Developing a low carbon economy requires a giant framework to get everyone moving in the same direction. Investors and entrepreneurs alike need to be able to navigate this framework, both to identify emerging opportunities and to secure funding that will get a bright idea into the marketplace at the right time. So where should you start?

According to Kate Hampton, Director of Market Development and Head of Policy at the specialist investment banking group Climate Change Capital: “The scale of future ambition for carbon reduction is determined at the international level, but the actual implementation takes place through legislation at the national level.

“So, the 1997 Kyoto Protocol [which sets targets for reducing countries’ greenhouse gas emissions] would just be a shell without measures to get capital flowing to meet those targets. For that, you need demand which is generated when those rules roll down to national level in the form of legislation.”

The challenge, then, is to see the international objectives on the horizon and predict how and when these will translate into legislation that creates a marketplace for low carbon technology. That can be difficult. “Governments work on short cycles and want the flexibility to negotiate with other governments, whilst investors need long-term certainty. So there is a constant tension there, but we are starting to see more regulation over the longer term,” says Ms Hampton.

This is just as well. Watching the policy cogs grind away can be immensely frustrating, particularly if your technology requires several years’ testing and development, but your investors are held back by policy uncertainty.

In Europe, the Kyoto Protocol is being implemented through an Emissions Trading Scheme (ETS). The ETS is focused on more than 12,000 energy and industrial installations, which emit half the EU’s carbon dioxide and some 40 per cent of its total greenhouse gases. The emissions of these installations are capped. If an installation can reduce its emissions, it can profit by selling its emissions allowance to others who are effectively paying for their pollution. The emissions caps are progressively tightened and this, in turn, creates a marketplace for alternatives to greenhouse gas emissions, such as renewable energy and energy efficient technology.

The rules that governed the first and second phases were not agreed until just before each came into effect, making it difficult for many companies to plan their low carbon strategy. Happily, although the second phase of the ETS has just started, the EU is already planning the third.

“The third phase runs from 2013 to 2020, totalling eight years,” says Ms Hampton. “And the rules for the third phase are being discussed now which means that this time we will have maybe 12 years of policy visibility. That visibility is important for big ticket investments like wind farms or big changes to energy infrastructure: it increases investor confidence.”

At first glance, the national picture doesn’t look any simpler. The Department for Business, Enterprise and Regulatory Reform has primary responsibility for driving the low carbon economy with a wide variety of funds and support mechanisms. These include: the Hydrogen, Fuel Cells and Carbon Abatement Technologies Demonstration Programme; a STERLING 100 million fund for collaborative research into low carbon energy; a Renewables Obligation; the Climate Change levy; an Offshore Wind Capital Grants Scheme; the Marine Renewables Deployment Fund; and even a Business Development Unit to help UK businesses ‘win a greater share of renewables business’. But this confusing array of schemes can be hard to access. Recently, for example, The Times revealed that the Marine Renewables Fund, worth £50 million, had only attracted two applications since 2005 and both had been rejected.

It is often more straightforward to work through alternative routes. First, a wide range of advice, research and support is available from the Carbon Trust, an independent company established by the Government to help reduce carbon emissions and develop commercial low carbon technologies. Second, regional development agencies (RDAs) typically have a significant focus on environmental technologies, with specialists who are able to narrow down the range of resources.

“All they are doing is channelling central Government funds for technological innovation,” explains John CL Cox CBE. “They are simply bankers providing a service to government, to ensure that the funds are deployed in properly assessed opportunities. They provide a valuable service that has achieved developments that otherwise would not have happened.”

A former director general of the Chemical Industries Association, Mr Cox argues that RDAs provide the localised support needed to sustain technology ‘hubs’ or ‘clusters’ which trigger “synergy that drives innovation”. “For example, one company might need to refine the shape of a turbine blade whilst another offers a new form of computer-aided design,” he says. “Suddenly, you’ve got a successful partnership.”

Mr Cox is chair of the Centre for Sustainable Engineering in Peterborough, funded by the East of England Development Agency. A new Eco-Innovation Centre is being created to help share expertise between 3,000 companies in the environmental technologies sector. “The sector needs focused investment with a patient timescale,” he says. “Public sector funders often expect returns in two to three years, when in fact five or more years are needed to bring these technologies on. The UK has long been good at invention but less successful at upscaling and implementing these ideas. With sensible amounts of more concentrated, less fragmented funding aimed at carefully vetted projects, we should be able to make the most of a market in the early stages of quite a strong upward growth curve. I can see the market doubling over the next seven to ten years from quite a significant level already.”

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