Quick guide to the CRC

The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a new carbon trading scheme for heavy electricity users.

It uses a mix of financial and reputational incentives to try to reduce energy use. Transport and domestic energy are exempt. By 2020, the scheme should cut annual CO2 emissions by four million tonnes, 0.6% of the UK total.

The CRC started in April 2010. By the end of September, 2,764 private- and public-sector organisations that use at least 6,000 megawatt hours of electricity through half-hourly electricity meters (HHMs), had registered with the Environment Agency.

Full CRC participants will have to buy allowances to cover their CO2 emissions from electricity and other direct fossil fuel use over the financial year. A further 12,500 organisations with a half-hourly meter but electricity use under the threshold had to make an information disclosure.

The government recently announced plans to reform the CRC. It will not recycle revenue from allowance sales back to participants. Information declarers may be exempt from the scheme (see main article).

This year, 2010/11, the first year of the scheme, participants will only have to report emissions, not buy or surrender allowances.

For 2011/12, allowances will be sold at the end of the year. The government has yet to confirm the exact time, but it is likely to be April to July 2012. Because the sale is retrospective, participants will only buy enough allowances to cover actual emissions. Allowances will be bought from the government at a fixed price of £12 per tonne of CO2.

A fixed-price sale will be repeated in 2012/13 and 2013/14. But the government has yet to confirm whether this will also be retrospective or whether the purchase of allowances will move to the start of the year, with surrender of allowances at the end.

In 2014/15, 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.

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 allowances.

Participants must 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.

Participants must track their use of electricity, gas and other fossil fuels and keep an up-to-date evidence pack in case the agency conducts a compliance audit.

Participants’ performance will be published in a league table in October 2011. The government hopes the shame from a low league table ranking will drive organisations to improve energy efficiency.

The Carbon Reduction Commitment

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

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