What is the point in carbon accounts?

As from April 2013, 1800 companies listed on the London Stock Exchange will be required to report their carbon emissions annually [1]. Is this going to make a difference? DEFRA says this will save money as well as carbon emissions as it will help businesses identify cost savings from reducing energy consumption. Can this be true?



Merely reporting emissions does not achieve anything except use up computer time and generate waste paper. The emissions to be reported are those that arise from the workings of the company itself - mainly from energy use, travel and waste handling. Reducing these emissions will also save money for the company, though not a huge amount since energy is so cheap, at least compared to manpower. For most companies energy costs are much less than salaries. When cutting energy introduces risk, it is unlikely to take priority - for example see Why do shops leave their door open , a case where making energy savings risks discouraging customers.


Energy is cheap. Electricity is the most expensive form and even that is cheap. The minimum wage is £6.08/hour: for a worker operating equipment taking 40 kW continuously the energy costs would still come to less than half the minimum salary (assuming the average price manufacturing industry pays for electricity which is 7.25p/kWh [4]).  40kW is a lot. It would certainly blow your house power supply.  A DIY electric drill takes less than 1 kW and even that in bursts, an office worker will use less than 500W for computer and lighting. This is why optimising productivity currently means making the most products from the least human involvement. Materials also come into the equation too, but barely. One day's salary would buy more than a quarter of a tonne of scrap steel [2].

Under the Carbon Reduction Commitment (CRC) businesses must purchase allowances for each tonne of carbon they emit. This is supposed to encourage businesses to reduce their emissions and of course it does, a little. One kWh of electricity generates 0.541 kg carbon which at the 2011 rate of £12/tonne[3] costs 0.65p. This is on top of the normal price of the electricity - for manufacturing industry the CRC adds just 9%. Smaller users such as schools and offices will pay more for their electricity and so the CRC makes even less difference. For most organisations, energy is a small part of their costs: if energy were 5% of total costs then a 9% rise leads to a 0.45% rise in overall costs. To make the CRC bite more widely the government would have to raise the rate a lot - which would of course provoke a huge outcry. Without a level playing field across the world a rise in CRC in the UK would put our businesses at a disadvantage. In any case some of the cost increase would be passed onto consumers.

The cheap freezer costs more each year to run because it is less efficient. This chart shows annual costs calculated from energy cost at 12p/kWh and capital cost as simply the price divided by the lifetime (20 years). If energy prices continue to rise higher than general inflation this will favour the efficient freezer. Also the cheap freezer may not last as long.The appliances compared here are a Zanussi ZFC321WA (225 kWh/year, A+) and a Liebherr GTP 2356 (117 kWh/year, A+++)

If there were significant savings to be made from cutting energy use then well-run businesses would surely be doing it already and  the same goes for us at home too. In practice replacing working appliances with new efficient ones usually takes a long time to pay back financially (See Should I get a more efficient X: payback times in money). When you do need new stuff,  the efficiency wins out in the end, as shown in the chart. Also though there are lots of ways to save energy which cost nothing at all we often ignore them. For example, having a bath takes probably 4 times as much energy as a shower but in absolute terms it still costs only around 25p. There are very good reasons to be green and cut carbon emissions but for most people saving money isn't one of them.

Consumer pressure can be important especially from corporate consumers. For example, Apple Computers prides itself on its environmental credentials but it announced recently that it would no longer rate its products using the EPEAT (Electronic Product Environmental Assessment Tool). There are suggestions this is because its new laptop is hard to recycle and unlikely to achieve the top rating. Whatever the reason, they were very quickly forced to do a U-turn because of customers like the city of San Franscisco which banned the unrated products [5].

For consumers to make sensible choices about which products are greener than others they need information about the carbon emissions related to products rather than companies. However, the sort of reporting required by the LSE and by the CRC does not include the emissions due to materials bought to make the products or that will arise from the use of products. For example, for a supermarket the accounting does not include the emissions from farms that grow the food,  or from consumers refrigerating and later cooking it.  A supermarket could reduce its emissions by selling off the packaging and processing plants so they come under another company's accounts. This is akin to the UK reducing its carbon emissions by buying manufactured goods from China. To make carbon accounts more meaningful you need to look at the whole product life cycle and somehow apportion the emissions by a company to the products that it makes. For example, for a manufacture making car parts, how should it apportion the carbon due to its waste steel?

To summarise, the financial drivers for reducing carbon emissions are currently weak, and if we aren't prepared to tolerate carbon taxes and hence higher prices for high carbon goods then we must deploy different means to encourage companies to reducing carbon emissions. Consumer pressure can be effective but it needs information from carbon accounting to make it work.  The LSE carbon accounting isn't enough by itself but it is a step in the right direction.


[1] Leading businesses to disclose greenhouse gas emissions Defra 2012
[2] Ferrous metal prices from www.letsrecycle.com
[3] CRC Energy Efficiency Scheme from the Carbon Trust
[4] Energy Price statistics (June 2012) DECC
[5] Apple u-turn as Mac maker rejoins EPEAT green registry BBC News 13/July/2012