Reduced efficiency?

Sarah Speight wrestles with the repercussions of this mandatory incentive scheme, which from April will enforce large businesses and organisations to report their carbon dioxide emissions and encourage them to cut energy consumption

As if you poor souls haven’t got enough legislation on your plate, there’s more entering the fray with, predictably, an accompanying acronym. The newly renamed Carbon Reduction Commitment Energy Efficiency Scheme (but still known as the CRC) should by now be a familiar term, especially if you qualify. If so, you should – like good Scouts and Guides – Be Prepared. If not, you’re effectively up the creek without a paddle and you need to start swimming - fast.

In a nutshell, the CRC is a mandatory cap-and-trade scheme that begins in April, intended to incentivise large public and private sector organisations (including central government) to improve energy efficiency. Some £1bn could be saved through ‘cost-effective energy efficiency measures’, thus saving more than four million tons of CO2 each year by 2020 – a total reduction of 20 percent. It comes in the wake of the Climate Change Act 2008, which sets legally binding targets to reduce carbon dioxide emissions by 34 percent by 2020 and 80 percent by 2050 (based on 1990 levels).

Participants of the scheme must report their emissions from all energy use and buy allowances each year to cover predicted emissions. At the end of each year, from 2011, they will either receive a bonus or pay a penalty, depending on whether emissions exceed allowances. If at this point you are panicking because you’ve been on Mars and hadn’t heard about it, then contact the Environment Agency, which can help you get up to speed. The penalties for non-compliance are pretty severe, and could well be the final nail in the coffin for many struggling businesses.

An enforcement to be reckoned with
The impacts of the CRC are significant. Together with EPCs, BREEAM, EPBD and the like, it will provide further impetus for change in our approach to building design, construction and use. For example, green clauses in building contracts will become more important and in demand – and would help improve the embodied energy of buildings, which isn’t yet addressed by regulation.

Also, the CRC will affect how buildings are let and sold. How many crumbling, draughty buildings must there be that will simply become unattractive in respect of energy efficiency? The CRC league table could become the commercial equivalent to Energy Performance Certificates. Prospective tenants and investors will, like house hunters, start viewing the stats with running and retrofitting costs in mind.

But the scheme offers undoubted benefits. It will encourage more efficient energy use and awareness, at all levels of business; this is welcome and long overdue. I recall working in appallingly inefficient offices, where the air-con is faulty and/or over-used, the windows draughty and the taps leaky. But it’s not just the buildings, it’s the people who inhabit them: staff who never turn off their computers, leave lights on unnecessarily, and don’t give two hoots about recycling. So the CRC will, I hope, encourage more staff/tenant engagement and a change of attitudes. After all, if money can be saved, motivation should follow.

It’s also a great opportunity for businesses to boost their reputation, adding a competitive edge, and improving Corporate Social Responsibility and environmental transparency. And, as Stefania Omassoli, strategy manager at the Carbon Trust, says, it is one of the most cost-efficient ways for businesses to help reach the UK’s CO2 reduction targets.

Teething problems
Predictably, it won’t all be plain sailing. One salient point is the potential conflict between landlord and tenant in leased buildings. Surely whomever consumes the energy must bear some responsibility for buying allowances and, therefore, paying penalties or receiving bonuses? Nope. CRC policy dictates that energy use is the responsibility of the account holder. In other words, if you pay the bills, you’re liable, regardless of whether you occupy the building(s) or not. The only acknowledgement of this by the Department of Energy and Climate Change (DECC) in its final policy amendments is a provision to ‘require the tenant to cooperate with the landlord organisation for the purpose of complying with the CRC’. Much confusion and conflict will inevitably ensue as landlords and tenants struggle to establish where responsibility lays, and clamour to change leases accordingly.

And then there are the league tables, which will inevitably become an exercise in naming and shaming – and not necessarily justified. The voyeur in me relishes this chance to compare businesses’ green performance. But there is one major flaw: the ranking will not reflect those companies that have already made efforts to be green. That is because participants will be measured on ‘grid averaged’ electricity (produced mainly from brown fossil fuels) even if they purchase low-carbon or renewable energy. The DECC has tweaked its policy so that recognition is given to those using on-site renewable energy such as wind turbines or solar panels, by publishing the information in a separate table. It will also now give extra weighting in the second year (2011-2012) to organisations that take early action to improve energy efficiency. But the league tables will influence whether participants are rewarded or penalised.

There is a small loophole – businesses that generate and export electricity can claim electricity credits. These can then be subtracted from participants’ emissions, reducing the number of allowances required. The exceptions are hydro-electric power, nuclear power and any plant exempt from the Renewables Obligation Certificate (ROC). In its CRC ‘User Guide’, the DECC argues that this is because organisations with these facilities would be able to gain a ‘disproportionate advantage’ in the scheme, and that ‘the large number of credits they could accumulate would enable them to cancel out energy consumption across the organisation and remove the incentive to improve energy efficiency, which is the main purpose of the scheme.’

A contradictory endeavour?
Nonetheless, SmartestEnergy, trader of independently generated power, argues that the CRC could ‘seriously hinder’ the renewables industry. With a government target to increase the amount of renewable energy on the grid (currently 5 percent) to 15 percent by 2020, and with industry and commerce accounting for 62 percent of electricity consumption in Britain, this sector should logically be better supported in adopting renewable energy. “However,” says SmartestEnergy’s Jo Butlin, “we are already seeing both customers and intermediary brokers walking away from renewable offerings for the medium-term as they pre-empt the effect of the CRC.” While the Carbon Trust’s Omassoli concedes that the CRC doesn’t incentivise the use of renewables, she counters: “To say it adversely affects the renewables industry is wrong.” It has to be seen as a package of incentives, she adds, such as ROCs, to help meet our carbon targets. And the DECC maintains that the CRC’s primary focus is energy efficiency.

Overall, the CRC should be seen as an opportunity for success, both financially and otherwise. There will be winners and losers, without a doubt. But we shouldn’t need schemes like the CRC to kick us up the backside – simple measures like turning out lights and equipment should be second nature by now. The real challenge presented by the CRC should be administrative, unless you can hire a carbon management expert or similar to take on the burdensome job of data monitoring and reporting. Alongside sustainability boffins, they will, I presume, become much in demand. I think I’m in the wrong job.