The UK government’s new laws will represent a world first for climate change, but the rules for low carbon business remain unclear

The UK government returns to session this autumn with the promise of delivering an unprecedented commitment to fight climate change.

New legislative measures will give important support to business, which has already demonstrated an appetite for voluntary action – as seen in Vodafone and Cadbury’s emissions reduction plans, British Airways’ opt-out rather than opt-in options for offsetting flights and British Telecom and HSBC’s pledges to use renewable energy.

Regulation is needed to ensure that best practice becomes standard practice, and implementation will require a new type of leadership, one that involves true partnership between the public and private sectors.

The most important item on the agenda is the Climate Change Bill, due to become law this autumn. Considered by the House of Commons in July, the Bill will make Britain the first country in the world to have a legally binding long-term framework to both cut carbon-dioxide emissions and adapt to climate change.

The Bill will establish an independent Committee on Climate Change to provide expert advice to government on setting and achieving reduction targets. In particular, the committee will review the overall 2050 reduction target by 1 December 2008. At present the target is to reduce emissions by at least 60% by 2050 and at least 26% by 2020, against the 1990 baseline.

Until Lord Adair Turner takes over the helm at the Financial Services Authority, he will chair the committee, bringing a business perspective to the role. His understanding of the global scene should ensure the UK meets its targets with minimal offshoring of emission-intensive activities.

Enabled through powers laid down in The Climate Change Bill, the government will also consult on secondary legislation, for the Carbon Reduction Commitment (CRC). The CRC, scheduled to start in 2010, will bring in a mandatory UK-wide emissions trading scheme for large organisations using more than 6,000 MWh/year of half-hourly electricity, such as supermarkets, hospitals and government departments.

Concern over renewables

Despite progressive legislation, a lot remains to be done to ensure business is bought into the process.

There has been controversy, for example, over the treatment of green electricity bought via the grid, as well as that generated on site. Under current plans, green energy purchases will not be counted as zero carbon – the national grid average emissions factor will apply regardless of the source of supply. Credit for emissions savings gained through offsetting schemes is not eligible for the purposes of the CRC scheme either.

Moreover, on-site renewable energy installations will also receive zero credit if they are part of the Renewable Obligation scheme already. The reality is that without the benefit of a Renewable Obligation Certificate (ROC), the vast majority of renewable projects will fail to clear financial hurdles and not get off the ground.

More, not less, encouragement is needed from the government to support the UK’s renewable energy industry.

Currently, there is a shortage of renewables supplies, with only 5% of all electricity generated coming from renewable sources. Furthermore, to comply with the EU’s 20:20 regulations – 20% renewable energy by 2020 – the UK would require a genuine step-change, with 30%-plus of electricity generated from renewables by 2020.

Action by companies, including purchasing renewable electricity from suppliers or installing wind turbines on site, will help the UK bridge this gap. Incentives to business should be offered through national legislation.

Both private equity firms and government are looking at renewable and energy-efficiency investment opportunities. Legislation under the CRC will certainly drive the latter. As for investment in renewables, this may seem counter-cyclical meaning in the current economic climate, meaning we will see much more progress on the efficiency front, as indicated by Gordon Brown’s recent speech to the CBI in Scotland.

Everyone wants to see smart policy that delivers absolute reductions in carbon emissions. The key to ensuring success will be developing the right balance between a mandatory legislative regime and proper incentives for good business behaviour.

By: Emily Farnworth