April’s Green Monday opened with the proposition from Chairman Jim Woods that 15% of direct emissions of the largest 2,000 companies in the UK could be removed with a £25bn investment that has an IRR of 16%. For the average FTSE350 company this translates into a £12 million investment opportunity, which has the same rate of return as their core business.
Could this be true? Four speakers debated this question through the lens of a Marginal Abatement Cost (MAC) Curve: Marcel Brinkman (Partner, Mckinsey), Richard Tarboton (Head of Energy and Carbon, BT) Joanna Lee (Chief Partnerships Officer, The Carbon Disclosure Project) and Professor David Strong.
Marcel estimated that over the next ten years the UK’s energy efficiency investment opportunity could total £70billion, and he said in that context the size of the opportunity in the proposition looked reasonable. Richard explained that BT, which consumes 0.7% of total UK grid supply, saves £20m per annum out of their current energy costs of £200m per annum. Given that he is competing on a level playing field for internal capital with other business areas, it can be assumed that is achieved with attractive investment returns.
Attention turned to the effectiveness of the MAC curve as a tool with which to articulate this opportunity. The panellists provided both support and opposition. Has the MAC curve run its course or is it still a useful visual summary allowing a raft of different scenarios to be considered and assessed? The concluding points suggested that while the MAC curve can be a useful strategic tool at the outset of an energy efficiency programme, it may be less beneficial as a tactical or dynamic investment tool where straight paybacks and IRR’s can be more time efficient.
A member of the audience received a round of applause when he asked if in reality this tool overcomplicates rather than identifies what companies really want, and whether the fact that energy prices are going to increase substantially is all companies really need to take into consideration. He finished by asking whether MAC curves are merely a consultant’s tool for “getting in the door”, and with good humour some of the panellists agreed.
Finally – Joanna unveiled the CDP’s new “Carbon Action initiative”; a move that will see investors asking the world’s 500 largest firms to implement effective GHG emission reduction programmes. A vanguard group of 34 investors with $7.6US trillion in assets are kicking off the initiative.
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