Net-Zero Carbon Emissions

Debate between Lord Faulkner of Worcester and Lord Redesdale

Wednesday 21st April 2021 Grand Committee

[Lord Redesdale (LD)]

My Lords, I must first declare my interests on the register as a director of SECR Reporting Ltd and Climate Change Professionals, and as a board member of the Energy Managers Association. As part of the work I undertake I advise companies and local authorities on net-zero targets, the policies they would need to put in place to achieve that, and the strategies they would have to undertake. Unfortunately, it is very clear from this work that there is a massive difference between aspiration and reality. A lot of greenwash is going on as well. One local authority I spoke to came up with a 2038 target. I asked how it came up with that. It said, “Well, the authority next door made a 2040 target, so we thought we’d go with 2038.” On digging into the details, it had no idea how it was going to achieve that. As the noble Lord, Lord Whitty, set out, a large number of local authorities have made this pledge, but from the work that I have done very few know how they will achieve it.

I thank my noble friend Lord Teverson for bringing this debate forward. It is usually at this point that I go into a great deal of detail on what the Government are getting wrong. However, I have a solution that the Minister could take on board. He might be interested in it because—and I never thought I would say this—it would be based on the Conservative Government’s own policy and would be Brexit-friendly, but I will go into that a bit later. It could have a major effect on how companies understand their carbon targets.

I know from working with companies that there is a problem, because the net zero carbon targets are quite complicated. They are based on reducing emissions in scope 1, scope 2 and scope 3, based on the GHG protocol. I will run through them.

A lot of companies understand their scope 1 emissions to a degree—obviously, that is their electricity use—and if you have half-hourly data, that can be useful. However, I have been utterly amazed at how even large companies do not have a handle on how much energy they use. Gas is fairly simple, as it is based on therms. Transport fuel, however, is not simple to work out; most of the energy managers I work with have never had to deal with transport before. I was talking to a company—a call centre—which had 140 spaces in its car park and which was looking at the energy used in the building. I said, “The energy used in the building is actually a fraction of what is being used in your transport requirement to get everybody into the office at any time.” Of course, understanding how you calculate transport fuel is difficult, because you could do it on mileage, litres or cost of fuel, and a number of calculations need to take place. Many organisations have left transport out.

Scope 2 emissions are those that you have bought on behalf of another company or organisation, and some companies are getting that under way, especially with grey fleet. I have been amazed by how local authorities do not understand the emissions from grey fleet; that is, cars that are used as company cars. Of course, that is a very large emission factor that often does not get added to the emissions of the company itself.

On scope 3, which is the supply chain, very few apart from the largest companies have an understanding of the emissions from their supply chain, and of course that supply chain could dwarf any emissions they have taken out. When you work with companies it is often interesting to realise that we really do not understand our scope 3 emissions. One of the areas that is of particular interest is IT. I was talking to a company which was marketing and which had worked out how much electricity it was using on its computers, but it then proudly told me that it had sent 1 million emails that month, which of course has a massive effect on servers around the world. Gaming is horrendous for that, as is the mining of Bitcoin. However, many companies just do not understand the cost of computing, which is a real issue because it is very difficult to get that information. Amazon will give it to you, while Microsoft will not, so companies have a difficulty in understanding their emissions.

Once you have understood the emissions, that is not the problem; the problem is then building policies around them and understanding what those policies should be. A lot of companies and local authorities have made blank commitments to go to net zero by 2030, 2040 or 2050, but that policy is not linked to any deliverable outcomes. Obviously, the next step is to develop a strategy for going forward from that. We also talk to companies about responsibility: who in the company is responsible for delivering those directives? This seems to be a problem not only for companies and local authorities but for government. I echo the words of the noble Lord, Lord Whitty, that perhaps we should have a Minister in charge of climate change, but we had that and then DECC was taken out, which was short-sighted. Perhaps we should look at reinstating a department on that basis.

Once you have a policy strategy and somebody responsible, companies need to understand that getting to net zero will have costs, so they will have to look at a CapEx solution. A lot of companies are just not prepared to spend money, even though they realise that in the longer term this could save them in energy savings. They also need to look at OpEx. Companies need to start understanding that what they are responsible for in managing their organisations has often been farmed out to third parties, especially in facilities management areas. Therefore, you might be running buildings, the contracts for which are based on a like- for-like replacement rather than replacing old equipment for more energy-efficient equipment.

We also look at transport, where there is of course the Government’s target to move to electrification. This is a major area of greenwash in a way, because there is, I think, a lack of understanding of how significant this will be for our electrical infrastructure. I talked to one company that had 100 car parking spaces and which said, “We’re going to electrify our fleet and we’re putting in three charging points.” I said, “That means you could probably charge nine cars during the working day—and you have 100 cars out there.” They then said that they would put in a lot of charging points. But, of course, if you put in more charging points you need a bigger transformer, and you need more electrical supply. At a lecture recently, I was interested to learn that those fast-charging points on motorways have an energy use equivalent to 250 houses. We realised that when we put them in, we were talking about a small village’s energy supply just for that.

The noble Lord, Lord Knight, talked about behaviour change. One area where we have been trying to work with companies is in getting people to realise that this is not just a policy. If we are to hit net zero, everybody in the company has to understand how they have to change their energy usage.

I have set out these small problems—slight mountains to climb—but I did say that I would suggest a solution to the Minister that could be helpful, which is to change the SECR reporting regime. In 2019, the Government brought forward a new GHG reporting regime: streamlined energy and carbon reporting, or SECR—it does not really roll off the tongue. It basically means that large companies—large as defined under the Companies Act—must report all their energy data, show which metric they have used and do an intensity metric. They also then have to list all their principal energy-efficiency measures and whether any are not undertaken. Each company has to do this by law and then report it to Companies House, with the information made available in its company report.

A very simple change that could be done very quickly through a statutory instrument—I know that PwC is doing some work for BEIS at the moment looking at whether this could be brought forward—would be to make it an obligation on companies to put their net zero plan into their company reports. It could be done in a way that was not very expensive. To make it Brexit-friendly, ESOS—the energy savings opportunity scheme—which was part of the European directive, could be scrapped, which would create a saving to companies. Some of the information that was needed for ESOS could then be incorporated into SECR, which is a second obligation on companies.

If companies were required to put their net zero plans into their company reports, it would allow stakeholders to understand where they are going forward. One area that we found most interesting is that companies are finding that their stakeholders are not just their shareholders any more but their employees, their customers and, interestingly, their banks, finance companies and insurers, which look very carefully at sustainability and climate change criteria when they are looking at investment opportunities.

Would the Minister be open to talking to his officials about whether SECR could be changed to include the net zero target and looking at whether we could introduce a statutory instrument to achieve this? If a statutory instrument were brought forward, it would mean that companies—before COP 26—would start having to set out their net zero plans. The cost would not be high, but it would mean that Britain would be a world leader in moving forward on how companies can adapt to climate change.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

My Lords, the noble Lord, Lord Berkeley, is not on the call, so I call the noble Lord, Lord Stunell.