"Do you want to be a leader or a laggard?"

BusinessGreen: How would you summarise the Carbon Trust's activities?
Michael Rea: We have five main areas of activity: Carbon Trust Solutions, which provides best practice services and consultancy; Carbon Trust Innovations, which supports the development of new technologies; Carbon Trust Investments, which is our VC arm and invests in early stage companies; Carbon Trust Enterprise, which sets up new companies in areas where the market is not delivering; and Carbon Trust Insights, which aims to help businesses identify the risks and opportunities around climate change.

How do you make the case for the adoption of low carbon business models?
The business case is that this transition will happen and do you want to be a leader or a laggard? If you position the company as a leader you can benefit because it is far easier to do something voluntarily than be forced to do it. The Stern Report has shown that the cost of action is just one per cent of GDP, compared with 20 per cent for the cost of inaction. Those calculations cover the economy overall so there are sectors of the economy where the impact of action could be entirely positive. The fact is that if we do move to a low carbon economy the overall size of the economic pie will not change much, but the distribution of the pie will change massively, which means that there are going to be huge opportunities for businesses and sectors that get their strategy right. On top of that, businesses are also waking up to the prospect of more regulation. The EU's Emissions Trading Scheme, the Climate Change Bill and the Carbon Reduction Commitment are all encouraging really long-term thinking from business leaders.

Is that message getting through?
The world has changed a lot in the last year. A year ago energy intensive companies were engaged with the issue as they saw energy as a big cost and recognised the risk of a price being placed on carbon. But in the last year, consumer facing brands have also realised that being seen as leading edge on environmental practices is something consumers are interested in. That has a knock-on effect, because if Tesco and M&S say to their suppliers that they want to know what their carbon emissions are and what their environmental strategy is, then a huge number of SMBs will also be affected.

Despite that, a lot of businesses still regard climate change as media hype and many have even reported a growing sense of green fatigue. Is there a case that if businesses keep their heads down the current interest in the environment will blow over?
This is not going away. If you think about the government target of a 60 per cent cut [in emissions] by 2050 and work back, then you realise it means fundamental changes in supply chains, operations, in fact every aspect of an organisation. Carbon will become a currency and businesses will have to think about it in the same way they currently think about finance.

So what should businesses be doing?
The first step is always to understand and measure your direct carbon footprint and understand the risks and opportunities posed by climate change. From there you can start to look at ways to reduce that footprint that delivers economic value. There is a lot you can do with energy efficiency, for example, which may be a bit dull but is hugely effective. We find that energy costs come down by between 10 and 30 per cent through the deployment of basic energy efficiency controls and technologies. Then you can look to see if there are any low carbon products or services that would work for your business. Consumers are saying they have a preference for these products and research showed that two thirds favour green products and the same proportion want to know about a product's carbon footprint.

How viable are these types of initiatives?
Measuring your carbon footprint is relatively achievable, but we also have to accept that the market for carbon footprinting services is still at a very early stage. In November we are launching a new footprinting service that is aiming to tackle this problem and provide a simple service for small and medium-sized businesses. There are standards out there, most notably ISO 14064, but there is a lack of practical experience in how to apply the standard. We want to set the best practices so that assessments are carried out in a consistent way and make that service widely available. We currently offer energy surveys and we will combine this new service with that. For smaller organisations with energy bills of less than £3m, the service will be free and for larger organisations with energy bills of over £3m we will ask for a contribution.

Admirable as these types of initiatives are, how are they going to deliver the deep emissions cuts scientists claim we need?
If we are to achieve 60 to 80 per cent cuts in carbon emissions, the technology already exists to get us about half way there – the other half is going to need innovation. But this first step [of measuring emissions and making small changes] is critical, because once businesses understand the implications of climate change and have a clear goal of what is required, they are pretty innovative about how to meet that goal. The fact is that we have to use the power of business to deliver the low carbon economy. It would be impossible to get there without businesses involvement.

Many businesses now accept the important role they have to play in cutting emissions, but they often feel they are not getting the support they need from the government to make those changes. Is this criticism justified?
We do need the right legislative framework and businesses and government need to work together to help the framework evolve. There is a comprehensive framework being developed by the EU, but work needs to be done to make it effective. The ETS, for example, is great in principle but there is no doubt it is performing poorly. There is a need to look beyond 2012 and the government needs to give a clearer signal that the scheme will continue long term and the there will be a price on carbon. The more certainty you can give to energy intensive companies about the level of carbon prices the easier it is for them to factor those carbon prices into investments.

But is that framework being properly extended to the rest of the economy?
The challenge at the moment is for the large non-energy intensive companies and I'd accept that they don't really have the right framework in place. The Climate Change Levy is not a big issue for them as energy is a small part of their cost base and there is still a question over how you incentivise these businesses to go low carbon, particularly if they are not consumer facing. We think the Carbon Reduction Commitment, which is still in development but should extend emissions trading to non-energy intensive companies, will help but the government needs to ensure any carbon credits are auctioned and the money raised distributed back to the companies involved in a way that accelerates investment. That way you can make it cost neutral to businesses but still put a meaningful price on carbon.

What about smaller businesses still? They seem to be the sector with the least reason to go green at the moment.
The government still needs to find the most cost-effective way to support SMBs. Direct support through initiatives such as the loan scheme the Carbon Trust runs is helping, but we'd also like to see more done in terms of product standards, because if you can only buy energy efficient products then that makes the purchasing decision far easier.

About Michael Rea

Michael Rea is chief operating officer at the Carbon Trust. He joined the company in January 2002 as director of strategy, responsible for developing existing and new programmes to reduce carbon emissions in the UK.

Previously, Rea was at McKinsey & Co where he specialised both in corporate and business unit strategy and in performance improvement and developed particular expertise in growth strategy and change management.

Rea is a graduate of University College Dublin where he completed a BEng (Mech) in 1991. He was awarded the faculty gold medal in his final year. He also completed an MBA at INSEAD, Paris in 1996.