THE CARBON REDUCTION COMMITMENT
The Carbon Reduction Commitment (CRC)
which will come in to force in 2010 is a
new emissions trading scheme for non
energy intensive commercial and public
sector organisations. The intention is
to encourage business and the public
sector to measure, monitor and reduce
their carbon emissions. The scheme will
be mandatory and will affect around
5,000 businesses that use more than
6,000 MWh of electricity per annum, or
in other words, organisations that have
an energy bill in excess of £500,000
across all of their sites in the UK.
This new piece of legislation is
designed to help the Government keep its
existing commitments to reduce
greenhouse gas emissions.
The Carbon Reduction Commitment will
sit alongside a number of pieces of
existing legislation designed to
encouraging business to reduce carbon
emissions through lower energy use. The
most significant of these are:
The European Union Emissions Trading
Scheme (EUETS)
The EUETS is the largest
multi-national, greenhouse gas emissions
trading scheme in the world and is a
main pillar of EU climate policy.
Under the EU ETS, large emitters of
carbon dioxide (Power Stations, Cement
Works, Chemical Plants etc.) within the
EU must monitor and annually report
their CO2 emissions. Annual carbon
credits are granted to each business
based on their emissions allowance for
the year (each credit is equal to one
tonne of CO2). At the end of the year
they must surrender back to the
Government a credit for each tonne of
CO2 they have actually emitted. If they
have carbon credits left over (i.e. they
emitted less carbon than they were
allocated credits for) at the end of the
year they can trade these on the open
market, if however they have emitted
more carbon than their allocation they
must cover this with purchased credits
or pay a fine.
Emissions covered under the EU ETS
will not be included in CRC reporting.
The Climate Change Levy and Climate
Change Agreements (CCA)
The Climate Change Levy was
introduced by the UK Government in April
2001 as an incentive for business to
reduce its energy bills and consequently
its carbon emissions. The levy is an
energy tax that appears directly on an
organisation’s energy bill and was
offset by a 0.3% reduction in National
Insurance contributions. A number of
energy intensive industries, identified
through their trade associations,, are
permitted to sign up to a Climate Change
Agreement (CCA) which gives them an 80%
discount on the levy on the condition
that they agree to meet carbon reduction
targets.
Organisations with more than 25% of
their energy emissions covered by CCA’s
will be exempt from the CRC.
Defra is expected to inform more than
10,000 organisations in the UK that they
may be included in the CRC and invite
them to register.
In July 2009 these organisations will
be asked to report their total
electricity use in 2008 across all sites
fitted with mandatory half-hourly meters
(sites that use more than 100KW of
electricity in an hour should be fitted
with a half-hourly meter).
Responsibility to report this
information and if necessary to take
part in the CRC will fall to the highest
UK parent organisation.
The parent organisation will then be
responsible for reporting the
electricity use for all of the sites
across all of its subsidiaries. Where
the total electricity use from all of
the half hourly meters exceeds 6,000 MWh
during 2008, the organisation will be
included in the CRC.
Where sites are subject to a Climate
Change Agreement (CCA), half hourly
meter figures should still be included
at this stage. Further on in the
assessment process organisations will be
able to claim exemption for subsidiaries
with over 25% of their energy use
covered by CCAs. If such exemption then
brings the total for the remainder of
the organisation below the 6,000 MWh/
year threshold, then the whole
organisation will become exempt. For
this reason, it may be beneficial for
some organisations to sign up to a
Climate Change Agreement rather than be
included within the Carbon Reduction
Commitment.
Direct emissions under the EUETS do
not need to be included at this stage.
For Landlord-Tenant and Franchise
operations the organisation with
responsibility for bill payment will be
considered the organisation with
responsibility to report under the CRC.
The scheme will be split into phases,
with Phase One lasting for three years
and subsequent phases lasting for 5
years each. Once an organisation is
identified as qualifying for the scheme
it will remain for the duration of that
phase, regardless of whether it falls
below the threshold for qualification in
subsequent years.
The CRC will operate as a cap and
trade scheme in which organisations will
need to purchase and surrender
allowances corresponding with their
annual carbon dioxide emissions from all
of their energy sources, with the total
quantity of emissions allowances
constrained by an overall cap.
Initially the scheme will be
broken down in to two phases:
- A fixed price phase covering the
first three years of the scheme from
2010 to 2013, where an unlimited
number of allowances will be
available at a fixed price of £12
each.
- A capped phase lasting for five
years from 2013, where a decreasing
number of allowances will be sold at
an annual auction.
It is intended that the scheme will
get organisations to focus management
attention on, and increase investment
in, energy efficiency measures that
reduce carbon emissions. It will
therefore be in the interest of
participants to design and implement
long term energy efficiency / carbon
abatement strategies to reduce their
carbon emissions to help them remain
within the constraints of the emissions
cap.
Early in 2009, the Environment Agency
– who will administer the CRC in England
– will contact all UK billing addresses
with half hourly meters providing them
with Registration Packs. If you receive
one of these packs, you will need to
provide information on your total
half-hourly electricity consumption in
2008 together with a list of your
half-hourly meters.
Organisations that qualify for the
scheme will be notified later in 2009
and will then need to register and open
an account with the Environment Agency.
From the beginning of April 2010
these organisations will need to keep a
record of all metered energy used across
all sites (or account for greater than
90% of their energy use where there are
a large number of un-metered sites).
In April 2011 there will be a fixed
price sale of allowances charged at £12
per tonne of CO2 emitted. Each
organisation will need to purchase
enough allowances to cover its emissions
for the first year of the scheme (April
2010 to March 2011) and to cover
emissions forecast for year two of the
scheme (April 2011 to March 2012).
Following this first fixed price sale
trading in allowances will begin through
the following mechanisms:
- A Further Fixed Price Sale:- In
April 2012 there will be a final
fixed price sale of allowances at
£12 per tonne. During the fixed
price phase allowances purchased in
April 2011 can be surrendered
against emissions for all three
years of the phase and allowances
purchased in 2012 can be surrendered
against emission in the final year
(April 2012 to March 2013) only.
- Allowance Auctions:- During the
capped phase of the scheme there
will be a single annual auction of
allowances. Instead of organisations
being able to purchase as many
allowances as they want at a fixed
price they will be invited to bid
for a fixed number of allowances
available across all organisations.
- The Secondary Market:-
Organisations with a surplus of
allowances will be able to sell
those they don’t need to
organisations that have not
purchased enough allowances in the
fixed price sale or through the
auction process to meet their
obligations under the CRC. Surplus
allowances do not have to be traded,
they can be banked for future years
(although they cannot be banked
across phase boundaries).
- The Safety Valve Mechanism:- A
safety valve mechanism will be
included to prevent allowance prices
(both in auctions and in the
secondary market) from becoming over
inflated. The safety valve will take
the form of a buy only link to the
EUETS controlled by a minimum floor
price. In other words the safety
valve price will be which ever is
the higher between the EUETS price
or the predetermined floor price.
In July 2011 each organisation
will then be required to submit an
evidence pack detailing:
- Structural
Records:- These define
the scope of the organisation, the
types of energy used (identifying
the extent of estimated energy use
for each fuel type) and the numbers
of mandatory half hourly meters,
discretionary half hourly meters and
meters with profile classes 5 – 8.
- Data records:-
These show the annual consumption of
energy and convert this to CO2. This
would include records to support any
exemptions and a record of the
organisation’s annual turnover /
revenue expenditure.
- Special event
records:- These will
accompany the audit trail of energy
bills – i.e. to provide acceptable
explanations where the trail of
energy bills begins and ends,
organisations will record any change
of energy supplier, any meter
breakdown, and any sale / purchase
of sites / subsidiaries.
From this information a league table
of all participating organisations will
be produced, creating the base line for
the CRC. Whist the details for
calculating this league table are still
under discussion it is likely to include
the following metrics:
- Absolute Carbon Reduction
Metric: percentage carbon reduction
(relative to annual average
emissions since the start of the
scheme). Clearly in year one this
metric will be zero for all
organisations as there will be no
previous years to form an average.
- Early Action Metric: This will
be based on evidence supplied which
demonstrates that organisations have
taken early action to reduce carbon
emissions through the introduction
of sub metering for example.
- Relative Carbon Efficiency
Metric: This metric will measure
carbon emissions per unit turnover
(or revenue expenditure for public
sector bodies) to cater for the fact
that as a business grows so does its
energy usage.
Position in the league table is
important both for two reasons:
- Corporate Social
Responsibility:- The league table
will be a visible published
indicator of which organisations are
taking carbon emission reduction
seriously and those who are not.
- Recycling of Allowances: The
scheme is designed to be revenue
neutral to the government and as a
result money gathered in through the
sale of allowances will be recycled
back to the participating
organisations. The revenue to be
recycled to each organisation is
calculated depending on their
position in the league table, with
those near the top receiving a
revenue return greater than the
value of the allowances purchased
i.e. a net financial benefit and
those at the bottom receiving less
i.e. a net financial loss.
The first recycling of allowances
will take place in September 2011.
Subsequently the scheme will
continue, with a further fixed sale
price of allowances in April 2012 before
the capped phase of the scheme begins in
2013.
Participants must collate and retain
an ‘evidence pack’ to demonstrate
reported energy use across the CRC
organisation. Around 20% of
organisations will be selected by the
Environment agency for audit each year.
In the first instance, the audit will be
a desk-based assessment of the evidence
pack submitted to the Environment
Agency. Site visits will follow where
there is a lack of information or
discrepancies which cannot be resolved
in dialogue with the organisation. The
audits will take place on a rolling
annual programme, so could occur at any
point in the year, not necessarily
immediately after the submission of
annual data.
Failures to comply with the scheme will
be categorised under the following
headings:
1) Scheme Participation:- Offences are
likely to include failure to register
organisations to participate, providing
false or misleading information to
secure exemption and failing to open a
registry account.
2) Reporting and Surrender:- Offences
are likely to include failure to provide
data on time, provision of false,
incorrect or incomplete annual emissions
data and failure to submit allowances
corresponding to annual emissions.
3) Sale/Auction:- It will be an offence
to fail to pay for allowances purchased
at sale or auction.
Due to the ‘light touch’ nature of the
scheme it is planned that failures to
comply with the scheme will carry
relatively heavy penalties and will be
in the order of £25 per tonne of CO2
emitted. In this case an organisation
that just meets the qualifying threshold
of 6,000 MWh of electricity would be
fined £64,500.
If your organisation is informed by
DEFRA that it is under consideration for
inclusion within the scheme it must
respond.
If you choose to respond directly, you
will have to bear the administrative,
technical, legal and financial burden of
compliance with the scheme.
Alternatively you can appoint Carbon
Reduction Management to act on your
behalf in any or all of the following
matters:
The Qualifying Process
Carbon Reduction Management will work
with your organisation to identify all
half hourly metered sites that fall
under the UK parent organisation.
We will then collect, collate and verify
the usage data from these sites and
submit it along with the required
registration information to the
Environment Agency in its capacity as
the scheme administrator.
Following this submission we will then
work on your behalf to manage your
inclusion within or exemption from the
scheme.
We will also provide you with advice
about whether your oranisation could
benefit from alternative, more
appropriate, legislation, resulting in
exemption from the Carbon Reduction
Commitment.
Data Gathering
From April 2010 following your
organisation’s qualification within the
scheme, Carbon Reduction Management will
capture and manage the data from all
metered energy sources across all your
qualifying sites in preparation for
reporting and purchasing of allowances
from April 2011.
From the data we record a picture will
begin to form of energy usage across
your various sites. Carbon Reduction
Management will actively monitor and
assess energy emissions and advise on
your organisation’s carbon abatement
potential from an early point in the
scheme.
Carbon Abatement Strategy
Information captured during data
gathering will be used as the starting
point to develop a carbon abatement
strategy for your organisation,
identifying quick wins and information
that can be submitted in the evidence
pack to support the early adoption
metric.
Allowance Purchasing
Carbon Reduction Management will
advise on the number of allowances to be
purchased in fixed price sales,
allowance auctions, the secondary market
and the “safety valve” mechanism. This
will be based on actual and forecast
energy usage and will enable the
development of a carbon trading strategy
to ensure that your allowances are
purchased in the most efficient manner
possible.
Data Submission
Carbon Reduction Management will
produce and submit the evidence pack
required for submission by the
Environment Agency, including all
structural, data and special event
records. We will include information
regarding absolute carbon, relative
carbon and early adoption metrics to
help ensure that your organisation
maximises its position within the
published league table thereby
maximising its allowance recycling
potential.
Results Monitoring
Carbon Reduction Management will
monitor published league tables and
confirm that your organisation’s
position is correct and that the
recycling payment is correct.
Monitoring Amendments
Carbon Reduction Management will
monitor future updates to the scheme to
ensure that your organisation continues
to provide accurate data and benefits
from any alterations to the way the
scheme is managed.
Audit Management
If your organisation is selected for
auditing under the scheme, Carbon
Reduction Management will engage with
the Environment Agency to ensure that
all data has been submitted correctly
and that a full audit trail and evidence
pack is available.
In order to find out more about the
Carbon Reduction Commitment please
contact us at:
information@carbonreductionmanagement.co.uk
or telephone: 0115 9377358
and one of our consultants will then be
happy to advise you further.
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