An Overview of the Carbon Reduction Commitment

In 2010, the UK Government are scheduled to activate the Carbon Reduction Commitment (CRC).  The programme is aimed at the very large consumers of energy in the UK economy and will include, commercial, non-commercial and government organisations that are not already included within an existing climate change agreement or the EU Emissions Trading System.

As it’s name implies, the CRC is aimed at reducing carbon emissions (CO2e) in accordance with the UK’s long-term commitment to reduce carbon emissions by 80% of levels by the year 2050.

The basis of the scheme is to create a cap and trade system that rewards organisations that reduce their energy consumption and penalise those who do not.

Participants in the scheme will be rated, based primarily on their absolute CO2e reduction and other criteria, against all other organisations in the scheme and a resulting league table will be drawn up.  This highly visible table will enable comparison between organisations with the potential for marketing opportunities going to the high performers and may have implications for a company’s market reputation.

The cap and trade side of the CRC is based on the organisation’s level of CO2e.  The scheme has been designed to be revenue neutral for the Treasury and where emission targets have been achieved, fiscal rewards will be received by those who achieve while penalties will be paid by those who missed their target. The overall effect should drive down energy usage therefore CO2e with your position in the league table affecting your financial responsibilities within the scheme.

There are several criteria set for qualifying but the most important one is based on the use of more than 6000MWh per annum (6 million megawatt hours).  Registration in the scheme can be achieved through a web-based system and is mandatory at this level of consumption.  The process requires disclosure of information that will be tracked over time and form the basis of the measurement metrics of the scheme.

Organisations that consume less that 6000MWh but are on half hourly metering are also legally obliged to submit disclosure of their consumption but are not currently being considered for inclusion in the cap and trade processes.

Fiscal penalties will be applied to any organisation who qualifies but does not register, so compliance is recommended.

The full scope of each organisation is being included when measuring and monitoring with companies being grouped together under the highest parent company as defined within the Companies Act.

Although considerable effort will be necessary to reduce energy usage and carbon emissions, the CRC processes are not difficult and can be summarised as:

• Monitor CO2e to meet annual disclosure obligations.
• Trade, either through sale or purchase of credits ensuring that sufficient allowances have been purchased to cover the organisation’s energy usage.
• Report emissions through self-certification
• Manage receipt payments

In essence, the CRC programme has already begun as the metrics used for the first year’s activity have already been established.  Qualification has been based on energy usage in 2008, consequently you should already know if you will need to comply with this statute.

2009 should see the administration of the CRC, through the dissemination Qualification Packs to all known participants, by the Environment agency.  This should initiate action by participants to register online and enter the necessary disclosure information, although the registration period continues through to the end of the sixth month of the first compliance year.

The scheme will formally being an initial three year cycle in 2010.  Termed the ‘Introductory Phase’, the first compliance year is scheduled to begin in April 2010 and finish in March 2011.

In the second compliance year, 2011, the first sale of allowances will occur to enable participants to ensure that they have sufficient ‘carbon’ equity in the scheme to cover their CO2e for 2010/2011 and also for 2011/2012.

From 2013, capping controls aimed at reducing CO2e will be applied.

With many countries watching how the scheme works in the UK, as a complementary component to the UK’s CO2e and energy management strategy, the CRC has been crafted as a simple method that should be easy to administer for both participating organisations and Government.  However, the scheme has already been identified to have some potential issues, a topic for a later article, but as a blunt instrument for carbon emissions management, it should achieve its objectives.

Dimension 85 Ltd specialises in the provision of consulting solutions that address these issues, you can contact us at the Dimension 85 website.