A scheme that can boost the bottom line

Consultants at sustainable power company Ener-G believe the CRC can be used as a springboard to boost bottom-line performance by reducing energy costs, while enhancing corporate social responsibility programmes. This view is underscored by government figures suggesting the CRC could help businesses save a total of £1bn by 2020.

Some 20,000 organisations must register for the CRC programme. Of these, an estimated 5,000 will become ‘full’ participants and have to pay for their carbon emissions when the CRC gets under way with its first trading year from April 2010 to March 2011. Although the CRC is still in its draft format, acting now can quickly create major cost savings and prevent the reputational damage of being named and shamed in a published league table of energy performance.

The business and public sectors generate over one third of UK CO2 emissions and the CRC scheme aims to cut emissions among those consuming more than 6,000,000kWh of half hourly metered electricity (an approximate annual energy spend of £500,000). The most energy intensive organisations are already subject to the EU Emissions Trading Scheme or Climate Change Agreements.

Performance will be measured and published in a league table, with positions determining how much of the carbon ‘tax’ is ‘recycled’ back to each organisation.

“Because the scheme is revenue neutral to the government, there will always be winners and losers, which means corporate reputation as well as finance will be at stake,” said Liam McDonagh, Head of Consultancy Services at the firm.

“Many organisations affected by the scheme have not yet started to plan for the various phases, because they have gone into survival mode and are battening down the hatches against the recession. But the CRC is an important catalyst for cost reduction and must rise up the boardroom agenda. It also takes time to prepare and businesses must not get caught short. If embraced properly, in addition to reducing costs, the CRC can also enhance both environmental and CSR programmes.”

The CRC rules underpin the Climate Change Act 2008 which sets legally binding targets to reduce greenhouse gas emissions by 80 percent by 2050, based on 1990 levels, with at least 26 percent CO2 emission reductions by 2020 measured against the same baseline.

Under the CRC, organisations will have to report on ‘core’ emissions (derived from gas and electricity consumption) but some may also have to report on ‘residual’ emissions including diesel, coal, and LPG. Performance in the first year of the scheme (April 2010-March 2011) will be evaluated by two ‘early action’ measurements.

“The first ‘metric’ evaluates the extent of voluntary automatic metering in place which means organisations should be reviewing how energy use in their properties is measured; deciding if this is suitable for achieving a high rating and obtaining costs for upgrade as appropriate,” explained Liam McDonagh.

“The second early action metric is involvement in an energy efficiency accreditation scheme, such as the Carbon Trust Standard and organisations should obtain details of schemes, along with costs and timescales for accreditation.”
“The two early action metrics will provide a foundation for energy management, but to convert this into carbon reduction requires focused reviews of policies, procedures and behaviour, as well as detailed technical surveys of property,” said Liam McDonagh.

The findings of reviews and surveys will constitute recommendations for improvement, which can be prioritised and implemented to complement CRC strategic requirements and develop capital and revenue cost schedules for annual business planning.

Liam McDonagh added: “Reviews and surveys will also produce a number of no cost or low cost quick wins, in particular behavioural changes like switching off equipment and lighting when not required, and introducing temperature policies to prevent over heating or cooling. In our experience, no-cost or low-cost measures can typically achieve energy savings of five to10 percent.

“Older buildings are generally less efficient, but lighting, plant, equipment and controls upgrades and improvements to building fabric can still have attractive returns on investment with typical payback periods of under five years. In addition, these types of initiatives usually improve the internal environment.”

The CRC means organisations must purchase ‘allowances’ to cover CO2 emissions in April each year for the following 12 Month period. In the first three years of the scheme (April 2010-March 2013), allowances will be traded at £12 per tonne of CO2. The first sale takes place in April 2011, covering actual emissions for 2010/11, and projected emissions for 2011/12 – a double accounting year. Subsequent sales, will be just for the projected following year. So for an organisation using 6,000,000kWh of electricity a year, the first sale will cost £77,328.

With this example, the ‘at risk’ penalty or ‘bonus’ amount in October 2011 will be 10 percent of traded value of the 2010/11 allowances, or £3,866 (at best the recycling payment will be £42,530, at worst £34,798). 2011/12 allowances will be recycled in October 2012. In the third year of the scheme, the penalty or bonus will rise to 30 percent, but because the calculation includes baseline emissions of the footprint year (energy consumption in 2010/11), organisations at the top and bottom of the table could stand to gain or lose far more than 30 percent of that year’s allocation value.

From April 2013, the cost of carbon allowances will be determined by sealed bid auction and the total number of allowances will be capped. It is expected that by the fifth year of the scheme, the recycling penalty/bonus will increase by 50 percent respectively.

Ener-G is holding a series of path finder seminars across the UK to assist businesses in understanding their CRC obligations and support available from the Ener-G group.

The company has carried out more than 1,000 Action Energy/Carbon Trust surveys and delivered strategic energy management solutions to many blue chip organisations.

For more information:
Visit: energ.co.uk, Tel: +44 (0) 161 745 7450
Email: info@energ.co.uk.
For seminar details contact: jackie.banner@energ.co.uk.