UK: Carbon Reduction Commitment ("CRC") - The Latest News

Last Updated: 17 March 2009
Article by Elizabeth Shepherd

On 12 March 2009, the Department of Energy and Climate Change (DECC)  published the long-awaited draft Order and a final consultation paper on CRC.  A draft user guide has also been published. 

The consultation seeks views principally on the draft Order but also a few outstanding policy issues such as how buying a CRC Organisation should be dealt with under the scheme.  Comments on the draft guidance are also welcome.  The consultation will close on 4 June 2009.  Full details are available on the DECC website at:

http://www.decc.gov.uk/en/content/cms/consultations/carbon_reduction_com/carbon_reduction_com.aspx

CRC is scheduled to come into effect in April 2010.  It is a cap and trade scheme which seeks to reduce carbon dioxide emissions from large non-energy intensive organisations in both the public and the private sector, ie a significant part of UK business which is not subject to existing climate change measures. DECC estimates that the scheme will involve approximately 5,000 organisations and will deliver at least 4Mt CO2 savings by 2020 through improvements in energy efficiency.

The key elements of the scheme are mostly unchanged from those proposed by the last consultation and as updated by DECC via notes to stakeholders in the last year.  However, for the purposes of assessing eligibility for the scheme and reporting, the capped phases for the scheme will now be 7 years and will overlap.  Other key points relate to reporting requirements.  We have set out below the basic structure of the scheme. 

  • The first phase (2010 to 2013) of CRC will be an introductory phase during which allowances to emit carbon will be sold at a fixed price (£12 per tonne).
  • In the subsequent capped phases (of which the first will run from 2011 to 2018), allowances will be purchased via an auction.
  • Trading of allowances in a secondary market will be possible.
  • Organisations that used 6,000 MWh of electricity from half hourly meters during 2008 (on a group basis) are "qualifying undertakings" that will be subject to the scheme.  This is likely to involve those with an electricity bill in 2008 of between £700,000 and £1,000,000.
  • By the end of July 2011 CRC Organisations will have to submit a Footprint Report of their total energy and emissions during the Footprint Year (April 2010 - March 2011) which coincides with the first Scheme Year.  In subsequent phases a Footprint Report will be required by the end of July following the first year of a phase. 
  • CRC Organisations will also need to prepare a "residual measures list" which details their core and residual energy consumption by the end of July following the first year of a phase.
  • Annual reporting will also be required.  CRC Organisations will have to monitor and report their emissions from all fixed point sources (not just electricity) annually.  A director of the CRC Organisation will have to sign a "statement of records" confirming that adequate records have been kept.
  • CRC Organisations will have to surrender a sufficient number of allowances to cover the emissions in their annual report (the "performance commitment").
  • Revenues derived from the auctions will be recycled back to participants based on their performance in the scheme.  Recycling payments will be proportional to each participant's 2010/2011 emissions with a bonus or penalty payment according to improvements made by that organisation in terms of its energy efficiency which will be measured by its ranking in a Performance League Table.
  • An organisation's position in the league table will be based on 3 weighted metrics: reduction in absolute emissions, reduction in emissions per unit of turnover and an early action metric which measures good energy management practices undertaken before the start of the scheme. The early action metric will fall away at the end of the introductory phase.
  • The bonus or penalty payments will increase from +/- 10% in year 1 to +/- 50% in year 5.

Implications For Business

There is not long to prepare.  Organisations which are likely to qualify can expect to receive introductory information and qualifying packs from the Environment Agency later this year, and must register themselves as CRC organisations by the end of September 2010.  Organisations should therefore use the remaining time to:

  • Identify if they will be caught by CRC (including a review of their organisational structure)
  • Identify what emissions will be covered/what the likely cost of allowances will be
  • Perform the necessary data collection/ analysis
  • Engage with Performance League Table metrics and identify possible emissions reduction measures 
  • Evaluate what skills will be needed in relation to CRC e.g. trading

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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