The CRC Energy Efficiency Scheme
(CRC) – formerly known as the Carbon Reduction Commitment – is a mechanism which started in April 2010 and is designed to improve energy efficiency
in large, ‘low energy-intensive’ organisations not already covered by UK Climate Change Agreements and the EU ETS. It is a cap and trade scheme, like the EU ETS, thereby providing a financial incentive to reduce energy use by putting a price on carbon emissions. Changes to the scheme announced in the Chancellor's Comprehensive Spending Review in October 2010, however, mean revenue raise through the scheme will go to the Treasury rather than be recycled among participants.
aims to cut the CO2 emissions
of participating organisations by approximately 1.2 million tonnes a year by 2020.Which organisations are covered by the CRC?
The Government estimates that the scheme will initially cover around 4,000 large public and private sector organisations, such as supermarkets, water
, local authorities and all central Government departments – though eventually 20,000 organisations are likely to fall within the CRC’s remit.
Organisations are eligible if they (and their subsidiaries) have at least one half-hourly electricity meter (HHM) settled on the half-hourly market. They also qualify if their total half-hourly electricity consumption exceeded 6,000 megawatt-hours (MWh) during 2008.Businesses
that are a subsidiary of an organisation or part of a group, must act as one entity, with the highest parent organisation usually being the ‘primary member’ responsible for meeting the CRC’s admin requirements on behalf of the group.How does the CRC work?
Under the CRC
, companies will have to buy carbon allowances to cover their carbon emissions – as part of this they will have to measure and record energy use and calculate CO2 emissions (not including transport emissions).
There will be an annual performance league table that ranks participants by their energy efficiency performance, but money raised through the allowances will no longer be recycled back to participants, according to their position in the league table.What is the timetable for the CRC?
began in April 2010 with a three-year introductory phase (subsequent phases will run for seven years).
Following a six-month registration period, organisations that qualified (based on their electricity consumption during 2008) had to register or make an information disclosure by September 30 2010.
The financial year 2010-2011 is also the qualification year for the second phase of the CRC
and it is important that organisations monitor their half hourly electricity consumption during this period – a statement of consumption can be obtained from suppliers to help with this.
The first sale of allowances takes place in April 2011 and participants will be able to buy allowances at a fixed price of £12 a piece – each one worth a tonne of CO2.
However, Secretary of State for Energy and Climate Change Chris Huhne announced in November 2010 that the trading phase of the scheme – is to be delayed until 2013. A consultation of the CRC is also underway.
A change of heart by the Government in October 2009 means that participants will only have to purchase allowances to cover their forecast emissions for 2011/12 (and not for 2010/2011 too, as previously announced.)
For a more detailed timetable visit the DECC website
. What is compliance with the CRC likely to cost?
It’s one of those ‘how long is a piece of string?’ questions, but potential costs of participation in the CRC could include administration and consultancy advice and implementation of new technology
as well as potential fines and penalties for failing to comply or poor performance (see below).
There are a number of relatively small fixed administration fees payable to the Environment Agency, which manages the CRC
, the most substantial of which are a £950 one-off registration fee and an annual subsistence fee of £1,290.
There are then the internal costs of preparation for the CRC
– making sure an organisation has all the right data and that there is a good audit trail. According to Harry Morrison, general manager at th eCarbon Trust Standard, “the leading organisations in the UK have been thinking about carbon reduction for some time and will have very little additional cost here.
“All the companies that have been through the Carbon Trust Standard, for example, have already been through a data collection and audit process, but for some of the organisations that are less prepared, that could be a substantial investment – although they will reap the rewards of that down the line.”
In terms of on-going management time, figures from NERA/Enviros calculate that the annal costs of complying will range from £7,000 a year for a single-site operation to £28,500 a year for an organisation with 50 or more sites.
Then there is the actual cost of participation – organisations covered by the scheme will have to buy their carbon allowances up-front at an initial cost of £12 per tonne of CO2, which may present a cashflow challenge for many organisations.
Overall, however, organisations are expected to benefit from participation in the CRC
.As Morrison explained: “The way you can think about this is that everytime you use your gas and electricity in a typical mix, you are paying approximately £150 per tonne of CO2 – that compares to £12 a tonne for CO2 allowances. So by cutting your emissions, you are saving much more money.”What are the penalties for failure to comply with the CRC?
If a company fails to register by the required deadline it could receive a fine of £5,000, plus an additional £500 per day, until it is successfully registered on the scheme.
Where an annual report is submitted late, the fine looks as though it could be £5,000 + £0.05 per tonne of allocated allowances per working day.
Where submitted carbon emission details are more than five per cent variation from actual, there will be a fine of £40 per tonne of allocated annual allowances and where an evidence pack is incomplete or not up to date the fine will be £5 per tonne of allocated allowances.
Non conformance will be treated as a civil offence. However, failure to respond to subsequent demands will lead to issue being treated as a criminal offence.
In January, DECC issued updated guidelines
on the CRC.
The CBI has produced a guide
for business on complying with the CRC
Morrison recommends that organisations engage a broad set of skills in preparation for the CRC – not limit it to their environmental and energy people. “This should include the finance department, which is going to have to do the budgeting and the auditing, and the PR department, which is going to have to think about the reputational impact of the league tables.”
The Carbon Trust has produced a guide
to the CRC, specifically for finance directors. More information
on the CRC
can be found at:
• Environment Agency
• Carbon Trust