This year’s Indian summer has been something of a double-edged sword. Enjoyable in many ways, but the unusual warmth is also a stark reminder of the global imperative to reduce carbon emissions.

We all have an important responsibility to the environment to act now and play our part in cutting the output of man-made greenhouse gases.

For energy companies such as Centrica, this raises very significant issues. How can we ensure that new lower-emission power generation replaces older plant with higher emissions? How can we guarantee secure supplies to meet high demand? And how can we further encourage our British Gas customers to be efficient in their energy usage?

The over-arching question, of course, is can this be done at a cost that consumers will accept and that will also yield a commercial return on our investments? Much will depend on the design and implementation of global, European and UK markets in future. In particular, the design of the European Emissions Trading Scheme (ETS) is key.

The UK Government, pleasingly, has confirmed that it will rely on market mechanisms, principally the ETS, rather than subsidies to encourage investment in cleaner generation. It has also imposed a tough National Allocation Plan for the second phase of the ETS, from 2008 to 2012, driving down levels of UK emissions.

But, for companies to make proper investment decisions, the key element is a stable and transparent carbon price well beyond 2012. We need to be sure that investment in clean, but more expensive, generation plant is not going to be penalised through a market allowing owners of older, dirtier plant to emit carbon dioxide (CO2) at low cost.

Therefore, in addition to tougher National Allocation Plans, it is also important that the third phase of the ETS, from 2012, includes full auctioning of permits to emit CO2, in contrast to the first and second phases, where most permits continue to be handed out free. These free permits simply distort the market by paying the polluter — across Europe this is giving the owners of high- emitting plant a windfall of billions of euros.

Centrica and its British Gas business already have the lowest emissions of the big six UK generators, as electricityinfo.org and WWF have highlighted. But we want to do more.

That is why we are investing heavily in new technologies. For example, we are now entering a feasibility project which could see us building the UK’s first coal-fired plant for three decades. It would be six times cleaner than any current UK coal generator, and even cleaner than gas, making it the UK’s lowest-emitting fossil-fuelled power station. All CO2 emissions would be stored under the North Sea.

Such a plant would not be cheap to build — indeed, it would cost several times as much as the gas-fired plant we are building at Langage in Devon — but companies, as well as countries, seek diversity of supply, which is why we are considering coal for the first time in our company’s history. We’re also investing £750 million in renewable generation, principally offshore windfarms. The need for such investments is urgent. Over the coming decade there will be a need for around 15,000 megawatts of new generation. EU environmental rules take effect from 2012, forcing the retirement of less environmentally clean plants, while the UK’s fleet of nuclear stations is also reaching the end of its design life.

However, it is not just power generators who can make a real difference. Britain’s homeowners, too, have an important role to play by making step changes in the way in which they use energy. Currently around £1 in every £3 we spend on heating and lighting is wasted through energy loss.

Here, British Gas already has a pioneering scheme, to which 38 local councils have already signed up, offering discounts on council tax to homeowners who properly insulate their homes. Meanwhile, our green energy tariff is the most popular in the market.

New technology also has an important role to play in the home. We are piloting microgeneration boilers — a mini-power station in the kitchen — which generate power as well as heat, and will be available next year.

Despite all this, though, the ultimate success of UK and European efforts to deliver large cuts in emissions depends upon concerted European support to deliver a properly functioning ETS.

But so far the signs are mixed. Some EU member state governments have either not met the deadline at all for submitting their national allocation plans for industrial CO2 emissions under phase 2 of the ETS, or submitted plans that are nowhere near ambitious enough in terms of delivering cuts, with many actually permitting an increase.

There is not much time to play with. As our planet grows steadily warmer, there is a rising need for a collective will right across Europe to tackle the issues. The UK can’t go it alone.

• The author is chief executive of Centrica

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