The business and public sectors generate over one third of UK CO2 emissions. The establishment of Climate Change Agreements and the EU ETS has created a real incentive for reductions within energy intensive industries.

The new emissions trading scheme (called the Carbon Reduction Commitment or CRC) will cost-effectively deliver carbon emissions reduction and cost savings in the service sector, public sector and other less energy-intensive industries. The Government announced its decision to implement this new scheme in the Energy White Paper published in May 2007.  It aims to reduce carbon emissions in large non-energy intensive organisations by 1.2 million tonnes of carbon per year by 2020.

The need to create an incentive for emissions reduction in this sector was originally highlighted by the Carbon Trust. (www.carbontrust.com)

The CRC will be a mandatory emissions trading scheme, targeting emissions currently not included in the EU ETS or Climate Change Agreements, from up to 5,000 large organisations.

This scheme will include, for example, supermarket chains, hotel chains, office-based corporations, government departments and large local authorities.

In its current proposed format, the CRC will cover all organisations whose electricity consumption through half hourly meters is greater than 6,000MWh/yr – equivalent to an annual electricity bill of £500k.  All energy other than transport fuels will be covered, such as electricity, gas, fuel and oil.

During a planned introductory phase, due to start in April 2010, all allowances will be sold at a fixed price. From April 2013, allowances will be allocated through auctions with a diminishing number of credits available over time. Participants will also potentially be able to buy EU ETS allowances to comply with their emissions cap – this would be a buy-only link to effectively create a price ceiling for credits in the CRC.

At the end of each year, company performance, mainly based on absolute carbon reductions since the start of the scheme, will be summarised in league tables outlining the best and worst performers in terms of carbon emissions and reduction. In order to avoid creating an additional financial burden, the auction revenues generated through the initial sale of credits will be recycled back to participants, with companies receiving payments back from government in relation to their first year emissions, plus or minus a bonus or penalty dependent on their position in the league table. The scheme will be designed to be as simple as possible, including self certification of monitoring, reporting and verification of emissions, backed by an independent risk based audit regime. Effectively, this strengthens the incentive to improve energy and carbon management skills, particularly in relation to metering, reporting and reduction. It will also help to focus senior management attention on the issues. The scheme will strengthen many companies’ Corporate Social Responsibility (CSR) driver to reduce carbon emissions and improve transparency of company performance. It will also put pressure on energy providers to assist with improved metering of energy consumption.

Please contact one of our office based experts who will be able to advise you on setting and managing a CRC policy for all your energy requirements.