For most, energy bills represent just a few per cent of annual turnover. Buying CRC allowances will initially increase these energy costs by only about 10%, most of which will be returned.
But, over time, the rewards or penalties added to recycling payments mount up. For a small CRC participant, with 5,000tCO2 a year under the scheme that spends £750,000 a year on energy and £60,000 on allowances, the value at risk - the difference in financial terms between topping the league table and coming bottom - in 2010/11 will be about £12,000. In 2015, the maximum bonus (and penalty) reaches 50%. The value at risk will then reach £60,000.
If you add energy bill benefits, the case for action looks stronger still. A modest 15% cut in energy consumption by 2015 would save an additional £112,500 a year, making the total value at risk £172,500 - a big difference to a cash-strapped finance director.
However, the picture is more complex than this because the basic CRC recycling payment, before bonuses or penalties, is based not on the amount an organisation has spent that year on allowances, but on its share of total CRC emissions in 2010/11. If the organisation grows without reducing its carbon intensity, it will suffer.
A rough estimate by consultants Enviros suggests by 2015 a large organisation with a 5% share of total CRC emissions in 2010 that had cut its emissions by 10% per year could have 280% of its allowance costs recycled. An organisation with the same initial share but with emissions rising by 10% per year would only have 33% recycled.
Carbon Reduction Commitment
A special report, sponsored by RPS(energy and environmental consultants)