Carbon Reduction Commitment

The Government’s pledge to reduce carbon emissions is good for the environment.

In April 2010 the UK Government’s carbon reduction commitment (CRC) energy efficiency scheme will come into force.  This legally binding climate programme is designed to help the Government reach its target of reducing greenhouse gas emissions by 80% on 1990 levels by 2050.  The CRC is a ‘cap and trade’ carbon scheme and all companies affected will need to buy allowances to cover their carbon emissions.  After the scheme’s three year introductory phase, when the price of carbon allowances will be fixed at £12/tonne of CO2 the availability of allowances will be capped, requiring organisations to buy them on the open market.

Who is affected?

The CRC will target non-energy intensive sectors that fall outside of the EU Emissions Trade Scheme, such as large retailers, hotel chains, banks, local authorities and universities – basically all organisations that consumed 6,000 MWh or more in calendar year 2008.

What will the financial impact be?

The introductory phase has been designed with a focus on making participating organisations pull all of their energy usage data together and ensure it is accurate.  The costs for not reducing emissions are relatively light, but the fines for non-compliance or inaccurate information are high.

The scheme is envisaged to be revenue neutral.  Each October the UK Government will publish an annual league table, showing the relative emissions reduction performance of all participants in the CRC.  All revenue generated by allowance sales will be recycled to the participants depending on their league table position.  If they are in the top half of the table, they will receive a bonus payment.  If they are in the bottom half, they will receive less back than they paid in.  This difference increases each year up to +/50% in year five.

How should companies prepare?

The CRC should be viewed as a programme of activities, and these can be split between initial compliance and ongoing management.  As a minimum, participating organisations should:
  • Develop a strategy;
  • Allocate a budget;
  • Assign a board level CRC champion and a designated CRC Manager, select a core CRC team and bring them up to speed with all aspects of the CRC;
  • Allocate responsibilities;
  • Invest in relevant technologies to be able to monitor and report energy consumption accurately;
  • Prepare internal and external communications campaigns;
  • Implement a structured programme of carbon emission reduction improvements.
Organisation should be preparing now.  The scheme administrator views emissions from the organisation as a whole, not individual businesses or sites.  Therefore, it is important not to underestimate the scale of the task.

How can companies benefit from the CRC scheme?

Ensuring you are located in the top half of the league table will not only secure a positive recycling payment bonus but could also minimise the negative impact on your company’s reputation.

Making sure you are at the top will require investment in an energy efficiency improvement programme and a wholesale commitment by the entire company.  Many participating organisations will not have the necessary resources, knowledge and skills to manage the CRC to achieve maximum benefit – so to gain the best advantage, it may be worth investing in the services of an energy management specialist company.  These firms can not only help with compliance, but also with getting real value from an efficient energy system.

For example, Organisation X purchases emissions allowances equal to the 10,000 tonnes it anticipates emitting during the next year.  Delivering an energy efficiency programme which guarantees to reduce those emissions by 20%, or 2,000 tonnes, means that Organisation X not only saves costs from a lower energy bill, but can sell the extra allowances on the market at tan anticipated higher £/tonne than it paid for them and report the 20% annual emissions reduction to sit high in the league table and gain a bonus on the recycling payment.  It’s a triple-win scenario, but you must start planning now.