The forthcoming Carbon Reduction Commitment (CRC), scheduled to start in April 2010, will be the first ‘cap and trade’ scheme aimed at reducing greenhouse gas emissions from non-energy intensive industries. Unlike previous emissions trading schemes, the CRC aims to encourage reductions in electricity use rather than directly limiting emissions from burning fossil fuels.
Which organisations will fall under the CRC legislation?
If your organisation consumed more than 6,000 MWh of electricity on mandatory half hourly meters in 2008, you will be included as a participant in the scheme and will be required to measure and report your carbon footprint, then buy allowances to cover your emissions. The exact requirements for participants in the scheme are covered in detail on the Department of Energy and Climate Change website, but little is said about what organisations should be doing now to prepare.
What should organisation be doing now to prepare?
There are opportunities for organisations with well-planned strategies. A pro-active approach will enable your organisation to prepare for the CRC effectively, mitigating the risks and making the most of the financial and business opportunities provided by good performance in the CRC league table.
If you qualify as a participant, the key elements of your CRC preparation should include:
- Understanding your exposure
The first step to preparing for the CRC is to understand what your carbon exposure is now, using the most recently available data. This is likely to be from 2008, but will help to provide an indication of your potential exposure. In the introductory phase of the scheme the allowance price will be fixed at £12 per tonne of CO2e, so simply multiplying your 2008 footprint by 12 will give you an indication of the expected cash-flow requirement. For a more accurate estimate, project your footprint forward to 2010, taking account of any expected changes in your organisation’s structure and activities.
- Installing voluntary automatic metering and applying for Carbon Trust Standard accreditation
In the first year of the scheme, league table position will be determined by the so-called Early Action Metrics. As there will be no baseline against which to measure emission reduction, performance will be ranked according to the extent to which organisations voluntarily install automatic metering, and whether they have Carbon Trust Standard accreditation.
- Planning a reduction strategy
In subsequent years, league table position is much more dependent on making reductions in emissions – the greater your rate of emission reduction, the more league table points you will score. Emission reduction projects can take time to plan and implement, so you should begin planning and prioritising your options as soon as possible.
What are the penalties for non-compliance?
As with all new legislation, the CRC carries risks for participants – both financial and reputational. For example, the financial penalties for failing to report emissions are currently set at £5,000 plus £0.05 per tonne of CO2e per working day of delay past the reporting deadline. A medium-sized organisation could face penalties in excess of £6 million for not reporting at all and £400,000 if they were to report but were found to have a 15% margin of error in their reported data. It is planned that 20% of reports will be audited.
More importantly, organisations which fail to comply with the legislation will be publicly named, and the relative performance of all organisations will be published in a league table, highlighting the best and worst performers in the scheme.
What are the relevant timelines and dates?
The timelines to implement the CRC are as follows: