance on fossil fuels

a reduction in the impact of rising fossil fuel prices

improved ‘green’ credentials

the potential to make money by selling electricity to the national grid at a premium

incentives for them to do so. By 2010 the scheme will provide the industry

with £1bn of support a year.

In Scotland, the Renewables Obligation (Scotland) performs the equivalent

function. Northern Ireland is set to introduce its own Obligation in 2005. The

Renewables Obligation Certificates are valid in all three regions.

The government is also supporting renewable energy with a programme of

funding worth almost £500m from 2002-08. This includes funding for R&D as

well as capital grants for demonstration projects.

realistic options

Renewable energy is now a reality for all businesses. There are numerous options

for them to make the switch from traditional sources and, in the process, to take

advantage of government incentives and financial benefits. Some of these

options are already cost effective when compared to traditional fuel supplies.

Wind power is one such example, with costs having fallen by over 80 per cent

over the last 20 years. While there is further room for improvement, this has

put it on par with the cost of gas.

Many other renewable technologies are expected to become cost-competitive

with fossil fuels over the next ten to 20 years. There is an additional incentive to

switch to renewable power supplies in the form of an exemption from the climate

change levy (CCL). Opting for renewables will also instantly reduce the number

of carbon emissions generated by the company. This will help those that have to

meet EU Emissions Trading Scheme targets achieve the necessary reductions.




Moving beyond ‘green electricity’, there are two options for maximising the use of

renewable energy in and around a property:

generating some, or all, of the heat, cooling or power needed from building-integrated

renewable energy technologies

using renewable energy flows and passive building design to provide direct light,

heat, cooling and ventilation

A further step would be to generate a surplus of power and sell it to the grid. Similarly,

heat/cooling could be sold to local consumers via a local network of pipes and meters,

generally carrying hot or chilled water.

further considerations

When using renewable energy technologies, you need to take into account the following:

additional land requirements

type and age of building (ie. offices, accommodation, etc.)

age of building

possibilities for exploiting passive ventilation and natural daylight

green supplies

With the introduction of the RO and the cost of renewables continuing to decline

steadily, all UK electricity suppliers are already providing electricity generated from

green sources. Switching to a green tariff does not necessarily mean paying more,

since some green tariffs are no more expensive than traditional electricity

tariffs. There are a number of online price comparison services that help with

finding the most competitive deals.

choosing the option that suits your needs

Of course, switching to a green tariff is just one of the options. Another is to invest

in technology to generate some or even all of your energy needs. This is

proving more and more viable as the costs of the various technologies

continue to decrease. Such investments can be relatively small and there are

grants available for as much as half of the costs. According to the British

Photovoltaic Association, PV-UK, a 2 kWp system – suitable for a typical




It is important to allocate responsibility to a member of staff or small team who can drive

your renewables project forward (See chapter 3).

The following are key actions that they will need to take:

calculate what your heating and electricity needs are to see if they could be reduced

once you know your needs, consider which renewable energy technologies would be

right for your premises. If in doubt, speak to suppliers, an energy consultant or your

local authority planning department

find out if you can get a grant to reduce the installation cost for renewable energy

technology from

if installing renewable energy technology on your site isn’t feasible, sign up to a 100

per cent renewable electricity tariff from your energy provider to ensure that your

energy supply is sustainable

house or SME business site – would generate around 1,500 kWh a year and cost

between £12,000-£14,000.

For bigger businesses there are larger-scale options, such as having a PV facade

on a large commercial office building or having your own multi-megawatt wind

turbine installed onsite.

In April 2004, the Ford Motor Company had two 85m high wind turbines

installed at its Dagenham plant. The turbines provide all the electricity needed to

power Ford’s Dagenham Diesel Centre. At the same time they are delivering

the following annual savings on harmful emissions:

carbon dioxide (CO2) – 5,762 tonnes

sulphur dioxide (SO2) – 67 tonnes

nitrogen oxide (NO) – 20 tonnes

Similarly, a 2 MW turbine now stands next to the Long Hill Road industrial estate

in Cambridgeshire. The turbine is predicted to generate about 5,000 MWh a year

and to supply all of the industrial estate’s business units as they come into use.



where next

Alongside the development and use of more mature technologies – such as wind

and solar – are those that are still in their relative infancy, such as those using marine

and tidal energy or hydrogen and fuel cell solutions.

These are being developed, with government support, for use in the medium to

long term. In January 2005, energy minister Mike O’Brien announced a new £42m

support scheme that could see the UK’s first large-scale wave and tidal power

generation farms contributing to the national grid within three years. Using

funding from the £50m Marine Research Deployment Fund, it will support the

construction of demonstration farms around the UK, with the hope that the

marine renewables industry will become commercially viable.

The exploitation of energy from the sea is a potentially massive business

opportunity for the UK. Alongside wind and other renewables, these emerging

technologies will make an increasingly vital contribution towards reducing

carbon emissions and diversifying the UK’s energy mix.


solar powered water heating

An efficient solar system can meet up to 60 per cent of your hot-water needs. It’s the

most proven and cost-effective renewable technology in the UK.

Solar systems use rooftop solar collector panels – ideally south-facing – to concentrate the

sun’s heat. They also include a hot-water tank and back-up system to provide heat in winter

how much A system for a small office might use about 4m 2 of roof space and cost

about £4,000, though grants and Enhanced Capital Allowances may be available

ground and air-source heat pumps

Heat pumps take low-level heat which occurs naturally underground or in the air and

convert it to high-grade heat by using an electrically driven or gas powered pump.




Such systems typically use an 80m-long collector buried underground or, if space is

limited, an air-source collector

wind power

Large turbines are easily spotted around the countryside, but small-scale turbines are

also available that generate energy for individual businesses.

Modern machines work in parallel with the national electricity grid. You can mount a

small turbine on top of your building, but you may need planning permission and expert

advice on your roof’s strength and suitability. You will also have to check your local

meteorological data over the last 18 months to see whether or not your site is windy

enough for the turbine to work.

how much A 6kW turbine — comprising a rotating blade and generator – will produce

around 15,000kWh per year, which is enough for a small office. Complete systems

range from £1,000 to £25,000

small-scale hydro power

If you’re near a suitable body of water, with both a flow and a drop, you could generate

electricity from this natural resource.

It’s advisable to get proper help. Obtain expert advice to devise the right system and

guide you through the paperwork. In particular, you’ll need planning permission and a

water abstraction licence from the Environment Agency.

how much With a hydroelectric scheme – comprising a turbine and generator –

the faster the flow, and the further the water can fall, the more electricity you’ll


biomass boilers

Biomass boilers burn straw, logs or woodchips. They are especially attractive if your

business generates these fuels as a byproduct of the production process.

A biomass boiler will produce plentiful heat and hot water, and can pay for itself in as

little as six to nine years.

You’ll need enough delivery and storage space for fuel. To give an idea, a 20kW boiler

consumes 0.6m 3 of woodchip daily in winter.

Take expert advice to ensure your system complies with legislation like the Clean Air Act,

building regulations and local planning rules.

how much Cost depends on size, fuel and amount of automation. However, a 20kW

semi-automated woodchip system is ideal for a small office and costs around £5,000




solar electricity (photovoltaics)

A photovoltaic system won’t meet all your electricity needs, but could take a big chunk

out of your energy bills.

Photovoltaic panels convert sunlight into electricity, offering year-round power. While they’re

obviously most effective in summer, they still produce some power in the UK on cloudy days.

how much If you have plenty of unshaded south-facing roof space, you could

produce a large amount of electricity. As a guide, a small office could generate 20

per cent of its power with 40m 2 of kWp panels. This would cost around £20,000 and

grants are available.



looking to

the future

Truth be told, the move to a low-carbon economy

depends more on sustained commitment to change

than on any scientific breakthrough, say Gail Rajgor

Climate change will be with us for decades to come. As businesses become more

accustomed to considering the source of their energy and how they use it, so

they will begin to realise the bottom line benefits available to those that adopt

a positive approach.


today’s fledgling renewables

industries are set to be major

ones in the future

demand for expertise and

technology abroad will offer

increasing export opportunities

there are encouraging signs that

business will invest in renewable

energy sources and technologies

Much work is already being done at both a

national and international level, particularly in

terms of research and development, to

ensure that our future energy needs are met

in a sustainable way. However, the easiest

and most cost-effective way to reduce

energy consumption and the emission of

greenhouse gases is still through the

careful implementation of energy efficiency


In addition, there will be increasing emphasis

on the development of new products and services to reduce energy use and

emissions, be it new energy generation or supply technologies, building materials,

transport or office equipment. In turn, there will be increasing responsibility on

producers, suppliers and end-users alike to minimise their impact on the

environment. The products and companies that perform best will have the

greatest opportunity for sustained success and security. As covered in previous



chapters, the long-term business opportunities arising from renewable and

low carbon technology sectors are vast.

billion-pound opportunity

Moreover, the signs that business is ready to exploit them are encouraging.

Recent research indicates that 81 per cent of potential investors in the UK

have a positive attitude towards renewable energy. They recognise there are now

good financial reasons to invest, with 74 per cent stating they are definitely

interested in investing in renewable energy.

It’s no wonder. In the UK alone, the renewable energy market in 2003 was valued

at around £280m. By 2020 – assuming the realisation of the government’s

aspiration of 20 per cent of UK electricity from renewable sources – the

market will grow to a value of between £15bn and £19bn, depending on the exact

technology mix. By this time, the industry in the UK could be supporting

between 17,000 and 35,000 jobs (source: Mott Macdonald).

new horizons

So, the climate change challenge is creating new industries that are set to

become major ones in the coming years. There is already evidence of this, such

as the emergence of a thriving wind energy industry, which already employs over

70,000 people worldwide.

As technology costs have decreased, global growth in wind power capacity has

averaged 32 per cent in the last five years. The market is forecast by both the

European and American wind energy associations to become a €25bn

annual industry within five to seven years.

According to the government’s Energy White Paper, Our Energy Future –

Creating a Low Carbon Economy, the UK has the best wind resource in

Europe and plans to be at the forefront of the wind industry’s growth. Policies

to enable this ambition have been put in place and a massive programme of

offshore wind development is already underway. In the short to medium-term,

this could offer the greatest opportunity to UK business.



Other medium to long-term opportunities lie in clean energy technologies.

Global markets for photovoltaic (PV) systems have been growing at a rate of 30-

40 per cent a year, notes the British Photovoltaic Association (PV-UK).

are exports our future

And there are opportunities beyond UK markets, with the export of technology

and expertise. In its report, Building Options for UK Renewable Energy, the

Carbon Trust states that while all renewable energy technologies could develop

into significant global markets, the economic opportunities for UK businesses

vary greatly. Wind power provides the biggest immediate opportunity, it says,

while wave and tidal stream could have serious potential in the medium

term. Longer term, solar photovoltaics (PV) could develop into a substantial

global industry.

Research published by Clean Edge in March 2005 highlights the significant

global business opportunities that are around the corner. It predicts that:

global markets for solar photovolaics – modules, system components,

and installation – will grow from US$7.2bn in 2004 to US$39.2bn by


new wind-power installations will expand from US$8bn in 2004 to

US$48.1bn in 2014

fuel cells and distributed hydrogen will grow from US$900m – primarily

for research contracts and demonstration and test units – to

US$15.1bn over the next decade

Already, these three clean energy markets have expanded from US$9.5bn in 2002

to just over US$16bn in 2004.

what are our chances for success

The chances of achieving the government’s long-term, ambitious goals for

reducing carbon emissions depend on a number of factors:



sustained innovation and investment over a long period to ensure

continuous development of sustainable technologies with a view to

making them commercially viable and cost-competitive

the continuing involvement of government to provide an effective

regulatory framework

appropriate financial incentives

a step change in public attitudes and willingness on the part of society as

a whole to act positively in making the transition to a low carbon economy

the right support being made widely available

The government’s targets for tackling climate change are technically feasible but

cannot be met unless the UK is able to develop and apply new non-polluting

technologies. However, in truth, our ability to create a low carbon economy

does not rely on spectacular scientific breakthroughs, but rather on overcoming

the serious misconceptions that are referred to in the foreword of this guide.

Furthermore, the efficient use of energy can in itself deliver around half of the

necessary carbon emissions reductions, yet some of the knowledge and

many of the techniques required, while having been around for many years, still

have a long way to go before they become accepted practice.

The other half of the target could be met by adopting low-emission hydrocarbon

fuels, renewables and the widespread adoption of hydrogen as a fuel. However,

the many barriers to overcome include technological, financial, informational,

behavioural, legislative and regulatory.

what is being done

There are encouraging signs that these barriers are being addressed. The

political will is here for now and must be sustained, whichever party is in

power. The UK government has already launched an amibitious long-term

climate change strategy, which it is now in the process of reviewing to see how

it can be improved on. It has introduced stringent environmental legislation and

a wide range of incentive programmes for all sectors of the community that



are designed to encourage reduction in carbon emissions at minimum cost.

technology developments

Furthermore, the government has dedicated substantial funds to supporting the

development and deployment of low carbon technologies. It recently announced

a £40m package for emerging low carbon technologies, to stimulate

demonstration projects for cleaner electricity generation from coal and gas as

well as for hydrogen and fuel cells.

In June 2005, energy minister Malcolm Wicks unveiled a plan to capture carbon

emissions from power plants and store it safely in depleted North Sea oil and gas

fields. Such carbon and capture initiatives form part of the government’s

Carbon Abatement Technology Strategy, which has been allocated £25m

from the £40m package, to advance other carbon abatement technologies.

These include improving the efficiency and co-firing of existing power plants with

low carbon alternatives such as biomass.

It is worth noting that financial incentives are expected to be introduced for

companies that are involved in the capture and store of carbon. (Further details

are available in the DTI’s report, A Strategy for Developing Carbon Abatement

Technologies for Fossil Fuel Use, available from energy.)

The remaining £15m is being allocated to a Hydrogen Strategy, which will include

demonstration programmes for hydrogen and fuel cells, and to the establishment

of a Hydrogen Coordination Unit (HCU).

The HCU will bring research and development in this area together for the first

time within an overall strategy.

According to Adam Chase of sustainable energy consultants E4Tech, hydrogen

could provide competitive low carbon energy for transport from a range of

secure energy sources. “Although the technical and economic challenges are

significant, hydrogen’s long-term potential is so great that the UK should put itself

on a path to reap these benefits,” he says. (To the full report, A Strategic

Framework for Hydrogen Energy in the UK, is available at:



support from the Carbon Trust

As well as offering a wide range of services and carbon emission reduction

programmes, the Carbon Trust also works on developing longer-term solutions

for carbon reduction.

It has already committed £29.9m to the discovery and development of low

carbon technologies and businesses and, is working with various communities –

academic, early-stage, pre-commercial, corporate research and investors – to

identify innovative technologies, test concepts, provide viability and define future

markets that create real wealth. And, it offers direct commercial support through

incubator services to help fast-track low carbon technology development.

Carbon Vision Partnership

Furthermore, the Carbon Trust has teamed up with the EPSRC, with additional

support from the Economic and Social Research Council and Natural

Environment Research Council to forecast where we will be in 10, 20 or even 30

years’ time. The Carbon Trust and its partners have committed £14m to

ensure that there is effective collaboration between research bodies and

commercial organisations. Ultimately, it is seeking to find solutions to problems

for a world that is not here yet. The first step is to bring about radical, innovative

thinking. Carbon Vision is fostering this by building broad partnerships that are

helping to lay the foundation for a low carbon economy, and refocus the way the

business community thinks about this new era.

These partnerships, which combine expertise from many disciplines – natural,

physical and social sciences – are enabling the Carbon Trust to develop unique

research programmes that ultimately will provide sustainable commercially viable

solutions for generations to come.

Examples of the challenges it will address are:

The Future Building: to achieve 50 per cent carbon reduction in

buildings by 2030

Carbon Reduction in Buildings

Decision Support Tools for Sustainability



Radically improving the Built Asset Base

Building Market Transformation

future industrial/process efficiency: this will be developing tools for

industry decision makers to assess reduction in the lifetime carbon

footprint of basic products and their associated manufacturing

processes that we still need in 2030

SUPERGEN: to tackle the significant challenges of sustainable power

generation and supply by making radical improvements that overstep

incremental ones. SUPERGEN is in collaboration with the Engineering

and Physical Sciences Research Council

For further information on all Carbon Trust initiatives mentioned in this chapter,

go to

now, it’s over to you

The policies to deliver long-term solutions and opportunities are already being

implemented. The expertise to gain from the opportunities is available. What is

down to today’s organisations is to prove that they have the drive and imagination

to profit from both.



help from the

Carbon Trust

The Carbon Trust helpline: 0800 085 2005

Here you will find a wealth of information and downloadable publications that

will provide you with more knowledge on climate change, carbon emissions,

carbon management, low carbon economy and other related topics. There

are also online tools to help you create an action plan for your business.

Recent publications – all downloadable from the site – include:

Carbon Management guide: Assessing and managing

business responses to climate change (June 2005)

A guide incorporating an overview of climate change as a strategic business

issue, together with a high level description of the benefits, delivery model,

case studies and company role and commitments for the Carbon Management


Changing the climate of financial reporting: the impact of

the Operating and Financial Review on environmental reporting

(June 2005)

Information on how climate change forms part of the Operating and Financial

Review (OFR) regulations which came into force on 22 March 2005, and how

the Carbon Trust can help you meet the OFR requirements in relation to

environmental matters.



The Climate Change Challenge – Updated (March 2005)

The first in a series of reports designed to help businesses in particular to

understand the nature of climate change as a major challenge for modern

society, why and how governments are acting to address it, and what the

implications may be.

Brand Value at Risk from Climate Change (March 2005)

A quantitative report undertaken for the Carbon Trust by Lippincott Mercer

that suggests climate change is becoming an increasing risk for companies with

strong brand value.

Investor Guide to Climate Change (January 2005)

An investor's guide to the key facts surrounding climate change. This work

was prepared by the Carbon Trust to coincide with the launch of the EU

Emissions Trading Scheme, January 2005.

The European Emissions Trading scheme: Implications for

Industrial Competitiveness (June 2004)

The EU ETS began operating on 1 January 2005. This report presents the

analysis from an in-depth look at the implications of the EU ETS on industrial

competitiveness in the UK and the wider EU, combining insights from the

economic modelling and the stakeholder interview programme.


climate change

how UK businesses can benefit by reducing carbon emissions

The UK government’s commitment to reducing the country’s carbon emissions

(CO2) is in no doubt. It has already pledged to go beyond its mandatory target of a

12.5 per cent reduction – as set out by the Kyoto Protocol – by effecting a 20 per

cent reduction by 2010. Clearly this can only be achieved if business plays its

part, by addressing its energy consumption levels and habits, and by developing

new products and services that can make a low-carbon economy a reality.

In the meantime, climate change continues apace. This has significant

implications for the way companies are run, on their profitability and on their

relationships with consumers, investors and the wider community.

Among the risks that businesses face are increasing energy prices, more UK

and European legislation, and pressure from consumers and investors as

they choose to buy from, and invest in, companies that are environmentally

responsible. With renewable power coming down in cost as the sector

gains experience and scale, it is now a viable option for many businesses.

Business leaders must act now to understand, quantify and manage the impact

of climate change. This timely guide gives clear analysis of what is at stake

and offers expert insights into how to address the issue. Key topics include:

• realising opportunities and minimising burdens

• best practice for large companies and SMEs

• carbon emissions trading

• innovative technologies and renewable

energy sources

This guide is part of the Director’s Guide series,

published by the Institute of Directors, which gives

UK directors clear, practical advice on key business

issues, with real life case studies.

Institute of Directors, 116 Pall Mall, London SW1Y 5ED


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