Counting the cost of carbon

Simon Keel at Daikin Airconditioning UK sets out the challenges ahead.

Businesses have seen energy efficiency and climate change moving up their priority list in the last few years - now new carbon reduction regulations have been announced these issues are becoming even more prominent with an escalating impact on HandV decision making.

Energy efficiency has been no stranger to businesses in recent years as a combination of high energy prices, changing environmental legislation and the societal pressure of the need to have a small carbon footprint have combined to make energy efficiency a priority.

In our own industry we have seen this reflected in the development of products and in the type of enquiries we receive from end-users.

Whereas, historically, specification of products focused largely on cost, energy efficiency performance has now found equal footing in the list of priorities when it comes to selecting air conditioning equipment.

We have been no stranger to this ourselves at Daikin, and now see energy efficiency as one of the most common enquiries from our partners.

Indeed, in line with Daikin's environmental commitment our VRVIII product range was developed specifically with this priority in mind.

While the focus is to be applauded - particularly given the need to reduce the UK's CO2 emissions in line with the UK's targets - we cannot escape the fact that the primary driver for energy efficiency remains cost.

This is understandable, businesses' primary commitment remains their bottom line and tactics, such as selecting more energy efficient equipment, that can improve their operational costs will always be welcomed.

So far, that these same decisions have offered improved environmental performance and reduced emissions have been an additional and welcome benefit.

While there is nothing inherently wrong with this strategy, the worry is that as soon as energy prices stabilise the priority for energy efficiency drops and so products become selected on a different basis.

Following volatility in energy prices during 2005 and 2006, last year saw some stability in energy costs and it would be interesting now to canvas opinion as to the priority being given to energy efficiency for the coming year.

A strategy based on cost and short-term financial gain does not take into account the bigger picture.

As Britain moves toward a Low Carbon Economy, financial performance and carbon emissions will become evermore linked as new legislation calls on businesses to reduce carbon emissions and provides them with some financial incentive to do so.

Such legislation is already in place for large emitters of CO2 in the form of the EU Emissions Trading Scheme, but new legislation will soon see this brought to a whole new set of businesses.

The Carbon Reduction Commitment (CRC) announced in 2007's Energy White Paper will be a new cap and trade scheme aimed at companies with an annual energy consumption of 6,000 MWh.

This is likely to include organisations with particularly large or many small sites, such as supermarket and hotel chains and local authorities.

With approximately 14 million tonnes of CO2 covered at this level, the CRC is expected to deliver some 1.2 million tonnes of carbon savings a year by 2020.

It is anticipated that some 4,000 to 5,000 organisations will be included in the CRC when it goes live.

The exact way in which it will work is not yet finalised, but it is expected participating organisations will be allocated allowances depending on the amount of CO2 they expect to release.

According to how they perform, they then retain these allowances, sell unused allowances or purchase the additional allowances required.

Put simply, perform well by achieving emissions lower than your target and you stand to benefit from trading the allowances you have left; perform badly and be forced to buy additional allowances according to how far over your target you have gone.

Moving forward the CRC's aim is to create a cost for CO2, providing the financial incentive for businesses to reduce their CO2 emissions.

Businesses will have the potential to benefit not only from the reputational benefits of a small carbon footprint, but also the additional revenue that will come from trading carbon allowances.

In this model, energy costs can no longer be considered the primary driver for energy efficiency.

Regardless of the prevailing energy prices the need to reduce CO2 in line with a company's carbon allocation will make energy efficiency an on-going priority.

With this in mind, those products that provide the best energy efficient performance will be the products of choice as businesses look at ways of reducing their energy consumption and carbon outputs.

So what does all this mean for the HVAC industry? Put simply, by placing a new priority on energy efficiency for end users, it places a new priority on us.

We can expect to this to be seen in the decisions businesses make on HVAC equipment and in the information they demand from manufacturers, specifiers and installers.

Arguably, it will also bring a new view on whole life costs, which have historically been a mixed affair in purchasing HVAC equipment.

When whole-life cost calculations have to be based on CO2 reductions as well as the costs saved, an investment in more efficient equipment can be more readily justified.

And just as businesses benefit from better energy efficiency so too will those HVAC manufacturers who can respond to their needs - the Low Carbon Economy in action.

We have seen the HVAC industry respond in the products that have developed in recent years and we believe at Daikin we are well placed to respond to changing legislation.

As a market leader, we are constantly raising the bar on product development, investing heavily to bring the most advanced, innovative and energy efficient air conditioning systems to the market.

Our systems offer significant energy savings on fuel bills for the end-user, a major reduction in operating costs, low carbon emissions and lower noise levels than those of contemporary systems.

While the CRC is not legally binding until 2010, businesses will need to start preparing from 2008 in order to be ready for compliance when it is introduced.

Whether they are affected by the CRC or not, the HVAC industry now faces the same challenge.

Back to top