Companies have precisely one year from yesterday to prepare for the Carbon Reduction Commitment (CRC), a mandatory cap and trade system as part of the Climate Change Act, requiring businesses to reduce their carbon emissions year on year.
The scheme will target up to 6,000 large organisations (supermarket chains, hotel chains, office-based corporations, government departments and large local authorities) whose emissions are currently not covered under EU ETS or Climate Change Agreements, and who used more than 6,000MWh of half hourly metered electricity in 2008. This equates to an approximate electricity spend of £500,000.
The scheme uses a range of financial and reputational levers to force organisations to optimise and improve their carbon and energy performance.
Summary of the Commitment’s requirements:
Under the scheme, organisations will be mandated to forecast their energy related carbon emissions. With the year running April to March, participants will acquire carbon permits at the beginning of each year to cover their forecast emissions. At the end of the year, participants will report actual emissions and surrender the relevant number of permits.
Each participant’s carbon performance will be detailed in a league table ranked from best to worst. With the scheme revenue neutral to the Exchequer, all permit monies will be returned to the participants subject to a bonus or penalty based on their ranking in the league table. This will rise from 10% in the first year to 50% in year 5.
For the first phase of the scheme (2010 – 2013), permits will be fixed at £12 per tonne and there will be no cap. Thereafter, the permits will be capped and the price determined by supply and demand.
The scheme whilst supposedly light touch features a range of fines from a minimum £5,000 for late submission of reports, through to criminal penalties for falsification. The Environment Agency will be auditing 20% of the participants each year.
What do companies need to be doing now?
“With just a year to go participants need to be putting in place strategies and processes to manage the impact of the CRC,” says James Ramsay, commercial director at Carbon Clear, a specialist carbon management consultancy.
“Those who are advanced in their planning and get it right will almost certainly benefit financially and from a reputational perspective. However, the reality is that for most organizations, the CRC is just not on their agenda. Recent research suggests that 10% of companies will simply not comply whilst a host of the rest will incur substantial reputational and financial damage from having started too late.”
Ramsay adds: “Companies not only need to comply with the legislation but they also need to understand what it means to them from a strategic viewpoint. Right now they should at the very least be monitoring their energy, forecasting their cash flow requirements and assessing the viability of the Early Action Measures, which account for 100% of the league table metrics in the first 2 years. To do this right, however, requires a strategic-led approach with genuine executive buy-in. It is a mistake to see this as a task or even or project, the CRC demands a programme of activities and after all a board director will need to sign off on the submissions”.