National Grid becomes model for shadow “carbon pricing strategy”
April 30th 2008

National Grid has announced it is to increase its target of reducing company-wide greenhouse gas emissions from 60% to 80% by 2050, a decision which has been welcomed by environment secretary, Hilary Benn.

It also unveiled its intention to adopt new carbon budgets across its UK and US electricity and gas businesses from April 2009, integrating them into the management of its day-to-day business operations and company performance process, to help achieve this target.

National Grid’s Chief Executive, Steve Holliday, said: “Minimising our impact on the environment while delivering safe, secure and economic supplies of energy to customers is not an option, it is a must. And the two have to be tackled together. We have already reduced our greenhouse gas emissions by 35%, but we need to do more.Adopting carbon budgets and integrating them into our business performance process will encourage our employees to identify new ways to achieve the challenging 80% reduction target, and ensure emissions reductions remain at the heart of our operational decision-making.”

Under its current UK regulatory price controls and US rate plans, National Grid already has a variety of features that enhance environmental performance.These include regulatory incentives schemes targeted to reduce emissions associated with gas and electricity assets, gas distribution mains replacement programmes in UK and US, and replacement of certain gas transmission compressor units in the UK with more efficient electric compressors. Ongoing emissions reductions and the use of more energy efficient plant and equipment are, in the longer term, expected to drive down the life-cycle costs of our assets.

Over the next 12 months, National Grid will undertake a review of its operations following a protocol used by The Climate Registry, based on World Resource Institute (WRI) methodology.This will provide a detailed assessment of the carbon footprint for each National Grid business and enable managers to determine the most effective and economic ways of reducing emissions.Annual and five-year emissions targets, measured in tonnes of carbon dioxide equivalent, will then be established for each business and integrated into the company’s performance process alongside customer service, reliability, safety, operational and financial targets.

Adopting carbon budgets will allow National Grid to calculate a ‘shadow price’ of carbon and determine emissions costs for future design, construction and maintenance of its electricity and gas networks, management of its fleet and facilities, and any potential new investments.This will ensure the company is prepared for future legislation by properly accounting for the potential cost of emissions under a carbon tax or mandatory cap and trade scheme. Hilary Benn said:

“The announcement shows that we can fight climate change at the same time as delivering secure, reliable energy to businesses and families. I congratulate the National Grid on its success to date and its clear ambition in cutting emissions in Britain and abroad. I particularly welcome its decision to adopt carbon budgets.This mirrors our approach for Britain as laid out in the Climate Change Bill, which is currently before Parliament.”

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