The Carbon Reduction Commitment (CRC)
Introduction
The Carbon Reduction Commitment (CRC) is a proposed mandatory cap and trade scheme in the UK that will apply to large non energy intensive organisations in the public and private sectors. It is anticipated that the scheme will cut carbon emissions by 14 million tonnes of carbon per year as part of the British Government's commitment to cutting UK carbon emissions by 80% by 2050, compared to 1990 levels.
The CRC was announced in the 2007 Energy White Paper and is to be introduced under enabling powers in the Climate Change Act 2008.
Who is covered by the CRC?
The CRC scheme will apply to organisations that have electricity consumption greater than 6,000 MWh per year, on half-hourly meters. This roughly equates to an electricity bill above £500,000, although it would apply to emissions from direct energy use (e.g. gas and oil) as well as electricity purchased, but not from transport. Such organisations - including hotel chains, supermarkets, banks, central government and large Local Authorities - account for around 10% of the UK carbon emissions.
Emissions covered by the EU Energy Trading Scheme and by a Climate Change Agreement would be exempt from the CRC, as would organisations with more than 25% of their emissions covered by Climate Change Agreements. It is anticipated that approximately 5,000 organisations will be covered by the CRC.
How does the scheme operate?
Although mandatory, the Carbon Reduction Commitment will involve self-certification of emissions, backed up by desk auditing of 20% of participants per year.
Emission allowances are initially to be sold and then from 2013 to be auctioned, with all the income from the sales/auctions recycled back to participants by the means of an annual payment. This payment will be based on participants' emissions for the year, with a bonus or penalty according to the organisation's position in a CRC league table (see below). The Government has set an allowance price of £12/tCO2 for the introductory three year phase; thereafter the price will be determined by auction. Participants in the Carbon Reduction Commitment will also be able to purchase (but not sell) emission allowances from the EU Emissions Trading Scheme.
The league table is based on weighting of 3 factors:
- Absolute metric (60%), i.e. participants % reduction compared to the benchmark
- Early Action (20%) to give recognition to good energy management prior to the commencement of the scheme
- Growth (20%) to make some allowances for commercial growth
Importantly, this league table will be published.
Recycling of funds will depend on position in the table with those at the bottom receiving 10% less than they paid whilst those at the top will receive 10% more in 2010. This increases by a further 10% in 2011 up to a current stated maximum of 50%.
It should be noted that green electricity tariffs do not affect the carbon emissions, i.e. average grid factors are to be applied as the CRC is targeted at reducing an organisation's overall energy usage.
Although the sale of allowances will start in 2011, steps need to be undertaken now to ensure that organisations are not disadvantaged.
The CRC will not only result in penalty costs for poor performing organisations, but these organisations will also be publicly identified throughout the UK as being under performers in reducing carbon emissions. This will have an adverse effect on brands, image and bottom line performance. The CRC is just the first "tax" on carbon emissions to stem from the Climate Change Act 2008. Others will undoubtedly follow legislation develops.