Memorandum submitted by the Carbon Trust
The Carbon Trust came into being on 29 March
2001. It is an independent, company limited by guarantee, set
up by Government in partnership with business. It is Government
funded and invests in the development and deployment of low carbon
technologies. It is part of the UK Climate Change Programme and
its Board is drawn from a wide range of stakeholders interested
in promoting a UK low carbon economy. These include: Government,
business, environmental groups, trade unions and the research
The Carbon Trust's remit was set by the Prime
Minister in October 2000"The Carbon Trust will take
the lead on low carbon technology and innovation in this country
and put Britain in the lead internationally". Its objectives
to ensure that UK business and the
public sector contribute fully to meeting ongoing targets for
greenhouse gas emissions;
to improve the competitiveness of
UK business through resource efficiency; and
to support the development of a UK
industry sector that capitalises on the innovation and commercial
value of low-carbon technologies nationally and internationally.
The Carbon Trust is funded by the Department
for Environment, Food and Rural Affairs, The Scottish Executive,
Invest Northern Ireland and the National Assembly for Walespartly
via funds voted by Parliament and partly from climate change levy
The Carbon Trust has two principal programmes:
Action Energy, designed to accelerate the deployment of existing
energy efficiency and low carbon technologies; and the Low Carbon
Innovation Programme (LCIP) to support the development and commercialisation
of new and emerging low carbon technologies. One of the four elements
of LCIP is support for research, development and demonstration
(RD&D). RD&D underpins the drive to move towards a low
carbon economy. However, it is important that RD&D is considered
in the wider innovation context to ensure that programmes and
projects are market driven to deliver new low carbon technologies.
New and emerging low carbon technologies have
a major role to play in helping to move to a low carbon economy.
One of the Carbon Trust's objectives is to help build a UK low
carbon technology sector, which can capitalise on the commercial
value of these technologies here and abroad. LCIP helps meet that
objective. The aims of LCIP are: to encourage innovation to develop
new processes and practices; and to identify and address barriers
and market failures, which are holding back the development of
a "low carbon" economy. The current allocation for LCIP
is £95 million over three years.
LCIP has been designed to provide a funding
and support continuum across the innovation process from early
research through demonstration to commercial exploitation. It
can accommodate a wide range of funding applications from blue-sky
research to near-market technology, which has not yet achieved
"critical mass" in the marketplace. A spectrum of financial
instruments, from grants, guarantees and loans, to equity, convertible
debt, and carbon-linked instruments, will be tailored to meet
specific needs of individual players at whatever stage their project
has reached in the "innovation chain". The programme
will operate in a responsive and flexible manner focusing on those
opportunities which not only offer the prospect of significant
carbon savings but also where the Carbon Trust's involvement and
funding will be material.
LCIP acts, in part, like a venture capital company
seeking a carbon rather than a specific financial return. However,
the aim is to fund technology development projects with a strong
probability that the technologies will become commercially viable
in their own right without long term subsidy. When making an investment,
LCIP considers the appropriate treatment of carbon credits. LCIP
seeks to obtain a financial return where circumstances permit
in order to generate income or capital for reinvestment into the
The four main strands to the delivery of LCIP:
research and development (support
for individual R&D projects, cooperative initiatives with
other funding partners);
carbon finance (incubator services,
seed capital and venture capital); and
market diffusion, including training
and education programmes.
The R&D element of the programme has an
indicative budget of about £18 million over three years.
Spend in the coming years will be very much influenced both by
demand from the market and by the Carbon Trust's Board's assessment
of best value for money in achieving our overall carbon abatement
objectives. The current provisional three year allocation for
the demonstration element is £20 million.
The Carbon Trust works closely with Government
departments to ensure that there is complementarity between LCIP
and other publicly funded programmes and that public funding sources
do not duplicate one another. It also ordinates with public and
private sector organisations to broker project development deals
and lever-in funds where possible.
Action Energythe successor to the Government's
Energy Efficiency Best Practice programme (EEBPp)was launched
by the Carbon Trust in June 2002 to help businesses and public
sector organisations of all sizes cut their energy consumption.
The programme budget for this year is around £20 million.
Action Energy encourages the take up of mature low carbon technologies
and is therefore is complementary to LCIP. The services offered
include a free helpline providing expert advice, online information,
publications providing basic to technical information, free energy
surveys to identify opportunities for energy savings and financial
mechanisms designed to help companies procure energy efficient
products and technologies.
There are two schemes offering financial support
which are designed to enhance to effectiveness of the information
and advice provided via Action Energy:
(i) the Government's enhanced capital allowances
scheme. Under the ECA scheme, companies can set the whole of their
expenditure on designated energy efficiency equipment against
taxable profits. The Carbon Trust is responsible for managing,
promoting and monitoring the effectiveness of ECAs in stimulating
energy and carbon savings investments, and the Energy Technology
List of eligible energy efficiency products.
(ii) the Carbon Trust's interest-free loan
scheme, launched in England and Wales in June 2002. (Scotland
and Northern Ireland already have their equivalent schemes.) The
scheme helps small and medium sized companies invest in energy
efficient plant or processes where previously the cost of capital
was a barrier. Interest free loans of between £5,000£50,000
repayable over four years are available for approved energy efficiency
investments. Total funding for the loan scheme is £10 million
over three years.
The principal Departments with relevant energy
RD&D programmes are: Department of Trade and Industry, Department
for Environment, Food and Rural Affairs and the Department for
Transport. The main Research Councils with relevant programmes
are: Engineering and Physical Sciences Research Council, the Natural
Environment Research Council and the Economic and Social Research
Council. In addition, the Environment Agency is developing its
energy efficiency understanding. The Office of Science and Technology's
interests and responsibilities span all Government funded science
and engineering RD&D including energy related programmes.
The Carbon Trust chairs a low carbon RD&D
liaison group comprising all the above funding bodies. It meets
three to four times per year to keep each other abreast of developments.
The liaison group also has regular meetings with DTI (mainly on
renewables and energy efficiency but also including construction
related RD&D given that buildings account for around 45% of
UK energy consumption) and bilateral meetings from time to time
with other members of the liaison group to discuss specific energy
and low carbon issues in more detail.
At the programme level, the Carbon Trust and
the Research Councils, in particular the Engineering and Physical
Sciences Research Council, have been developing a joint initiative
under LCIP to support targeted low carbon technology R&D projects.
This initiative draws on the market insights available to the
Carbon Trust through its other activities, particularly the LCIP
programme, and the Carbon Trust will take the lead in defining
the priority areas for support. It is progressing through the
respective governing bodies of the Carbon Trust and the EPSRC.
Other Research Councils have expressed interest in participation.
The DTI, DEFRA, DfT and OST are all being kept aware of this initiative,
which is intended to be complementary to any national energy R&D
centre which the Government decides should be established.
At the specific technology level, the Carbon
Trust and DTI have agreed to carry out a joint market assessment
of RD&D needs in relation to the commercial application of
fuel cells. This study is intended to produce an RD&D requirements
map based on what manufacturers and potential users think is required
to accelerate the development and deployment of fuel cells in
stationary applications. Other technology market assessment studies
may follow if that were considered to be helpful. Also in relation
to fuel cells, the Carbon Trust, DfT and DTI are exploring how
best to set up a clearing house or "entry portal", which
would simplify the process whereby prospective applicants for
R&D support apply for Government funding.