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Making the business casefor a carbon reduction projectHow to wi over the boardad iece people
Maagemet gide CTV039
enter
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02Makig the bsiess case
People i yor positio eergy or evirometal
maagers, acilities maagers ad works egieers
have always od it hard to compete or dig
becase historically their projects were i a
discretioary category. These projects have
ot bee see as essetial to the srvival
o the bsiess; or are they sally madatory
rom a legal or reglatory perspective.
They also ted to be smaller scale tha other
projects beig dealt with by yor board o directors
or other decisio makers, dimiishig their
perceived importace. Frthermore, these projects
ca be techical (or eve iqe i the boards
experiece), which icreases their perceived
riskiess ad makes rejectio a comortable choice.
The advice which ollows shold eable yo
to overcome these challeges. It is based i part
o iterviews with people who hold, or have held,
seior exective positios i sbstatial
orgaisatios, ad the athors are gratel
or their time ad assistace.We begi by askig
dametal qestios abot who makes the
decisios ad what they are lookig or, ad the
work logically throgh the steps o gatherig data
ad evidece, bildig the case (icldig
cosideratios o face ad risk), dratig the
proposal, presetig it, ad the maitaiig
mometm. Explaatios o key facial
evalatio techiqes have bee pt ito a
appedix or the beeft o those who are ot
already amiliar with them.
Last, a word abot the scope ad philosophy
o this gide. It is ot jst abot how to do a
facial appraisal o a capital project ad preset
a proposal to yor board. It talks abot carbo
redctio projects i the widest sese: a example
might be a chage o policy to limit the choice
o compay cars provided or employees. Secod, it
views makig a bsiess case as a log-term
cotios process, ad ot a isolated evet.
Introduction
This guide will help you ensure that your projects or cutting energy
costs and reducing carbon emissions get a air hearing and the bestpossible chance o implementation.
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03Makig the bsiess case
Yor board o directors (or trstees, cocil
members or other eqivalet decisio makers,
as the case may be) will be iterested i cost
redctio or sbject to iteral criteria improved
evirometal perormace or ehaced corporate
reptatio. The project or orgaisatioal chage or
which yo are tryig to make a bsiess case mst,
thereore, oer a compellig facial retr ad,
i possible, worthwhile additioal beefts.
Bt jst as importat as what yo preset is how
yo preset it. As we will repeat at greater legth
later, yo shold preset a cocise, clear proposal
clmiatig i a sigle recommedatio or reqest.
It shold be spported by a appropriate aalysis
o the costs, beefts, risks ad implemetatio
timetable.
Proposals or eergy savig projects are ote
at a disadvatage compared with other cadidates
or capital ivestmet. Capital ivestmet meas
oe-o expeditre o plat, machiery ad
bildigs or pblic relatios ad marketig
campaigs to geerate icome i the tre.
This is distict rom revee expeditre
represetig wages, el, materials, maiteace
ad other ogoig aal costs.
Ad that is oe hrdle: i some orgaisatios,
it may be istittioally difclt to recogise
ad accot or revenuesavigs arisig rom
capitalexpeditre. A more importat hrdleis that eergy ad carbo-savig capital projects
are discretionary. They are ot essetial or
sstaiig or growig the bsiess (like prodctio
machiery), or or reglatory compliace
(like eqipmet or improved dst abatemet).
These obstacles are compoded by the act that
eergy projects are perceived as risky. It does ot
matter that a marketig campaig might actally
etail morerisk; yor eergy or carbo project is
amiliar territory, somewhat techical, ad maybe relatively small i scale. The sae optio is to
reject it.
Later o we provide gidace o overcomig
these disadvatages, bt it mst be stressed
that eve the most solid bsiess case cold ail
to get spport i it is badly arged ad preseted.
What are decision makers looking or?
Your proposition will have the best chance o acceptance i it oers the decision
makers something they want and is presented in a way they can understand.
Typical pitalls
usig explaied jargo or ambigos terms.
Failig to address ay isses o relevace to
the board.
Failig to cosider other optios. Failig to idetiy ad deal with risk actors.
not sig the appropriate facial appraisal
method.
Givig a ramblig presetatio.
not givig a sigle clear recommedatio.
Key point
Yor seior decisio makers wat sod
projects, ad yo ca deliver them.
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05Makig the bsiess case
Find an ally
It ca make a big dierece i yo ca elist the
spport o someoe at a appropriate level
who ca be yor ally ad sposor. I a small
orgaisatio this might be a board member
whom yo kow to be iterested i eergy adthe eviromet. I a large compay it might
bea departmet head or seior maagemet
represetative.
This perso will lfl a mber o valable ctios.
They will help yo to derstad the perspective o
the decisio makers yo are tryig to iece.
They will also have a wider appreciatio o related
bsiess isses that eed to be take ito accot.
Most importatly, they ca act as a advocate
or yor recommedatios ot oly o the day
the decisio is take, bt i the crcial phase
beorehad whe other seior iterested parties
eed to be soded ot, coslted ad reassred.
Build a record or success
Reptatio is a key actor. Pttig orward a case or
ivestmet or chage is always mch easier
i yo have become kow or promotig sesible
ad eective ideas or savig moey, eergy or
carbo. This is oe reaso or portrayig makiga bsiess case as a cotios process rather
tha a discrete evet. Each sccess is yor oothold
o the ext opportity. I yo are cosistetly
sccessl yo cold fd seior maagemet start
askig yo or project ideas, rather tha yo havig
to take the iitiative.
A sesible strategy, the, is to start with a iitiative
that is easy to get approval or (or costs othig
ad is easy to implemet). Record ad pblicise
the reslts. Meawhile, start lookig or rther,more sbstatial opportities that will eed
more dig, or edorsemet at a higher level
o maagemet, ad pick oe that yo ca
garatee will scceed. Yo caot aord to select
aythig bt a wier at this poit becase yo will
be askig the orgaisatio to back it; the reslt mst
be positive i yor reptatio is goig to beeft.
Establish infuence and reputation
Lie will be a lot easier i you can develop and maintain a reputation or sound
ideas, and engage the help o someone who moves in the circles youre tryingto inuence.
What your sponsor can do or you
Help yo derstad the decisio makers
perspectives.
Steer yo away rom optios compromised. by
actors yo are ot privy to.
Be yor ambassador drig the developmet
o the project proposal.
Act as a advocate i the presetatio.
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06Makig the bsiess case
Good reptatios are hard to wi ad qickly lost;
likewise the spport o yor seior maagemet
sposor.
Try to ollow these priciples:
Evalate projects diligetly ad ever promote
somethig yo are sre o.
never make exaggerated claims.
Try to leave yorsel headroom to deliver more
tha yo promised.
Whe yo get approval or somethig,
implemet it withot delay ad do everythig
yo ca to esre its sccess.
Make sre people kow what yo have achieved,
ad keep it all o record.
Keep p with the ews. Yo wat to be see
as the perso i the orgaisatio that kows abot
the world eergy sitatio, the state
o play with emissios tradig schemes,
the otlook or prices ad so o. Let yor speriors
treat yo as a athority o the sbject.
Last, do ot be shy abot ivolvig yor seior
maagemet sposor throghot the process
o idetiyig ad developig projects. Oe o theseior exectives we iterviewed described a case
where a sites egieers had ivited him to visit
ad discss some otlie plas or a major eergy
project. He said it iclied him to give the project
active spport becase he kew how hard they
had worked o it.
Key point
Develop ad deed yor reptatio.
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07Makig the bsiess case
The facial case or yor proposal rests o the
balace betwee projected costs ad savigs.
How these are aalysed ad preseted is covered
i a appedix, bt clearly the argmet will oly
be as sod as the evidece o which it is based.
Direct fnancial benefts
I this sectio we emphasise the developmet
o the facial case ad treat ay o-facial
beefts as boses. This is eqally tre o carbo
savig: eve i yor orgaisatio has a declared
policy o redcig its carbo emissios, it is
likely to be prepared to do so at ay cost.
Larger orgaisatios wold most probably
bechmark proposals agaist the market price
or traded carbo.We will deal frst with the expected savigs i
eergy cosmptio or carbo emissios. Here, the
eergy maager is sally o sae territory, as i
may cases it is possible to estimate the eects o a
proposed chage with reasoable certaity. This is
particlarly tre where a eective moitorig ad
targetig scheme is i se or where a sfcietly
detailed eergy adit has bee codcted.
Veriy your numbers
Where estimates o savigs may have bee
rished by eqipmet sppliers, it is reasoable
to expect that their fgres will be optimistic,
ad yo shold veriy their estimate sig a
appropriate degree o diligece. At least fdot what assmptios were made, ad sbstitte
yor ow i yo cosider them qestioable.
I ecessary, get reereces rom other cstomers
who ca voch or the techology. However, bear
i mid that ot all cstomers moitor reslts
objectively, ad o those that do, oly a miority
wold wat it to be kow that they had made
a bad decisio. Ideed, people have bee kow
to give edorsemets to prodcts based o
completely radlet claims. O this poit,i yo are i dobt abot claims or a prodct,
check whether it appears o the Eergy Techology
List (www.eca.gov.uk/etl ) or other athoritative
register. I importat cases, commissio a
idepedet assessmet.
Building the case
It is essential to prepare thoroughly by collecting the most reliable
data and evidence you can obtain, and subjecting your propositionto rigorous evaluation.
Your business case must
identiy and discuss all the
possible downside risks,
in order to show yourdirectors that they have
been considered and are
containable or controllable
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08Makig the bsiess case
Where the savigs have bee estimated by a
idepedet cosltat i the frst place (as part
o a eergy adit, or example), some probig
qestios will be i order. Remid the cosltat
that there cold be a claim agaist his or her
proessioal idemity israce (regardless
o disclaimers) i they have ailed to exercise
sfciet care i the calclatio o savigs.
Exaggeratig the savigs cold lead to a project
with a seriosly disappoitig otcome. This
ot oly wastes resorces, it will damage yor
reptatio ad make tre progress more difclt.
I some circmstaces yo might wat to cosider
iitially makig a proposal or a pilot project oly.Reslts rom that cold the be sed to back p
the case or wider replicatio throghot yor
orgaisatio. Ask the board to commit to the ll
programme sbject to a stated objective target
beig reached i the pilot.
Obtain orward estimates
Bearig i mid that savigs are sally estimated
i eergy or carbo terms, yo will eed to obtai
orward estimates o prices i order to express the
estimate i facial terms. I yo sbscribe to a
eergy market itelligece service, its aalysts will
be providig yo with credible projectios. I ot,
yo shold glea what itelligece yo ca rom
specialist eergy jorals ad geeral bsiess
press, ad orm yor ow view.
Discss yor assessmet with yor seior
maagemet sposor ad get his or her backig or
yor positio. This is importat, becase eve i he
or she has o particlar view o the sbject, theremay be oe or more board members whose
opiios do ot coicide with yors, ad who may
cosider themselves greater experts tha yo o
market tres.
However wrog yo may cosider their positios,
the case yo pt orward mst accommodate them.
I ot, they may challege yor assmptios drig
yor presetatio ad scpper it.
How to build your case
3 Kow the residal lie o aected assets
3 Evalate the project cost
3 Evalate the reqiremets o other projects
3Calclate the cost, eergy ad carbo
savigs
3 Estimate the project lie
3 Idetiy sorces o dig
3 Work ot a project timetable
3Calclate the iteral rate o retr ad the
et preset vale
3 Carry ot risk aalyses
3Coslt other iterested parties
3Fid ay available precedets, case stdies
or techology reereces
3 Idetiy ay o-facial beefts
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09Makig the bsiess case
Additional benefts
Eergy savig projects will ote yield additioal
beefts, some o which cold eve have sigifcat
facial vale i their ow right. For example: A ew lightig istallatio might be cheaper to
maitai, thaks to icreased itervals betwee
lamp replacemets.
The sot-start eect o a variable speed drive ca
icrease the lie o both the motor ad mechaical
drive trai by redcig electrical stresses ad
mechaical shocks. This exteds the mea time
betwee ailres ad coseqet bsiess
iterrptio.
Ay cotrol which redces idle rig will also
exted the lie o eqipmet.
For a site operatig ear the physical limits o its
spply coectios, redcig peak demad cold
remove the eed or capital expeditre o spply
reiorcemet whe the bsiess is expadig.
Redcig emissios cold help meet major
cstomers spply chai reqiremets.
no-facial beefts have sometimes bee
idetifed as expected boses ater eergy
projects have bee implemeted. Examples
iclde:
Redced oise i vetilatio systems ater
covertig as to variable-speed operatio.
Icreased maiteace itervals as a reslt
o moitorig eergy cosmptio o eqipmet,
where deterioratig perormace idicates
wear ad tear.
Improved comort ad redced sta trover
i commercial kitches ater traiig ad
awareess campaigs showed the beefts
o ot leavig cookig eqipmet rigecessarily.
Ehaced reptatio ad pblic relatios
advatage.
It is worthwhile cosiderig whether there are
likely to be ay sch beefts complemetig
the facial retrs expected rom the projects
yo are promotig.
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10Makig the bsiess case
Implementation costs
This is aother case where a eqipmet sppliers
view is likely to be optimistic ad a cosltat may
be able to give a reliable estimate.It is risky to rely o a sppliers estimate o project
costs. First, the salesma has targets to reach ad
(except i the case o a small compay) is relatively
islated rom the coseqeces o over-sellig.
Secod, eve the most cadid salesma does ot
have access to all the acts, ad has to make
assmptios abot matters sch as how difclt
it will be to istall the proposed eqipmet,
or eve jst to gai access.
A sigle sppliers estimate, eve whe tested
with some probig qestios ad moderated
with more realistic assmptios, will rarely
do more tha help yo decide i the project
is worthwhile evalatig rther. So what are
the optios at this poit?
Gather intelligence
I possible, talk to other cstomers with similar
istallatios ad ask what their experiece was.
What were the actors that icreased their costs?
There will sally be some. I yo caot get this
iormatio rom other cstomers, qiz the spplier
abot what the cost risk actors are, ad apply yor
ow commo sese ad experiece. For istace,
i the cost o istallig cablig is a major kow,
yo or yor colleages may have some experiece
rom other related projects at the site i qestio.
Armed with a view o the likely spread o project
costs, yo ca ow do a prelimiary evalatio o
the project, repeatig the aalysis with dieretassmptios to yield a sesitivity aalysis. I yo
are very lcky, yor project will prove viable der
all reasoable scearios, makig it sae to proceed
with the proposal.
More sally, yo will fd that frm qotatios
really are ecessary beore yo ca decide to take
the idea rther. This cold preset a difclty
as gettig reliable qotatios will mea preparig
specifcatios, schedles ad desig drawigs.
normally sch activities are part o the eergy
maagers brie, ad the ee costs ca be
absorbed by existig bdgets. I ot, yo will frst
have to make a bsiess case or the desig ad
tederig exercise.
Fortately, approval or a prelimiary stdy ca
sally be sactioed at a lower level o
maagemet, ad yor had will be stregtheed
by havig the reslts o yor sesitivity aalysis
to idicate the probability o a viable otcome.
I your proposal is not entirely justifable on fnancial groundsalone, show how it helps to ulfl a concrete objective that
the organisation has previously set itsel
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11Makig the bsiess case
Financing
I yo are cotemplatig a capital project ad do ot
already kow how it wold be faced, fd ot.
Yor seior maagemet sposor or facial
cotroller may be able to help. I some
orgaisatios there are ormal capital bdgetig
rods, ad this may dictate whe yor project
cold commece as yo may ot be able to access
the crret years allocatio. Other orgaisatios
have a more exible approach ad some (otably
i the pblic sector) may eve have rig-eced
ds earmarked or this class o work.
Some projects may ot etail capital expeditre.
However, they may be aordable ot o reveeexpeditre becase they recover their costs
very qickly. Eergy traiig ad awareess
campaigs sally all ito this category. I sch
circmstaces, yo will eed to approach the
perso who holds the bdget or el ad electricity
to agree a way orward. Timig is importat:
the work will eed to be completed early i the
bdget year.
Sbject to certai limitatios, the Carbo Trst
ca provide iterest-ree loas ad small
bsiesses may be able to access grats rom
Bsiess Lik der its Bsiess Trasormatio
ad Resorce Efciecy programmes. Bt
remember that eve these sorces may ot help
i the additioal borrowig has a sigifcat impact
o the balace sheet.
Whatever the circmstaces i yor case, yo eed
to be prepared to aswer qestios abot how the
project wold be faced, ad abot the criteria
sed to evalate it.
Your analysis should alsodiscuss the risks attached
to notproceeding with
the project
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Risk
A eergy or carbo savig project may be
amiliar territory to the board members
cosiderig yor proposal. I their mids, thereore,
it will etail a high level o perceived risk ad will
start at a disadvatage compared with projects
related to reglatory compliace ad to developig
or protectig the core bsiess.
Yor bsiess case mst thereore idetiy ad
discss all the possible dowside risks, i order to
show yor directors that they have bee cosidered
ad are cotaiable or cotrollable.
Technical riskThis will be oe o the hardest to deal with,
especially i the proposed project is the frst o its
kid that yor compay has dertake. Pt simply,
will it yield the savigs that yo claim? I extreme
cases, there may be a risk o the techology ot
ctioig at all. For istace, the corrosive atre
o exhast air rom a swimmig pool cold damage
a heat-recovery it, ad slphr i the methae
rom a sewage treatmet works cold damage the
egie o a combied heat ad power system.This is where specifc prodct edorsemets rom
the same type o ser are idispesable.
Cost risk
This is the possibility that either the capital cost
or the ogoig rig costs ed p higher tha
yo have bdgeted or. Yo eed to esre that
estimates ad qotatios are as reliable as possible.
Operational risks
Cold the project i ay way compromise otpt?
For istace, it may reqire a shtdow o acilities
or processes. Qestios to ask wold the iclde:
What wold happe i the works overra?
Might the work clash with other shtdow
projects?
Are the ecessary persoel goig to be available?
Oce istalled, cold the ew eqipmet adversely
aect prodct qality, or the reliability or availability
o key services? Cosider the implicatios o there
beig teethig problems with the techology, ad
whether the ew eqipmets maiteace
reqiremets cold potetially impact yor
operatios. Most importatly, thik abot the eect
o the workorce beig amiliar with,
or hostile to, the ew eqipmet.
Market risks
Cosider what eergy prices might do relative
to other costs. What i the price o carbo-emissio
permits were to collapse? What abot iterest
rates? I yo are a techical proessioal yo may
well eel comortable dealig with these kids
o isse, bt they mst be aced becase yor
board members will probably have expertise
(or opiios) o sch sbjects. This is aother
area where yor seior maagemet sposor
may be able to advise yo.
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13Makig the bsiess case
Circumstantial risks
Extraeos actors cold aect the viability
o yor project. This might iclde plas or:
Closre or relocatio o the bsiess Reddacies or otsorcig
Takeover o the bsiess
Chage o prodct mix
Eterig ito a eergy services cotract.
To yo, may o these evetalities may be
oreseeable. However, yor seior maagemet
sposor may be well aware o them ad althogh
they may be cofdetial, he or she cold idicate
whether certai hypothetical scearios sholdbe iclded i yor sesitivity aalysis.
Impedig closre or disposal is a very
commo objectio to eergy savig ivestmet,
bt it deserves special cosideratio as i some
cases a capital project cold have some residal
vale to a ew ower. This is especially tre o
improvemets to bildigs, where a improved
Eergy Perormace Certifcate (EPC) ratig cold
add to their market vale.
Fially, yor aalysis shold also discss the risks
attached to ot proceedig with the project. I
particlar, cosider the reglatory risks posed by
impedig legislatio, ad perhaps reptatioal risk.
Energy Efciency Loans
Energy Efciency Loans rom the Carbon Trust
are a cost eective way to replace or upgrade
your existing equipment with a more energy
efcient version. Businesses can borrow
rom 3,000 to 100,000* on an unsecured,
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o up to our years. There are no arrangement
ees and applying is straightorward.
Go to www.carbontrust.co.uk/loans to see
i you qualiy.
*Sbject to eligibility. Regioal variatios apply.
Key point
Be diliget abot evalatig projects becase
yo caot aord to back a dd.
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14Makig the bsiess case
Understand your audience
The board or other decisio makers that yo wat
to iece will dobtedly have their ow
preoccpatios ad objectives. Yo eed to fd ot
what these are, so that yo ca alig yor bsiess
case with their goals. This will help yo avoidsitatios that either coict with their objectives or
create potetial problems (real or imagied).
Remember that yo will ot oly have to satisy
corporate objectives, bt perhaps idividal
ambitios as well. This is partly why it is so
importat to have a ally i the orm o a seior
maagemet sposor.
Perhaps the most importat qestio yo shold
ask yorsel as yo prepare yor proposal ad
presetatio is: What do I have to say, that the
board members wat to hear? That will defe yor
opeig gambit.
Brevity, clarity, certainty
Pray iorm me, o hal a sheet o paper
The way Sir Wisto Chrchill sed to rame
reqests or critical wartime briefgs says it all. The
seior exectives we coslted agree that
a writte proposal mst have, o the frst page,the complete story i simple terms. Details are
ot relevat here: they ca ollow i the body
o the docmet.
Geerally speakig, at board meetigs i ay
sbstatial orgaisatio, the ageda will be
accompaied by a thick stack o papers. Yo mst
make it easy or members to absorb yor message
qickly, ad etice those who are iterested (ad
have the time) to read o. Do ot expect everyoe
to have read the paperwork beore the meetig.
The body o the proposal mst be writte i
a clear ad logical style. I, as is likely, the project
is techical i atre it will be very helpl to
iclde a laymas explaatio o the techology
i qestio beore goig o to say how yo propose
to apply it. Strctrig the writ te proposal well
meas ot oly that yor target adiece will be
able to ollow it, bt more importatly, yo will
be able to direct them qickly to the appropriate
tables, diagrams ad so o drig the presetatio.
Drating the proposal
Your written proposal needs to make it easy or people to see at a glance
what you want rom them and why; but it will also need to give sufcientdetail to satisy the needs o the diligent critics among them.
Fact
Redcig eergy sage meas lower
carbo emissios. Thats great ews
or the eviromet.
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15Makig the bsiess case
Ask yor seior maagemet sposor or examples
o past proposals that he or she wold regard
as exemplary.
Ideally, yo shold give jst oe clear
recommedatio that the board ca edorse.
There may be alteratives (i which case
it is a good idea to show that yo have cosidered
them), bt i yo leave the board with optios
to choose betwee, yo have ot doe yor
preparatio properly.
Remember that you are more expert than they
i eergy ad carbo maagemet, ad they
will accept that. Yo may react to this by sayig that
the decisio cold be ieced by circmstacesor actors that yo are ot privy to. While this is
tre, cosltig yor ally o the board will help
yo to elimiate the less avorable optios.
Keep it real
There is a dager whe promotig carbo savig
iitiatives o makig the propositio too abstract.
This will be particlarly tre i the facial case
is weak ad yo are playig the corporate social
resposibility card. It is temptig to exploit crret
media iterest i climate chage ad to preset
these global or moral cocers as drivers or actio;
however, this is a hazardos tactic.
I yor proposal is ot etirely jstifable o
facial grods aloe, or advice is to show
how it helps to lfl a cocrete objective that the
orgaisatio has previosly set itsel. I other
words, show that it helps the board to keep apromise they have already made. This is oe o the
reasos or developig ad adoptig a corporate
eergy policy. It is a statemet o itet that eables
certai types o decisio to be made qickly
becase the isses have bee debated already.
Typical objections
Beore presetig yor proposal, thik how
yo wold deal with these commo objectios:
We are not convinced because
the problem is ot clear
we dot derstad yor soltio
there is o evidece it wold work
we disagree with yor assmptios.
We like the project, but
istallig it sods like it wold be disrptive
we are ot sre how log we are goigto retai this bildig/process/eqipmet
the workorce wold ot accept it
we do ot have ay moey available to d
the project
the ecessary sta resorces are eeded
or other work
oe o s has got a better idea
why havet yo doe aythig abot thisisse beore?
Tips rom senior management
Citing what competitors are doing can be seen
as disloyal, unless you keep it positive (we cando better)
John OKeee ormer Director o Thames Televisio ad
ex Maagig Director o Limehose Stdios
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Watch your language
Icosiderate se o jargo, acroyms ad
specialist techical termiology is oe o the mai
reasos or proposals beig rejected at board level.
So whe ramig yor writte proposal, or whe
presetig it i perso, be carel to defe or
explai ay specialist techical terms that yo se.
Better still, avoid sig them i they are ot
essetial to the argmet.
Avoid sig emotive terms, ad be wary o adverse
comparisos with yor competitors, which may
be see as disloyal. I yo eed to make sch
comparisos be positive: ot we are laggig
behid bt we ca do better tha them.
It is importat to bear i mid that ew, i ay,
o the decisio makers will have specialist
kowledge o eergy or carbo maagemet.
That may be tre eve o a techical director,
whose expertise is ar more likely to relate to the
orgaisatios core bsiess tha to eergy
systems. Aother more sbtle aspect to the
lagage barrier is that some o the ordiary
words yo se (asset, or target, or istace)
will mea dieret thigs to dieret people.use more cocrete ad specifc terms i possible.
Where possible, se diagrams rather tha tables
o mbers. Iclde relevat visal material like
plas ad photographs, which will make the
docmet more attractive ad easier to ollow.
It may be that some o the people yo are tryigto iece are ot eve amiliar with the site
yo are talkig abot, ad havig a pictre
o it will help to make yor proposal more cocrete
i their mids.
uless yo express yor ideas i lagage the
board ca derstad, the most sympathetic
o them may give p the strggle to iterpret
the argmet behid yor recommedatios
ad opt or the sae respose: rejectio.
Tips rom senior management
Ask yoursel: what does the board want
to hear, that I want to tell them? Billy Davidson Grop Property Director, Vodaoe
Key point
Start with a cocise smmary ad pt the
detail i appedices.
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17Makig the bsiess case
This sectio assmes that yo will be presetig
the bsiess case i perso. That teds to be
preerable becase yo will be the best perso
to deed yor proposal i depth i board members
challege it or ask searchig qestios. I, however,
yo caot be there yorsel, we all back o or
earlier advice to fd a seior maagemet sposor.
Coslt ad ivolve them throghot the
developmet o the proposal, so that they ca be a
eective ad committed advocate o yor behal.
I yo have a techical backgrod yo ace two
isses. Oe is that yo may ot be accstomed
to makig what is, i eect, a iteral sales pitch.
The other is that yo will always be tempted
to ocs o techical detail. So let s start with
some poiters o makig a eective pitch.
Be prepared
First, beore yo eve get to the presetatio,
prepare thoroghly: kow the saliet acts abot
the project ad be prepared to deed it i depth.
Try to aticipate qestios (perhaps with help rom
yor seior maagemet sposor). Fid ot how
log yo have bee allocated. Rehearse, ot
ecessarily word or word, bt at least the key
waymarks.
Secod, be very wary o sig compter-projected
presetatios. They are easy to do badly, ad
iexperieced sers orget that yo caot
maitai eye cotact whe trig to read rom
the scree. There is also o worse way to start tha
fddlig with cables ad eqipmet.
Do yo thik that yo eed a presetatio i order
to show tables, fgres ad charts? I so, cosider
the simple alterative o pttig them i the
spportig paperwork, which yo ca reer to
drig yor presetatio. Board members cold
well eel more comortable beig able to stdy
them at their ow pace rather tha tryig to keep
p with a slideshow.
See i there are ay relevat props yo ca se,
sch as a model or a sample piece o kit. It is ar
easier to sell somethig physical tha a abstract
cocept. For example, to promote a cotrols
project, had arod a example o some key
compoet.
Presenting the proposal
However well-written your proposal, its chances could be diminished
i you do not present it in a convincing way.
Smile, be confdent, be respectul
and dont be arrogant
Key point
Be brie ad to the poit, bt dot assme that
everyoe has read yor writte proposal.
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18Makig the bsiess case
On the day
The whe the day comes ad yo are stadig
i rot o the board:
Be sre that everyoe ca see yo comortably:i all bt the smallest meetigs, stad rather
tha sit.
Itrodce yorsel briey.
Set the scee with a clear statemet idetiyig the
corporate goal that yo are addressig,
ad i simple smmary, what yo propose the
orgaisatio shold do.
Explai that yor presetatio is oly a smmary
ad that all the acts, assmptios ad backgrod
details are i the writte proposal.
I ecessary, give some techical backgrod
i the simplest possible terms.
Elaborate o the proposed corse o actio.
Focs o the objective, which is to get agreemet
to yor recommeded corse o actio. Dot get
distracted ad orget to come to the poit.
Restate yor recommedatio.
Aswer qestios.
I yo do ot get a clear decisio, ask or oe.
Stop whe yo get the decisio. Resist the
temptatio to keep talkig.
Thak yor adiece ad leave.
Throghot yor presetatio try to keep makig
eye cotact with everyoe i tr. Smile, be
cofdet, be respectl ad dot be arrogat.
Tips rom senior management
Graphs and diagrams are better than tables
o numbers. Use photos, plant layout plans
or even mock-ups to help people see what
you are proposing Sandy Manson Wester Eropea Egieerig Maager or iteratioal brewers Ibev
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I yo get the decisio yo wated, be prepared to
act o it straight away. I yo let a approval lapse
yo will damage yor hard wo reptatio ad
perhaps alieate yor seior maagemet sposor
i yo have oe. The reslt will be that yo fd
it harder to arge or tre projects.
Whe the project has bee completed, moitor
it to veriy the savigs that are achieved. This is
importat i two respects. First, yo eed evidece
with which to bolster yor reptatio (ad that o
yor sposor), to vidicate the boards origial
decisio to spport yor idea, ad perhaps to jstiy
replicatig the project elsewhere.
Secod, there is always a risk that the project does
ot work, i which case yo eed to kow abot
it so that yo ca pt it right. For example, improvedatomatic cotrols may eed proper
commissioig or tig to have their ll eect.
Agai, with yor hard-wo reptatio i mid,
make sre that yo pblicise yor sccesses ad
keep a list o them or se i the tre. Make se
o itraet pages, sta ewsletters ad other
iteral commicatio chaels to keep everyoe
i the pictre ad to elicit eedback.
Give credit where it is de ackowledge ay
spport yo have had rom colleages or members
o the workorce. A ote o thaks goes a log way.
Be prepared to cocede credit to yor seior
maagemet sposor i that seems to be what they
wat. Their spport cold be yor key to gettig
rther backig.
Fially, be ready with yor ext brilliat idea.
Always have a ew i the pipelie, as the board may
start askig yo to come p with rther projects.I some orgaisatios they ca be a valable way
o sig bdget srplses ear the ed o the
facial year. Bt remember: oly back wiers.
Maintaining momentum
Implementing the proposed project and monitoring its success
are as much part o the process as getting approval in the frst place.
Key point
Treat the whole exercise as part o a
cotios process, ot a isolated evet.
Make sure that you publicise your successes
and keep a list o them or use in the uture
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20Makig the bsiess case
I the moey or the project is borrowed, the savigs
eed to exceed the cost o iterest paymets. I the
moey comes rom reserves, the savigs eed
to exceed the icome that cold have bee eared
by depositig the moey i the bak or ivestig
it elsewhere or example, i a competig project
that also oers cost savigs or icreased revee.
Simple payback
Table A1 provides two hypothetical (ad simplistic)
scearios which illstrate the sbtle difclties
o choosig betwee projects. Project X will save
5,000 a year or three years, while Project Y saves
oly 4,500 bt will last fve years. Both projects
cost 10,000 to implemet.
The most amiliar way o evalatig ad expressigthe cost eectiveess o projects is the simple
payback period (SPP). Dividig the projects cost by
the aal savigs tells s how log it will take to
recop the iitial otlay. We ca see here, or
example, that Project X has a SPP o 10,000/5,000
= 2.0 years, while Project Y achieves a SPP o
10,000/4,500 = 2.2 years.
O those grods, Project X seems preerable.
Yet the et retr rom Project Y is 12,500 over its
lietime compared with oly 5,000 or Project X,
makig Project Y preerable. Clearly, simple
payback is ot tellig s the whole story.
Aother o the drawbacks o simple payback is that
it tells s othig abot the absolte vale o the
proposal: replacig a flamet lamp with a compact
orescet wold give a stigly short SPP, bt
will oly have a egligible impact o yor
orgaisatios carbo ootprit.
A rther, more sbtle, objectio is that qotig
the payback period is a slightly weak propositio.
To say this project will pay back its costs i two
years is ot qite as powerl as sayig this
project will repay its cost every two years.The latter wordig stresses the cotiity
o tre savigs ad sods like a positive choice.
The ormer wordig is slightly deesive ad
cosciosly sggests that the beeft is short-
lived (dot worry, yo will get yor moey back,
bt oly ater two years).
Appendix A: Financial appraisal methods
Most energy and carbon saving projects incur up-ront costs
and yield annual savings.
Table A1 Two competing projects
Project X Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total
Cost o project (10,000) (10,000)
Savigs 5,000 5,000 5,000 15,000
Cash ow (10,000) 5,000 5,000 5,000 0 0 5,000
Project Y Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total
Cost o project (10,000) (10,000)
Savigs 4,500 4,500 4,500 4,500 4,500 22,500
Cash ow (10,000) 4,500 4,500 4,500 4,500 4,500 12,500
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21Makig the bsiess case
SPP gives s a rogh-ad-ready way to compare
alterative projects, bt most importatly, it is ot
the method sed or evalatig ivestmet choices
i facially-savvy orgaisatios.
Discounted cash ow
To captre the vale o cotied savigs i the
tre, ad to show how the proposed project
compares with other possible ivestmets, most
accotats wold se a assessmet method
based o discoted cash ow (DCF). I DCF
calclatios, all the projects crret ad tre
costs ad savigs are aggregated ito a sigle
lietime fgre, bt with de allowace made or
the act that cash ows i the ar tre have less
weight tha those i the ear tre.
This example illstrates how we weigh p the
relative vales o cash received i the tre.
Let s assme that yo ca ear 4% iterest o
moey i the bak. now sppose that yo are
oered a choice o three cash gits o coditio
that yo dot sped the moey til fve years
rom ow. Yo ca have:
822 today; or
889 i a years time; or
1,000 i fve years time.
Which shold yo choose? The aswer is that give
or take a ew pece, it does ot matter. To ivest
822 or fve years or 889 or or years, both yield
1,000 at 4% compod iterest, meaig that the
paymet o 1,000 i fve years time is eqivaletto 822 received today. Accotats call the 822
the present valueo the 1,000 i qestio, ad the
4% the discountrate.
The higher the discot rate, the lower the preset
vale. Table A2shows the preset vale o 1,000
i fve years time, at varios discot rates.
We ca also compare the preset vales o a certai
cash sm paid at dieret poits i the tre, bt
at a particlar discot rate. Table A3shows thepreset vale o 1,000 payable i the tre at a
10% discot rate.
Table A2
Discount rate Present value o 1,000 fve
years in the uture
4% 821.93
10% 620.92
20% 401.88
Table A3
Years Present value o 1,000
0 1,000
1 909.09
2 826.453 751.31
4 683.01
5 620.92
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Applying discount actors to the
assessment
Net present value
Let s retr to Projects X ad Y itrodced earlier
ad evalate them sig discoted cash ow. For
the prposes o illstratio, we will se a discot
rate o 10%. Table A4is the same as Table A1, bt
cash ow has bee relabelled simple cash ow
ad two additioal rows have bee added. Oe is
the discot actors, which are the ratios betwee
the preset ad tre vales i
each tre year (yo ca see these same ratios i
Table A3above). The other additioal row is the
discoted vales o the tre cash ows i each
year. I each case, this is the simple cash ow .
mltiplied by the discot actor or that year.Lookig at the right-had colms i Table A4yo
will otice that Project X, which yielded a et retr
o 5,000 i terms o simple cash ow, yields a et
retr o 2,434 i terms o discoted cash ow.
This is called its net present value(nPV) becase
it is the sm o all the expeditre ad icome,
discoted to preset vales. Project Y, meawhile,
has a nPV o 7,059.
This gives s a mch clearer pictre o which
project to choose. Doig project Y is the eqivalet
o a cash gi t o 7,059, while Project X is oly
worth 2,434.
I act (i we cold fd the face) both projects
are worth prsig as both have nPVs greater tha
zero. Bt this coclsio does ot hold good i the
discot rate is mch higher.
Table A4Discounted cash fow analysis at 10% discount rate
Project X Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Cost o project (10,000) (10,000)
Savigs 5,000 5,000 5,000 15,000
Simple cash ow (10,000) 5,000 5,000 5,000 0 0 5,000
Discount actor 1.000 0.909 0.826 0.751 0.683 0.621
Discounted cash ow (10,000) 4,545 4,132 3,757 2,434
Project Y Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total
Cost o project (10,000) (10,000)
Savigs 4,500 4,500 4,500 4,500 4,500 22,500
Simple cash ow (10,000) 4,500 4,500 4,500 4,500 4,500 12,500
Discount actor 1.000 0.909 0.826 0.751 0.683 0.621
Discounted cash ow (10,000) 4,091 3,719 3,381 3,074 2,794 7,059
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Table A5compares the projects at a discot rate
o 25%, der which circmstaces oly Project Y is
viable, becase Project X gives a negativenPV:
Yor orgaisatio will probably have a policy abot
what discot rate to se i assessmets. High
rates make it harder to pass the test, ad are
sometimes sed as israce agaist risk.
Internal rate o return
Project X was viable at a 10% discot rate bt
ot at 25%. The discot rate at which it jst ails
(yieldig a nPV o zero) works ot at 23.4%.
This is called its iteral rate o return (IRR).
There is o aalytical method o calclatig IRR;
traditioally it was doe by trial ad error or
by sig graphs. However, spreadsheet programs
provide a IRR ctio which makes lie easy.
The IRR or Project Y, icidetally, is 34.9%.
The example o Project Y is tellig. It has a simple
payback period o 2.2 years, ad or may
orgaisatios it wold ail the typical hrdle
o oe or two-year payback applied to eergy
projects. Bt whe oe realises that it gives a
34.9% iteral rate o retr, it sods ad is
mch more compellig. What other ivestmet
wold give a better retr?
Table A5Discounted cash fow analysis at 25% discount rate
Project X Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Cost o project (10,000) (10,000)
Savigs 5,000 5,000 5,000 15,000
Simple cash ow (10,000) 5,000 5,000 5,000 0 0 5,000
Discount actor 1.000 0.800 0.640 0.512 0.410 0.328
Discounted cash ow (10,000) 4,000 3,200 2,560 (240)
Project Y Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total
Cost o project (10,000) (10,000)
Savigs 4,500 4,500 4,500 4,500 4,500 22,500
Simple cash ow (10,000) 4,500 4,500 4,500 4,500 4,500 12,500
Discount actor 1,000 0.800 0.640 0.512 0.410 0.328
Discounted cash ow (10,000) 3,600 2,880 2,304 1,843 1,475 2,102
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More complex scenarios
The Project X ad Y examples were deliberately
simplistic. Real lie aalyses may be more complex.
For example:
There may be ogoig rig costs. For example,
a heat recovery system that saves gas might
reqire electrical power. Possible maiteace
costs are aother cosideratio.
Depedig po the projects timig, there may be
some savigs i Year 0.
Savigs may vary rom year to year, otably
becase o real iatio o eergy prices relative to
other commodities.
It may be the orgaisatios policy to accot
explicitly or tax costs.
Where ecessary, the DCF table ca be elaborated
by addig rows or specifc cost items, or to
separate savigs or gas ad electricity (or
example) i their prices relative to each other are
expected to vary.
Table A6illstrates a more complex case.
First, some savigs are expected i the year
o implemetatio. The, as well as the capital
expeditre, there are aal maiteace charges
(lower i year 1 bt higher i year 3). Fially, the
techology icrs additioal electrical costs which,
like the savigs i gas costs, have bee assmed
to iate at 20% relative to geeral iatio.
However, the (literal) bottom lie is always the
same. Each years et cash ow is calclated
ad discoted.
Table A6Illustration o a more complex case
Project Z Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Cost o project (10,000) (10,000)
Maiteace (500) (750) (1,500) (750) (750) (4,250)
Electrical power (100) (250) (300) (360) (432) (518) (1,960)
Savigs 2,000 5,000 6,000 7,200 8,640 10,368 39,208
Simple cash ow (8,100) 4,250 4,950 5,340 7,458 9,100 22,998
Discount actor 1.000 0.811 0.657 0.533 0.432 0.350
Discounted cash ow (8,100) 3,445 3,253 2,845 3,221 3,185 7,848
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Risk cover and sensitivity analysis
Dieret orgaisatios apply dieret criteria
i terms o the discot rate they apply to
discretioary capital projects (which is the same
thig as the threshold or the IRR they expect).
I theory, the discot rate shold jst be the cost
o capital (iterest charged o borrowigs, or
oregoe o alterative ivestmets), bt sally
it is mch higher. Why is this? usally it is to cover
the orgaisatio agaist risk. Aother hedge
agaist risk is to set a short time horizo or
evalatio, or example limitig the aalysis to fve
years eve i the project has a mch loger lie.
However, do ot be tempted to evalate a projectregardless o risk o the grods that yor
corporate assessmet criteria wold flter it ot.
It may be so risky that it cold ltimately ail eve
ater clearig a high threshold. It is preerable
to carry ot a sesitivity aalysis, which with
the aid o a spreadsheet is ot too oeros.
The frst step is to decide what actors are sbject
to sigifcat certaity. These will almost
certaily iclde:
The implemetatio cost
Maiteace or other additioal rig costs
Savigs achieved (i it terms)
Eergy prices relative to other iatio idices
Project lie.
next, cosider what the likely rage o each o these
actors is. usig yor spreadsheet model,
try the worst ad best case assmptio or each
certai item ad ote the resltig IRRs.
I ay oe o the worst case assmptios gives
a acceptably low IRR, there is a chace that
yor project will ail.
With a little trial ad error yo ca establish the
poit at which the project ails (or example, the
percetage cost over-r which gives zero nPV).
I yo cosider the risk o that evetality beig
too great, yo shold abado the project.
However, all may ot be lost. We kow that
IRR thresholds are sally set high to provide
a measre o risk cover, so yor argmet
might go like this: I project costs over-r by x%,
the project wold ail to meet the compays IRRcriterio. However, we thik there is oly a oe
i x chace o this happeig ad the worst case
sceario still gives a IRR o z%.MEnu
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Taxation, ination and depreciation
Taxation
All other thigs beig eqal, i yo ca claim the
etire cost o yor project agaist tax i the frst
year, the eect o taxatio is etral: the iteral
rate o retr is idetical o the pre-tax ad post-tax
cash ow.
Yo will be able to write dow the whole
expeditre agaist tax to the frst year i:
Yo treat it as revee expeditre (maiteace,
or example) rather tha capital.
It alls withi the Aal Ivestmet Allowace
(AIA) itrodced i the 2008 bdget.
It qalifes or the Ehaced Capital Allowace
scheme.
The tax eect is etral becase it is proportioal
to the icome ad expeditre i each year.
I yo are ot able to claim the project cost agaist
tax i the frst year yo will oly be able to claim
or 20% each year o a redcig-balace basis.
Postpoig the tax beeft has a sigifcat impact:
at a 15% discot rate over eight years adassmig 28% corporatio tax, the et preset
vale will be redced by abot 10% o the origial
ivestmet cost. The loss o vale trs ot to
be idepedet o the level ad profle o savigs,
ad projects with simple payback periods o abot
fve years ca go rom positive to egative nPV
i sch a case.
Fortately, the adverse impact wold be similar
or all projects evalated agaist the same criteria,
which is why early all assessmets are doe
o pre-tax fgres.
Ination
This is also sally assmed to aect all competig
projects eqally, ad thereore is ot ormally
accoted or. However, there is a strog argmet
or assmig derlyig real iatio o eergy
prices relative to other commodities.
The eect o this is to icrease the tre vale o
each kWh saved, ad there are two ways to accot
or this. Oe is to show savigs icreasig i aal
vale as time goes by. The other is to redce the
discot rate, which is arithmetically the same thig
i yo expect a fxed aal percetage rise i real
eergy costs.
O the two methods, the frst is preerable
becase it does ot ivolve apparetly chagig
the assessmet criteria. It is also clearer,
especially i yo wish to show a sesitivity aalysis,
makig dieret assmptios abot the tre
o eergy prices.
Depreciation
This ever eeds to be take ito accot, becase
it is ot a cash ow. It merely records the loss o
vale o a asset as it ages. Depreciatio oly has
a eect i the evalatio is carried o a post-tax
basis (becase it aects year-by-year tax liabilities).
Eve the its eect is idirect: it is the tax amots
themselves that eed to be accoted or, ot the
depreciatio. However, i practice, post-tax aalysis
is sal. Pre-tax aalysis is easier ad the more
commo optio.
Further help online
A facial aalysis tool ca be od o or
website to help yo with yor facial
appraisal. Go to www.carbontrust.co.uk/
projectplanningtool
MEnu
help
http://www.carbontrust.co.uk/projectplanningtoolhttp://www.carbontrust.co.uk/projectplanningtoolhttp://www.carbontrust.co.uk/projectplanningtoolhttp://www.carbontrust.co.uk/projectplanningtool8/7/2019 CT making the carbon reduction business Case
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Carbon Footprint Calculator Or olie calclator will help yo calclateyor orgaisatios carbo emissios.
www.carbontrust.co.uk/carboncalculator
Interest Free Loans Eergy Efciecy Loas rom the C arbo Trst are a costeective way to replace or pgrade yor existig eqipmet with a more eergy
efciet versio. See i yo qaliy.
www.carbontrust.co.uk/loans
Carbon Surveys We provide srveys to orgaisatios with aal eergy billso more tha 50,000*. Or carbo experts will visit yor premises to idetiy eergy
savig opportities ad oer practical advice o how to achieve them.
www.carbontrust.co.uk/surveys
Action Plans Create actio plas to implemet carbo ad eergy savig measres.
www.carbontrust.co.uk/apt
Case Studies Or case stdies show that its ote easier ad less expesivetha yo might thik to brig abot real chage.
www.carbontrust.co.uk/casestudies
Events and Workshops The Carbo Trst oers a variety o evetsad workshops ragig rom itrodctios to or services, to techical eergy
efciecy traiig, most o which are ree.
www.carbontrust.co.uk/events
Publications We have a library o ree pblicatios detailig eergy savigtechiqes or a rage o sectors ad techologies.
www.carbontrust.co.uk/publications
Need urther help?
Call our Customer Centre on 0800 085 2005Or Cstomer Cetre provides ree advice o what yor orgaisatio
ca do to save eergy ad save moey. Or team hadles qestios
ragig rom straightorward reqests or iormatio, to i-depth
techical qeries abot particlar techologies.
* Sbject to terms ad coditios.
Go online to get more
The Carbon Trust provides a range o tools, services and inormation to help
you implement energy and carbon saving measures, no matter what your levelo experience.
MEnu
help
http://www.carbontrust.co.uk/carboncalculatorhttp://www.carbontrust.co.uk/loanshttp://www.carbontrust.co.uk/surveyshttp://www.carbontrust.co.uk/apthttp://www.carbontrust.co.uk/casestudieshttp://www.carbontrust.co.uk/eventshttp://www.carbontrust.co.uk/publicationshttp://www.carbontrust.co.uk/publicationshttp://www.carbontrust.co.uk/eventshttp://www.carbontrust.co.uk/casestudieshttp://www.carbontrust.co.uk/apthttp://www.carbontrust.co.uk/surveyshttp://www.carbontrust.co.uk/loanshttp://www.carbontrust.co.uk/carboncalculator8/7/2019 CT making the carbon reduction business Case
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The Carbon Trust receives unding rom Government including the Department o Energy and Climate
Change, the Department or Transport, the Scottish Government, the Welsh Assembly Government
and Invest Northern Ireland.
Whilst reasonable steps have been taken to ensure that the inormation contained within this publication
is correct, the authors, the Carbon Trust, its agents, contractors and sub-contractors give no warrantyand make no representation as to its accuracy and accept no liability or any errors or omissions.
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The Carbon Trust is a comp any limited by guarantee and registered in England and Wales under Company
number 4190230 with its Registered Ofce at: 6th Floor, 5 New Street Square, London EC4A 3BF.
Published in the UK: May 2010.
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The Carbon Trust is a not-or-proft company with the mission to accelerate the move to a low
carbon economy. We provide specialist suppor t to business and the public sector to help cut
carbon emissions, save energy and commercialise low carbon technologies. By stimulating
low carbon action we contribute to key UK goals o lower carbon emissions, the development
o low carbon businesses, increased energy security and associated jobs.
We help to ct carbo emissios ow by:
providing specialist advice and fnance to help organisations cut carbon
setting standards or carbon reduction.
We redce potetial tre carbo emissios by:
opening markets or low carbon technologies
leading industry collaborations to commercialise technologies
investing in early-stage low carbon companies.
www.carbontrust.co.uk
0800 085 2005
ACT ON CO2
is the Governments initiative to help
individuals understand and reduce their carbon ootprint.
Visit http://actonco2.direct.gov.uk or more inormation.
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