Carbon & CRC Compliance

The Carbon Reduction Commitment (CRC) is a new mandatory emissions trading scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide (CO2) emitted in the UK. This is vital to achieving our overall targets of reducing greenhouse gas emissions by 2050 by at least 80% compared to the 1990 baseline.

CRC will affect large organisations in both the public and private sector. Organisations that meet the qualification criteria, which are based on how much electricity they consumed in 2008, will be obliged to participate in CRC. Participant organisations will have to monitor their emissions and purchase allowances, sold by the Government, for each tonne of CO2 they emit.

The more CO2 an organisation emits, the more allowances it has to purchase. So there is a direct incentive for these organisations to reduce their emissions.

As well as reducing our carbon emissions by increasing energy efficiency, the scheme will help organisations save money by reducing their energy bills. These savings should be well in excess of the costs of participating in the scheme.

In addition, the better an organisation performs in terms of reducing its emissions, the higher it will appear in the annual performance league table the Government will publish, showing the comparative performance of all participants. This in turn provides a further benefit: 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.

Who must participate in CRC?
Government estimates indicate that around 20,000 public and private sector organisations will be required to participate in CRC in some way. The majority of these will simply be required to make an information disclosure once every few years that tells the administrator about their electricity usage.

Around 5,000 organisations will be required to participate fully. This means they must not only record and monitor their CO2 emissions, but also purchase allowances equivalent to their emissions each year.

In general, the highest parent organisation will participate on behalf of all the organisations in the group.

What happens if an organisation refuses to participate?
CRC is a mandatory scheme and it places legal obligations on organisations to disclose information and for larger energy users to report on emissions and purchase allowances from the Government. Any organisation that does not comply with its legal obligations under CRC will be subject to financial penalties.

When does CRC start?
CRC starts in April 2010. For administrative purposes, the scheme is divided into set time periods known as phases. The first phase is the introductory phase and runs for three years. Subsequent phases each last for seven years. The first 2 years of these phases are preparatory, and overlap with the previous phase.

Each phase has:

A qualification period, where organisations must assess whether or not they qualify to make an information disclosure or participate fully in CRC;
A registration period, during which organisations that are required to take action under the scheme must either submit their information disclosure or register as a participant with the administrator;
A footprint year, where participants must monitor their total emissions from energy use and determine what emissions must be included in CRC. This data must be reported to the administrator in a footprint report; and
A series of compliance years, which run from April to March like financial years. During a compliance year, participating organisations must purchase allowances for each tonne of CO2 they emit, based on expected energy use, and monitor their usage.

Organisations must report their actual emissions by the end of July after each compliance year and surrender allowances to cover to their reported emissions. Then in October of that year, they will receive a revenue recycling payment, based on their performance in that year.

For the introductory phase:

The qualification period is the calendar year 2008;
The registration period is April-September 2010;
The footprint year is April 2010-March 2011; and
The first compliance year is also April 2010-March 2011.

How much do allowances cost and how do organisations buy them?
Allowances are sold by Government at the start of each compliance year.

During the introductory phase, allowances will be sold at a fixed price of £12 per tonne of CO2. Following the initial sale period, participant organisations can buy or sell allowances by trading on the secondary market. This enables organisations that have reduced their energy consumption more than they expected to sell some allowances, while those that have higher emissions than anticipated can purchase extra allowances.

What emissions are covered by CRC?
There are rules covering what emissions count towards CRC emissions that organisations must report to the Government. This ensures that organisations do not have to buy allowances for activities or emissions covered by other Government policies.

Emissions that participants will not have to purchase allowances for include:

Transport emissions; and
Emissions from activities covered by a Climate Change Agreement or the EU Emissions Trading System.

If you qualify for CRC, you will have to consider which of your emissions can be excluded.

Administering and regulating CRC
CRC has been developed by the UK Government and the Devolved Administrations. It is administered by the Environment Agency, which also acts as the regulator for England and Wales. In Scotland, the regulator is Scottish Environment Protection Agency (SEPA) and in Northern Ireland it is the Northern Ireland Environment Agency (NIEA).