Carbon budgets confirm low carbon revolution is ready to roll

Any firm thinking that the bleak economic outlook may mean it has to stick green initiatives on the back burner for a couple of years received quite a wake up call yesterday, with the publication of the first wave of carbon budgets by the government's independent climate change committee.

It is a truism that the green lobby is never really satisfied and true enough, environmental groups were quick to condemn the committee headed up by Lord Adair Turner of not going far enough and fudging recommendations on aviation and coal-fired power stations. But they also all know that the report is far more ambitious than any of them would have expected, even three months ago.

As Alex Lambie of advisory firm Green Helpline observed, this is arguably the first official report that "stacks up against the requirements dictated by climate science, rather than looking at fiscal policy first".

Consequently, the targets set out by the committee go significantly further than the already ambitious goals endorsed by the government and the EU.

Even the shallower cuts the committee recommends of 34 per cent on 1990 levels by 2020 – that's a 21 per cent cut on the most recent official figures – are a step up on what the government has been planning for. Consider that it also wants the government to sign up to cuts of 42 per cent on 1990 levels by the same date in the event of an international agreement on binding emission cuts being reached at the UN's climate change conference – a distinct possibility following Barack Obama's post-election commitment to make sure the US plays a constructive role in the negotiations – and it becomes obvious that what the committee is really calling for is one of the most dramatic transformations the UK economy has ever seen in modern times.

The implications for businesses are both daunting and wide reaching, but they are also laced with countless opportunities.

The first thing businesses have to realise is that regardless of the current economic problems, the government is facing these targets will be adopted. It may fine tune some of the small print to make meeting them a bit easier (I'd be extremely surprised if it doesn't raise the suggested 10 per cent cap on the proportion of carbon credits it can buy in from abroad to help count towards the target), but in essence the government is committed to the goals set out by Lord Turner and his team.

There is no point setting up an independent committee modelled on the decision to give the Bank of England control over interest rates and then ignoring its core recommendations, and the government accepts that to water down the targets will leave its claims to leadership on climate change in tatters.

Secondly, businesses need to accept that the government must be seen to try and meet the targets.

Some observers have criticised the climate change bill for lacking teeth, but in many ways, it is stringent as it can be without raising the unworkable, if occasionally appealing prospect, of locking up cabinet ministers.

The government will have to report annually on its progress towards meeting the targets and offer explanations if it is falling short. Miss one of the five year carbon budgets, and it opens itself up to the prospect of a highly embarrassing judicial review.

What all this means is that the government's climate change strategy will have to become far more ambitious still.

Yesterday's report may only offer recommendations on how the targets can be met, but the simple truth is that the vast majority of them will have to be adopted.

We will have to wait until next summer to see the government's official report on how to ensure the 2020 targets are met. But there is now virtually no doubt that it will include the introduction of more generous incentives for renewable energy in the form of a feed-in tariff, greater support for energy efficiency initiatives, the expansion of carbon trading to include more businesses, more green taxes, the roll out of smart grid technologies, the installation of carbon capture and storage systems, the development of electric car recharging infrastructure, greater incentives for low carbon cars and higher penalties for the most polluting vehicles, the building of a new fleet of nuclear power stations, and faster approval for large scale renewable energy projects such as the Severn Barrage and offshore wind farms.

At the individual business level, all this means that there will be countless opportunities for firms developing low carbon technologies and generous incentives for those organisations that do take steps to deliver deep cuts in their emissions.

Meanwhile, energy bills will inevitably rise at a rate far faster than inflation in order to help pay for it all and the cost of motoring will tick ever upwards as the government seeks to force people and businesses to invest in energy and fuel efficiency.

Faced with these realities the question for business leaders is not if to act, but when.

The temptation will be to wait until the economic recovery begins and the government's plans for meeting the emission targets, and more importantly the incentives that will inevitably be on offer, are more firmly in place.

But this temptation has to be resisted. Partly because there are only 11 short years until 2020 and neither the economy or the planet can afford to waste any of the time. And partly because when you consider the historical precedents set out by all technology revolutions, it is those businesses that act early to cut their energy use and decarbonise their business models that will reap the greatest benefits from the emergence of the low carbon economy.