What does CRC really mean?

You know something is not quite right with the Carbon Reduction Commitment (CRC) energy efficiency scheme when the Environment Agency has to produce a guidance note on its guidance notes.

But it’s still the only real game in town if we are going to meet our climate change objectives, argues Graham Munro, Head of Energy Services for energyTEAM UK Ltd.

Let me be clear at the outset. I believe that the CRC scheme is untenable in its current form, and that the Comprehensive Spending Review undermined its purpose. It lacks credibility and it does not effectively encourage carbon reduction. Nevertheless, we have to live with it so perhaps the best we can hope for is to understand where we are supposed to be now and what we are supposed to be doing.

Meeting targets

First, let’s just recap on what the Carbon Reduction Scheme (CRC) is. It is a key pillar of the 2008 Climate Change Act, which aims to improve carbon management, helping the transition towards a low-carbon economy in the UK to reduce our CO2 emissions by at least 80% by 2050 compared to the 1990 baseline. Interestingly the carbon budget is to be reviewed again in 2014 to assess how well the government targets are being met.

CRC is a mandatory scheme that requires large users of energy in private as well as public organisations to improve their energy efficiency. Originally it dangled a carrot – organisations were to pay a levy in proportion to their emissions, with ‘good’ firms getting a larger rebate than the less energy efficient. You might think that this is the problem of the big energy users who fall within the scope of CRC and that they should be left to get on with it. However, received wisdom is that CRC will sooner or later take in smaller firms, so every business in the UK has a vested interest in influencing how it shapes up.

When, last October, George Osborne announced that the scheme would be simplified he really meant that the finances would be simplified in that  all of the money collected would be retained by the government rather than being recycled to top performing firms as a reward and incentive for carbon reduction. So now the scheme is seen as simply a tax on emissions and organisations that fall within the scope of the scheme will make their first payments in April 2012 based on £12/tonne of carbon dioxide. 

League table

Registered firms must produce a rather complex carbon footprint report which has to be submitted by the end of July 2011. Based on these reports, DECC (Department of Energy and Climate Change ) will generate performance league tables to be published in October 2011. But will it have real meaning? After all, a tenth of businesses are reportedly concerned they will miss the deadline of 29 July 2011 for the first footprint report, with one of the main concerns being that they are not always confident that their fuel data is correct.

It came as no surprise that research by energy suppliers showed that the majority of businesses want to see an end to the scheme, with over a quarter saying they don’t think the CRC will help the UK meet its carbon reduction targets. In fact 40% now see the scheme as effectively a tax, in some cases putting a huge financial burden on already struggling businesses. 

The CBI has indicated that if the government restores the recycling payment the scheme would be more effective in delivering emissions targets. Options are to allow participants to buy carbon allowances at a fixed price or even move the scheme to a full cap and trade market system. 

Where we are

If your consumption levels are such that you have half hourly metered electricity you will hopefully already have registered for the CRC Energy Efficiency Scheme. Heavy penalties are in place for not registering and depending on your consumption these fines range from £5,000 plus £500 per day for each working day of delay up to £50,000. 

The main purpose of the annual footprint reports, is to provide a summary of your organisation’s emissions, and to demonstrate that at least 90% of a firm’s energy supply is covered by either CRC itself, a climate change agreement or the EU Emissions Trading Scheme. The report is based on the previous compliance year and your energy suppliers should automatically be providing the consumption data you need.

The bottom line for businesses is to minimise the organisation’s carbon allowance cost. For each tonne of carbon dioxide you emit you will have to pay £12, this is likely to rise to £14/tonne from 2013. A company with an energy spend of say £1million will pay around £76,000 but this may rise to £114,000 from 2014 – and the government is going to keep every penny.

CRC cynicism aside

Minimising costs ought to be at the top of the agenda in any board room so do be sure to use your footprint report to develop an action plan. It’s not just about ticking boxes but about proactively conserving energy. So once the accountants have done with the numbers, talk to an energy consultancy about taking action to reduce energy.

None of us know at this moment in time just how the CRC energy efficiency scheme will develop or even change in the future. What we do know is that the less energy we use, the less it is going to cost us – in every respect of the word.

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