CRC puts big responsibility on Financial Directors

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Courtesy of Vital Efficienci Ltd.

Inaccuracy in reported carbon emissions could be fined more aggressively under the CRC scheme, reports Envido. Financial Directors are now on the front line of ensuring their companies are prepared for the Carbon Reduction Commitment. From April 2010, the CRC will create a direct link between many companies' carbon emissions and their bottom line. By 2010, the UK government had promised to reduce carbon emissions by 12%. However, it is on target to make a 20% reduction. The government introduced a new Climate Change Act, which has as one of its major components the CRC, due to begin in just a few months.

The CRC will apply initially to the 5,000 companies and public sector organisations judged to have the highest levels of energy use. CRC members are required to buy permits to emit carbon in advance and receive refunds proportional to their performance in carbon emission reductions relative to other scheme participants. CRC members will need to accurately record their energy use to avoid potentially large fines for companies that fail to report accurately and on time.

Financial Directors cannot afford to postpone environmental issues any longer. The CRC is the first piece of UK legislation to directly place a financial value on carbon emissions from non energy-intensive sectors, and is unlikely to be the last. Carbon accounting has now moved from a voluntary reporting process to the CRC legislative compliance regime.

The measures place carbon emissions firmly on the agenda of Financial Directors of those companies initially selected as participants of the CRC scheme. Although there are no published plans to extend the CRC scheme to a larger number of companies or to a wider range of emissions, it is almost inevitable that the CRC will be expanded if it proves to be successful.

Is your organization ready for the CRC?

In order to prepare for the CRC, companies will need to have a detailed plan in place to cope with the reporting and carbon reduction requirements of the legislation. The ability to forecast exposure, cash flow, and the use of carbon allowances against actual budgeted allowances will be critical.

For a medium-sized company, the penalty for a 10% inaccuracy in reported carbon emissions could be as much as £150,000 under the CRC.

Establishing the right process will be necessary to ensure confidence in the CRC audit trail. Through implementing carbon reporting software they will need to get an accurate picture of their current emissions for the CRC. This information will allow them to create an accurate forecast of how their carbon emissions may change in the future, to be factored into their financial planning.

Another feature of the CRC is that the participants’ relative performance in terms of carbon emission reduction will be published and the press and environmental groups will draw attention to the worst performers in the league table. Their reputation could be also affected for failing to tackle carbon emissions. The sooner financial directors persuade their companies of the need for a holistic plan to address the CRC scheme the lower their risks to be fined.

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