The Carbon Trust was established in 2001 to help businesses and public sector organisations in the United Kingdom reduce their carbon dioxide emissions and to support the development of commercial low carbon technology. It is a private company limited by guarantee and received funding of £100.2 million in 2006-07, of which £77.1 million came from the Department of Environment, Food and Rural Affairs ("The Department"), and £23.1 million from the Department for Business, Enterprise and Regulatory Reform and the devolved administrations. A further £3 million of income came from investment returns and loan repayments.

In 2006-07, the Carbon Trust achieved a reduction in carbon dioxide emissions of between 1.2 million and 2.0 million tonnes. It appears to be on course to meet its target of an annual reduction in emissions of 4.4 million tonnes on 1990 levels by 2010. This target is a small contribution, however, in the context of increasing global energy costs and increased public awareness of climate change. The Carbon Trust could deliver more, but further progress depends upon contacting greater numbers of organisations without a corresponding increase in costs or a breach of the European State Aid rules. The Carbon Trust does not expect to use public money to fund advice to large businesses within five years, and is examining how to extend its reach into smaller businesses and deliver advice to this sector in a more efficient manner. Public funding of the Carbon Trust's advisory role should be based on the Carbon Trust clearly demonstrating that its role cannot be undertaken by private sector advisory services.

The Carbon Trust also needs to overcome the reluctance of some senior business executives to prioritise emissions reductions as a business issue, particularly in the face of competing commercial activities which may offer their shareholders better returns than those offered through investing in new more energy efficient equipment. The Carbon Trust should make greater use of its Energy Efficiency Accreditation Scheme to enable businesses to market initiatives taken to reduce carbon dioxide emissions, potentially shifting customer preferences and hence increasing the likely return on energy efficient investments.

The Carbon Trust's private sector status has allowed it to engage with commercial organisations on an equal footing, providing financial flexibility and the capacity to leverage funds from business in supporting innovation in low carbon technology.

On the basis of a report by the Comptroller and Auditor General,[1] we examined the effectiveness of the Carbon Trust in encouraging businesses and public sector organisations to reduce carbon dioxide emissions, and the merits of establishing a private sector company to deliver public services.