Select Committee on Science and Technology Appendices to the Minutes of Evidence


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 community.

  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 are:

    —  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 Wales—partly via funds voted by Parliament and partly from climate change levy receipts.

  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 programme.

  The four main strands to the delivery of LCIP:

    —  research and development (support for individual R&D projects, cooperative initiatives with other funding partners);

    —  demonstration projects;

    —  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 Energy—the 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.

September 2002

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