What is the Carbon Reduction Commitment?

• Mandatory emissions trading scheme for company and organisations spending more than £500,000 a year in electricity
• League table of carbon winners and losers will be formulated once scheme is in place
• Scheme starts proper in April 2010 but you need to start preparing now

Have you heard of the Carbon Reduction Commitment? It’s yet another legislation that will be foisted on the industry, but not enough professionals are aware of it, according to WSP. The firm recently carried out a series of seminars to spread the word on the CRC, which is a mandatory emissions trading scheme to cut carbon emissions from large commercial and public sector organisations.

WSP directors Simon Coulston and David Bownass said the seminars highlighted industry concern at the input required in the coming months to prepare for the legislation. Simon Coulston said the information about the CRC has not been disseminated as yet: “While the Government has already contacted chief executives of organisations expected to qualify, I doubt if things have filtered down to management discussion level in all of them.”

What is the CRC?

The Carbon Reduction Commitment is a UK Government measure designed to reduce energy use and encourage investment in lower zero CO² technologies. Designed by DEFRA and administered by EA and SEPA, the scheme applies to organisations that annually use more than 6,000MWh of electricity through half hourly metering – typically a £500,000 electricity bill. This will typically include large retailers, banks, large offices, universities, local authorities and central government departments.

While the Government has already contacted chief executives of organisations expected to qualify, I doubt if things have filtered down to management discussion level in all of them

Simon Coulston, director, WSP

The responsibility for participation within the scheme lies with the person/company that pays fuel bills (particularly important in multi tenanted buildings) and the 6,000 MWh threshold applies to the total half hourly metered electricity consumption in all premises within an organisation’s portfolio. Overseas organisations with a significant presence in the U.K. will also be required to participate through a nominated company operating in Britain.

What do organisation affected need to do now?

Because the 6,000MWh threshold for the scheme is to be based on 2008 (calendar year) consumption on half hourly meters, organisations that believe they may fall within the scheme should already be collecting data of fuel usage across the entire building portfolio in readiness for submission of relevant data next year. (The Government has already written to the chief executives of all UK organisations it deems likely to fall into the CRC).

Qualification packs for supply of the data are due to arrive on the desks of all operations using half hourly metering systems in February next year. All information on the total electricity consumption and details of meters must be returned to the scheme regulator by June 2009 with a declaration that they should, or should not, be included in the scheme.

The scheme will start in April 2010 when the participants will decide on the amount of carbon allowances needed and purchase them at a fixed price of £12 per tonne of CO². The purchase of these carbon allowances is expected to increase fuel costs between 7% and 12% although a system of bonus payments could totally offset the costs for the best performers who will be highlighted in a league table of the estimated 6,000 organisations that are likely to be embraced within the scheme.

Companies should already be pulling together data on electricity consumption and lists of meters in readiness for the qualification packs

Simon Coulston, WSP

League tables and penalties

The league table, which will be produced six months after the first year of operation of the scheme, also includes penalties. A company’s position on the league table is determined by year-on-year improvements in comparison with benchmark year; whether or not they have introduced automated meter reading, and participation in the Energy Efficiency Accreditation Scheme. A growth metric will compensate for growth.

All the cash (less admin and other expenses) raised by the Government will be recycled back to the participants with the best performers in the league table receiving a return of their initial payments, plus a bonus, which those at the bottom receive their payments less a penalty payment.

In the first year calculations are to be made on a +/- 10% basis rising to +/-50% after five years, a figure that could rise to 100% in the future.

The Government will use the first three years data to discover how much energy consumption is covered by the scheme and the follow up with an auction when allowances will be capped to drive prices to an appropriate level dictated by supply and demand.

Key advice

“Companies should already be pulling together data on electricity consumption and lists of meters in readiness for the qualification packs. That information will not be readily accessible from one place and it will take a lot longer than many will expect. It is going to be quite a task to pull it all together in the robust manner that will be required.” Simon Coulston, WSP