The CRC Energy Efficiency Scheme

What is it?

The CRC Energy Efficiency Scheme, formally known as the Carbon Reduction Commitment is a cap and trade system aimed at reducing the impact the UK has on global warming. Coming into effect in April 2010, it is part of this government’s overall strategy to cut greenhouse gas emissions by 80% of their 1990 levels by 2050.

Participants will need to buy allowances to offset their carbon emissions, the total number of which decrease over time, reducing overall carbon emissions.

Who’s affected?

The CRC aims to tackle the largest carbon emitters, focusing on organisations that consumed over 6,000,000kWh in 2008, equivalent to an electricity bill of about £400,000-£500,000 p.a. Exemptions shield those with over 90% of their emissions covered by the EU Emissions Trading Scheme, or by Climate Change Agreements.

Regardless of these criteria, all central UK government departments qualify for the CRC, with special guidelines given for bodies such as Local Authorities, Universities, Joint Ventures and Franchisors.

How does it work?

Action taken to mitigate emissions is judged on three scales:

1.Absolute Metric:
Quite simply the percentage change in emissions

2.Growth Metric:
Looks at the percentage change in emissions per unit turnover, rewarding energy efficient growth

3.Early Action Metric:
Rewards those that have already taken steps, before the start of the scheme, to reduce their emissions

Using a combined and weighted score, every October, starting in 2010, the government will publish a league table of the relative positions of all scheme participants. Using the revenue generated from selling allowances, those in the top half receive bonuses, whilst those in the bottom, penalties.

During the scheme’s first year, since the absolute and growth metric rely on changes in emissions, league table positions are determined solely by the early action metric.

So, not to be penalised, you must capitalise immediately on the Early Action Metric.

Early Action

The early action metric is calculated from two factors of equal weighting;

•  Installing automatic metering above and beyond the legal minimum by the end of March 2011

•  Being awarded the Carbon Trust Standard

The Carbon Trust Standard is given to organisations that can demonstrate energy savings over the past three years, as well as robust carbon management. For this accreditation to be included in the Early Action Metric, it must be awarded before the final day of the financial year – 31st March 2011.

powerPerfector will help you meet the Carbon Trust Standard

 

…and thereafter

Introductory Phase (2010 – 2013)

Once the other metrics can be quantified (as of years two and three of the scheme), the weighting shifts to 60% Absolute, 20% Growth and 20% Early Action.  The offset allowances are unlimited and sold at a fixed price of £12/tCO2 (c.a.0.64p/kWh).

Capped Phase (2013 – 2018)

During these five year phases, the allowance market is restructured, with their price floating on auction and the total number reducing year on year. The metrics weighting is expected to change too, with early action dropping out completely, and the absolute and growth metrics taking up the slack (with 75% and 25% coefficients respectively).

Reporting and Penalties

Every year, each organisation covered by the scheme must hand in a report, detailing the energy consumption from sources that contribute to the CRC. This, in turn, is used to calculate the absolute metric. It is worthwhile including details for the early action and growth metrics too – failure to submit this data automatically results in a zero.

Government has promoted the CRC as a ‘light-touch regulatory scheme’; meaning penalties for non-compliance are severe.  Failure to submit an annual report results in an immediate fine of £5,000 followed by daily delay fines.  If an organisation misses the deadline by 40 days, they will automatically drop to the bottom of the league table.

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