Defra's delay on introducing mandatory carbon reporting is frustrating
Carbon reporting has strong business support and offers clear benefits to business, the environment and the UK economy, writes CBI director for business environment policy Rhian Kelly
The recent announcement by the Department for Environment, Food and Rural Affairs (Defra) to delay its decision on introducing mandatory carbon reporting was a real source of frustration for the CBI and the wider business community. This is one piece of regulation that enjoys clear business support, offering the possibility of major cost savings and, ultimately, reduced emissions.
There are many examples of how effective energy use lowers costs for companies. Given the current economic challenges, setting a regulatory framework that encourages greater energy efficiency can bring genuine rewards for UK business. According to case studies submitted to the CBI Climate Change Board, RWE npower's push to lessen the carbon impact of its Ferrybridge operations has achieved energy savings of almost 30%, while BT has focused on making its vehicle fleet more efficient, leading to a £4.8m reduction in its fuel costs. These are real actions on the ground, bringing huge benefits to companies and the environment.
Business gets it, there is no argument to be won here, and this is why the CBI strongly supports mandatory carbon reporting. We worked closely with the government almost three years ago to develop practical guidelines for reporting. So, if the government moves swiftly to create a business-friendly framework, it will embolden those companies that have yet to take advantage.
In 2009, 77% of FTSE 100 companies reported having an emissions reduction target. Companies care about how they perform on their environmental commitments and carbon reporting is a measure widely accepted to judge them against. Making this compulsory would simply compel larger companies to continue publishing the kind of information found in a typical annual sustainability report.
Instead, the only reporting tool we have in the UK is attached to the Carbon Reduction Commitment (CRC). This is unfortunate for a number of reasons. Firstly, the structure of the CRC differs from usual company reporting, making it more difficult to get a true picture of a company's performance. Likewise, the metrics used in the CRC league table to assess emission levels result in the same problem. For instance, the CRC measures total energy use, so even if a company expands to a new energy-efficient site and creates more jobs, they will drop down the league table. It is a crazy scenario to find ourselves in, as this is exactly the type of business growth our economy needs.
Thirdly, it is hard to make comparisons using data from the CRC, because it is so complex to interpret, it's unlikely to be used and so offers no reputational incentive for companies to reduce emissions. This was illustrated by the muted response to the first CRC league table published last autumn.
And finally, the CRC reporting regime also has the disadvantage of being part of a scheme companies consider to be nothing more than an overly complicated stealth tax, caused by complex compliance procedures and the unexpected clawback of the original revenue recycling incentive.
At least by pressing pause, Defra signals support for a broader re-think across government about how best to encourage investment in energy efficiency. The CBI supports the government's original objectives for the CRC: to reduce emissions and promote energy efficiency. We also agree that to effectively tackle these objectives, we must make good use of financial, reputational and reporting drivers, speeding up changes in the behaviour of our businesses.
The CRC, as it stands, fails to provide a balanced mix of these drivers, instead creating confusion where businesses desperately need simplicity and clarity. What we want is a policy framework that makes it easier for business to do the right thing and we think mandatory carbon reporting can play a big role here.
Energy efficiency has the potential to transform businesses across the country – the right policy will be a catalyst for more investment, job creation and reductions in our emissions. What's more, it can help foster low-carbon innovation in this country, building on our position as a world leader in these technologies.