The CRC: No April Fool

Our second special report on the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, starting on 1 April, looks at the final set-up, organisations’ preparations and the regulator’s approach. The 15 points below capture the essentials of this complex new carbon-curbing scheme

1. The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a new carbon trading scheme for heavy electricity users. It uses an unusual mix of financial and reputational incentives to try to reduce energy use. Transport-related and domestic energy use are exempt. The scheme is expected to save UK plc £1bn a year by 2020 and cut annual CO2 emissions by four million tonnes.

2. The CRC will cover private- and public-sector organisations that used at least 6,000 megawatt hours of electricity through half-hourly electricity meters (HHMs) during the 2008 calendar year. But every organisation with a half-hourly meter, regardless of electricity use, must make an ‘information disclosure’ (see p 23).

3. Full CRC participants will buy allowances in advance to cover their expected CO2 emissions from electricity and other direct fossil fuel use over the coming financial year. Enough allowances must be surrendered by the following July to cover actual emissions.

4. Most allowances will be bought from the government each April. One allowance covers one tonne of CO2 and will initially cost £12. An unlimited amount will be available at the start of the scheme.

5. The government will return, or ‘recycle’, revenue from the April sale of allowances to participants. But it will add a bonus or deduct a penalty depending on each organisation’s energy saving performance in the previous financial year compared with others in the CRC. Adjustments will be made for changes in turnover and, initially, for some early energy-saving actions. By 2015 the bonus or penalty could be 50% of an organisation’s recycling payment.

6. The repayments will be calculated using an annual league table ranking participants by performance. The government hopes the shame from a low league table ranking will drive organisations to improve energy efficiency.

7. A three-year introductory phase starts on 1 April 2010. In the first year, participants will only have to report emissions, not purchase or surrender allowances.

8. From April 2013, the CRC will become a fully fledged cap-and-trade scheme. Allowances will be sold at auction and the total number available capped and reduced each year. The cap’s size and rate of decline have yet to be decided but will reflect the UK’s carbon targets. Expect a fall of a few percentage points each year.

9. An organisation without enough allowances to cover its emissions will have to buy them from other participants with a surplus. If prices shoot up, a ‘safety valve’ mechanism will allow organisations to buy EU emissions trading scheme (EU ETS) allowances.

10. Once the scheme is under way, participants must track their use of electricity, gas and other fossil fuels and keep an up-to-date evidence pack. To help them, gas and electricity suppliers must provide data for meters within specified time periods.

11. The deadline for information disclosures and full CRC registration is September 2010. Organisations that used 3,000-6,000MWh through HHMs in 2008 must make more detailed disclosures. The fine for failing to disclose information is £500 per meter.

12. Organisations that used more than 6,000MWh must register for full participation or face penalties starting at £5,000. Incorrect entries will also incur fines. In a group of companies, registration must be carried out by the parent or a designated subsidiary. Large subsidiaries can participate on their own.

13. Organisations using electricity mostly for transport or in homes and those covered by climate change agreements may be exempt.

14. Participants must also produce a footprint report at the start of each phase and annual reports declaring their CRC emissions at the end of each financial year. The first annual report is due in July 2011. Late returns may incur substantial fines.

15. The first allowance sale will be in April 2011 and the first deadline for surrendering allowances is July 2012. Recycling payments will be made each October, starting from 2011.

Carbon Reduction Commitment

A special report, sponsored by RPS(energy and environmental consultants)

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