The Carbon Reduction Commitment – are you ready?

This climate change and energy-saving scheme is already underway and, if you haven’t taken action yet, there are some simple steps that you must take between now and September 2010.

The CRC will directly affect around 5,000 UK organisations by creating a league table highlighting the best and worst performers in terms of carbon emissions. Organisations with a total half-hourly metered (HHM) electricity use greater than 6,000MWh (mega-watt hours) between January 1 and December 31, 2008 – equating to approximately £500,000 annual spend – will have to participate. A price is being set on carbon emissions, so those affected will have to buy credits (or allowances) annually to cover their expected emissions from April 2010. These credits will be recycled back to organisations but adjusted according to each organisation’s position in the league table.

If the possibility of adverse PR and reduced expenditure on energy isn’t enough of an incentive to comply, the range of fines and penalties for failures and non-compliance should be – at their worst they include up to three years’ imprisonment. Ignorance is no defence.

For the additional 15,000 organisations, the responsibilities under the CRC have only recently become apparent following the latest and third consultation on the “Draft Order” of the CRC. Companies with a consumption of between 3,000 and 6,000MWh will have to take steps to calculate their consumption and produce a footprint report to the regulator, to prove they are exempt and to identify those close to the threshold. Failure to comply will incur a £1,000 fine.

At a time when lending is non-existent and cash flow is critical to survival, the up-front cost could push many companies into the red, or even into insolvency.

The CRC consultation pack indicates that, in April 2011, organisations will have to buy two years of allowances, at once. On the plus side, companies will be able to trade throughout the year, providing the opportunity
to sell surplus credits.

It’s a worthwhile scheme, but it’s arrived at the worst possible time. Early preparation is going to be vital, so ENVIRON has outlined five steps to help you to comply, to ensure you avoid the pitfalls and potentially make you money or even exempt from the CRC.

Step 1 – Do you need to participate?
It is the highest level of the organisation that must comply with the CRC obligations. This could be a company’s group HQ, bank or an investor with a major stake in a business. The franchisor of a chain of franchisees is also obligated. Where the owning parent is overseas, a UK ‘primary member’ needs to be nominated and will be responsible for compliance.

All central and local government energy consumption will be liable, irrespective of the 6,000MWh threshold.

If your energy consumption and emissions are for transport purposes or generating electricity then you’ll generally be exempt. If you already fall under the EU ETS (European Union Emission Trading Scheme) or over 25 percent of your emissions are covered by a CCA (Climate Change Agreement), these installations will also be exempt from full participation. If, however, an organisation owns businesses that are neither in the ETS or CCA, then these could fall under the CRC.

At its most simplistic, the CRC applies to those with tariff half-hourly electricity metering – most businesses with sites with an electrical demand of over 100kW. But your company might have voluntarily installed half-hourly meters (HHM) even in sites with lower consumption; after all, HHMs provide accurate bills and obvious energy management incentives. If they were in place during 2008 then you are obligated under the CRC.

Step 2 – What do you need to do?
First, find out what data you need to collect and when reports are required. The CRC includes electricity, gas, oil, coal and LPG consumption, and good quality data can take months to gather.

Organisations need to instigate monthly meter readings now so they can compile reports by the end of July 2011 and calculate a realistic annual consumption estimate. Failure to do this could lead to an inflated and more expensive estimate. The Environmental Agency (EA) will be the CRC Regulator in England and Wales, SEPA in Scotland and NIEA in Northern Ireland, and they are likely to audit 20 percent of organisations annually. Keeping an accurate CRC evidence pack is vital to avoid heavy fines. 

A word of advice when calculating future usage, take into account any changes to your business especially in the current economic climate. Consolidation, expansion and diversification are all likely to affect your emissions. The CRC’s growth metrics account for such changes.

Step 3 – Early action
Early Action Metrics have been included to reward companies already managing emissions and encourage others to follow suit before April 2010. You are still in time to benefit from this but only if you act soon.

The first metric requires automatic monitoring reading (AMR) for all core electricity and gas consumption. These meters need reading and recording remotely by the customer.

The second is to seek the Carbon Trust Standard. This can take several months to achieve, but should reduce CRC-compliance costs. Read more at carbontruststandard.com.

Meeting these Early Action Metrics puts an organisation at the top of the league table in the first year of the three-year introductory phase. In years two and three, 20 percent of the ranking will be based on these metrics.

Step 4 – Reduce emissions
Crucial to reducing the associated costs of the CRC is a mitigation strategy to reduce carbon emissions. This should comprise a five or even 10-year plan of improvements for each financial year, complete with budgets and timetables. A carbon management expert can advise you on projects, mapped against cash flow, to help you prioritise areas of reduction. 

Sometimes buying allowances could be more cost-effective than certain emission reduction methods, and starting a project sooner might protect against any rise in allowance prices. An informed strategy could make the CRC cost-neutral and it’s worth remembering that investing in energy-saving projects can increase profits equivalent
to a massive increase in turnover which otherwise might be impossible in today’s market.

Step 5 – On-going reporting requirements
Lastly, but absolutely critically, you need to establish a process for the ongoing monitoring, collection and reporting of data. You can do this in-house, outsource it entirely, or combine both methods.

Following these simple steps and seeking advice will put you in a strong position. Remember: preparation and planning will minimise risk and could help you cut emissions and save money.

The timeline for the CRC
May 2009: The Environment Agency sends CRC information to all half hour billing organisations.

September 2009: All half hourly billing organisations receive qualifications packs from the Environment Agency.

April to September 2010: Registration period for the Introductory Phase.

April 2010: Start of the Footprint Year (ends March 2011), during which organisations must monitor and report their total energy use and emissions.

First compliance year of scheme: 2010/2011

April 2011: First (double) sale of allowances for the 2010/11 and 2011/12 compliance years and start of 2nd Compliance Year.

July 2011: First Footprint Report required and First Annual Report for the 2010/11 Compliance Year. 

October 2011: First recycling payment made for 2010/11 compliance year.

April 2012: Start of 3rd Compliance Year and Second Sale of Allowances for 2012/13 emissions.

July 2012: Second Annual Report and surrender of Allowances for 2011/12.

October 2012: Second recycling payment.

April 2013: Start of 2nd Phase with introduction of cap and auction of allowances.