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How does global warming affect my business?

It’s no longer just a scare-mongering myth. Climate change is real and it can no longer be ignored.

Global climate change targets have encouraged countries all over the world to put policies in place to reduce their carbon emissions and this pressure will inevitably be transferred to businesses and consumers alike.

In today’s modern world, energy plays a fundamental role. Our current way of life would be an impossibility without it.

We’re all guilty of taking the short-term view. Leaving it to the next generation to clean up our mess, but this can’t last forever. We need to put plans in place now to ensure we have a clean, green world to live in and one we can leave for the future.

As world leaders and pressure groups call for more to be done to reduce carbon emissions, businesses will be under more pressure than ever to comply with ever more challenging economic conditions and stringent regulations.

Energy Prices

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In 2010, the then Department of Energy and Climate Change (DECC) released a report entitled “Estimated impacts of energy and climate change policies on energy prices and bills”. In the report they claimed that for non-domestic medium sized energy users, electricity prices are set to be 43% higher by 2020, due to the various energy and climate change policies the government wants to introduce, to help them reach their carbon emission reduction target.

The only way businesses will be able to keep the costs of energy low is by reducing their usage and complying with energy efficiency policies.  A proposed non-domestic smart meter roll-out will help SMEs keep a closer eye on consumption, hopefully encouraging a greater awareness of how much energy they are using.

The report does admit that an “analysis of price and bill impacts is inherently uncertain and sensitive” as, in the main, wholesale energy prices are driven by fossil fuel costs. However, if fossil fuel prices increase, the cost of carbon reduction policies will decrease, as less of an incentive is needed to encourage uptake. Whether it’s caused by fossil fuels or policy regulations, costs will rise.

Emission Control

Following on from the last point, the cost of continuing to use carbon intensive energy sources will not just be to the environment. The UK have a variety of ‘green taxes’ which, it is hoped, will incentivise non-domestic users to reduce their reliance on carbon fuels through taxing their use and rewarding the uptake of renewables.

In 2015, revenue from environmentally-related taxes was reported, by the ONS, to be £46 billion, making up 2.5% of the UK’s GDP. There are four types of environmental tax; energy, transport, pollution and resource, but three-quarters of the revenue raised did come from those taxes imposed on energy.

You may have seen additional charges on your energy bill relating to the Climate Change Levy (CCL). This is a tax imposed on the use of electricity, gas and solid fuels. You don’t pay this if you’re a business that only uses a small amount of energy, a domestic energy user or a charity engaging in non-commercial activities – otherwise, you are eligible. For more information on the Climate Change Levy and how it affects your business, you can read our full guide here.

If you’re a large non-energy-intensive organisation such as a supermarket, bank, hotel or local authority you must also be registered to the CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment).

This scheme requires larger businesses to monitor and report their CO2 emissions from gas and electricity use, allowing them to buy enough allowances to cover annual emissions. Failure to join the scheme, if you’re eligible, could result in fines of up to £45,000. And even if you are part of the scheme, failure to report accurately could also be costly with fines of £40 for every tonne of carbon you use outside of a five-percent margin of error.

But it isn’t all stick and no carrot. There are rewards available for choosing to be energy efficient. Certain capital allowances exist which allow you to deduct the full cost of an energy efficient asset from your pre-tax profit. This can only be done once, as a form of ‘enhanced capital allowance’, but it still puts a bit of money back in your pocket if you take the trouble to invest in green assets e.g. cars with low CO2 emissions, energy and water saving equipment and new zero-emission goods vehicles.

Supply Chain Disruption

Despite your best efforts to remain energy efficient and invest in green alternatives, others in your supply chain may find it more of a challenge.

Energy intensive industries (EIIs), such as engineering and manufacturing, may start to struggle if carbon fines continue to increase. It has been argued that, such challenging targets may negatively affect these industries, making them less economically competitive. This is now an even bigger issue due to EU exit negotiations possibly reducing our access to the single market. 

Even if you don’t work in the sectors that are worst affected, your supply chain may be affected, passing higher costs on to you.

The Government is trying to put plans in place to support these EIIs. In the 2015 Autumn Statement the intention to reduce the burden of renewable policies on EIIs – by proposing significant cost exemptions from costs incurred by the Renewable Obligation (RO) and Small Scale Feed-in Tariff (ss-FiT) schemes – was announced.

Currently, EIIs are eligible for cash compensation from these schemes but, from April 2017, it is hoped the discount will be applied at the start rather than being paid back later on. While this may reduce the burden on heavier industries, it does have the potential to increase the costs for those businesses who aren’t exempt, to make up the shortfall.

Whether the cost is transferred directly or indirectly, the full implications for EIIs, and businesses who depend on them, will surely have an impact on prices.

 

International Trade

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International trade is already facing uncertainty due to the UK’s decision to leave the EU, but climate change could add to this and will affect, not just EU trade, but the global economy.

As all countries gear up to fight their own climate change battles we can confidently predict that, at the very least, this will result in price increases due to the rising cost of transportation.

Beyond logistics, companies with multiple international locations may also face difficulties with different countries imposing a variety of climate change policies on operations. This may not only impact prices, but uncertainty and operational difficulties can also result in reduced investment and supply chain issues.

Price competitiveness will also be affected. The EU is leading the way when it comes to committing to carbon reduction targets through policies such as the EU Emission Trading Scheme (EU ETS), but emerging economies such as China and India are still relying on coal, showing no signs of reducing consumption anytime soon.

India is expecting to double its carbon consumption between now and 2035, with China admitting that their emissions will also continue to rise until 2030. If this is the case, India and China will be able to produce cheaper goods, due to the fact that they will not be subjected to additional ‘green taxes’, pushing down prices and making it even harder for domestic companies to compete.

Reputation Considerations

As climate change becomes an ever more emotive issue, it‘ll become increasingly important for businesses to show they have green credentials. Many energy suppliers already boast about their use of green energy sources as a way to attract new customers and we predict, that soon, it will become just as important for businesses in a broader range of sectors.

Research from Nielsen, a global consumer insight company, has already found that 55% of global consumers, across 60 countries, are willing to pay more for products and services that have committed to environmentally friendly policies. Furthermore, it’s Millennials (those aged 21-34) who appear more responsive to sustainability factors with over half of those who admitted they would pay extra for sustainable products and 51% of those who checked packaging for sustainability messages fitting that age range.

If the future generation are those most concerned with green credentials, it is fair to assume that it will only ever become a more influential factor when consumers are making purchase decisions.

Re-location Issues

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It is estimated that hundreds of millions of people may be displaced by 2050 due to rising sea levels and changes in climate making certain places inhospitable.

The International Organization for Migration estimated back in 2009, that the influence of environmental change on human mobility will affect an estimated 700 million people by 2050.

Admittedly, the most drastic effects will be felt by those countries which lack resources and infrastructure as their economies and governments struggle to support them. However, rising sea levels will also have a major impact on some of the world’s most important financial centres including New York and London.

A recent study predicted that both the "Big Apple” and the UK’s capital city could both be submerged within decades. In February 2016 it was suggested that sea levels are now set to rise by several meters in the next 50 years, more than enough to flood coastal cities like London, New York, Miami and Calcutta.

Speaking to the New York Times, James E. Hanson, a retired NASA climate scientist who helped conduct the research, said that unless there is a dramatic reduction in CO2 emissions, “we’re in danger of handing young people a situation that’s out of their control.”

Now we’re not suggesting that you up sticks and move inland, but it is something that we need to be aware of; that in the not so distant future we may have to seriously consider where we decide to locate our business.

What can your business do to help combat global warming and keep costs low?

We have numerous guides which can give you some ideas on how to reduce your carbon footprint. From installing LED lightbulbs to investing in solar panels, from staff incentives to biomass boilers, there are so many ways your business can help the fight against global warming.

Do you need some more inspiration? Just take a look at the most recent winners of our annual Love Energy Savings Awards. These awards seek to recognise those business who go the extra mile when it comes to energy efficiency and green practices.

To save money in the meantime, it is always worth checking to see if there is a cheaper tariff available for your business. We work with many suppliers, some of whom prioritise the supply of renewable sources.

To talk through the available tariff options and find out more about each supplier’s green credentials just give one of our energy experts a call on 0800 9888 375 or enter your postcode here to get started.