ENERGY INSIGHT

Appropriate CRC Energy Efficiency Scheme for Your Business

CRC Energy Efficiency Scheme -- When the Shoe Fits

The CRC Energy Efficiency Scheme gets underway finally on 1 April 2010 . Those organisations that are affected have to register by September 2010 and should be well advanced in their preparations as they’ll need to define their CRC organisations and disclose their 2008 electricity consumed through half hourly meters as part of the registration process.

It's estimated that about 5000 companies in the UK will be forced to comply under the government scheme and jurisdictions and governing bodies all around the world will be keeping a close eye on the scheme to see how it works.

The UK is the first country to go forward with a comprehensive "cap and trade" style of program focused on the non energy-intensive sector of the economy. The UK is using the CRC as one tool in a range of mechanisms to help it achieve its ambitious overall emission reduction targets as contained in its Climate Change Act, which includes a reduction of 80% off a 1990 baseline, by 2050. . Whilst many businesses have voiced support for the concept of targeting the non energy-intensive sector, the complexity of the scheme has raised concern. Recent polls have also indicated that many companies have a poor understanding of the scheme rules and are ill-prepared for their response.

The CRC Energy Efficiency Scheme gets underway finally on 1 April 2010 . Those organisations that are affected have to register by September 2010 and should be well advanced in their preparations as they’ll need to define their CRC organisations and disclose their 2008 electricity consumed through half hourly meters as part of the registration process. It is estimated that about 5000 companies in the UK will be forced to comply under the government scheme and jurisdictions and governing bodies all around the world will be keeping a close eye on the scheme to see how it works.

From the start of the scheme in April 2010, participant companies will want to accurately measure and monitor their energy use from electricity, gas and static fuel usage and understand the emission impacts from these sources. The CRC Energy Efficiency Scheme will utilise a web-based reporting system, which companies must interact with at the end of each reporting year. The total amount of energy used will be entered through the online portal by the end of July following each reporting year end, and be converted to tonnes of CO2.

The first year of the scheme, which runs from 1 April 2010 to 31 March 2011 will be a “reporting only “year. From 1 April 2011, allowances will need to be purchased for the coming year and sufficient allowances surrendered at the end of each compliance year to match the company’s emissions. There are a range of fines resulting from inaccurate or late reporting as well as fines for failure to surrender the required number of allowances by the due date. There are also criminal offences that flow from falsification of evidence, misleading statements made recklessly and non-compliance with enforcement.

The CRC League Table

One of the unique aspects of the scheme is its League Table, which will be published in October each year and which will rank participants based on their performance against a number of metrics. The first League table will be published in October 2011 and in this first year will be based solely on performance against the scheme’s “Early Action” metrics which consider the extent to which the organisation has achieved the Carbon Trust Standard (or equivalent) certification and the extent to which it has deployed Automated Meter Reading (AMR) on a voluntary basis.

From the second year of the scheme, the Absolute and Growth metrics will be the dominant determinants of league table performance. The Absolute metric considers an organisation’s absolute emission reduction versus its own rolling 5- year emissions average (or since the start of the scheme if less than 5 years). The Growth metric considers emissions relative to revenue (or expenditure in the Public Sector). From the start of Phase II of the scheme in 2013, the Early Action metric falls away altogether with the Absolute metric accounting for 75% of league table performance and the Growth metric accounting for 25%.

The league table is not only important from a reputation perspective, but also determines the level of bonuses and penalties that companies receive at the end of each year. The scheme fully recycles all revenue received from the sale of allowances, with individual companies recycling bonuses or penalties based in their ranking versus other participants. The maximum bonuses or penalty ramps up from 10% in the 2011 recycling payment to 50% in the 2015 recycling payment and may increase further beyond that.

Ongoing energy use and emission reduction is therefore very important as it will have a significant impact on an organisation’s league table performance and the resultant financial and reputation impacts. A key part of CRC preparation therefore needs to include an assessment of potential scheme impacts and the development of a strategy to achieve the desired level of league table performance.

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