With the carbon economy looming, invest wisely now

Those countries that have accepted that radical change is needed, have either plodded along with the rest of the herd, or tried to get ahead of the game to get first (or at least second) mover advantage. At long last, our government is moving from the former to the latter.

Until now, the UK has led the world in terms of climate rhetoric and target setting. But on-the-ground delivery on energy efficiency or renewables is still middling to poor.

But this has now been recognised and there’s a new purposefulness to the government’s ambitions.

This has been inspired, in part, by self interest. A few weeks ago, it introduced a new strategy – ‘Investing in a Low Carbon Britain’ – which puts the size of the global market for environmental technologies at £3 trillion. The UK’s share of this market is only 3.5%, and we’ve done little to ensure a bigger share in the future.

Somewhat belatedly, the government is now bringing investment to the environmental technologies sector through extra funds created in the last Budget – around £400m. Finally, both Treasury and the Department for Business, Enterprise & Regulatory Reform have twigged that this is a hugely significant area for the UK economy.

They’ve also begun to understand the importance of energy efficiency. One of the reasons why we perform less well than we should in terms of reducing our output of greenhouse gases is because we’re simply very bad at energy management. The future of the UK economy depends not just on the smart, shiny ‘clean tech’ stuff, but on getting really serious about energy efficiency.

Finance directors are going to realise carbon reduction is now their concern

The economic case for this is rock solid. From 2011, the fall in spending on public services will be dramatic. At that point, the fact that the NHS could be saving billions of pounds on energy efficiency will become a major political priority. At the moment, many NHS trusts are burning their way through taxpayers’ money through pathetically inadequate energy management. A reduction in public expenditure will not necessarily be a bad thing, as it will certainly make managers prioritise cost savings – and absolutely top of that list will be energy efficiency.

Beyond that, feed-in tariffs for small-scale renewable energy are also on the way – the government has committed their introduction by April next year. If the government sets serious tariffs for small-scale producers around the key technologies of solar thermal, PV, wind and biomass, this could have a dramatic effect. It could mean that any large business, in both the private and public sector, would have opportunities for micro-generation with a reasonable financial return. One or two of the big hospital trusts are already looking at microgeneration on their own sites.

Lastly, emissions trading under the Carbon Reduction Commitment (CRC) will also have a big impact. The CRC is the government’s favoured way of establishing a price for carbon in parts of the economy not covered by the EU emissions trading scheme. I spoke recently to the finance director of one of the largest local authorities in the UK and for some reason the CRC seemed to be a complete revelation to him. Finance directors up and down the country are going to realise it’s now their responsibility – not their ‘green’ team’s – and it is they who will be under the spotlight when the first league tables are published showing who’s performing well and who isn’t.

Even before the price of carbon compels finance directors to get their house in order, energy prices could provide more than enough encouragement. We’re now heading towards $80 a barrel for oil, with some commentators suggesting the price could top $100 again in 2010. Some even believe that the combination of a lack of refining capacity, increased demand in a recovering global economy, and serious security risks in many markets, means that oil could go to more than $200 a barrel in the next three or four years.

People will do their forecasts about both energy and carbon prices, and they will have to take into account worst-case eventualities. On a purely ‘no-regrets’ basis, why wouldn’t you invest in low-carbon buildings? Even if cost projections prove to be excessive, there’s not much of a downside. The price of carbon and oil alike is only going to rise, so why not prepare for it now?