Focus on energy efficiency: Pay back 
time

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Related tags: Carbon dioxide, Greenhouse gas

Focus on energy efficiency: Pay back 
time
Saving energy takes effort. But it does pay, says Freddie Dawson

At first glance, the Carbon Reduction Commitment (CRC) looks like another large piece of legislation that would typically add the extra bureaucratic workload that manufacturers hate. In fact, it may prove to be the kind of silver lining that benefits companies. Even the ones consuming less than the minimum threshold of 6,000MWh of electricity would do well to take heed (see panel on p38 for an explanation of the ins and outs of the CRC).

"There is a significant sum of lost money hidden in most manufacturing operations because most don't understand how much waste is built into the process," says General Electric's (GE's) global industry manager for food and beverages, Sean Robinson. Although based in America, Robinson believes the EU's food and drink industry occupies a similar position to that of the industry in the US, where it is the fifth largest energy consumer.

According to Robinson, companies are missing a prime opportunity to help their bottom line by misunderstanding the savings that could be made through an examination of the manufacturing process and its large energy consumption.

He says: "[GE has found that the savings food and drink manufacturers can make] are typically between 1525%, depending on how disciplined the company was in the first place and how energy-intensive the process is. In places where you see a lot of cooking and chilling we tend to find there's a lot of hidden opportunities."

A UK-based example of this is Heinz. The company's examination of energy use turned up some interesting results. While half of its energy went towards manufacturing processes and heating its buildings, 25% was also lost up the chimney and no one could account for what happened to the remaining 25%. It invested in new technology at its Kitt Green factory through the Enhanced Capital Allowance (ECA) scheme.

ECA is managed by The Carbon Trust, which provides tax relief for companies that invest in new energy-saving technology. Through the use of innovations, such as heat exchangers to avoid unnecessary reheating or cooling of water, Kitt Green saved the equivalent of 13% of its 2010 energy bill over a two-year period. Over four years, it also saved 17,600t of carbon dioxide emissions.

A spokesman for Heinz says: "Heinz is committed to cutting carbon emissions and is confident of making further progress in becoming more energy efficient. CRC provides another incentive to do the right thing in creating a low-carbon economy."

Robinson theorises that many manufacturers miss out on energy savings like this because they sometimes employ sustainability managers who may not come from an operations or engineering background. Thus they fail to tap into expertise from those on the shop floor.

The intangibles

Saving cash is an important consideration, but the CRC can also give companies a reason to toot their horn over their green credentials.

This is where the CRC's public league table comes in. After every year of carbon tracking, the CRC will publish a league table ranking each company's carbon reduction achievements for that year.

Because of this, a top-place finish would equate to 'sterling' green credentials, while a bad result would lead to public shaming.

Npower's head of business energy services, Dave Lewis says: "No one would want to be seen as the poorest performer in their sector. I imagine there would be some hard questions asked of a company that was."

During the first five years of the CRC's monitoring and reporting phase, which comes into effect following the current introductory period, the table will be based on the yearly average of companies. This will give those that do not perform up to expectations a chance to catch up. After that, the table will be based on the average energy savings of the previous five years combined; meaning significant jumps up the table will be much harder to achieve.

Because the table is relative, a company's position is based on how others perform. So, despite its best effort, a company may find its competition has stolen a march and come out ahead. As another financial incentive, the table

is also responsible for redistributing the money garnered through the sale of CRC carbon credits. All the money that companies spend on purchasing credits to cover their carbon output is redistributed back to them on a proportional basis dependent on their position in the table.

Into the future

Manufacturers presently unaffected by the CRC may well feel that it is not worth the costs incurred for potential future savings or green bragging rights. In order to examine energy use, companies will have to either hire a specialist or bring in outside consultants, neither of which would be cheap.

Robinson points out that much of the desire for companies to improve their green credentials will result from retailer pressure on their suppliers. Lewis agrees that retailers will have as much influence as legislation on getting companies under the CRC threshold to take energy efficiency seriously. He says: "A lot of what companies do with regard to energy efficiency will be decided by what their supply chain expects of them."

But, it may be wise for those manufacturers to have a look anyway. The previous Labour government tossed around the idea of reducing the threshold to 3,000MWh and Lewis adds that Greg Barker, the coalition government's minister for environment, has already announced government plans to re-examine the CRC. But precise details of what is likely to result from this have yet to emerge.

Robinson is fairly confident that the threshold will eventually be lowered. Many of the companies at the 6,000MWh level are large enough to have already looked into the savings that could be made from being more energy efficient. He believes that if the government is really serious about effecting change through legislation, it will have to lower the threshold to bring more smaller- and medium-sized enterprises within the CRC scheme's orbit.

A touch of grey

Of course, as the Grateful Dead sang, "every silver lining has a touch of grey", and the silver lining for firms already in, or potentially going into, the CRC in the future is no exception.

Companies that struggled to make the September 31 deadline for registration will have seen some of this grey. At the time of going to print, a number were still struggling with complications over registering for the CRC, according to SKM Enviros director of policy and compliance Ray Gluckman. Gluckman works with the Food and Drink Federation on environmental issues.

The penalty for late registration is a one-off £5,000 fine and a further £50 for each day overdue. It remains to be seen whether the Environment Agency will take a hard or soft approach with the tardy organisations.

One of the reasons manufacturers struggled to make the deadline is that many already had individual Climate Change Agreements (CCAs) set up. These provide companies with a discount on the climate change levy in return for achieving certain negotiated reductions in energy use. "If you have a factory covered by a CCA, that part of your energy does not have to be in the CRC," says Gluckman. "So one of the complex things going on for food companies is that many of them can get either complete or substantial exemption from the CRC."

Gluckman believes registration problems also stem from many companies' overly complex structures that have to be dealt with before registering for the CRC. However, Lewis says: "It's about understanding how many sites that organisation represents and how much electricity each one is buying during the footprint year.

"Registration should be relatively straightforward for most organisations. As long as they take the time to understand it or get some support and there are plenty of people who are offering support."

Once they have navigated through the maze of registration, companies that fall under mandatory participation in the CRC will also have to find the extra cash to cover the carbon credits. The 6,000MWh minimum threshold gives firms an estimated average bill of £500,000 for electricity supply, Gluckman says.

Head of environment at law firm Eversheds Elizabeth Shepherd says: "We've estimated that those companies on the minimum will be paying at least an extra £38,000 pounds for the credits on top of their energy bill, but it could vary fairly significantly."

Despite the mitigating factors, using the CRC to investigate energy efficiency is a worthwhile plan. Robinson says: "Even the smaller companies are finding there is a significant payback before you look at things like government incentives."

However, recent reports have suggested that the coalition government might scrap the revenue recycling element of the CRC entirely.

While this might help in some way towards balancing the government's fiscal deficit, eliminating the return of funds in this way would remove a significant financial incentive for manufacturers. It would also undermine the coalition's professed support for businesses in general.

However, if such a scenario does become a reality, it would make any savings companies made by becoming more energy efficient even more important to their bottom line.