Climate change – a major business opportunity

Every organisation and every individual is affected by climate change.

It is now generally accepted that rising levels of greenhouse gases – particularly carbon dioxide – in the atmosphere will cause significant changes to global climate patterns. This is more than a warming trend. Increasing temperatures will lead to changes in many aspects of weather, such as wind patterns, the amount and type of precipitation, and the types and frequency of severe weather events such as catastrophic floods and storms. This is likely to have wide-ranging economic and social implications.

Whilst we need to be concerned, we can find reassurance in the knowledge that there is a relatively straightforward answer to this problem. To stabilise the atmosphere and stop climate change, emissions of greenhouse gases – particularly CO2 – must be reduced. To reduce CO2 emissions there must be a shift towards a ‘low carbon economy’.

Three key developments can help: a move to an economy with lower energy consumption per unit of GDP; better use of energy through greater energy efficiency; and more use of lower carbon energy sources such as gas, renewables or nuclear. The balance will depend on cost, security of supply and public acceptance and clearly, the ongoing debate shows how varied opinions can be on what is the best way forward.

Carbon Trust has assessed the relative impact of these changes and the technologies which will drive them. The outcome is clear: it is technologically feasible for the UK to reduce its CO2 emissions by 60 per cent or more by 2050.

This may all be achieved at little or no cost. Economic research suggests an impact ranging from a four per cent loss in GDP to a three per cent increase. In practical terms, this means that in the latter case, we would lose 1-2 years of economic growth over a century but in the former, we would be better off economically. One thing is certain – it will almost certainly cost more to stop climate change or adapt to its consequences if we wait to act.

So what should we do? In a transition driven by legislation and standards rather than by consumer demand, governments must signal their long-term commitment to addressing climate change. Political support in the UK is particularly strong and the set of policy measures extensive. For example, the UK is one of the few countries with a tax on energy use – the Climate Change Levy; we also have a trading system for emissions credits that should reduce the overall cost and various incentives to stimulate market and technology development. Going forward, the effectiveness of these policy measures needs to be reviewed regularly to ensure that behaviours change and investment is stimulated.

The recently-published UK Energy White Paper has confirmed the aspirational target of having at least 20 per cent of energy in the UK produced by renewables by 2020. The next step is to turn aspirations into reality with tangible policies, programmes and, most importantly, results.

In the transition to a low carbon economy, the winners will be those organisations which capture the tide of increased demand for low carbon products, services and behaviour, reduce their energy costs and manage risk better. Significant results are already being achieved.

Earlier this year, the government announced that UK companies in climate change agreements had cut CO2 emissions by 13.5 million tonnes in 2002 – almost three times above their collective targets. That is an excellent achievement. It demonstrates that UK businesses are already seeing the benefits of reducing their CO2 emissions and it is proof that voluntary agreements between government and business can work and work effectively. Those companies have led the way. Their achievements demonstrate that the potential for both CO2 and cost savings is real and is there for the taking. The challenge now is to build on this success and set a course for a low carbon economy.

What can businesses do?

Tackling climate change offers genuine commercial opportunities for businesses in two key areas.

Firstly, by increasing energy efficiency, businesses can significantly reduce their energy use – and hence CO2 emissions. Potential energy saving measures exist across all sectors but these are currently stifled by short-term budgeting and the low priority of energy costs on many management and domestic agendas. Obviously all businesses – from SMEs to multi-nationals – have a vested interest in reducing their energy bills through improved efficiency. The potential for cost savings from up-front investment – for which important tax incentives exist through the Government’s Enhanced Capital Allowances (ECA) scheme – can deliver a significant impact to the bottom line.

Secondly, there is major potential for companies to develop low carbon products and services – including new, renewable energy sources – to meet the demands that increasing legislative and consumer pressures will bring. The Organisation for Economic Co-operation and Development (OECD) values the global environmental goods and services industry at £200 bn per annum, growing at six per cent per annum. This means major commercial opportunities for low carbon products, services and technologies.

The message for businesses is clear – take action now. The shift towards a low carbon economy provides significant commercial opportunities. It will be the organisations which see this potential early that will benefit the most.

We must not underestimate the scale of the challenge in tackling climate change but, at the same time, organisations should see climate change as the business opportunity it really is rather than as an economic threat.

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The Carbon Trust