The Confederation of British Industry is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as in Brussels, Washington and Beijing, the CBI coordinates British business representation around the world.

Dr Neil Bentley is the CBI's Director of Business Environment. Neil is responsible for leading the CBI's climate change campaign to build a low-carbon economy, working closely with the CBI's Climate Change Board to set the direction for the campaign. Neil also leads the CBI's work on transport, energy, planning and environment regulation. Neil sits on the board of the Carbon Trust.

What should the Government's priorities be for driving carbon reduction?

"In the UK we face the momentous task of meeting ambitious climate change targets, while at the same time we must urgently work to secure our energy supply. And all of this is mounted against the backdrop of a bitter global recession. To meet those objectives we must focus on three things.

"Firstly, energy efficiency must become the immediate focus. The government and politicians are underestimating its carbon and cost-saving power. The government and industry must work together urgently to save a bigger slice of the £8.5 billion wasted in energy in the UK each year.

"Secondly, the UK has ambitious renewable energy targets, and current planning delays and our ageing National grid are undermining the economics of investment projects. The CBI believes national planning policy statements on renewables, carbon capture and storage and nuclear power must be implemented as a matter of urgency.

"Thirdly, our funding for new low-carbon technology is still desperately slow. We now face fierce competition for low-carbon investment on an international front. As the space-race once dominated the 60's - the low-carbon tech race is now on. This should send strong signals to British policy-makers that we need to get going if Britain is to be in with a shout. We are in serious danger of losing much needed investment in the UK to the US and China - we have to make the UK the place to do low-carbon business."

How is Government shaping up to these responsibilities?

"The UK leads the world on legally binding climate change targets and our ambition sets us apart from other countries. But ambition must be matched with action.

"There have been some good signs of life around. New nuclear sites are being sold, the London Array has been given the go-ahead, the government have said they will support up to four carbon capture and storage plants as well as making strategic partnerships with China, and electric cars have been given a boost.

"But there is still a lot of work to be done. Our energy infrastructure moves closer to the rust heap every day. Ernst & Young estimates that £234bn of investment is needed to switch our economy to one that is powered by low-carbon resources.

"We need a massive programme of new nuclear power and need to develop clean coal clusters with carbon capture and storage. We have to hugely increase our use of renewable electricity, and this includes a positive decision on the Severn Barrage.

"It is also vital that we build a skilled workforce who will design, build and maintain these technologies.

"The government will need to use its power, both as a purchaser and as a policy setter. If we are to be successful, and if low-carbon technology is indeed to lead us to recovery, we need the right policy framework that makes the UK the place to do low-carbon business and promotes low-carbon innovation and opportunities to British business."

And what are the priorities for Britain's businesses?

"Business is gearing up for the opportunities ahead. The government estimates the global low-carbon market to be worth £3 trillion and the UK low-carbon goods and services sector is currently valued at £107 billion.

"At the CBI we firmly believe that businesses which succeed in the twenty first century will be those that seize the opportunity to adapt to a low-carbon future.

"UK business has a unique opportunity to enter new markets and develop the technologies which will help us to use our resources in more efficient ways and develop new low-carbon products and services that will deliver substantial cost and carbon savings. A recent Economist Intelligence Unit survey said 40 per cent of firms questioned had developed new products and services to help tackle environmental problems in the last two years and these firms expected demand to grow.

"Britain is renowned for its innovation roots and we also have the opportunity to transfer our skills and know-how around the world."

Are Government and Business adequately prepared for extended carbon trading?

"From next April all organisations with an energy bill of more than a million pounds a year will be expected to comply with new legislation to reduce carbon emissions and improve energy efficiency.

"However, many companies remain unaware and unprepared for what the Government's Carbon Reduction Commitment (CRC) will involve, and could be in for a real shock when these changes become law.

"The objects of the scheme are sound; to increase energy efficiency in commercial property. But the Government needs to do much more to raise awareness within the business community, and to ensure these regulations do not become an unnecessary bureaucratic burden.

"Government must also clearly think about how the CRC will be joined up with other reporting initiatives such as carbon reporting, which is likely to become mandatory for many companies in 2012.

"CRC is an important tool in making energy efficiency a boardroom priority but in order for this not to become a burden on business it must have the proper support in place and be as simple as possible.

"Companies also need to begin thinking about embedding carbon reduction into the core of the business model. Firms need to start gearing up for the CRC now by thinking about how they plan to monitor their energy use, and then they must work to improve energy efficiency to ensure they comply.

"However, the CRC cannot become the government's silver bullet for business. We must encourage energy efficiency through an economy wide drive."

How serious a problem is 'carbon leakage'?

"Carbon leakage is a problem related to the European Emissions Trading Scheme (EU ETS). A robust emissions cap is essential to an effective emissions trading scheme. But the way in which allowances are allocated to participants in the scheme also has a bearing on whether the scheme will succeed in delivering the necessary cuts in emissions at least cost.

"Ideally, all participants in the scheme will bear their full carbon costs. This will mean all firms will have an equal incentive to cut emissions according to the cost of doing so, and the carbon cost of different products and services will be more apparent to final consumers, which is necessary to stimulate green consumer purchasing behaviour.

"But, if the varying exposure of sectors to international competitive pressures is ignored, and vulnerable sectors bear a carbon cost through auctioning that is not faced by competitor installations outside the EU, it can become harder for them to maintain production and attract investment.

"Carbon leakage is the movement of industrial production and/or investment outside of the EU resulting in increased imports and/or reduced exports. It is a very serious problem and over half of 258 industrial sectors in Europe have been assessed as being potentially at risk of carbon leakage.

"While an international climate change agreement at the Copenhagen summit in December 2009 may reduce the risk of carbon leakage, whether this happens will depend on governments putting in place policies which put a cost of carbon on competing industrial sectors.

"A robust international deal at Copenhagen will be important in laying the foundations to a global cap and trade scheme - buy-in from countries such as India and China will be vital."

Please tell us about the CBI's low carbon strategy 'Roadmaps'

"The CBI has set out its vision for a low-carbon economy in a series of climate change roadmaps. The roadmaps, called 'Going the Distance', highlight steps to be taken between now and 2020 in power, transport, buildings and industry, and sets out a timetable of action to ensure carbon emissions targets are met and open up business opportunities from roof insulation to nuclear power, from smart meters to electric cars.

"They also show what businesses will be expected to deliver in response and are designed to get government thinking about the need to plan strategically and send the right market signals.

"If business is to invest in a low-carbon economy, it needs confidence and certainty. And market certainty comes from policy clarity. We know that if the policy framework is right, business will deliver."

How will the recession impact the push for a low carbon economy?

"I am firmly of the opinion that the recession is not being used as an excuse for inaction on climate change.

"I believe that the recession is giving business a fundamental opportunity to revaluate how our economy functions. We now have an opportunity to radically change this to a more sustainable economy, which does not base itself on unsustainable consumption of energy, materials and resources.

"Business is beginning to innovate and grab the opportunities presented by a shift to a low-carbon economy.

"If we move quickly we can become a low-carbon market leader, and by doing so create jobs in the UK and export our skills and our know how around the world. There's no time to lose."

What is your proudest low carbon achievement?

"My proudest achievement has to be pushing the message about moving to a low-carbon economy to the business community and making the CBI a strong voice on climate change.

"The CBI is a leader in the field on policy thinking around the low-carbon agenda and we have actively lobbied the government to set the conditions which will help British business prosper from the opportunities of a low-carbon economy."

What is top of your in-tray?

"We have a very exciting project in the pipeline which we are launching in a month's time. I cannot say too much at the moment, we are keeping it well under wraps, but watch this space.

"We also have a consumer campaign launching very soon which will be looking at how business can enable consumers to reduce their carbon footprint through low-carbon products and services."

Any advice for fellow low-carbon practitioners?

"If you want to try and really deliver a message on sustainability you have to be targeted. At the CBI we know the steps that need to be taken in order to deliver a low-carbon economy, so these will now be the focus of our climate change lobbying.

"A lot of people are making noise about climate change, so it is important that you remain clear and consistent in your messaging as this will help you to drive the agenda and become a leading voice in the field."

www.cbi.org.uk/climatechange

Green Taxes – The Elephant In The Room?

“Tax doesn’t have to be taxing” HM Revenues and Customs regularly tell us in its TV campaigns. Maybe so, but it certainly needs tweaking if we are to make progress with emissions reduction, according to a growing body of opinion.

The key argument is whether emissions trading will by itself deliver the reductions we need in the time we have available, or whether taxation in some form is inevitable. This debate is emerging against a backdrop of a wider recognition that our tax system in general needs an overhaul if it is to deliver positive changes to society, and reflect the future challenges the UK faces.

The clearest sign of a general rethink is the work of the Institute For Fiscal Studies (IFS) under the Chairmanship of Sir James Mirrlees. The Mirrlees Review aims to set out a new framework for thinking about taxation in a way not seen since the late 1970s. Given concern about global warming, it is no surprise that environmental taxation is the focus of an entire chapter of the Review.

Dwindling green taxes

According to the IFS environmental taxes provided around £35 billion for the government in 2004 of which some 90% came from fuel duties, associated VAT, and vehicle excise duty. However, in real terms, revenues from environmental taxes peaked in 2000 at almost £37 billion. As a share of national income, revenues from environmental taxes peaked in 1999 at 3.6% but by 2004 this had fallen to 3.0%, and as a share of total tax revenue, they peaked in 1999 at 9.8% but by 2004 had fallen to 8.3%.

So whichever way you look at it, the contribution made by environmental taxes has declined in recent years. The single most significant factor in this has been the Fuel Duty Escalator, which was introduced by the Conservative government in 1993, and subsequently scrapped under Tony Blair’s leadership.

But emissions trading, our main weapon against rising emissions, may not be “the silver bullet we’ve all been looking for,” Shadow Chancellor George Osborne conceded in a recent speech. “Green taxes can provide certain and stable price signals for business, and they can designed so that they are simple, transparent and difficult to avoid…we should put a floor under the price of carbon using green taxes,” he said.

We shouldn’t be too quick to dismiss emissions trading schemes, Lord Nicholas Stern suggests in his evidence to the Mirrlees Review. To be effective, a trading scheme needs to show a clear policy direction, otherwise companies will not make the investment needed to bring about the desired changes. It must also be flexible enough to take account of the empirical evidence of its results, and finally it must be clearly understood by companies when and why policy might change. Failings in any of these areas could encourage companies to adopt a “wait and see” approach.

Judged by these criteria, the first phase of the EU Emissions Trading Scheme was not a great success, Stern concedes. Real shortages were not created, prices were very volatile and eventually settling at a low level. Crucially, allocations were “grandfathered” rather than auctioned.

“The important point, however, is that none of these aspects of a trading system is inevitable. Indeed the EU has clearly learnt from the first phase, has tightened up allocations in the second phase and has recently indicated a desire to move to 100% auctioning of allowances in the third phase,” says Stern.

Tax or trade?

The criteria of any new carbon taxes will be different. A key question would be where the balance lies in changing people’s behaviour as distinct from generating revenues. Clearly, a tax that costs more to implement than the revenues it creates is not sustainable, although it may be justified in the short-term by beneficial changes in our behaviour.

Would any new carbon tax be compromised by the need to strike a balance between revenues and changing our behaviour for the better? Professor Paul Ekins of Kings College London and Director of the Green Fiscal Commission thinks not.

“Some environmental taxes do extinguish their revenue base,” he says. “We saw this with leaded petrol, for example. But the tax on plastic bags in Ireland made for an interesting exchange in the Irish Parliament. Use of plastic bags dropped like a stone after it was introduced – something like 90%. But the 10% left still generated significant revenues. Then the tax was raised again and use of plastic bags dropped to 8% of the original level.”

“What was interesting was that Irish government raised more in taxes from the remaining 8% than they had from the 10%. So green taxes can produce significant changes in behaviour, but not so much that they extinguish their revenue base,” he says.

Election behaviour

With the political parties eyeing opinion polls and media headlines ever more closely we are unlikely to see any brave policies unveiled soon, he thinks. “No party is going to risk the Daily Mail jumping up and down this side of an election.”

Howard Reed, Research Associate at the Institute of Public Policy Research, agrees. “[The Government] won’t announce anything that raises controversial issues one year off an election,” he says. “I know from my contacts at the Treasury that there will be some minor green issues in the next budget, but green issues have gone a little onto the back burner,” he says.

“The Conservatives have been making the right noises, but it’s not clear how strong their commitments are. For example, they came out against a new runway for Heathrow, but when you look at their statements more closely they don’t seem to rule out more runways in other places. The Conservatives won’t produce a green tax revolution, it’s more likely to be a half-way house,” he says.

Key questions:

• Do we have policies for auditing our carbon reduction activities?
• Could we exploit Enhanced Capital Allowances for green technologies?
• How are our travel policies helping us to reduce emissions?