Since April 2010, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme has joined concern over rising energy prices and tightening greenhouse gas targets as a driver for energy efficiency. But uncertainties surround its effectiveness and its future (see pp 4-9).
As energy prices rise, efficiency schemes are usually the cheapest way to cut greenhouse gas emissions, boosting the bottom line, competitiveness and energy security (ENDS Business Energy Efficiency special report, pp 5-8).
But energy management has been poor in many organisations outside the EU emissions trading scheme, where energy has traditionally been a comparatively marginal cost. The CRC aims to extend good practice to them.
But it is still early days. Most organisations have cleared the first hurdle – the September 2010 registration deadline (ENDS Report 430, p 16 and figure below) – with varying degrees of discomfort. But from March 2011, they will be tested again, this time over their monitoring and data quality, as detailed emissions reporting falls due next summer.
Registration has been a major legal interpretation headache for complex organisations trying to work out from guidance which of their operations to include.
Paul Pritchard is head of corporate responsibility for insurance provider RSA (formerly the Royal Sun Alliance Group), with its UK headquarters in London. He does not consider the company to be the most complex of organisations: 15 offices from the main insurance business and eight from its investment companies and pension funds are caught by the CRC in the UK. Even so, he believes the registration process was too complex, even before reaching the reporting and league table stage.
The key question is whether the CRC has raised awareness of, and prompted action on, cutting energy use and emissions. But it is not an easy one to answer: it is still early days in the scheme and many larger organisations already had programmes in place, whether for reasons of corporate social responsibility and reputation or to contain rising costs.
Reading-based Thames Water uses £80m worth of electricity annually, a cost second only to its payroll. It sees rising energy prices, energy security and climate change as business risks.
In response it aims to generate more of its own energy from renewables. So far it meets 15% of its needs, mainly from anaerobic digestion of sewage sludge. But under the CRC, emissions from renewable electricity are treated as ‘grid average’ to prevent a double subsidy under the Renewables Obligation (ENDS Report 417, pp 39-40).
Thames hopes to gain from the proposed renewable heat incentive (RHI), but this cannot be guaranteed because emissions reductions from projects supported by the incentive may also be excluded from the CRC.
Thames’ first demonstration anaerobic digestion biomethane plant injecting into the gas grid at Didcot, Oxfordshire, went live in October 2010 (ENDS Report 421, p 21). Its output can power 200 homes.
John Gilbert, Thames’ head of carbon management, stresses that the company has long been working to cut emissions, particularly in the past three years. It cut them by 4.9% between 2008 and 2010 in collaboration with the Carbon Trust. For 2015, it has set a challenging 20% reduction target, relative to 1990.
In 2008, Thames Water chose to be a pioneer for the Carbon Trust Standard, which encourages good practice in carbon measurement, management and reduction, because it wanted independent endorsement of its data and methodology for internal and external stakeholders. It found the observations and recommendations of the audit “have been very powerful in continuing the journey”, enabling best practice in data accuracy, engaging staff and benchmarking with other organisations.
The CRC’s performance league table provides a powerful additional incentive to achieve the Carbon Trust Standard. Performance in the first year will be based on two ‘early action metrics’: achieving the standard or an equivalent standard and installing automatic meter readers (AMRs).
Mr Gilbert says the CRC league table was a driver for installing AMRs, which are “very useful in establishing accurate consumption data, and in identifying inefficient plants” for upgrade.
Without this real-time data replacing crude estimated billing, board-level awareness would be lower and the company would have had less confidence to invest, he adds.
More than 3,400 of Thames Water’s sites have already had AMRs installed in the early stages of the CRC. The results have given confidence to install more submeters, allowing benchmarking of consumption by individual plants. Ultimately, the largest 20 sites will be covered, enabling real-time data on half of Thames’ 1.2 terawatt hours annual consumption.
But Mr Gilbert notes that while relating investment to outcome in the complex league tables was difficult, without revenue recycling, there will now be no financial reward for this early effort.
Worse still, he estimates that with the loss of the recycling element, what could have been a worst-case loss of £700,000 in the first year, will now be a hit of £7m. This means the cost over the scheme’s first phase, without recycling, is fixed at £21m, greatly reducing the budget for energy efficiency investments. As a result, the scheme has moved from being an incentive to cut carbon and energy waste to something more like a tax.
In effect, this means that gains from the RHI and feed-in tariffs (FITs) for renewables that help to counter exclusion of low-carbon energy generation benefits from CRC could be reduced or wiped out by lost allowance revenue.
Thames Water still plans to invest £20m in energy and carbon-cutting projects over the next five years, evenly split between anaerobic digestion and hydropower, and an energy efficiency drive to replace equipment and optimise energy usage.
But Mr Gilbert warns that uncertainty over the CRC’s future and support for renewable heat complicates business planning: “There will come a point where if there is no clarity, investments will be put on hold.”
Dr Pritchard is in no doubt that the CRC has raised energy efficiency awareness. But on how far it has encouraged behavioural change, he agrees it is too early to say, as most organisations are still considering how to comply.
RSA itself has been carbon reporting for a long time. “I don’t think it has materially affected what we do,” he adds, but confirms it is definitely now seen as a business risk issue for compliance and reputation.
Improving data quality on buildings has been “probably the biggest challenge over the past six years”, and the group is moving away from estimated readings as far as possible. But there are particular challenges where RSA is a tenant.
In the retail sector, Toby Marlow is engineering manager at the John Lewis Partnership, which has more than 250 department stores and supermarkets, including Waitrose, in the UK.
He told ENDS the CRC has raised awareness of carbon emissions, by “aligning to both financial and brand-orientated measures”. He believes it has already stimulated innovative thinking in its early stages.
The London-based partnership has a long-standing emissions mitigation and public reporting programme, and has already reduced emissions per unit of sales by 30% since 2001.
It aims to raise energy efficiency per unit of trading floor area by 20% by 2010 relative to 2003/04. This was exceeded in 2009/10 by both Waitrose and John Lewis.
These benefits were achieved in collaboration with the Carbon Trust, ensuring the latest technology is fitted in new shops and where possible, in existing ones, promoting staff awareness programmes in operation and maintenance, backed up with energy awareness manuals.
In 2009, heating, ventilation and air conditioning systems, lighting and refrigeration were upgraded and optimised in 75% of Waitrose stores. The same process is now under way elsewhere in the group’s department stores.
Many of these measures were identified by analysing real-time energy data through new AMRs at stores in line with CRC needs.
As a result of these efforts, the partnership gained certification under the Carbon Trust Standard in June 2010. Mr Marlow found the exercise “useful in understanding our estate better, where and how our energy is used”. He has also used its recommendations to refine the company’s existing corporate responsibility programmes, including awareness and training. But he points out that the standard reinforced rather than initiated these measures.
Despite these efforts, Waitrose’s rapid expansion has meant that in 2009/10 alone, absolute CO2 equivalent emissions still grew by 2%, albeit by far less than the 7% growth in sales over the period. The partnership is now developing plans to cut absolute emissions (ENDS Report 428, p 11).
John Lewis is preparing for the CRC reporting phase and is confident of compliance. It has used an external contractor to help collate information for evidence packs and develop associated reporting systems. It is devising its own real-time carbon reporting tool for both the CRC and to monitor its own CO2 targets.
But it points out there is uncertainty in how its efforts will be presented in league tables.
In the public sector, huge opportunities for energy efficiency remain, extending well beyond the CRC’s coverage. Continuation of programmes will be vital in meeting national targets under the Low Carbon Transition Plan (ENDS Report 414, pp 40-41).
Richard Rugg heads up public sector support programmes at the Carbon Trust. He told ENDS that public buildings alone account for annual carbon dioxide emissions of almost 20 million tonnes, excluding water, waste and procurement activity: “That is roughly 8% of the UK’s non-domestic CO2 emissions.” The associated annual energy spend is £2.6bn.
The Carbon Trust’s public sector support offering focuses on the largest emitters: the NHS, central and local government and higher education. It also works with the UK’s 20,000 schools.
The result has been total energy bill savings of £400m from all projects to date, avoiding 10MtCO2e emissions. But this is only the tip of the iceberg: the trust has identified future opportunities to save a further 46MtCO2 and £1bn over the life of the projects.
Mr Rugg says that, six years ago, the average public sector carbon reduction target was 12% over five years, whereas now, the average target is 33% over the same period. This indicates a continued appetite for low-carbon management, despite concern over looming public spending cuts.
But has the CRC raised awareness of energy management? Mr Rugg says it has “enabled carbon and energy-related officers to have an open dialogue with finance and resources teams” and boosted awareness.
As to tangible changes in behaviour, preparation for the CRC has required better communication, monitoring and targeting, with a lot of thought given to ownership of the data and its analysis. He also believes the CRC, alongside other drivers such as rising energy prices and voluntary carbon reduction programmes, has supported investment in energy efficiency measures.
Implementing the CRC requires effective leadership, but Mr Rugg also points to the importance of convincing stakeholders of the business case for investment, adequate human resources, better valuing energy management teams and communicating progress.
As to the changes to the CRC, Mr Rugg acknowledges there may be financial concerns stemming from the loss of recycling revenue. But he stresses there remains a strong reason to engage finance departments in cutting carbon.
How well individual public sector organisations have fared in the CRC’s introductory stage depends to some extent on their size. Registration has been less of an issue than with complex conglomerates, where unrelated subsidiaries are thrown together, and public sector organisations are generally used to the administration and reporting required. But the extra administrative burden can be heavy for smaller organisations.
The public sector has engaged positively with the CRC since its advent, with energy efficiency and carbon reduction a priority. But while corporates complain of the loss of recycling revenue, local authorities face a double whammy, as spending cuts reduce funding for projects, and even threaten their ability to administer complex schemes such as the CRC.
Andy Johnston is a director at the London-based Local Government Information Unit. He told ENDS that, on the whole, the CRC has raised awareness in the public sector and there has been active engagement.
The biggest benefit has been getting strategic, legal and other officers into multidisciplinary teams with climate change and energy managers for the first time. There was also more understanding among staff exposed to emissions mitigation projects, though not necessarily more training.
But it is also clear that there are some significant problems and perverse outcomes, as expenditure cuts and CRC changes loom.
At this early stage there is little evidence for significant public sector energy savings as a result of the CRC, but as in the private sector, there has been rapid roll-out of AMRs to take advantage of the early action metrics. A new flurry of energy efficiency activity is expected in 2011 as carbon reporting begins.
Despite this early progress on AMRs, Mr Johnston told ENDS that loss of financial incentives and uncertainty, not least over the status of early action metrics, could halt progress.
The uncertainty over these metrics has also affected uptake of carbon management standards such as the Carbon Trust Standard, he warns. He notes several instances of planned certification being dropped.
Even making a case for the benefits of wider environmental management standards, such as ISO 14001, is becoming very difficult with layers of middle managers disappearing amid deep spending cuts.
Harry Morrison, Carbon Trust Standard manager, agrees spending cuts had affected public body demand for the standard, but overall “demand is holding up very well”. Although the financial incentive is gone, the league table’s reputational driver remains.
He says more than 450 organisations have achieved the standard to date, including 30 in the past month. A good stream of recertifications is coming through.
The biggest immediate fear for councils’ climate change officers is that their whole budget could disappear in paying the new levy, at least for the first year, leaving little to spend on energy efficiency improvements. “Several authorities have moved from £100,000 risk [from loss of revenue through adverse performance in the league tables] to £1m certainty,” says Mr Johnston.
There is little chance of winning extra funds given the public spending squeeze, he says. Nevertheless, “there are still negotiations to be had [with central government] for future years”.
One of the biggest challenges for councils is how to manage their schools’ CRC liabilities, especially as some are moving towards autonomy. Schools alone usually account for more than half of councils’ emissions.
Councils must administer the CRC and pay the levy, yet they have no direct control over emissions and depend on adequate annual data. In many areas, relationships are good, but as more schools become independent, this relationship may suffer.
In the meantime, schools can benefit from FIT opportunities for solar photovoltaic installations, but councils are left to pick up the CRC bill for the energy generated.
There are also unresolved difficulties over how to account for residual fuel and electricity use, often from a myriad of minor sources, in the footprint report. For example, Cornwall County Council manages some 6,500 buildings. Some, like public conveniences, have just one light bulb.
Compiling the report by July 2011 is not thought too onerous, but uncertainties over the depth and breadth of detail needed in the evidence pack sitting behind it is exercising minds as the deadline and associated Environment Agency audits approach.
Mr Johnston says it is difficult to say whether councils are holding back programmes because of CRC uncertainty, because any major investments were likely to flow later in the scheme anyway. But he also notes attention is becoming more focused on incentive-based schemes in the public sector, notably FITs and a future RHI.
These incentives are now attracting more interest than the CRC, which is regarded as a tax: “It’s hard to see where the real enthusiasm will come from [for the CRC]”.
Paul Robinson is team leader for energy and climate change at Oxford City Council. He says the council is set to achieve its 25% carbon reduction target relative to 2005/06 by March 2011, by working with the Carbon Trust. The council is committed to a further 3% reduction target year on year.
Measures include staff awareness, a monthly staff network meeting to identify operation and maintenance opportunities and to exchange ideas.
The trust also provided free energy surveys and supported investment in buildings upgrade and other low-carbon measures through its Salix fund.
Oxford has worked with the Carbon Trust on carbon management and data collection since 2005, so the CRC data requirement is not an issue.
But the main challenge has been the extra layers of bureaucracy that the detail and effort needed tends to generate, Mr Robinson says. There is uncertainty over exactly what should be included in an evidence pack.
Much of this is detailed legal work directed at minimising the risk of legal liability and fines. But he adds that evidence packs are also onerous, in part because they take a different view of carbon footprints compared with widely used methodologies from the World Resources Institute/World Business Council for Sustainable Development and the Carbon Trust, and the requirements may yet change.
In terms of benefits from the CRC, it is not yet possible to ascribe the council’s overall success in cutting emissions and raising energy efficiency to the scheme. But the scheme has prompted installation of AMRs, allowing active energy management and benchmarking. This should lead to emissions reductions in the near future.
The CRC has also prompted the council to work towards the BSI Kitemark scheme for energy reduction verification, an alternative to the Carbon Trust Standard and acceptable as an early action metric.
The council chose this as a stepping stone towards achieving BS EN 16001 energy management standard certification.
The main challenges have been the cost of CRC administration relative to the size of the council, which is only just over the threshold, and continuing uncertainty over the scheme’s future.
Mr Robinson says compiling the evidence pack can take resources away from energy efficiency projects.
Overall, Oxford City Council supports the CRC, but sees no major benefit for an organisation in its position, except for the impetus for AMRs. It sees the CRC as an extra driver only, notably through the reputational impact of the league table.
The Scottish Parliament buildings at Holyrood, Edinburgh are at the lower end of the CRC threshold, so the costs of participation are much higher relative to the benefits.
Holyrood, designed to be a model of sustainability from the outset, plans a 20% absolute emissions reduction by 2015, and a 42% cut by 2020 compared with its baseline of 2005/06, in line with Scotland’s overall greenhouse gas reduction targets.
It has also reduced its electricity use by 13% to date, against its 24% target for 2015 relative to 2005/06. This has been achieved mainly by reducing energy needed to cool server rooms, comprehensive building management systems, LED and programmed lighting systems and more efficient PCs.
Together, these have pushed Holyrood slightly below the CRC threshold for participation, but it must stay in the scheme until the introductory phase finishes at the end of 2012/13.
Holyrood wanted to validate its success and data for its compliance evidence pack through third-party certification. It opted for the Certified Emissions Measurement and Reduction Scheme, recognised as an early action metric under the CRC.
“The CRC made us want to get one of the standards, both for reputation and to maximise our position in the league table,” says the Scottish Parliament’s environment manager, David Fairhurst.
Uncertainty over the scheme, and anger over the decision to abolish revenue recycling have, for many organisations, overshadowed the CRC’s benefits.
Mr Marlow of John Lewis told ENDS: “The major challenge for our CRC is not the information required; it is more the changing terms of engagement around it.”
He says long-term strategic planning has been under way within the partnership for some time, based on a 10 year carbon reduction plan, but “this is continually hampered by the changes within the CRC scheme and the long-term uncertainty around renewable generation”.
For organisations only just above the threshold for participants, such as Oxford City Council, costs are already disproportionate. Uncertainty is particularly unwelcome, as small rule changes can mean large cost increases for organisations.
The CRC is meant to stimulate greater awareness of energy efficiency and emissions in organisations where energy bills alone are a minor part of total costs. But its role in this is often seen as marginal given pre-existing corporate social responsibility schemes in high-profile brands and programmes within councils.
The much higher cost of buying emission allowances under the revised CRC has the potential to push low-carbon efforts faster in some corporates. But it is also becoming clear that changes already made to the CRC, together with the public spending cuts, are exerting an unwelcome drag on energy efficiency activity in many organisations, not least those in the public sector. There are difficult negotiations ahead, and CRC reform will need to tread carefully indeed.
The Carbon Reduction Commitment
A special report, sponsored by RPS(energy and environmental consultants)