“Historically, all power has been seen as the same, with suppliers competing on the basis of price and best contract structure for their customers. But that is changing with concern over carbon,” observes Neil Drake, British Energy’s Head of Market Insight.

At first, governments’ main focus was on renewable power, with an emphasis on the use of green certificates. Today this is being taken a step further through new EU and UK carbon reduction regulations and proposals from Ofgem, Britain’s energy regulator, to differentiate power using a banding scheme, similar to that used for home appliances like refrigerators and dishwashers.

Although energy customers can presently opt to pay a premium tariff for a greener form of energy from their power supplier, there is a raging debate over how much of that tariff goes toward creating new low-carbon energy sources, and thus how much it helps to reduce greenhouse gas emissions.

The Ofgem proposal aims to inform customers about the carbon impact of their energy source and allows them to choose between power sources with lower carbon emissions. In theory this should actually help to lower overall emissions, because as demand for a band of low-carbon power increases the price naturally rises. This helps to make the business case for building other low-carbon energy sources, but it also helps to make high emitting power less economically viable.

In an attempt to deal with the confusion surrounding ‘green’ electricity, Ofgem issued a consultation aiming to clarify what can be marketed as a green tariff and to create a simple way to compare the different options available.

“We believe that there are two critical, and related, public policy objectives that are impacted by this consultation,” says Drake. “The first is the aim to reduce carbon dioxide emissions to address climate change. The second is to increase the proportion of low carbon electricity in the UK generation mix.” Supporters of the Ofgem proposal say that it will create business cases for building new renewable and other low-emitting technologies, as well as extending the life of existing low-carbon generation. It will also prompt ‘brown’ generators to switch from coal to gas and to embrace new technologies such as carbon capture and storage.

Businesses which move to low-carbon energy sources will be rewarded by consumers, who are more often choosing certain brands which take measures to reduce their own carbon footprint and that of the goods and services they sell. Paul Dickenson, head of the Climate Disclosure Project, points to the Toyota Prius hybrid vehicle as an example of how businesses can benefit from what he calls ‘Sustainability Product Marketing’.

“Toyota simply owns the reputation as ‘the’ environmental car producer, because of their leadership in hybrids and the Prius brand. As influential Hollywood stars were queuing up to buy Prius hybrids, Ford and GM seemed to know better, and kept investing in huge production of giant SUVs.

“This was a big mistake, as evidenced by the fact that Ford and GM shares have plunged, while Toyota’s have skyrocketed. This is proof that Sustainability Product Marketing pays big dividends.”

The OfGem proposal will give energy suppliers the chance to embrace this concept of ‘Sustainability Product Marketing’, as consumers will be able to identify not only the carbon intensity of a green energy tariff, but also whether the power supplied is renewable. The availability of renewable power, or lack thereof, is a major concern for many consumers, with clean energy demand far outstripping supply.

Businesses, too, have to face up to the challenge of understanding the role of renewable energies in their carbon reduction initiatives. This is partly owing to the fact that many low-carbon options are still in the early stages of development, are too expensive to bring to the mass market, or are as yet unproven (see chart above).

Businesses are also concerned that significant changes to the political landscape could affect support for certain renewable technologies which are heavily dependent on government subsidies to get to the commercial stage. A recent survey of global corporate leaders carried out by consulting firm Accenture found that businesses are reluctant to make big investments in climate change-related initiatives until the scope of future regulation becomes clearer.

“Whilst it is very encouraging that carbon is being taken seriously amongst the UK’s biggest companies, the confusion around low carbon energy sources indicates that we all still have a lot of work to do,” observes Bill Coley, CEO of British Energy.

For now, both consumers and businesses will be best served by creating more clarity around emissions. This will buoy demand for the cleanest energy sources available, while carbon intensive sources will become less attractive to consumers and thus less financially viable.

“Carbon will start to affect business in every way possible over the next few years, be it in terms of brand, investors, or sales,” says Dickenson. “As energy prices spiral out of control, the people who have got a handle on these costs will prove to be the same companies who have concentrated on reducing emissions. “This [low-carbon approach] is good for the climate, good for business and good for shareholders.”