How to make dirty money

The payback to construction companies and clients that occupy green buildings or use low-energy manufacturing processes could soon start affecting the bottom line in a big way.

Under proposals drawn up by the international community, firms are to be given bankable carbon credits if they beat pollution targets, which can be sold to other firms that have fallen foul of international pollution yardsticks.

The proposals to set such pollution ceilings was born at the Kyoto Climate Change Conference in 1997, during which most governments agreed to cut emissions of greenhouse gases, including carbon dioxide, by 5% below 1990 levels by 2008-2012. The agreement, known as the Kyoto Protocol, is expected to be ratified in November. It will also cover emissions of nitrous oxide, methane and hydrofluorocarbons.

Under the proposed system, each nation is told how much CO2 it can produce. If a country beats its pollution target, then it is entitled to receive carbon credits in line with the amount that it falls below that ceiling. If a country fails to meet its targets, however, then it has a problem. It must curb, or even prevent pollution-producing projects, or buy in carbon credits that, in effect, license commercial activity.

So, how do companies get in on the act? Answer: national governments set quotas for energy sectors and permit firms to trade credits, the villains dependent on the virtuous. The US government has already established a national market in sulphur dioxide pollution. Power-generating companies in the USA have been told how much sulphur they can emit. If they exceed this ceiling, they must buy credits. The industry has already started to clean up its act because the scarce sulphur credits are so expensive. The UK government intends to go down a similar road with CO2 but companies may also find themselves trading credits with firms in other countries.

Britain, unlike the USA, looks like it will have a strong hand in the carbon credit game because of the switch from coal-fired to gas-fired power stations. At the Kyoto conference, it agreed to cut greenhouse emissions by 12.5% by 2008-2012 but also set itself a higher domestic target of a 20% reduction by 2010. The government could have up to £100m of carbon credits to sell.

Even though the UK looks set to meet its commitments for 2010, the drive to use less energy and to make buildings more efficient is likely to increase. Speaking at the launch of the government’s climate change draft document in March, environment minister Michael Meacher said: “A 20% cut is only the beginning. Scientists say we must cut 60-70% to peg the CO2 in the atmosphere to double what it was before the industrial revolution. We must move into renewable energies, fuel cells to drive cars, and other technologies that cause no carbon pollution.”

The carbon emissions market being planned by the government will be open to all companies operating in the UK. The CBI and the government’s Advisory Committee on Business and the Environment are working with about 40 companies and trade associations to develop the scheme. Much work still needs to be done, but the government draft document states that a “UK scheme should start as soon as possible”.

When it is introduced, it will affect every UK business that uses energy. The government is proposing that firms that enter a domestic scheme agree an absolute carbon emissions cap. If a business consumes more energy than its cap allows, it will be penalised, probably by some form of tax. But if it uses less, it will earn a credit that it will then be able to sell. The pollution caps have yet to be decided.

It is also likely that firms will be able to bank some carbon permits to meet future pollution commitments.

The government estimates that the trading scheme could cut carbon emissions by 500 000- 2 million tonnes by 2010 – the government’s target of a 20% reduction by 2010 equates to 17.6 million tonnes.

Oil company BP Amoco has already set up an internal carbon trading system. All 140 of the company’s businesses worldwide are participating in the scheme, which is designed to cut the company’s greenhouse gas emissions to 10% below 1990 levels. The CBI/government group is also thrashing out assessment procedures for construction schemes. Before a building client can earn credits, project managers will have to prove that the building cuts carbon emissions.

The carbon credits market, expected to create an international market worth tens of billions of pounds, could lead to the emergence of a new profession offering companies strategic engineering advice on lowering their energy consumption. This role is ideally suited to building services engineers. “Now engineers can earn their keep by strategic engineering advice – informing companies on what they should do and how they should go about doing it,” says Terry Wyatt of consulting engineer Hoare Lea & Partners. “It could upgrade the status of building services engineers to that of management consultants.”

The government is also planning to extend the DETR’s Energy Efficiency Best Practice Programme to include site-specific advice to individual companies to identify management and investment opportunities. To help businesses measure their emissions, the government is to publish a guide to environmental reporting this summer that will include advice on cutting emissions.