Amidst the tumult afflicting the world's financial market, it is perhaps unsurprising that the fact the price of carbon in the EU emissions trading scheme (ETS) has hit an 18 month low has not earnt much of a mention.

But the slump in the price of carbon from a high of around €25 a tonne earlier this summer to just €18.10 today should give serious pause for concern to many operating in either the carbon market or the wider green business movement.

The reasons behind the slump are not hard to identify.

Oil prices have fallen as the global economic slow down begins to bite and as a result gas prices have also dropped. This means it is cheaper for energy companies to burn gas compared to the more carbon intensive coal and as a result their carbon emissions are lower than expected meaning they have to buy fewer EUA carbon permits.

Meanwhile, heavy industries such as steel, cement and aluminium are also expecting production to fall as a result of the recession, meaning they too are demanding fewer EUAs.

With the supply of credits largely in line with expectations (despite some drop off in the flow of credits through the UN Clean Development Mechanism) and demand lower than expected, the price of carbon has inevitably joined the downward trend.

This raises two sizable concerns.

The first is that having been originally hailed as a success the second phase of the ETS could replicate the failure of the first phase with companies being left with far more carbon credits than they actually need.

If we do indeed experience a lengthy and deep recession then emissions from energy firms and heavy industry could even drop below their emissions caps leaving them with a glut of permits. In such a circumstance, the price of carbon would once again gravitate towards zero.

It could be argued that if firms are coming in under their emission caps then who cares how it is achieved.

But the point of a cap-and-trade scheme is that it is meant to incentivise firms to come in below their emission caps by investing in cleaner processes and technologies. They are not supposed to meet their emission targets by succumbing to a recession-imposed fall in production, on the simple grounds that under this scenario emissions will simply rise again as soon as the economy picks up.

In short, the longer the price of carbon wallows below the €20 mark the harder big polluters will find it to make the case for investment in cleaner technologies and processes. Meanwhile, capital intensive green projects such as plans for carbon capture and storage systems will find it ever harder to find funding when the low price of carbon means that conventional fossil fuel technologies remain a cheaper alternative.

Thankfully, these are likely to prove relatively short term concerns.

The economy will recover eventually, although it might not feel like that at the moment, while the EU still looks committed to tightening the cap-and-trade regime further post 2012 - a move that should push the price of carbon ever higher. Moreover, both presidential candidates have vowed to introduce a similar scheme in the US, suggesting that cap-and-trade and carbon pricing is here to stay.

Consequently, the biggest concern arising from the recent fall in the price of carbon is not the short term implications, but the fact that no one saw it coming.

For most of this year analysts have been predicting that the average price of a tonne of carbon in the ETS for the 2009 to 2012 period will be somewhere between €35 to €40. Well, it's currently at around €18 and doesn't look likely to head north any time soon.

Even after global financial markets collapsed this summer, analysts Point Carbon upgraded its price expectations for EUAs predicting that a reduction in the availability of UN-backed CER credits would more than compensate for any recession-related drop in demand.

Meanwhile, New Carbon Finance similarly predicted the global carbon market will continue to expand rapidly, partly on the back of the rising price of credits.

These organisations were not alone in subscribing to a bullish outlook and it is worth pointing remembering that not many people have covered themselves in glory trying to second guess financial markets in recent months. But in many ways it is this fact that is at the heart of the problem.

Carbon markets may have been constructed by regulation, but regardless of the legislative framework that is put in place any market will inevitably contain a degree of volatility - and it is this volatility that will always make it hard for long term investors to attain the reliable long term outlook they crave.

Unless the EU sets a floor price for carbon, something it is loathe to do, how can an investor in a new power plant or industrial facility predict returns on investment from clean technologies with any confidence?

The simple answer is they can't. They are at the mercy of informed guesses, which as recent events have shown can prove badly wide of the mark.

They might have plenty of other concerns on their minds at the moment, but those politicians who have touted carbon markets as the best mechanism for driving the transition to a low carbon economy should be asking themselves how they are going to ensure the lessons from the collapse of the financial markets are learnt and the new breed of carbon markets do indeed end up serving the purpose for which they were designed.

Right, I'm off to try and track down those three MPs who voted against the climate change bill.

Have a good weekend.

Cheers,

James

Posted by James Murray on October 31, 2008 | Permalink | Comments (0)

A few days ago I was doing my shopping at my local Sainsbury's when something very strange happened - please bear with me, I know it's not the most promising opening but I'll try to keep the clichéd middle class ranting to a minimum.

I'd got to the tills, and like the good little environmentalist that I am dug out the re-usable plastic bags that I had on me. It was at this point that the cashier noticed a miniscule tear in the side of one of the bags and, before I could work out what was going on, proceeded to rip a giant hole in the bag with the well-intentioned words: "you can't be having that, it might split".

Spotting the look of something pretty akin to horror on my face, she kindly offered to let me have another reusable bag free of charge - an act of generosity that while welcome only served to highlight the fact that a perfectly usable, if rather battered bag had just been destroyed.

I was too polite to point out that I wouldn't need a new bag, free or otherwise, if she hadn't just ripped my previous bag to shreds, nor that the only reason I had brought said bag with me was to avoid having to use another one.

Like many supermarkets, Sainsbury's has invested heavily in initiatives designed to cut customers' bag use, such as the provision of reusable bags and offers of reward card points for people who don't use disposable bags. I don't doubt the company could trot out countless statistics to prove this approach is working and judging by the number of people you see clutching the supermarket's orange reusable bags they are probably right.

But unless the people at the coal face who are actually tasked with executing these initiatives are fully aware that the whole point is to reduce the company's environmental impact and not just dish out a different type of bag their success will always be limited.

You can see this disconnect between HQ's green master plan and the shopworkers who have to make it a reality in Sainsbury's recent pledge to remove disposable bags from its till points.

In theory, this is a sophisticated policy designed to offer shoppers a gentle nudge in the right direction by forcing them to ask the cashier for any free plastic bags they want to use. The result being that customers have to think about how many bags they use every time they do the weekly shop.

In practice, at my local Sainsbury's the policy means that many of the people working on the tills simply put out a pile of plastic bags at the end of the conveyor belt ready for the next shopper, leaving the incongruous site of a stack of lurid orange bags beneath a sign explaining why Sainsbury's has decided to remove plastic bags from this very spot.

Other retailers are equally guilty of failing to ensure their plastic bag policies are followed diligently.

M&S has done more than most to combat plastic bag use with the introduction of charges on plastic bags for food, but the undoubted success of the strategy has been at least partly undermined by the introduction of smaller "sandwich bags" that are still free.

Consequently, a typical sight at my local M&S is people taking two smaller bags instead of paying for one larger bag. I asked one of the staff if this was allowed the other day and was told: "I don't think so, but we haven't been told otherwise."

There is a wider lesson here for all businesses, not just the retail sector.

The simple fact is that green policies are only as effective as the people who carry them out and unless staff are trained, motivated, and ideally incentivised to make them a success then they will always falter.

Sainsbury's and M&S have both made great strides in their battles against the plastic bag, and I don't doubt efforts have been made to educate employees about the various strategies now in place. But it is clear from interactions with staff in their stores that a good number are not really clear on why the policies have been introduced or what they aim to achieve.

It's a horrible term, but unless you can get "buy-in" across the business green policies are always likely to be prove less effective in practice than they are in theory.

I don't doubt plenty more plastic bags will be ripped up before this message gets through, but there is a strong case for spending just as much time and money on ensuring staff understand green policies as it is on developing those policies in the first place.

Posted by James Murray on October 27, 2008 | Permalink | Comments (1)

We're donning the party hats, ordering in a cake and counting down the minutes until it's acceptable to crack open the champagne, down at BusinessGreen.com's central London bunker this week.

Yes, you've guessed it, it's our birthday - BusinessGreen.com is officially one year old.

BusinessGreen.com was conceived when it was launched as a blog back in the summer of 2006 - a significant date that means we were up and running (fractionally) before An Inconvenient Truth got the whole green bandwagon moving - but it was on October 12th that the title was born as a full blown website.

Since then a lot has changed.

We've moved a step closer to understanding the secrets of the universe - or would have done if that big machine in Switzerland hadn't broke.

We've welcomed a moose-shooting, self-styled pitbull on to the international stage - and if the polls are anything to go by could be ushering off again pretty soon.

And we've seen the entire capitalist system collapse, return to life, collapse, and stagger back to its feet again - and that's just been the last fortnight.

But, more pertinently for BusinessGreen.com readers, we've seen the inexorable march into the mainstream of green products, services, technologies, business models and regulations continue almost unabated.

One of the biggest changes I've noticed in the past year is that no one asks whether the green movement is just hype anymore.

Some siren voices may have begun to suggest that maybe it should slip down the priority list as the economic downturn begins to bite. But it is worth remembering that not only are they being challenged at every turn by more enlightened politicians and business leaders, but the very fact that they are being shouted down represents significant progress. If the recession had come just two years ago, there would not even have been a debate - the green agenda would have been dropped, no questions asked.

Instead, it is now happily ensconced in the mainstream, and there is even a growing consensus that it could prosper in a downturn driven in large part by high energy prices and businesses failure to properly comprehend risk.

Anyone doubting this fact need only look at the figures. This week alone we've seen research claiming that the global market will be worth more than $100bn this year, while companies operating in the clean tech sector are now worth $300bn, according to HSBC, making the sector bigger than the entire economy of Greece. The last quarter also broke another record for venture capital clean tech investment, while every expert, analyst, and industry insider you speak to is convinced that the upward trends will continue.

In its own modest way, BusinessGreen.com has mirrored some of this success. Traffic figures have ticked steadily north over the course of the year to a level where we now have a sizable reader community regularly accessing the site. Consequently, we have enjoyed solid advertiser backing (big thanks to our founding sponsor IBM), providing further evidence of the extent to which firms are increasingly committed to building and promoting their green credentials.

And yet, while much has changed in the past year, much remains the same.

In many ways, this is good news as the fundamental drivers behind the growing interest in green business models - rising energy costs, fear over energy security, customer demand for environmentally-friendly products, realisation of climate change risks and tighter regulation - remain firmly in place, ensuring that the whole sector has a healthy future.

But equally, many of the factors that originally prompted us to think there was a need for a title such as BusinessGreen.com are also still in place.

There is still a major gap between businesses desire to enhance their environmental performance and their understanding of how best to do so. There is still a gap between the technical and economic viability of new low carbon products. There is still a gap between the urgent requirement to act now to tackle climate change and the actual actions being taken. And there is still a gap between politicians' rhetoric on climate change and the funding and regulations they put in place to drive our response.

Until those gaps are closed the case for a title dedicated to helping firms understand how and why they should be adopting green business models will remain.

Given that reality, it looks like BusinessGreen.com can look forward to plenty more birthdays to come.

Posted by James Murray on October 15, 2008 | Permalink | Comments (2)

The whole capitalist system is teetering on the brink, Gordon Brown's recall of Peter "Mandy" Mandelson represents the last throw of the dice, the Tories have reversed everything they stand for and are calling for a halt to executive bonuses, it looks like Spurs could get relegated, and if needs must you could always cobble together a story on asylum seekers or Kerry Katona's kids.

So what does the good old Sun choose to run as its front page splash on Monday morning? An expose on Starbucks' policy of leaving a tap running behind its counters to clean utensils.

It is hard to imagine that even six months ago a story about a company wasting water would represent a front page story anywhere, let alone in a tabloid. But The Sun obviously thinks its readers are now sufficiently interested in environmental issues to justify such a splash - and even if they aren't, they are probably interested in the paper's official green Page 3 girl, Keeley Hazell.

The immediate aftermath of The Sun splash - which saw The Guardian and the BBC pick up the story, and environment secretary Hilary Benn issue statement rebuking Starbucks - suggests the paper was right.

Looking closer at the story it is possible to feel a smidgen of sympathy for Starbucks, or "Starberks" as the inimitable Sun dubbed the company.

It was a classic hatchet job, and the already much quoted claim that the company wastes enough water to fill an Olympic swimming pool every 83 minutes was almost certainly based on the rather unscientific assumption that every Starbucks outlet in the world is indeed running a tap at full pelt.

But the company then proceeded to make a series of PR errors that any company wishing to engage with accusations of greenwashing would do well to avoid.

First up, it attempted to claim that leaving a tap - or dipper system as it tried to rebrand the good old faucet - running all day somehow uses less water than turning it off and on again. It was a line of argument so ridiculous that even if by some bizarre circumstance it could be proved to be true it was always going to get laughed out of the court of public opinion.

The company then tried to claim there were hygiene reasons behind the running tap, which begs the question how virtually every other food outlet on the planet manages to get away with taps that turn off without giving their customers food poisoning.

It was only after it had trotted out the weakest defence since Spurs last played, did Starbucks do what it should have done in the first place and inform the world's press that it would be launching an immediate investigation into the practice and would actively look into developing an alternative policy.

What the episode highlights is that there is now a genuine mainstream audience for these types of stories. The Sun could have gone with plenty of stories on its front page, but it knew this one would resonate with readers.

Customers hate wastefulness, particularly at a time of economic hardship, and any high profile brand caught out in the same way as Starbucks is running the risk of a well deserved media kicking. Companies that tout their green credentials now have to go to considerable lengths to ensure that their environmental claims are embodied across the business.

Secondly, if you are caught out, the best way to deal with it is put your hands up, apologise profusely and promise to put it right.

It's not nice to have The Sun crowing over its victory, but ultimately it is the only way to minimise the impact of such a story.

Right, I'm off to cancel my Christmas card order while trying to work out what the future holds for Envirowise.

Have a good weekend,

James

Posted by James Murray on October 9, 2008 | Permalink | Comments (2)

"Hallelujah", was one response. "Fantastic," another. "It makes perfect sense," added a third.

At a time when many within the green business movement had all but given up lobbying for a more cohesive joined up approach to tackling climate change, the prime minister blind-sided everyone by announcing the formation of a new Department for Climate Change and Energy.

The move will inevitably be overshadowed by the Lazarus-like cabinet return of Peter Mandelson - he of the two previous cabinet resignations, undisclosed home loan, and "prince of darkness" epithets.

But in the long term it is the creation of the new climate change and energy ministerial brief that could prove the most significant and enduring legacy of Brown's first major reshuffle.

It is easy to see why many green business groups will be so delighted at the decision.

For years anyone attempting to deal with Whitehall on green matters has had to navigate the at times brutal turf war between the department for business, enterprise and regulatory reform (BERR) and Defra.

Primarily through their differing approaches to energy policy, but also as a result of the ideological differences that exist between one department set up to cut regulation and another tasked with protecting the environment, the two departments with the greatest responsibility for tackling climate change have repeatedly been described as being at "loggerheads" - that is when of course they are not trying to throttle each other.

Bringing these two factions together can only help dilute the tensions and ensure that carbon considerations play an even greater role in energy decisions than they do currently.

Moreover, the appointment of Ed Miliband suggests that the new department will have real teeth. He is hugely respected by Gordon Brown and has been a close ally of the prime minister for many years, yet has somehow managed to avoid the "arch-Brownite" tag and appears to be reasonable well regarded across Labour's increasingly divided political landscape.

Critically, he should have the authority to make things happen. As is the case with businesses looking to drive forward an environmental strategy, developing a dedicated climate change or CSR department is only an effective strategy if that department is given the power to impose its policies on all departments that have to adhere to the central goal of cutting emissions.

In this light the appointment of a minister known to have the prime minister's ear is crucial. It might be the politics of the playground, but the fact that Miliband will be in a position to tell Brown which departments aren't playing ball can only help establish the new office as a centre of power.

In addition, the department already has a robust feel to it. The Conservatives this week sought to reinvigorate their environmental agenda and as such it is unlikely that any in-coming Tory government would seek to get rid of it in another reshuffle. But even if they wanted to the fact that climate change is sitting right there in the departments name makes it almost impossible for any government to kill it off without in some way admitting that they don't see climate change as a problem. This new department is with us for the long haul and its influence can only grow.

And yet those hailing the new department as a momentous turning point in the government's fight against climate change are perhaps guilty of overstating the matter.

The fact is that just because energy and climate change are rubbing shoulders in the same department does not mean they are suddenly going to become bosom buddies.

One of the first issues in Miliband's in-box will be Kingsnorth and the issue will be no less vexed just because a new department is addressing it. Block the plans for a new plant and the business lobby will be furious, grant approval and the department supposedly responsible for tackling climate change will have its credibility shot to pieces before the new business cards have even been printed.

Find a way to through the Kingsnorth imbroglio and the in-box is will still sagging under the weight of issues that need addressing.

It is worth noting that for all the government's claims that it is leading the fight against climate change, this week the IEA rated the UK's renewable energy strategy 31st out of 35 developed countries.

On balance, a new climate change and energy department should help address this appalling scenario, but as Ed Miliband tonight toasts his promotion let us all hope that he is under no illusions as to the scale of the challenge he now faces.

Right, I'm off to book me a spot on a climate change tackling space ship.

Have a good weekend,

James

Posted by James Murray on October 3, 2008 | Permalink | Comments (0)