Carbon Reduction Committment
The Carbon Reduction Commitment (recently renamed the CRC Energy Efficiency Scheme) has now officially started (April 2010), and is the UK's first mandatory carbon trading scheme. The initial phase of the CRC is compulsory for organisations that consumed over 6,000 MWh (6,000,000 kWh) of half-hourly metered electricity during the period from January 2008 to December 2008. At today's prices, this is roughly equivalent to total half hourly electricity bills of approximately £500,000 per year.
The aim of the CRC is to reduce the level of carbon emissions currently produced by the larger 'low energy-intensive' organisations by approximately 1.2 million tonnes of CO2 per year by 2020. As a Climate Change Bill commitment, the scheme is aiming for a 60% redution in CO2 emissions by 2050.
The Carbon Reduction Commitment will cover both public and private sector organisations. At present, the carbon reduction scheme is expected to affect approximately 5,000 organisations in the UK. In doing so, it is anticipated that the scheme will affect 25% of total business sector emissions within the UK.
The scheme will work in tandem with the existing European Union Emissions Trading Scheme and Climate Change Agreements. As a result, emissions that have been captured by the EU ETS and CCA, will not be captured by the CRC. In essence, the CRC is targeted at low energy-intensive users. The Climate Change Bill also sets the enabling powers for the Carbon Reduction Commitment and sets out the role of the Climate Change Committee that will oversee much of the CRC scheme.
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What is the CRC league table?
The revenue generated from carbon auctions will be redistributed between the scheme's participants. Each company will receive a larger or smaller amount than they originally paid for their carbon allowance, according to their performance in the CRC league table.
The main driver for the CRC is to stimulate energy efficiency in organisations, which might otherwise be resistant to implementing energy efficiency measures. A league table may affect brand reputation and therefore has a good chance of grabbing management's attention.
The CRC league table will be published each year after companies have reported their annual carbon emissions. CRC participants will be awarded bonus or penalty payments according to their placement in the league. In the first year the repayment adjustments will be between +10 and -10 percent, with 10% year on year increments, up to +50 and -50 percent by year five.
The league table will be based on three metrics - an absolute metric, a growth metric, and an early action metric - to gauge the energy saving achievements of companies (see "What are the metrics" below).
How much will it cost to take part in the CRC?
The first auction is due in April 2011, when bidders will be able to buy allowances to cover their 2010 emissions as well as for forecast 2011 emissions. Subsequent auctions will only apply to the year immediately ahead. An allowance will need to be purchased for every tonne of CO2 emitted in the year.
The government has indicated that the price of CO2 is likely to be set initially at £12 per tonne. Using DEFRA's average electricity / carbon conversion factor (0.523 kg CO2/kWh), the threshold qualification of 6,000 MWh of electricity translates into mandatory carbon credits purchases of about £38,000. However, if the organisation uses more than the qualification threshold level, the cash outgoing will be more.
Given the cash flow implications of CRC, it is essential for those organisations coming within scope to prepare and budget for CRC compliance. Especially, as the price of CO2 is expected to rise to approximately £75 per tonne CO2 from 2013 onwards, meaning a potential carbon credit purchase of £450,000.
