Copenhagen is as tranquil a European capital city as you’re likely to find. The preferred mode of transport is bicycle; contented tourists shuffle around the colourful old harbour. But after many months of having its name overused to the point of erosion in global rhetoric, the city will soon be engulfed by the world’s leaders, decision-makers, political groupies and journalists, all attempting to answer one question: can we find a way to stop climate change?

Originally, it was hoped that the 15th Annual UN Climate Change Conference would produce a deal for cutting greenhouse gas emissions to replace the Kyoto Protocol. A legally binding agreement this month is now thought unlikely, yet Copenhagen remains a critical staging post in the global response to climate change. As Ed Miliband, energy and climate change secretary, wrote in June: “December 2009 is a make-or-break moment for the future of our planet.”

The UK is in some respects already setting the global standard. The Climate Change Act 2008 put in place an unprecedented legally binding target of an 80 per cent cut in greenhouse gas emissions by 2050 with 34 per cent by 2020, compared with 1990 levels. It also requires the UK government to match any tougher global carbon reduction deal, which may yet emerge from Copenhagen.

To meet such targets, the government looks to the biggest polluters and energy users – and arguably, it’s business that ranks the highest. After years of carrots being waved and best practice examples touted as role models, now the government is brandishing a stick – the time of regulation is upon us.

Heavy industry has, of course, been accustomed to regulations on energy and carbon usage for some time. The Climate Change Levy, along with Climate Change Agreements, have for several years imposed a tax on the biggest energy consumers. The EU Emissions Trading System (EU ETS), which began in 2005, also imposed the world’s first multi-nation “cap and trade scheme” for emissions. This sets a price per tonne of C02 emitted and puts a cap on how much an individual business (or site) can emit – if its emissions exceed that cap, it can buy or “trade” credits from others that have emitted less than the cap. Such schemes work because total carbon emissions cannot exceed the total cap set, and allows organisations to make money by reducing their carbon usage.

Cap and trade
The problem with cap and trade is that it’s ineffective if the price for carbon is set too low, or the cap is too high, or both. The first phase of the EU ETS (2005-07) was widely criticised for doing exactly that. Solitaire Townsend, co-founder of sustainability communications agency Futerra and a member of the UN Sustainable Lifestyles Taskforce, explains: “If you have a ‘flabby’ cap, everyone can buy their way out. It still costs that business money to do so. But since the EU ETS was introduced, that cap has been getting tighter and tighter and will continue to do so. Similar schemes around the world have been developing in a similar manner. You begin generously in order to get the scheme up and running, and then it’s up to governments to close the gap.”

The UK is now set to introduce its own cap and trade scheme for smaller organisations and sectors not covered by the EU ETS. The CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment or CRC) starts in April 2010.

“The CRC tackles a different section of the economy, such as office-based areas, and brings them under climate change regulation for the first time,” says Harry Morrison, general manager of the Carbon Trust Standard Company and former policy adviser at the Carbon Trust, a government-backed scheme that aims to accelerate the move to a low-carbon economy. “So we’re talking about, for example, retailers, professional services, banks, the leisure industry and most of the public sector.”

Initially, all organisations on half-hourly electricity meters must report to the scheme – of which there are believed to be around 20,000 in the UK. Within that number, only organisations with an annual energy usage greater than 6,000MWh will be brought into the full scheme. As a rule of thumb, says Joan Ruddock, minister at the Department of Energy and Climate Change, this means “those spending around half a million pounds a year on electricity – expected to be around 5,000 organisations”.

The CRC will be introduced in three phases over the next three years, explains Ruddock: “The introductory phase [from April 2010] is a reporting element only, with no buying of allowances; in the next phase, organisations can buy allowances [set at £12/tonne of CO2], which are unlimited. Then we get into the cap phase, when there will be an auction of limited allowances, which will clearly affect the price.”

But although the monetary cost may be relatively high, the reputational costs – and rewards – in the scheme’s design are perhaps higher still. Every participating organisation will be ranked against all the others, regardless of sector, in publicly available emissions league tables. As Ruddock delicately puts it: “This is an opportunity for organisations to gain recognition for their environmental responsibility, or otherwise.”

In other words, name and shame. Those at the top of the table receive the kudos as well as monetary rewards paid for in fines by those at the bottom. “Some companies may not care about climate change but they really do care about their brand reputation,” comments Paul Simpson, chief operating officer of the Carbon Disclosure Project, which collects climate change data from about 2,500 companies and claims to have assembled the largest corporate greenhouse gas emissions database.

In addition, there is a requirement for directors to sign off the accuracy of their carbon data before they submit it, says Morrison: “It will be the first time that directors have had to take responsibility publicly for the size of their carbon emissions. The disclosure element of the CRC, and the public nature of it, will be a key aspect of driving down emissions.”

Recognising that some employers are already doing a great deal to control emissions, the scheme is allowing companies to climb the league table in the first three years by achieving the Carbon Trust Standard (CTS) or equivalent accreditation. The CTS recognises leading organisations that are already “measuring, managing and reducing carbon use”.

Despite this concession, not everyone welcomes the CRC. Critics argue that organisations could leave the UK for less regulated climes – a concept dubbed “carbon leakage”. Ruddock gives the notion short shrift. “There is no evidence of carbon leakage because of the EU ETS – which, of course, is a much bigger operation,” she replies. “Therefore I see no expectation that Sainsbury’s or Tesco will up and move just because we’ve got a small energy efficiency scheme.”

Ben Murray, director of environmental consultancy Carbon Smart, agrees: “We’re not talking about businesses that can move very quickly. If you are a local authority, you can’t get up and wander off.” Not to mention, of course, the adverse publicity such a move would attract.

However, too much faith in the power of publicity and reputation may be ill-founded, warns Craig Bennett, co-director of the Prince of Wales’s Corporate Leaders Group on Climate Change (CLG). “There will always be companies that aren’t so bothered as they don’t have big public brands to protect,” he says. “And companies that have big brands typically already have strong commitments [to environmental responsibility] anyway.”

Insurance group Aviva is a case in point. Marie Sigsworth, corporate responsibility (CR) director, points out that the company has published CR reports for the past decade and even links executive pay and bonuses to CR performance. She believes the CRC will simply dovetail with Aviva’s existing environmental practices.

Push the boundaries
For some, it’s the voluntary actions of big businesses such as Aviva that have pushed the boundaries of carbon efficiency, not government regulations. Indeed, Bennett says the CLG, which is run by the University of Cambridge Programme for Sustainability Leadership, started in 2005 “when a small group of UK-based companies were getting frustrated about how the climate change debate was playing out.

“Typically, you would see mainstream lobby groups arguing that action on climate change could harm competitiveness and so on,” Bennett explains. “But our companies felt it was right to tackle climate change and that this could actually stimulate business activity and be good for competitiveness.”

The group, which has UK and EU arms, lobbies politicians and spreads the message to international business. In 2007, it hit on the concept of drafting a “communiqué” to present to UN climate conferences on behalf of businesses, calling for swift and decisive action. The Copenhagen Communiqué, the group’s third, has secured the signatures of over 800 companies and is now seen as the definitive statement from businesses in the run-up to Copenhagen.

Bennett believes the communiqué scuppers the argument that businesses would not accept a global deal on climate change.

“We call for a global cap on emissions, which means binding agreements for every country,” he argues. “And we make it clear that the more ambitious the agreement, the more business will deliver.

“Business is not scared of an ambitious agreement. Actually, business is more scared of a wishy-washy agreement that doesn’t deliver the kind of signals needed to unlock investment, because what is needed more than anything at the moment is certainty about where to put its investments for the future.”

Paul Simpson agrees that businesses require the security that a global agreement would offer. “A lot of emissions reduction comes from new technology and if installing that new technology would cost you, say £5 million, you probably wouldn’t do it,” he says. “But if you knew that you’d be paying out £10 million for carbon allowances over the next 10 years if you didn’t install the technology, then you’d probably make the decision to invest.”

In truth, it is the combination of government regulations with innovative action within the business community that is needed if the UK (and the UN) is to meet its emissions targets. Dr Gene Johnson, a senior member of the British Psychological Society’s Division of Occupational Psychology, has set up a forum exploring attitudes and behaviours around environmental issues within business.

“If you take diversity as an example, I worked at a company that had a huge diversity programme, but only because of high-profile racism cases,” he says. “Other firms don’t have such programmes simply because it’s not required by the law. The more you require, the more that is mandatory, the easier it becomes because you simply have to do it.”

Similarly, Simpson believes that there’s “a significant number of businesses that frankly have still got their head in the sand and will wait for regulation”.

The Copenhagen conference may not meet the more optimistic expectations but the one certainty is that something will replace the Kyoto Protocol when it runs out in 2012. Townsend believes Copenhagen is likely to agree the basic structure: “My guess is that what we’ll get in December will be an outline – that the developing world will become a part of it, that the US will accept cuts… but you might have to wait a couple of months for the details.

“Either way, any business worth its salt knows something major is coming. Whether that’s carbon trading, carbon tax or the CRC, it all boils down to the same thing: cut your carbon. Whatever comes out of Copenhagen, that will still be the bottom line.”

The key regulations explained
Climate Change Levy (CCL): a UK tax on energy consumption (electricity and gas) in energy-intensive manufacturing sectors – it adds a few per cent on businesses’ fuel bills as an incentive for them to be more fuel efficient.

Climate Change Agreements: in force in the UK for a number of years, like the CCL, and similarly focused on heavy industry. The agreements were put in place by the government with sector bodies to commit to energy efficiency improvements and carbon reduction – if targets are met, participants can get a CCL rebate of up to 80 per cent.

The CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment or CRC): the UK’s first domestic cap and trade scheme, tackling low to medium emitters such as retailers and local education authorities. It starts in April and is being phased in over the following three years. Organisations’ efforts in carbon reduction will be rated against each other in publicly available league tables, with the top and bottom performers awarded and fined accordingly.

The European Union Emissions Trading System (EU ETS): established in 2005 and affecting the biggest emitters in Europe, such as the power sector and very heavy industry. Like the CRC, it is a carbon trading scheme.