Business leaders are broadly supportive of the government's commitment to cut carbon emissions, but are concerned the carbon trading mechanisms it is proposing to deliver emission reductions will have a detrimental effect on UK competitiveness.

That is the somewhat mixed message from npower's fifth annual Business Energy Index, which surveyed 200 senior UK executives and found that many are fearful that government plans to expand carbon trading will compromise their competitiveness.

Respondents from large energy purchasers expressed particular concern about the government's proposed Carbon Reduction Commitment, which is expected to come into effect around 2010 and will impose a carbon cap-and-trade scheme on those large energy users currently not covered by the European emissions trading scheme (ETS) such as supermarkets, hotels and government departments.

Seven out of 10 large energy users said that with many other European countries only imposing carbon trading schemes on the heavy industries included in the European emissions trading scheme (ETS) the new initiative would make the UK uncompetitive. Almost two thirds added that the costs of the scheme would outweigh the benefits, while less than half believed the CRC would meet its target of removing 1.2m tonnes of CO2 from the atmosphere each year by 2020.

However, this opposition to the CRC is in stark contrast to the widespread approval for the government's plans to set binding emissions reduction targets, which gained support from 88 per cent of respondents.

David Boomer, head of energy efficiency and climate change at the Institute of Directors (IoD), said that business opposition to the government's carbon trading proposals was largely rooted in a lack of understanding over the scheme's benefits.

"It is my view that the government's communication [on carbon trading] has not been as effective as it could be," he said. "People are very unsure about the consequences of any expansion of carbon trading and the spectre of stealth taxes looms large."

He added that many business groups, including the IoD, supported carbon trading as a market mechanism that would deliver the most cost effective and flexible means of reducing carbon emissions, allowing those firms that do deliver carbon savings to sell credits to those firms that fail to cut their carbon footprint.

"The government has to give the right signals to win over the sceptics and show that this is a robust and flexible system that will allow firms to realise new market opportunities," said Boomer. "To do that, more clarity about how it will work is required."

Paul Coffey, managing director of npower business, warned that regardless of some firms' opposition to carbon legislation the government's binding emission reduction targets meant that increased pressure on firms to cut emissions was now inevitable. "Those that identify the advantages of low carbon operations now, and work within the existing legislative framework, will be the ones that benefit in the future," he advised.