The Carbon Reduction Commitment (CRC) is a mandatory carbon trading scheme designed to decrease the total amount of CO2 emissions within the UK. It is a central part of the UK Government’s strategy to deliver ambitious carbon reduction targets and promote energy saving.
The CRC will help the Government meet its target of at least a 26% reduction in CO2 by 2020.
Who is affected?
The CRC applies to companies that consume electricity at a rate of 6,000 MWh (6,000,000 kWh/"units") or more annually. This consumption roughly equates to the electricity usage of 1,500 private residences or a total of £500,000 in electricity expenses per year.
The CRC affects large, non-energy intensive organisations that are not covered by current EU emission regulations. By government estimations, over 20,000 UK public and private sector participant companies will be obliged to report CO2 emissions for monitoring; however, only about 5,000 of those will be required to fully participate in the CRC scheme.
What does it mean for qualifying companies?
After an initial registration with the Environment Agency, companies that qualify fully are required to monitor electricity and energy use, other than for transport, and then convert the use to CO2 emissions using government-provided formulae. These CO2 emissions will be the company’s CO2 allocation.
Companies have to purchase sufficient CO2 allowances from the Government for each CRC year. At the end of each year the company must self-certify its energy use to the government.
What if a company exceeds its allocation or has excess credits?
If a company exceeds its CO2 allocation, then it must purchase allowances on the market from companies who have performed well so have a surplus.
If a company is left with a surplus allocation by sufficiently reducing their emissions, then that company may trade them with other companies covered by the CRC.
How should companies reduce their CO2 emissions?
The CRC does not direct how a company must reduce CO2 emissions, so the scheme provides participants with some flexibility and allows companies to decide upon their preferred methods of emissions reduction.
The government compiles performance league tables to show how organisations have performed under the CRC. These league tables are available to the public, which provides the opportunity for reputational gain (or damage).
When do companies need to take action?
Companies need to purchase anticipated allowances annually in advance of each upcoming year. Initially, the price was fixed at £12 per unit until recently (March 2013). Since then the total emission levels have been capped in order to progressively reduce collective output, and the unit price then will be determined each year via auction. Additionally, fees may be adjusted with bonuses and penalties based on performance.
Assessing the financial and compliance impact
This scheme has the potential to impact on existing company budgets in terms of collecting data, reporting administration and potential allowance purchases.
In order to enforce the CRC, the government will conduct audits of self-certifications for approximately 20% of qualified companies each year. Non compliance could result in companies being fined as well as having to meet the cost of purchasing the necessary CO2 allowances.
If you would like more information about the CRC scheme or need compliance advice, please contact our environmental law specialist Julie Goulbourne by telephone 01616 966 229 or email jgo@stephensons.co.uk.