Under the Government’s Carbon Reduction Commitment (CRC) scheme, announced last May, from next year every organisation that consumes more than 6,000 megawatt hours of electricity in 2008 or about £500,000-worth will now buy carbon allowances.

The mandatory cap and trade scheme will affect 5,000 large companies and local authorities in Britain and is aimed at slashing the country’s total carbon emissions by an extra 1.2 million tonnes a year by 2020. (Source: The Times, March 31, 2009)

However, in a struggling financial climate, can UK businesses afford the time and expense in delivering what may be viewed as ‘another layer of bureaucracy’? 

Unfortunately, in the UK’s recently launched economic rescue package, there appears to be “negligible” spending on green measures – as campaigners claimed in a report published today.

According to Andrew Simms from the New Economic Foundation, only 0.6% of the promised £120m government stimulus package to offer businesses the incentive to create and deliver a low-carbon economy was delivered. 

Compared with the £775m bonuses paid to staff at the Royal Bank of Scotland and £2.3bn handed to the car industry, the environmental sector has been short changed.

Gordon Brown has claimed that around 10% of the stimulus package is directed towards “environmentally important technologies”, thus this figure not only conflicts with the amount of 0.6% offered, it also does not meet the proposed funding targets by Lord Stern, a target of 8% of Gross Domestic Product annually in green stimulus spending.  (Source: guradian.co.uk – March, 30 2009)

As businesses are driven by the new CRC target to invest in carbon saving measures, it appears that the UK green stimulus package is not doing the same.  In fact Boris Johnson was seen to be halving his Environmental team in London this week, setting the tone for difficult environmental times ahead.

But is the CRC really compromising the bottom line of businesses, or in fact creating financial savings through less energy consumption over time?  It appears that the financial impact of the CRC scheme will grow in the longer term, with an introductory phase due in April 2010, under which all allowances will be sold at a fixed price, and from April 2013, allowances will be allocated through auctions, with the number of credits available being reduced over time.

The proceeds of these auctions will be paid back later to businesses (based on their performance during that year) and ranked in a league table based on carbon reduction actually achieved. (Source: The Times, March 31, 2009)

©WWF, Japan

As explained in a previous article, the Japanese Government has been examining its mid-term goal of greenhouse gas (GHG) reductions (2020) and is going to announce it in June. On 12 February, the committee on the mid-term goal, which has been established under the conference on global warming of the Government and has examined the mid-term goal of GHG reductions, proposed six plans concerning the GHG reductions. According to the six plans, proposed reduction rates range from a 6% increase to a 25% decrease.

Then, on 27 March, the committee disclosed results of economic impact assessment of those plans, which were carried out by several research institutes. The ranges of GHG reduction rates in this analysis became slightly modified to those of a 4% increase to a 25% decrease because the previous trial calculations of the reduction rates in GHG emissions looked at CO2 only, excluding other greenhouse gases that were included in the current trial calculations.

Economic impact assessment was carried out based on an assumption that Japanese GDP would increase annually by 1.3% and analysed economic impact of five plans compared to the other plan of increasing GHG emissions by 4%. According to the results of economic impact assessment, for example, in a case that Japan would reduce GHG emissions by 25%, the cumulative GDP losses by 2020 would be 3.2% to 6.0%; the maximum increase in the annual average unemployment rates would be raised by 1.9%; disposable income per household in 2020 would be pushed down by 220,000 yen to 770,000 yen.

Because the results of economic impact assessment of GHG reduction plans strongly emphasized negative economic effects, if people read them, they might feel threatened not to agree to the great reductions of GHG emissions. Although environmentalists and those who believe in ecological modernization (EM), may argue that strict environmental regulation would have positive economic effects, the committee might underestimate or even neglect positive effects of reducing GHG emissions greatly. Surely, environmentalists and EM believers would not agree to the results of economic impact assessment.

The battle between the industry side and the side of the Ministry of the Environment (MoE) over the mid-term goal of GHG reductions has been recently critically severe. In order to make people to stand by their own side, both of them have shown their results of economic impact assessment and cost estimation of GHG reductions. For instance, the Institute of Energy Economics, Japan, under the jurisdiction of the Ministry of Economy, Trade and Industry (METI), estimated that reducing GHG emissions by 7% by voluntarily introducing most up-to-date energy saving technologies would cost totally approximately 52 trillion yen by 2020. On the contrary, the National Institute for Environmental Studies, under the jurisdiction of MoE, analysed that reducing GHG emissions by 25% would cost annually approximately only 7 trillion yen. According to Sankei Shinbun, this difference was generated by different preconditions between them over costs of introducing energy-saving technologies and diffusion rates of them. Further, several economic associations, including the Economic Association of Japan (Nippon Keidanren), jointly carried out opinion advertising in major newspapers on 17 March. They emphasized that only the small amount of GHG reductions would cost 52 trillion yen for the society as a whole and approximately 1.05 million yen for each household. Regarding this argument, Tetsuo Saito, the Minister for the Environment, criticized that such an argument would be misleading people because it was the opinion of the industry side. World Wide Fund for Nature (WWF), Japan, also complained that if energy saving technologies were domestically used, it would expand domestic demand.

Although environmentalists and MoE have often criticized negative campaigns of the industry side including METI, it might be unfair if they were not entitled to do so. Because there are millions of uncertainties in economic assessment and cost estimation of GHG reductions, there might be no ‘right’ arguments and a wide range of conflicting opinions/data/analyses should be discussed in public whether they support for GHG reductions or not. Thus, the number of different opinions/data/analyses might be less important.

The more important thing is rather ‘who choose?’. It might be a waste of time and money if the Government did not ask what people want though a number of both public and private organizations/groups/individuals showed their own opinions/data/analyses to people. Choosing a plan for the mid-term goal of GHG reductions is a very important choice for the Japanese future. People should be involved in this important choice process. Because of millions of uncertainties over economic/social/environmental impact of GHG reductions, it might be highly difficult for the Government and Prime Minister to take a responsibility for consequences of the choice. Different opinions/data/analyses should be showed to people by different sides, especially the industry side and the MoE side. Then, examining them, people should choose a plan for the mid-term goal of GHG reductions even though they would choose the worst plan for the environment.