Serving two masters

Jeff Whiting Energy Spokesman at Mitsubishi Electric shares his thoughts on the dichotomy between the Government's low-carbon economy and the real financial one.

The Government is determined to establish a "low carbon" economy alongside the financial one that has driven the Western world for the last couple of centuries.

But can companies address two - possibly conflicting - bottom lines?.

We all know that running a profitable business isn't easy, and for some years climate change considerations have made it even more difficult.

But now the Climate Change Bill requires that we address both of these simultaneously.

The imperative to make money remains, but now there is a need show equal aptitude at reducing carbon.

Actually a drive to low carbon is good for Mitsubishi, because we sell the technology that is required to achieve it.

Also, Mitsubishi is a very ethical company that has already gone a long way to putting its own house in order, which means we have some real live experience under our belts.

Our UK headquarters, for instance was built at a time when energy efficiency wasn't so high up the agenda, but last year we refurbished and brought all the systems up to standard.

But in truth very few of the companies are prioritising carbon reduction in their development plans and very few business managers list carbon as a high priority, although a few talk about cost saving through energy efficiency.

A few years ago a very senior Government official (whose blushes shall be spared with anonymity) explained to me that she had reduced her department's carbon footprint by negotiating price reductions for its gas and electricity.

This demonstrates how easy it is to confuse the financial economy with the carbon one.

Critically, most business managers are today concerned far more with financial success than carbon reduction.

Astute ones claim carbon reductions on the back of cost savings, but few have actually fully embraced the consequences of the carbon economy.

Generating company Npower has recently produced a very interesting white paper called "Making sense of the low carbon economy".

Npower has conducted a thorough poll and concluded that 60% of companies are currently not addressing their carbon footprint.

And far more than half of them think that they never will.

This statistic can be combined with findings, some optimistic some not, from other sources.

The government says that the UK is doing well on carbon reduction.

But most of these gains are attributable to a switch from coal- to gas-fired power stations in the 1990s, rather than initiatives by companies.

Many of the retails giants have launched very ambitious carbon reduction programmes.

But their modus operandi is mainly telling their suppliers to shape up; what they are doing themselves is often less impressive Delving deeper into Npower's white paper, other findings stand out.

One of them was that companies that are investing in energy efficiency technologies are doing so to counteract rising energy costs, rather than for long term efficiency gains and sustained carbon reductions.

Companies are going for a quick return on investment and also minimal impact on costs, resources and production.

This appears to be piecemeal, self serving and short term.

But perhaps it is that later the individual initiatives will be joined up to form the sort of grand strategy that is needed if we are to meet the goals of 12% carbon reduction by 2012 and 60% by 2050.

But my feeling is that this is actually the crunch point.

The disciplines required for maintaining profitability in competitive markets oblige companies to focus on the short-medium term.

They find it very hard to look more than a year or two ahead.

An investment that will pay back handsomely in five years is very much a dent in the bottom line for the preceding four years.

Politicians, on the other hand, love the long-term.

They know that their life at the top of the governmental tree is probably going to be about five years.

They think it makes them look good if they set grand 10 year targets and they can leave the detailed implementation up to their successors.

Resolving this to its simplest form we see that carbon reduction is required for the long term continuance of the human race, but this is transformed in a free market economy into energy management driven by economic criteria.

These two approaches are in fact fundamentally different, but currently coincident.

Left to their own devices they will drift apart again relatively soon.

The Climate Change Bill is an attempt to keep them together for longer.

But on its own it is not enough.

To succeed it has to bring the 60% of disinterested companies onside with a long term commitments to carbon reduction.

I suspect this will always be by creating the economic necessity to improve energy efficiency and reduce carbon generation.

But ideally we need to move from the idea of retrofits and upgrades to one of a sophisticated strategy for continuous improvement.

The benefits come in the form of the European Energy Trading Scheme, which should allow investors to realise a return on expenditure in low carbon technologies, but the problem is that it's sophisticated economic analysis requires a commitment to long term investments.

Large parts of an open economy do not do these things, small businesses, low margin operators and rapidly growing markets are going to be very hard to get on side.

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