April 1, 2010 will undoubtedly mark the beginning of metric time keeping, the retirement of Wayne Rooney and the collapse of the London Bridge. Just joking.
In comparison, the start of the Carbon Reduction Commitment (CRC) on April Fools’ Day will certainly not be a laughing matter. Navigating the scheme’s intricacies, even its first year, will demand a concerted effort and clear planning from management.
This article investigates the requirements for the next 12 months of CRC.
Background
Around 20,000 public and private sector organisations that have one or more half hourly electricity meters will be involved in the CRC in some way. Three-quarters of these organisations will simply be required to make an information disclosure that tells the administrator about their electricity usage.
Around 5,000 organisations (approximately 1,500 will be manufacturers) that consume greater than 6,000 MWh per year will be required to participate fully.
This means they must not only record and monitor their CO2 emissions but also purchase allowances, initially sold by the government, for each tonne of CO2 they emit.
The more CO2 an organisation produces, the more allowances it has to purchase. There is a direct incentive, therefore, for every organisation to reduce their emissions so as to reduce the allowance payments.
In addition, the better an organisation performs in terms of reducing its emissions, the higher it will appear in the annually published league table, showing the comparative performance of all participants. This in turn provides another two incentives to reduce consumption. Firstly, all the revenue raised from selling allowances is ‘recycled’ back to participants, and the league table position affects how much of the revenue each organisation receives. Secondly, there are reputational benefits due to the fact that the league table will be made available for public viewing.
What is required?
In the initial period, what is the expected of the directors, energy managers, financial managers and environmental officers that will be responsible for ensuring compliance with the scheme?
What you need to do in the first year of CRC
1 Register
2 Satisfy the early action metrics
3 Submit a footprint report
In 2009 the administrators of the scheme, the Environmental Agency (EA), sent information packs to all businesses with one or more half hourly meters (HHMs). All participating businesses should therefore already be aware of their involvement.
While 2010 marks the beginning of the scheme, it has a fairly gentle introduction. No allowances need to be purchased in 2010, with the initial year requiring participants only to register (from April to September) and submit a footprint report (due 31 July 2011). It would also be advisable to achieve the requirements of the early action metrics.
Registration
Registration will be open from April via an online portal, available through the Environmental Agency (EA) website. An organisation will be required to submit information regarding the its structure, the specific HHMs it is responsible for (if it has more than one meter) and its qualification status.
In the case of subsidiary companies:
• The highest UK parent organisation will be responsible for collating and reporting the aggregate emissions of all its subsidiaries.
• Groups of companies under the same ownership will be treated as one organisation.
• Where a company’s highest parent organisation is based overseas, a UK subsidiary must be nominated to act on its behalf.
• For joint ventures, the majority shareholder will be responsible for reporting emissions. Where ownership is equally split, the joint venture will be counted as a separate organisation.
The Early Action Metrics (EAM)
The EAM is comprised of two aspects: achievement of both in the first year will ensure a favourable position in the first published league table. The initial aspect of the EAM is the installation of automatic meter readers for both electricity and gas. The equipment must meet a minimum standard in its ability to capture, store and retrieve data at half hour intervals.
The second aspect of satisfying the EAM is to achieve the Carbon Trust Standard. Doing so requires an organisation to calculate its carbon footprint (including transport), demonstrate absolute or relative reduction in carbon emissions by more than 2.5% per year and demonstrate good carbon management.
A larger organisation may satisfy the EAM for only certain parts of its operation, and will be rewarded proportionally depending on its level of participation. In order to qualify as an early action metric, an organisation must have received the Carbon Trust Standard by March 2011. By satisfying the EAM, organisations will be eligible to receive a bonus payment that will be awarded in April 2011.
Submitting a footprint report
Calculating an organisation’s total footprint emissions is somewhat more complicated, but is achieved by following these steps. Concrete details of how to report are yet to be fully released, and so what follows is a summary.
1 Add up all energy supply across your organisation, including electricity, gas and other fuel types such as coal, LPG or diesel. Use original copies of energy bills, meter readings or fuel delivery invoices to work out the energy supply. You can request an annual statement from each of your energy suppliers. You must request such a statement by the end of February; one month before the end of the compliance year. Suppliers will be obliged to provide the statement within six weeks from the end of the compliance year.
2 Next, exclude supplies related to energy used for domestic accommodation, transport and unconsumed supplies.
3 Check whether your organisation, or any part of it, already has a Climate Change Agreement (CCA). If you are a single entity participant, and at least 25% of your relevant emissions are covered by a CCA, you will be exempt from CRC. If any member of your organisational group has at least 25% of its relevant emissions covered by a CCA, that member is treated as exempt when calculating your group’s total footprint emissions. If after the removal of these members’ energy supply, your remaining organisation has less than 1,000 MWh of half hourly electricity remaining applicable to CRC, your entire organisation will be exempt.
4 If after considering CCA involvement, an organisation is still qualified for CRC involvement, using the CRC conversion table (available online), organisations are able to calculate their total emissions.
5 Once you have worked out your total footprint emissions, you can calculate your total CRC related emissions and figure out your allowance purchase requirements. There are two rules that determine CRC emissions: All your emissions from core electricity and gas sources of energy must be included in your CRC emissions, unless they are covered by the EU Emissions Trading System (EU ETS) or CCAs.
At least 90% of your total footprint emissions must be regulated either by CRC or by EU ETS or CCAs. The remaining 10% of your emissions may be omitted.
6 If, having included all your core sources, you find that you have not yet reached the point where 90% of your total footprint emissions are regulated, then you must include some of your residual supplies.
7 After working out your CRC emissions, you need to record all energy sources which are not core sources, as well as the core sources, and keep this in your evidence pack.
The company director will need to sign the evidence pack.
8 At the end of the footprint year, participants have to provide a footprint report to the scheme administrator covering: their total footprint emissions (as calculated in section 4.); their CRC emissions (in sections 5. and 6.); details of any exemptions through CCAs; and any major changes in their organisational structure. This report must be submitted, by 29 July 2011.
Scheme FAQs
Is there a document for reporting?
There is no document available detailing the process for annual reporting and footprint reporting. The document should be published this month, just prior to the CRC launch.
What happens if complications arise with tenant/landlord contractual arrangements?
The management of leasing arrangements is the responsibility of the landlord and tenant.
The Government view is that there are adequate controls in place regarding landlord and tenant contractual relationships in order to successfully manage CRC. The scheme will, likely drive changes to lease contract formulation.
How is business growth or decline taken in to account?
There are three components that that make up the league table. These are: the early action metric; the absolute metric; and the growth metric, which takes account of business growth or decline.
Does the league table redistribution of funds take in to account the difference in sizes of participating companies?
There is a correction factor that takes in to account the difference sizes of the organisations involved in CRC. It is a coefficient that statistically allows for the league table redistribution payments to be fair.
