The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, product footprinting, computer-based management tools and onsite renewables are the key growth areas within carbon and energy consulting in the year ahead, according to leading players in the field.
Carbon measurement, management and reduction was the opportunity area most cited by respondents to ENDS’ 2010 consultancy survey, noted by almost half (see pp 5-8). Energy management was cited by a third of respondents.
But the burgeoning carbon and energy consultancy market is fragmented. The emergence of climate change and carbon regulation has provided new opportunities for other players to compete with the established environmental consultancies. These include accountancy firms, new boutique carbon management firms, energy companies and energy procurement firms.
Malcolm Preston, global sustainability leader for PricewaterhouseCoopers (PwC), says the firm works at the strategic end of the business. It helps chief executives and board-level directors answer questions on carbon management and sustainability, such as what they are trying to achieve and how they will articulate the results.
Boards want to know the risks and opportunities stemming from climate change and carbon regulation. Is it just compliance issues that need to be managed, or are there opportunities that can be turned into advantages?
PwC does not provide technical energy management advice, though it often works with consultants that do. But data management and reporting is stock in trade for an accountancy firm like PwC. “Change the pound sign to a carbon sign and you won’t be surprised to see PwC operating in this space”, says Mr Preston.
At the other end of the spectrum are energy procurement and management firms such as M&C Energy Group, formerly McKinnon and Clarke. Keith Routledge, who heads M&C’s carbon management business, says: “Carbon management has been an important new opportunity for energy procurement companies, energy companies, building and facilities services, as well as a necessity in a very competitive market to stop existing clients going elsewhere.”
Several specialist carbon management consultancies have also emerged in recent years. But finding a viable niche in the market is difficult.
Greenstone started up three years ago, attracted by the boom in the corporate carbon agenda, but quickly decided to rethink its business model.
“We’ve rolled from a consultancy model with software to a software model with consultancy,” says Matthew de Villiers, Greenstone’s chief executive. “We saw a huge opportunity in carbon accounting software, but consultancy is very competitive and requires a range of staff with specialist skills which is very expensive for a small business.”
Mr de Villiers explains the opportunity: “When you look at what consultants do, they spend three quarters of their time gathering data and building spreadsheets to do the analysis and then at the end, quickly rushing through some strategy – it just didn’t make sense... We decided to provide software to commoditise the data crunching, allowing consultants to focus on adding value by providing strategic advice.”
The same principle applies in companies, where software can be used by carbon and energy managers, so they can focus on reducing carbon instead of managing data.
Most consultants see the CRC as the key regulatory driver of carbon consultancy demand. Some 5,000 public and private sector organisations will have to participate in the scheme, which is designed to encourage improvements in energy efficiency. From April 2011, companies have to buy allowances to cover their annual CO2 emissions. The amount refunded depends on organisations’ emissions reduction performance, to be published in an annual league table in October 2011 (ENDS special report, March 2010).
Sally Vivian, an associate director at URS who leads on carbon says: “We are finding a lot of interest in the CRC… It’s a new piece of legislation that is suddenly affecting a lot of companies that haven’t had a compliance requirement to measure and report environmental performance before.”
URS has worked with companies and their lawyers, which are trying to understand organisational structures under the CRC. This can be a complex issue as the CRC may bring together subsidiaries that have very little to do with each other. URS has also been helping clients understand the CRC’s energy supply rules, and assisting with emissions measurement and reporting processes.
Consultants are also advising companies on CRC performance strategies. Christine St John Cox, principal consultant at AEA, says brand reputation management is central to an organisation’s approach to the CRC. Companies must decide how they want to be seen and what that might cost. Some may initially aspire to be a leader, but when they look at the costs and consider their brand visibility, decide they are better off being middle of the road.
In the CRC’s first year, performance is judged solely on early action, namely fitting automatic meter readers and certification to an emissions reduction standard, such as the Carbon Trust Standard or Achilles CEMARS (ENDS Report 425, p 15). So, another important CRC-related activity has been helping firms roll out readers and achieving the emissions reduction standards.
For years two, three and beyond, organisations must implement emissions reduction measures if they want to ensure good performance and get as much of their allowance payment refunded. And there are plenty of improvements companies can make, often at low or no cost.
Callum Stuart, who manages M&C’s CRC business, says: “It’s not very tricky for a qualified energy engineer to walk into a factory and identify where energy consumption can be reduced.”
He advises organisations to start by consolidating operations to reduce the under-use of buildings. Industrial operations should focus on electrical drives, motors and pumps, steam and compressed air plant. Office-based organisations should focus initially on heating and air conditioning controls and equipment left on after hours.
But some consultants, such as James Blake, associate director at RSK, perceive some inertia on the CRC. He says there has been a lot of work on preparing organisations for registration, which opened on 1 April and closes at the end of September. There has also been work with some early movers with recognisable brand names. But he expects a lull until the league table is published next year.
Mr Blake is also concerned that carbon is falling down the list of priorities for public sector bodies facing budget cuts such as councils, schools and hospitals. The reputational driver of the CRC league table is much less strong here. Organisations may conclude that their primary duty is to invest in healthcare and education rather than carbon savings.
AEA’s Christine St John Cox says that for her clients at least, regulations such as the CRC are not important drivers. “Companies we work with tend to be proactive and forward thinking… They want our help with how to implement something, or develop a long-term strategy, assess risks and opportunities, accurately measure operational and supply chain emissions, and predict and influence future policy.”
James Blake agrees. He says voluntary corporate responsibility is where much business stems from and it has not slowed down despite the disappointing outcome at Copenhagen in December.
“Business perceives that the science is there, this isn’t going to go away, so rather than put this off lets establish our potential future liabilities to make sure they are minimised,” he says.
For instance, RSK is a preferred assessor for the Carbon Neutral Company, which develops carbon reduction and offsetting plans for companies. Through this, RSK has been working with a London airport to footprint its carbon emissions and identify opportunities for emissions reductions.
PwC’s Malcolm Preston is more doubtful: “There will always be companies that take action in advance of regulation because they want to make a virtue out of doing the right thing, but the main driver is always going to be regulation.” He says supply chain pressure is only just getting started, but it is a sign of the way things are going.
Callum Stuart at M&C Energy explains: “There’s an awful lot of talk and speculation in the market, and trying to sort out what clients are demanding from what consultants say they are demanding is quite challenging.”
For supply chain footprinting, the catalyst is growing pressure from large retailers and consumer goods companies wanting to identify emissions ‘hotspots’. Suppliers are being asked to disclose carbon emissions data. Some retailers are using the data to measure products’ carbon footprints.
Early this year, US retail giant Walmart, owner of Asda, pledged to cut greenhouse gas emissions from its supply chain by 20 million tonnes of carbon dioxide equivalent by the end of 2015 (ENDS Report 422, p 25). Similarly, Tesco has set itself the goal of cutting its suppliers’ footprint by 30% by 2020 from a 2009 baseline (ENDS Report 421, pp 38-42).
Tesco is also leading the charge on carbon labelling, which informs customers about the greenhouse gas emissions from creating, say, a litre of milk or orange juice. It aims to label all 70,000 of its own-brand products as part of its goal to help cut its customers’ carbon footprint by 50% by 2020 compared with 2009.
Sally Vivian says URS has worked since 2007 with consumer goods company Reckitt Benckiser to develop a carbon life-cycle analysis tool for products’ impacts and also to help measure performance. She says retailers recognise it is not enough to focus on operational emissions when they might be a fraction of those released by raw material suppliers and consumers.
Ms Vivian says reporting carbon data can be challenging for suppliers. They not only need to have a good understanding of their emissions, but must also be able to calculate a specific product line’s emissions.
Paul Cooper, managing director of Best Foot Forward, a specialist in measuring environmental impacts and developing sustainability strategies, says there has been a big shift in demand for footprinting in recent years. The company started out by assessing ecological impacts for regions, towns and cities, including London. But for several years now, the focus has been on organisational carbon footprints.
Interest in other impacts, notably water, is growing. It is driven by food and drink manufacturers and retailers such as Coca-Cola and Marks & Spencer, which recognise the threat to their supply chains from future water shortages (ENDS Report 411, pp 19-20). Best Foot Forward is seeing demand return for broader environmental footprints, often for products such as Ecover. It also calculated the footprint of the London Olympics’ supply chain (ENDS Report 412, p 21).
Environmental business software is another growing market in the carbon and energy sector. Companies and public bodies are facing a data-management crisis. For some years, the growth of environmental legislation on air quality, waste and water has put companies in high-impact sectors under increasing pressure to measure and manage their impacts. The explosion of carbon management as an issue has only increased the pressure further, as well as drawing in many more service sector firms.
“Everyone’s asking for carbon emissions data cut in a different way,” says Matthew de Villiers. From investors through the Carbon Disclosure Project, regulatory bodies responsible for enforcing the climate change levy agreements, the EU emissions trading scheme and the CRC, and large companies at the top of the supply chain.
Greenstone’s ‘Acco2unt’ is an example of software as a service – hosted by the vendor and accessible to the client through the internet in return for a subscription.
It is aimed at big international companies with multiple sites and operations. It enables companies to produce reports on carbon emissions for different parts of the organisation and for a range of purposes at the touch of a button. It will also allow companies to do more sophisticated things, such as include supply chain emissions and forecasting.
Mr de Villiers says the market is in its early stages. Most companies store information with different databases and formats, but often using nothing more sophisticated than Microsoft Excel. He has not yet replaced any other environmental software providers’ systems.
He has 26 clients including IT firm Fujitsu, service company Serco and online food retailer Ocado. Other software providers include HARA, ENX Suite, SAP Impact, Cloud Apps, CA and Credit 360.
The increasing regulation of carbon is an important driver of environmental software purchases. The Environment Agency, the CRC’s lead regulator, will audit organisations’ data submissions and there are penalties for misreporting.
“Chief financial officers are not going to be happy facing an auditor with a hotchpotch of Excel spreadsheets,” says Mr de Villiers. And companies involved in emissions trading will need to track emissions against the number of allowances bought.
Early this year, environmental consultants Aether and ENDS launched the first free-access directory of environmental accounting tools (ENDS Report 421, p 13) and ENDS will shortly publish a special report on environmental business software.
Other consultancies have taken a strategic decision to steer clear of corporate carbon consulting and focus instead on renewable energy, another growth area.
Alan Edwards, director of SLR, says that although the consultancy has the capability to advise on the CRC and corporate carbon management, it is a “hugely commoditised market with a phenomenal number of players”. He says it is difficult to attain a good profit margin in the area, and it is not helped by some energy management companies including carbon management advice as a ‘loss leader’ to retain clients.
He says renewables are far more promising, with solar photovoltaic a particularly interesting and exciting area. The market driver is the feed-in tariff that started in April. It offers installations of up to five megawatts peak capacity a long-term subsidy for electricity generated for use on site or fed into the national grid.
Consultants can help developers find sites and prepare planning applications. Potential clients include developers working for councils and housing associations, which are showing growing interest (ENDS Report 424, pp 16-17), as are companies such as BT (ENDS Report 425, pp 11-12).
Farmers are also showing interest in solar PV farms. For instance, planning permission is being sought for a 2MW installation on 15 acres at Benbole farm at St Kew, Cornwall, with further projects in the county in the pipeline.
And so, consultants appear broadly optimistic about the prospects for a steady flow of work from the carbon and energy market, despite the lingering effects of the recession and disappointment at Copenhagen. The need to address climate change is not going to go away any time soon. The CRC, product and supply chain footprinting, environmental business software and onsite renewables will, if anything, become even more important areas for the foreseeable future.