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Ecofys and the CRC

If you think your organisation is likely to be covered by the CRC we can help you prepare for its introduction.  Ecofys has worked with Defra on the development of the legislation, outlining how the CRC scheme will apply to both public and private organisations of different sizes, structures and types of ownership. Ecofys has an excellent insight into both handling the administrative requirements and lowering emissions through efficient energy management. 

Our services to help you deal with the CRC include:

• Advice on CRC administration aspects
• Low Carbon strategy formulation
• Support for recognition of ‘early action’
• Implementation of energy efficiency technologies
• Carbon footprinting, energy monitoring and reporting
• Assessment of renewable energy opportunities
• Knowledge transfer – staff training to inform your organisation of its commitments

Products include:

• Monitoring products: EnergyMirror and Enerlyser
• Carbon Software Family: CarMan: the carbon management decision support tool and CarMon: the carbon monitoring and reporting tool

Who is affected

The CRC will cover any organisation with an annual electricity use above 6,000 MWh (measured through half-hourly meters in Great Britain or 70 kilowatt meters in Northern Ireland). The Government estimates the scheme will affect 4,000 to 5,000 organisations throughout the UK and will cover those with annual electricity bills of around £500,000. Both commercial and public sector organisations will be affected.  Likely to be included are supermarkets, hotel chains, banks, retailers, technology companies, hospitals and large local authorities.  All central government departments will be included in the scheme, regardless of whether or not they meet the inclusion threshold; however Government will consult on how the scheme will apply to the NHS in Summer 2008. 

The scheme employs a ‘top down’ approach – in the majority of cases, legal responsibility lies with the ‘Counterparty to the Energy Supply Contract’ (the organisation contractually liable if an energy bill is not paid) and is aggregated to the highest parent organisation but will only include emissions from UK sites.  There are some notable exceptions to placing of legal responsibility on the ‘counterparty to the supply contract’, for example in the case of franchises, where responsibility aims to be placed with the franchisor.

Next steps: 2008 - 2009

There will be a public consultation on the CRC throughout 2008 and the scheme is expected to start in 2010. Organisations that believe they may be included in the scheme need to collate electricity consumption data for the calendar year 2008 to establish whether or not they exceed the threshold. Defra is gathering as much information as possible from energy suppliers on their customers’ electricity consumption. Organisations that are believed to be near to the 6,000 MWh/year threshold will have to examine their emissions and prove if they are under that amount.

In early 2008 Defra sent (via the major energy suppliers) a mailshot to all billing addresses for half hourly meters in Great Britain and 70kVA metering systems in Northern Ireland, highlighting that 2008 is the qualification year for the CRC.  They invited organisations to log their contact details, and to indicate whether they think they are likely to be covered by the CRC.  These organisations will be asked to inform Defra whether or not they should be included in the scheme in early 2009. Organisations will then need to measure and record energy data from all relevant sources, not only electricity, for the calendar year 2009.

Introductory phase: 2010 - 2012

The CRC is a cap and trade scheme – this means the government will set a cap on the number of allowances to be auctioned.  However the first three years (2010, 2011 and 2012) will not be capped and will feature simple fixed price sales of allowances.  The parent organisation (ultimately responsible) will need to open an account in the UK registry by 31 January 2010.  It will need to estimate emissions for 2010 and buy sufficient allowances.  Organisations will be able to buy an unlimited number of allowances during a month-long sale in January and a second sale in July. Throughout the rest of the year organisations will be able to trade allowances on the so-called secondary market. The government is treating this phase as a learning opportunity to establish an accurate emissions cap.

First capped phase: 2013 – 2017

From 2013 there will be a Government imposed cap on the number of allowances available. The amount will be based on advice given by the independent Committee on Climate Change (established under the recent Climate Change Bill).  The Government will set a cap at the beginning of each year on the number of allowances to be auctioned. Qualifying organisations will then have to purchase allowances to cover their emissions. These can be bought either at the Government auction in January of each year or from the secondary market later in the year. 

Buying allowances

Presently the suggested allowance price for the introductory phase is £12/t CO2. After this introductory phase the allowance sale will change to a sealed bid uniform price auction that will introduce a steadily reducing cap on the amount of CO2 that is allowed to be emitted.  The auction will be limited to scheme participants and there will be a limit on the proportion of total allowances to any one participant.  Throughout the rest of the year organisations will be able to trade allowances with each other (if they have bought too many or too few allowances) on the secondary market.

Administration

The scheme is designed to be relatively ‘light touch’ in terms of administration requirements and will rely on self-certification of emissions (backed up by a risk based audit regime) rather than third party verification. 20% of CRC organisations will be audited annually.  Scheme years will run from January to December and will be followed by a three-month reconciliation period, during which organisations collate their data, buy and sell allowances on the secondary market, report their emissions figures to government and surrender emissions allowances.

Organisations will be required to report all their UK-based CO2 emissions from all their fixed point energy sources.  This includes electricity, gas and other fuel types (e.g. natural gas, oil products, liquefied petroleum gas, coal) but not transport emissions. Electricity purchased on green tariffs will be treated the same as standard electricity.

Participants will need to collate an ‘evidence pack’ containing: structural records (to define the organisation), data records (to show annual consumption of energy), special event records (to keep an audit trail of unusual events) and any concerns relating to reporting burdens (for small sites and data quality from suppliers).  This evidence pack must be signed by a director.

Climate Change Agreements (CCAs) and EU Emissions Trading Scheme (EU ETS)

Some parent organisations may have subsidiaries that have Climate Change Agreements (CCAs).  For subsidiaries that have CCAs covering in excess of 25% of their total energy use emissions these subsidiaries will not require CRC allowances. Organisations with more than 25% of their emissions in CCAs would be completely exempt. Organisations that participate in the EU Emissions Trading Scheme (EU ETS) will be able to exclude the emissions covered by that scheme but will still be required to participate in the CRC.

Non-compliance

The scheme will be administered by the Environment Agency and non-participation for qualifying organisations will be a criminal offence. Since the CRC is a ‘lightly’ regulated scheme, the penalties for non-compliance will be strict. Broadly, there will be two types of offences: those for failing to participate and those for failing to register or surrender allowances. These offences will be punishable by a penalty or a fine. For offences relating to failure to register or surrender allowances the Government has proposed fines of £25 per tCO2 for the first phase rising to £70 per tCO2 for future phases. 

Business opportunity

The main aim of the CRC is to encourage large non-energy intensive organisations throughout a variety of sectors to become more energy efficient and so reduce their CO2 emissions. It is part of a broader policy package that includes: voluntary reporting initiatives (e.g. CDP), voluntary support (e.g. Carbon Trust & Salix Finance), regulatory requirements (e.g. building regulations and EPBD) and ‘polluter pays’ elements (i.e. energy bill incorporates cost of CCL and EU ETS).  The scheme will help the government to achieve its target of at least a 60% reduction in greenhouse gas emission by 2050 as set out in the climate change bill. 

The Government intends that the CRC will be a revenue-neutral scheme i.e. no revenue will be gained by the Government. Instead money gained from auctions will be distributed amongst participant organisations once allowances have been surrendered.  The monies returned to an individual organisation during the first phase will depend on its annual emissions compared to its 2009 emissions and a bonus or penalty factor (+/-10% for the first year of the scheme).   The bonus or penalty will increase over time and reflect how well an organisation’s carbon and energy management compares to other participants.  This will be published in a ‘league table’ each year and will include an ‘early action’ metric to give recognition to good energy management implemented before the start of the scheme. Early action can be demonstrated by  implementation of automatic Monitoring & Targeting (aM&T) and accreditation under the Energy Efficiency Accreditation Scheme. Thus organisations that improve their energy efficiency strategies to reduce energy and electricity consumption will benefit twofold - both financially and in reputational terms. 

The scheme will use a grid electricity emissions factor based on a five year rolling average emissions factor (currently 0.523 kgCO2/kWh).  During the first phase, applying the fixed price of £12/tonne CO2 this results in a cost of 0.63 pence/kWh - approximately a 10% increase on current electricity costs for the first year.  For gas use the increase would be approximately 0.23 pence/kWh during the first phase.  These price increases are not accounting for any rebates or penalties that might be incurred.

Further information

The CRC was announced in the 2007 Energy White Paper and is the new name for the Energy Performance Commitment proposal on which the Government consulted in 2006.  The Government published its response to the 2007 public consultation on the CRC in March 2008.  More information can be found at the link below

http://www.defra.gov.uk/environment/climatechange/uk/business/crc/index.htm

To find out how we can help

Please contact Arnold van Triest, Carbon & Energy Solutions, Ecofys UK.

Email:                 A.vanTriest@ecofys.co.uk

Telephone:          +44 (0) 207 423 0984

This document is intended as a guide only. Whilst the information it contains is believed to be correct it is not a substitute for specific and appropriate advice. Except as required by law Ecofys UK excludes all liability for any and all loss or damage arising from any action taken or not taken in reliance of this document or connected with any error or omission in this document.