Examination of Witnesses (Questions 40-59)
DEPARTMENT FOR
ENVIRONMENT, FOOD
AND RURAL
AFFFAIRS & THE
CARBON TRUST
5 DECEMBER 2007
Q40 Dr Pugh: £9 million on marketing.
Mr Delay: In total over the period.
Q41 Dr Pugh: If a sceptic were to
say some of the results you got were the result not of clever
marketing or clever product production, but more due to the fact
that industry has now the fiscal and maybe moral imperative to
be inclined to save money, obviously the test of that, the test
of your value, would be if you could point to some study that
showed a range of companies which have nothing to do and you showed
their energy savings, and then you showed us a company you had
nothing to do with and you showed substantial energy savings.
Has any piece of work been done that would convince a sceptic
who would say a lot of things you are doing will happen anyway,
whether or not you are there to encourage them?
Mr Delay: I think the answer is
no, that work has not been done. You are quite right, it would
be very interesting to see the degree to which the incentive that
the Carbon Trust represents to business in the UK is actually
a determinant in achieving those carbon savings and what is achieved
by people who do not work with the Carbon Trust and might not
even be aware of the Carbon Trust.
Q42 Dr Pugh: Because there are fiscal
incentives to do the right thing.
Mr Delay: Indeed.
Mrs Ghosh: Of course, in a sense,
success is where the Carbon Trust does not need to exist; this
is the point about how one might shift from, for example, the
solutions work into the innovation work. As all these carrots
and sticks have an impact and the general political atmosphere
has an impact on business, then in fact the Carbon Trust could
do less of that and more of the other, so that is the kind of
debate we are always having with them. In n years time
the Carbon Trust need not exist would be success.
Q43 Mr Curry: My problem is whenever
anybody mentions the word the Carbon Trust I immediately assume
it is probably the pension fund of the National Union of Mineworkers;
it is a crackpot name because it does not tell me what it does.
It is a bit like Relate which used to be the Marriage Guidance
Council; at least you knew what it did then, but it is now called
Relate and you have not got the faintest idea of what it does.
Mr Delay: Yes.
Q44 Mr Curry: You are a management
consultant, are you not?
Mr Delay: No, I spent 16 years
in industry—
Q45 Mr Curry: No, not you, your business,
the Carbon Trust business, you are a management consultant.
Mr Delay: I do not think we are
a management consultant; one part of the Carbon Trust provides
advisory services and we manage that through clear-cut management
relationships and indeed there we send in consultants to provide
advice to businesses directly, that is correct.
Q46 Mr Curry: My point is that if
you are advising businesses on how to save energy, why on earth
should that be in the public sector? I cannot think of a single
good reason why that business should be a public sector business.
Mrs Ghosh: Clearly, this was an
issue that was considered when the Trust was originally set up
and ministers looked at the parallels, as the Report says, with
the Energy Saving Trust, which I think you will also be looking
at in due course. The conclusion reached and the kind of feedback
that the Government then got from businesses was that they would
have a greater trust—I suppose this is a sad reflection
on government—in the independence and the nature of the
advice that they were getting for business if it were from a private
sector company rather than from, as it were, an NDPB or other
wholly public sector organisation. The recognition and trust kind
of figures that the Report shows support that, but again as the
Report says it is indeed a private sector company, it is a very
particular kind of private sector company and there are the kinds
of influence that the Government, while absolutely supporting
the arms length position of the Trust, has in terms of its significant
input as a non-executive on the board, quarterly reports and the
very, very significant performance targets and measurements that
we get out of the Trust.
Q47 Mr Curry: Does not the way you
are set up illustrate exactly what is wrong about the whole debate
on climate change. You have been set up as a sort of philanthropic
organisation, you do not make profits, and yet the whole thrust
of the Stern Report was that is about economics, not about philanthropy.
Would it help if the appeal was much more to self-interest and
less to altruism? With oil at $100 a barrel, even with the dollar
at $2.10 to the pound, is it not time to say to businesses if
they have not got enough nous to want to pay solid brass to get
their bills down and have somebody making money out of giving
them the advice like a proper management consultancy does, that
is the time to do it.
Mr Delay: The reality is that
for the vast majority of businesses the most cost-effective measure
they can take is through a programme of energy efficiency. The
reality is that businesses do not prioritise energy efficiency
and indeed energy cost reduction because it is a relatively small
item, it is not seen as a high margin area that has great potential
for growth in the business and therefore it is a little bit the
unloved orphan in the family at this point. It has been that way
for many, many years. I ran businesses for Shell in the course
of quite a long career and I cannot remember what the energy bill
was of any of those businesses, it simply did not register as
being a significant enough cost to warrant -
Q48 Mr Curry: What was the price
of oil when you worked for Shell?
Mr Delay: Way down in the thirties.
Q49 Mr Curry: And the price of oil
now is nudging a hundred even though the dollar/pound relationship
is different.
Mr Delay: Indeed, but wholesale
energy prices have not gone up by a factor of three. The fact
remains that energy efficiency measures are crowded out of the
management agenda and of the investment priorities by many other
more interesting investments and they also have the issue of being
quite resource-intensive, they are quite difficult to make happen,
so for many businesses not only is it not the most exciting in
terms of financial returns but actually it can be seen to be a
big drag on the business in terms of its own internal resource;
hence, we do need to provide a lot of incentive to business to
take up the actions that we are seeing. We believe that we are
being effective now, but what I very much hope actually is that
the momentum being built up within UK business at the moment will
carry forward, the larger businesses will largely be able to do
it on a paid-for basis—that is the way we are moving. Our
carbon management offering two years ago was 100% funded by the
public sector; today that is down to 30% and we went through last
year a 50% minimum buyout.
Q50 Mr Curry: Where would you like
to be in five years?
Mr Delay: In terms of that level
of the market not using any public funding whatsoever, with a
very strong focus on innovation, new low carbon technologies,
new business models and ways of doing business.
Q51 Mr Curry: Would you like to be
a plc, would you like to make profits to reinvest in your own
business, get more people, give incentives?
Mr Delay: No, because as a public
good company we believe we are uniquely placed. We cannot issue
any returns that we make as a dividend, but we can reinvest them
in the mission of the Carbon Trust. We have an extraordinarily
talented group of staff who I believe are very incentivised by
the mission that we are working towards, to accelerate the move
to a low carbon economy; I do not believe that a move to a plc
would be an advantage to the Carbon Trust for a number of reasons,
not the least that I cannot see in the foreseeable future a time
when there will not be a case for public funding supporting some
of our activities that otherwise would never be paid for. Typically,
the work with SMEs is going to need to be publicly funded for
quite a long time.
Q52 Mr Curry: Yes, the fact that
they are public funded does not necessarily mean you have got
to have a vehicle, with your sort of slightly curious constitutional
position in order to provide it, does it? Lots of people can have
access to public funding and be entirely private sector funded.
Mr Delay: No, but I do believe
there is some real merit in the public/private nature of the Carbon
Trust and the way in which it is set up. Our funding is primarily
from the public sector today, with an increasing and growing stream
of private sector funding. The management of that resource and
the allocation to task is down to a private sector controlled
board and investment committee and that is proving to be effective,
that is what the NAO review has said.
Q53 Mr Curry: You have said that
when you were working for Shell one of the problems was to get
senior management to think that this mattered enough, took enough
management time.
Mr Delay: Yes.
Q54 Mr Curry: Because energy costs
were somewhat less at the time. Is that still the problem now?
In this table on page 19 cost is said to be the major element
there, but does it not suggest that it is just too much of a fag,
quite frankly, to do it?
Mr Delay: I would say lack of
time is the second item, insufficient benefit to the business
is the fourth, not suitable for our business is the fifth and
management board are not supportive is the sixth.
Q55 Mr Curry: So the problem you
had then is still there.
Mr Delay: It is; it is a problem
that is changing quite quickly and that is why I say I believe
UK business is on the move, larger businesses—and many more
sophisticated smaller businesses, it is not just the domain of
the large—are actually taking a more proactive stance because
they see the business opportunity in tackling climate change head-on,
but 65% of businesses on the day of the Queen's Speech said they
believed that mitigating climate change as per the Stern recommendation
was simply too expensive. We need to find a way of effectively
addressing that 65% and turning it into a minority.
Q56 Mr Curry: When you use the phrase
"business opportunity" what do you mean? They can cut
their costs, is that what you mean by a business opportunity?
Mr Delay: Yes, you can invest
to save energy, to save emissions and see a medium term return.
The net present value of energy efficiency investment in business
is almost always positive and almost always has a payback of less
than three years. Our challenge is to actually get businesses
to recognise that opportunity and prioritise it above other things
that they would otherwise be focusing their investment on.
Q57 Mr Curry: One of the groups of
people you should be approaching presumably are the major institutional
shareholders of the big companies.
Mr Delay: Indeed.
Q58 Mr Curry: So that they put pressure
on the management.
Mr Delay: We do, and we have an
investor engagement programme that targets just that.
Q59 Mr Curry: Who are you finding
to be responsive to that?
Mr Delay: It is actually quite
difficult. On the whole analysts will take a very short term view
of the business—
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