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Britain’s CRC regime: beginning of a new era

October 2009

UK business will have to deal with the requirements of a new Carbon Reduction Commitment from next April. EP takes a quick look at how it is likely to work

What is it?
The Carbon Reduction Commitment (CRC) is an energy-saving and carbon trading scheme for the UK that will encourage improvements in energy efficiency. It is aimed at increasing energy and climate change awareness in large organizations, especially at senior level, and at driving changes in behaviour and infrastructure. The CRC is part of the UK government’s strategy for carbon dioxide emissions, and policy has been developed by the Department of Energy and Climate Change. The scheme will tackle emissions not already covered by Climate Change Agreements and the EU Emissions Trading System, and will start in April 2010. The UK government says the scheme will achieve carbon dioxide emissions reductions of at least four megatonnes per year by 2020.

How will it work?
Participation in the scheme will be mandatory for certain companies, especially large ones. Participants will have to purchase allowances equivalent to their emissions every year. The overall emissions reduction target is achieved through a cap on the total number of allowances available to the group of participants, excesses of which can be sold on a carbon trading market. Companies involved will then be ranked according to their energy performance in a league table, which will be made available for public scrutiny.

Who will be affected?
The CRC will capture large public and private sector organizations across the UK. Around 20,000 organizations are likely be affected by the scheme. Failure to comply will result in penalties, including monetary fines. Qualification for the scheme is based solely on electricity usage – for example, a company will qualify if its total half-hourly electricity consumption is more than 6000 megawatt hours.

What are the benefits?
The CRC estimates that the benefit to participants in energy efficiency savings will be about £1billion ($1.65bn) by 2020. Revenue recycled back to participants from the sale of allowances every year will also include a bonus for the best performers, whose reputations will benefit from the publication of the league table.

What is required of companies?
For administrative purposes, the scheme is divided into set time periods known as phases. The first of these is the ‘introductory’ phase, which runs for three years. Subsequent phases will each last for seven years.  

Before every phase organizations must:
  determine whether they meet the qualification criteria for participation, or must make an information disclosure to the administrator
  register as a participant or submit an information disclosure
  calculate their emissions responsibility under the CRC, if they are participants.

In every ‘compliance year’ proper, participants will purchase allowances based on expected energy use emissions, monitor their energy use every year and eventually report their emissions to the administrator. In addition, they will receive a revenue recycling payment from the government, based on their relative performance in the scheme. A CRC user guide is available at www.defra.gov.uk

What happens when?
A comprehensive plan is in place for the introduction of the CRC. Last year was the ‘qualification year’, when companies were required to determine their eligibility. This year there has been a consultation on the CRC draft orders, an identification of participants and requests for information sent to these participants. Next year the scheme will begin with a three-year introductory phase. The first compliance year, 2010, will be deemed a ‘footprint’ year, of which the first six months will be the registration period, and during which qualifying organizations must register or make an information disclosure by 30 September 2010. A fine will be imposed on organizations that fail to do so by the deadline. The first sale of emissions allowances at a fixed price will be in 2011. In 2013 the first capped phase of the scheme begins, along with the auctioning of carbon allowances.

How should companies prepare?
Nigel Clark, marketing director at London-based Enviros Consulting, which has been advising companies on environmental management for 30 years, suggests that,  first and foremost, businesses  need to ‘keep abreast of communications from the Envioronment Agency and the government’ so they know what is required of them – and when.  They must also make themselves aware of the CRC timetable and when they’ll need to buy allowances. But alongside these information-gathering tasks, they should be ‘assigning roles and responsibilities across their organizations for data collection and CRC compliance activities’. 




Department of Energy anad Climate Change | UK & NI Ireland | Emissions

Further Information
http://www.defra.gov.uk/environment/climate/index.htm
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