The CRC in three minutes flat

Fourteen points capture the essentials of the government’s complex new carbon-curbing regulation

1. The Carbon Reduction Commitment is a new regulation giving thousands of big organisations in the private and public sectors a strong incentive to save energy. It omits transport-related energy use, so for most it is largely gas and electricity consumption that matters. The CRC starts in earnest next April.

2. Its main purpose is to cut the carbon dioxide emissions that participating organisations cause, either by burning fossil fuels directly in boilers and ovens or indirectly in power stations. Each year, these organisations will have to surrender allowances covering the total tonnage of CO2 they emitted over the previous financial year. One allowance covers one tonne of CO2.

3. Organisations will buy most of their allowances from the government in advance of producing emissions. Initially they will cost £12 per tonne, but from 2013 they will be sold through auction. For the largest organisations, this cost will run into tens of millions of pounds per year. Six months after buying their allowances this money will be given back, but with a bonus added or a penalty deducted depending on how much energy they saved in the previous financial year.

4. When the CRC is fully implemented in several years’ time, this bonus or penalty could be as large as 50% of the money bodies spend buying allowances. The amount depends on how well they have performed in terms of reducing energy use and emissions compared with all other organisations covered by the CRC.

5. A league table will be published each year to rank participating organisations by performance. The government hopes the shame from coming low in the league table will drive organisations towards greater energy efficiency. An organisation’s league table position, and its bonus or penalty, will depend mainly on how much it cuts its emissions by compared with others, with adjustments for changes in turnover and, initially, for some kinds of early energy-saving actions.

6. In April 2013, the CRC will become a fully fledged cap-and-trade scheme like the EU’s emissions trading scheme (EU ETS). The total quantity of CRC allowances sold to participating organisations will be ‘capped’ at a maximum which falls from year to year. The size of this cap and the rate of decline have yet to be decided but will reflect the UK’s new carbon budgets. Expect it to fall by a few percentage points each year.

7. Under the trading scheme, an organisation finding itself with insufficient allowances to cover its emissions will have to buy extra ones from CRC organisations that have surplus allowances or from intermediaries. If traded allowance prices shoot up, a ‘safety valve’ mechanism will allow organisations to buy EU ETS allowances (EUAs) indirectly and use them as an alternative.

8. The CRC will cover organisations that consumed at least 6,000 megawatt hours of electricity through half-hourly electricity meters during calendar year 2008. But every organisation that had at least one such meter in 2008 is legally obliged to make an ‘information disclosure’ by the end of September 2010. Those that do not could face a £1,000 fixed penalty. Organisations have to provide the Environment Agency with a list of their half-hourly meters. If they used more than 3,000MWh through these meters, they must disclose how much.

9. Organisations above the 6,000MWh threshold must register for full CRC participation by the end of September 2010. There are hefty fixed penalties for not registering. Firms that use most of the electricity they buy for transport may be exempt.

10. The next step for CRC organisations is to work out their annual CO2 emissions based on non-transport use of electricity, gas and any other fossil fuels for April 2010 to March 2011. To help them, gas and electricity suppliers are now legally obliged to provide data for all meters within specified time periods.

11. Partial or total exemptions from the CRC are available for more energy-intensive firms whose energy use and emissions are partly covered by a sectoral climate change agreement or the EU ETS.

12. Organisations covered by the CRC must compile and update an evidence pack detailing their energy use. They also need to produce annual reports declaring their April to March emissions covered by the CRC. The first is due by the end of July 2011, with the prospect of hefty fines for late returns.

13. The first sale of allowances takes place in April 2011, by which time organisations should know how many they need to buy. At this first sale, organisations must buy allowances covering their emissions for the 2010/2011 financial year and anticipated emissions for 2011/2012. This is the only time there will be a double ‘forwards and backwards’ sale.

14. In subsequent years, organisations will buy allowances in advance of their emissions. They will have to report their annual emissions by the last working day in July, four months after the end of the compliance year. This deadline also applies for surrendering the allowances needed to cover their emissions.

The Carbon Reduction Commitment

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