Saturday 22nd November 2014                 Change text size:

Cut carbon or put profit first? Who says you can’t do both?



Photo: Dimitri Castrique via stock.xchng

Those of us with an interest in the energy industry are aware of the pressures businesses and organisations are under to meet ever tighter government environmental legislation. But do we all really appreciate what they are up against?

What would you do if you had to cut your carbon emissions by, say, 25%? Here’s an idea – if you’re a local authority, why not shut a quarter of your schools and get the problem off your desk. Is that the government’s objective?

This might sound flippant, but there are examples of this kind of rationalisation in industry as businesses stop renewing building leases in an attempt to save carbon by shutting the store. These businesses mistakenly assume that in order to save energy, they should expect to use less energy. This is where improved energy efficiency measures can help.

Businesses needn’t assume that in order to save energy they should use less energy

The problem is that the concept of energy efficiency is all too often oversimplified by the government and industry and related to energy ratings. In fact, the key to understanding efficiency is not to enforce a product or technology, but to examine a business’ use of energy. This is the most effective way to reduce the input energy needed to meet the real business need.

Most businesses only burn energy in order to deliver the business they’re actually looking to make revenue from. Businesses needn’t assume that in order to save energy they should use less energy.

Let’s take a hotel chain as an example. Next time you stay in a hotel, just think about the heating and hot water costs. These remain constant whether the hotel is full or practically empty. The cost of running a building is disproportionate to the revenue per person.

Taking such desperate measures as turning off the heating or hot water would result in dissatisfied guests and possibly fewer occupants. Closing half the rooms to save energy might turn away potential business. Warm rooms and good quality showers, on the other hand, will attract more guests.

What this means is that you can’t meet a business’ key objective of profitability with environmental policies that only look at the energy meter. What we really need to understand is the energy cost for delivering the unit of service or product, such as how much energy each hotel guest on average consumes.

To continue with the hotel scenario, we need to define both the embedded energy for the process and also the potential for waste related to delivery when the full service is not needed. We need to define a bespoke, demand led, variable delivery system where output capacity for, say, hot water reflects the number of guests at the hotel and therefore revenue income at that time, reducing waste whilst improving efficiency and profitability.

If more people decided to book into our hotel, and it still uses the same amount of energy as before (because of its improved efficiency), the cost per process would fall. If your customer satisfaction not only increases due to improved showers and warmer rooms but your total energy consumption actually falls (as experienced by Zenex’s own customers), then your efficiency is improved by more than just the saving off the meter.

There’s no catch – if businesses manage their energy better, they can cut their carbon, improve their bottom line profitability and customer satisfaction, and enhance their reputation in the eyes of shareholders. Rather than emphasising cutting carbon, the government should focus on encouraging businesses to manage their energy profile better. As the hotel example shows, improving energy efficiency is directly related to a business’ bottom line.

If businesses manage their energy better, they can cut their carbon, improve their bottom line profitability and customer satisfaction, and enhance their reputation in the eyes of shareholders

The government needs to look again at how to encourage businesses to save energy and carbon.

Make energy efficiency measures affordable and pass the free markets choice of natural selection, as in, if it’s good for you, then you’ll do it.

Support commercial business needs: the legislation that is driving the carbon reduction commitment shouldn’t burden businesses with more ‘tax-like bureaucracy’ policies but encourage affordable capital and off balance sheet measures in favour of reducing business operating costs, especially relating to energy and therefore carbon emissions.

Outcome related policies will do more to stimulate business growth and UK business success in very difficult global trading conditions than just loading our nation’s businesses – and customers for that matter – with increased product costs.

Introduce more flexibility in budgeting for the public sector – businesses can more easily afford energy efficiency measures with short pay back periods as long as they’re prepared to allow some flexibility in how they account for their budgets, such as revenue and capital.

One of the worst examples of budgetary chaos is the government whose rigid lines of expenditure mean that public organisations can’t make savings without losing a proportion of their budgets and can’t swap capital for revenue savings. Compare this with commercial businesses who can decide that a capital expenditure on energy efficiency measures that provides a return on investment in less than two years is both sensible and enables a business to improve its profitability given the same sales.

Do all this and businesses will cut carbon and remain profitable. This needn’t be an either/or situation at all – when you consider energy efficiency, think of it as win-win.

Chris Farrell is the managing director of Zenex Technologies, a British company founded in 2003 specialising in innovative energy saving products for both the domestic and commercial markets. This post originally featured on his blog, The Green Entrepreneur.

Further reading:

EU energy legislation: it’s time to steady the ship

Will the green deal energy efficiency scheme work?


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