Carbon Reduction Commitment

Over the past few months we've received many questions from our clients regarding the Carbon Reduction Commitment – What it is and how it might affect them.

We thought it would be useful to provide a general overview of what the Carbon Reduction Commitment (or CRC as we'll now refer to it) is all about and what it hopes to achieve by way of energy efficiency improvements.

Why is the CRC Required?

To quote the government stance on CO2 emissions - as stated in the Climate Change Bill.

By 2020, the UK Government is committed to delivering CO2 emissions reductions of at least 26% against 1990 levels.
Longer term, the goal is to cut CO2 emissions by at least 60% by 2050.

A number of measures are needed to encourage (and in some cases mandate) businesses to reduce their greenhouse gas emissions. The Carbon Reduction Commitment is one of the key measures. Other examples that are relevant to business include:

Climate Change Agreements
Climate Change Levy
Other Emissions Trading Schemes for energy intensive businesses
Carbon Trust
Investment in development of low carbon technologies

Many of the most energy intensive industries in the UK are already implementing energy efficiency improvement plans by participating in existing schemes such as the EU Emissions Trading Scheme and Climate Change Agreements.

Many UK organisations, such as banks, local authorities, retailers and hotel chains, have high overall energy consumption even though they are not inherently intensive energy users. High consumption is because of the large number or size of the sites from which they operate.

Government data shows that this latter category accounts for around 10% (and rising) of the UK's CO2 emissions. A Carbon Trust analysis indicates significant scope for cost-effective carbon reductions within these organisations. The Carbon Reduction Commitment (CRC) is the method proposed by the UK Government to enforce such reductions.

What is CRC and Who Will be Affected?

The CRC is a mandatory Greenhouse Gas Emissions Trading Scheme that covers large businesses and public sector organisations (such as banks, government departments, retailers, hotel chains and local authorities) whose half-hourly metered electricity usage is greater than 6,000 mega watt hours (MWh).

As a guide – if an organisation's electricity bill is greater than £500,000 a year, it will probably be covered by CRC. There are, however, a number of circumstances where it will not apply (e.g. energy use associated with the EU Emissions Trading Scheme and a Climate Change Agreement).

To establish whether or not a business falls within scope of CRC, electricity usage should be calculated at the highest parent organisation level, including all subsidiaries of the organisation.

What Will Need to be Reported?

Organisations falling within the scope of CRC will be required to report on an annual basis all their UK CO2 emissions from fixed-point energy sources, including:

Electricity
Gas
Other fuel types such as LPG

What About ‘Green Energy’ Users?

If companies buy 'green' energy or carbon offsets, does this mean that they will not fall under CRC even if their electricity usage is above 6,000 MWh?

Afraid not! The whole concept of CRC is to promote energy efficiency improvements. The focus is therefore on how much electricity you use and how you can improve efficiency over time, rather than the source of your electricity and what you do to offset your emissions.

When Does CRC Come Into Force?

The scheme will come into force in January 2010. However, the 6,000MWh threshold will be applied against 2008 as the base year.

How Will the CRC Work in Practice?

The system will work on a 'cap and trade' basis whereby the Government will set a 'cap' on the quantity of emissions allowed by participating organisations through carbon allowances. The 'cap' will decrease over time, so that companies must become progressively more energy efficient to remain within the cap.

There will be an initial 3-year phase during which carbon allowances will be sold at a fixed price of £12 per tonne of CO2. Thereafter, allowances will be purchased through an auction process.

As a further incentive to improve efficiency and reduce emissions, the revenue raised will be recycled to participating organisations in proportion to their 2009 emissions, but adjusted by a bonus or penalty related to their emissions performance.

I May Fall Under CRC – What Should I be Doing Right Now?

If you think you might fall under CRC, at parent company level, you should be gathering data on your electricity consumption (and subsequently on CO2 emissions) across your organisation, including subsidiaries. This will indicate if you are above the 6,000MWh threshold. Monitoring and reporting should continue going forward.

In addition to consumption and emissions data, you should consider implementing an energy efficiency improvement strategy in preparation for the CRC coming into effect in January 2010. This is good business and environmental practice in any case, since the financial rewards from reducing energy consumption can be substantial.

Contact EDP HS&E Consultants for all your health, safety and environment needs. We can check your current arrangements and advise you about any changes or improvements you need to make.

To discuss your requirements, without any obligation on your part, please gives us a call on 01744 766000 or complete the Enquiry Form on our website.

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