The UK Carbon Reduction Commitment kicks in from April 2010. Alessandra McConville, Environmental Programmes Leader at EEF, the manufacturer’s organisation, provides guidance
on the process of compliance.
Climate change is rapidly moving up the political agenda. This has led to a number of regulatory instruments being put in place, at UK and EU level, such as Climate Change Agreements (CCAs) and the EU Emissions Trading Scheme (EU-ETS). However, neither of these cover all industrial and commercial emissions, particularly in less energy intensive sectors, and, as a result, the UK Carbon Reduction Commitment (CRC) Energy Efficiency Scheme has been introduced.
The EU-ETS mandatory emissions trading scheme covers the biggest carbon emitters in the EU, such as power stations, iron and steel, cement and lime, and glass and ceramics producers. Climate Change Agreements, meanwhile, allow companies in energy intensive sectors, such as plastics, to receive an 80% discount from the Climate Change Levy charged on all non-domestic energy. The discount is available in return for meeting energy efficiency or carbon saving targets.
The CRC is a legally binding carbon trading scheme that will start in April 2010 and require qualifying organisations to report on carbon emissions, purchase allowances sufficient to cover them and maintain adequate records of compliance. Companies could face fines or prosecution if they fail to meet their obligations.
The scheme will affect all those with half-hourly settled electricity meters anywhere in their organisation. Firms will not be full participants unless their total half-hourly electricity use across the organisation in the ‘qualification year’ (2008) was greater than 6,000MWh. The CRC will cover energy-related CO2 emissions, mainly from stationary sources. If a manufacturer’s main emissions’ sources are electricity and gas, it is likely that it can exclude small uses of fuel oil, solid fuels, etc. However, companies will need to undertake an inventory of their emissions to understand this.
Transport emissions from road-going vehicles are excluded (although on-site transport such as forklift trucks are likely to be included), as are those from processes or sites covered by a CCA or EU-ETS. Some companies or their subsidiaries may be exempt from the CRC if over 25% of their emissions are covered by a CCA or the EU-ETS, however, these firms still need to register with the scheme and prove their exemption.
The ‘highest UK parent’ is responsible for emissions from all its subsidiaries. If the highest parent company is based outside the UK, a UK agent will need to be appointed.
Buying and selling
Organisations with half-hourly meters should have received qualification information and will need to register online between April and September 2010. Companies must identify who will be responsible for the CRC in the highest UK parent and estimate how much half-hourly metered electricity they used in 2008 in order to register.
They then must produce a ‘footprint report’ by July 2011 – essentially a baseline report which records all the relevant emissions and determines which are covered by the CRC. The first allowance sale will take place in April 2011 for the financial year 2011/12.
Until March 2013, there is no limit on how many emissions allowances can be sold at a fixed price of £12/t by the Government.
In subsequent phases, there will be a cap on the number sold, and they must be purchased at auction. Emission allowances will also be available in the secondary market – for example, from companies that have managed to reduce emissions and therefore have a surplus.
To minimise the impact on companies, all revenue raised by the Government in selling allowances will be fed back to participants. Companies will receive a bonus or penalty depending on their position in a performance league table, which will be based on their performance in reducing energy-related carbon emissions.
Guidance from EEF, the manufacturer’s organisation, recommends developing a carbon footprint for 2008/9 to practice collecting the data and help understand where the uncertainties are. The key challenges are collecting all the relevant data, especially from smaller sites that might not manage energy well and for fuels other than electricity or natural gas; getting all parts of the organisation to report in the same way and to the same level of accuracy; as well as understanding the overall footprint sufficiently to exclude some residual sources of emissions.
Finally, companies need to quantify the impact and use their 2008/9 footprint to understand the likely allowance purchase requirement in April 2011.
Winners and losers
The scheme has the potential to create significant winners and losers. Companies that reduce energy use will see bills fall and reduce their need for allowances, improving their league table position and getting a better bonus from the scheme. Conversely, those who do not improve their energy efficiency will be paying for allowances, be penalised for a poor league table position, and spend more on energy.
The EEF is running interactive qualification workshops from January 2010 around the country.
Further information: Alessandra McConville