From 2010, Britain's food retailers will be ranked according to their carbon usage. Nick Hughes reports on how supermarkets are limbering up for the race to be greenest


Nothing spurs the multiples to action like the opportunity to score points against their rivals by outperforming them in a league table. And that's exactly the thinking behind new government legislation aimed at reducing carbon emissions from energy use.

Its Carbon Reduction Commitment, which comes into force next April, will publicly rank about 5,000 high energy-using organisations according to their performance in reducing carbon emissions.

This month, the Environment Agency will contact businesses that qualify for the CRC. Suppliers can breathe easy as they are set apart. Retailers that had a total half-hourly metered electricity use greater than 6,000 mega-watt hours between 1 January and 31 December 2008, however, can expect a letter in the post .

But while you might expect the supermarkets to be rubbing their hands at the prospect of topping the carbon charts, many are instead ruing the implementation of what they see as another ill-conceived piece of government legislation.

Most of their anger is directed towards the system that lies at the heart of the legislation, of buying carbon credits from the government. The system will force businesses to tie up capital in government coffers until it is redistributed at the end of each year, earning them either a financial penalty or bonus depending on performance. It will also create a carbon market worth more than £600m a year which for a vast entity such as Tesco equates to giving the government about £40m in interest-free cash each year.

"Effectively, we're lending the government money," says Alex Pitman, energy manager at The Co-operative Group. "It's tying up money that could be spent on energy improvements rather than sitting in government bank accounts."

Dave Covell, principal at environmental consultancy Environ, offers a worst-case scenario. "At a time when lending is non-existent and cash flow is critical to survival, the up-front commitment could push many companies into the red, or worse, into insolvency," he says.

With the government currently consulting on the CRC legislation, the BRC is lobbying for a change to the system of purchasing credits. "We'd like to see a revision of the funding mechanism to help keep capital within retail businesses," says BRC director general Stephen Robertson.

The credit system is not the only detail of the legislation to court controversy. Because the league table lumps together all retailers regardless of size, certain elements of it have the potential to favour larger retailers, says Pitman. An element called Early Action Metrics rewards organisations that have already started to manage their emissions by installing Smart Meters to measure electricity and gas consumption, for instance.

"If you've got 400 very large stores there's a great business case for putting meters in, so most big retailers did it years ago," says Pitman. "That means they will get to the top of the table because they already have them fitted. But the business case is a bit harder for us because we would have to install about 5,000 extra meters."

That's not the only reason why Pitman is unconvinced the league table will be meaningful or fair. It doesn't compare like with like, he argues, pointing out that a retailer's financial arm could generate turnover from internet banking at a far less energy-hungry rate than its grocery arm.

"A shift in the balance of your business could mean you move up or down the league table," Pitman says. "So whoever comes top in the league table is going to claim it is fantastically green, but I don't think that's necessarily going to be true."

Yet for all the debate surrounding the detail of the CRC, retailers broadly agree that regulating carbon emissions is the right thing to do. "We support market-based mechanisms to reduce carbon emissions in efficient and cost-effective ways," says a Tesco spokesman. "But we think the Carbon Reduction Commitment still needs work, in particular making sure the league table genuinely rewards dynamic organisations that lead the way towards a low-carbon economy."

While it won't reflect all the work already done on carbon reduction, the CRC will encourage retailers to keep moving in the right direction, adds Pitman. "Some will say it won't get us moving fast enough, others will say the rankings aren't fair, but it's still roughly the right thing to do."

Gary Parke, CEO of energy management company Evolve Energy, is convinced that pitting retailers against one another will make them take the CRC seriously. "From an industry perspective, I think it's a sensible piece of legislation because of the whole dynamic around competing and being measured against your peers," he says. "This is classic competition and retailers thrive in that environment."

They may be readying responses should their rivals do better in the CRC table, but grocery retailers are already well versed when it comes to shouting about their green credentials. Supermarkets have for a long time pursued an agenda of minimising carbon emissions, by building eco-stores and green distribution centres and increasing their transport efficiency, for instance. "These guys are smart," says Parke. "They're doing it primarily from a cost-saving perspective, but it also gives them a good story."

Pitman says energy is one of The Co-operative Group's biggest costs after personnel, so reducing it is a big opportunity. "The CRC is improving the business case for doings things we already want to do," he says. "The biggest energy drains in the stores come from powering fridges and from lighting and heating the building. We've made significant savings just by giving good-quality management information back to the store managers."

As with any piece of legislation, the devil will be in the detail. Elements of the CRC urgently need to be clarified, says Robertson, citing the area of franchising, where there is confusion over whether a franchise business is treated as one company or many companies. "From the government's point of view, I think there's work still to be done," he says.

The official consultation ended in June, although government has hinted that some details of the CRC could still change. But retailers shouldn't kid themselves there's a chance the carbon race will be called off. The lanes are already being painted for the ultimate green test.

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