Have you heard about it?
The CRC is a mandatory "cap and trade" incentive scheme that is intended to secure significant reductions in emissions of carbon dioxide to enable the UK to meet the ambitious target set in the Climate Change Act 2008 of an 80% reduction in carbon dioxide emissions as against 1990 levels by 2050.
It is predicted that about:
• 5,000 large public and private sector organisations will be required to participate in the CRC
• 15,000 other organisations will have reporting obligations
• many other organisations, including schools and tenants of CRC participants, will be indirectly affected because their emissions will be treated as those of a parent organisation.
What is the CRC?
The CRC comes into effect in April 2010 and obliges participants in the scheme to monitor their emissions and purchase allowances for each tonne of CO2 that is emitted within a given year. The scheme incentivises participants in a number of ways:
Allowances
Allowances must be purchased by CRC participants for each tonne of CO2 deemed to be emitted by it (determined by a set formula to be applied by the Environment Agency). These will initially cost £12 per tonne of CO2 but following the introductory phase (2010 - 2013) will be auctioned. Allowances may also be purchased through the secondary market or the EU Emissions Trading Scheme.
League table
In each year, beginning in October 2011, the Environment Agency, who administers the CRC, will calculate the participants' emissions. It will then publish a performance league table which will set out participants' energy use. Participants will be ranked according to their performance. High energy users will be lower down the league table than low energy users. There may be reputational harm therefore in not appearing nearer the top of the table or in not having moved higher over the years.
Recycling payments
These payments are made up from the revenue generated from the sale of allowances. The amount that a participant receives, if anything at all, will be determined by their rank in the performance league table; a low energy participant will receive a higher payment then a high energy participant. There is, therefore, a vested interest in performing well.
Penalties
There are penalties for not registering or providing the information requested and for not adhering to the requirements of the scheme eg not buying sufficient allowances for the CO2 actually emitted.
How will the CRC work?
CRC will operate by reference to phases. In each phase there is a:
• Qualification period - where businesses must determine whether they are covered by the CRC and assess whether they have any disclosure and/or participation obligations.
• 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
• Footprint year- when the CRC participants measure their emissions for that year. The first year of each phase is the footprint year.
• Series of compliance years- during which participating organisations will:
a. at the beginning and during each compliance year, purchase allowances based on expected energy use emissions,
b. monitor their energy use during each scheme year and, by the end of the July following the end of the scheme year, report their emissions to the administrator;
c. also, by the end of July, hold and surrender allowances equal to their reported emissions;
d. (hopefully) receive a revenue recycling payment from Government in the October after they have reported their energy use, based on their relative performance in the scheme published in a Performance League Table.
The first phase is an introductory phase which will run from April 2010 to 2013.
What must your organisation do now and going forward?
1 Gather information
The Environment Agency, the administrator for the CRC, will be writing to all half hourly billing points in September providing them with Qualification Packs. You should alert the relevant people to look out for these. All organisations with an half hourly meter (HHM) settled on the half hourly (HH) market will need to collate information on their total half hourly electricity consumption for the baseline year of 2008 together with a list of their half hourly meters, assisted by their electricity supplier, to assess whether they qualify for the scheme.
2 Establish whether you are within the CRC
Is your organisation a participant?
If during the 2008 calendar year your organisation satisfied both of the following then it will be a 'participant' in the CRC:
a. the organisation (or its subsidiaries) had at least one half hourly meter (HHM) settled on the half hourly market; and
b. the annual electricity consumption of your organisation (including subsidiaries) through all HHMs was at least 6000Mwh (bills likely to have been in the range of £500,000 - £1m)
If your organisation only satisfies a. then it will only be required to make an information disclosure to the Environment Agency providing:
a. a list of all your organisation's HHMs settled on the half hourly market, and
b. a calculation of how much electricity you consumed through all HHMs.
Your energy supplier should also be able to tell you if you have any HHM settled on the half hourly market and your electricity consumption through these meters. Failure to provide this information can lead to a fine of £1,000.
Does an exemption apply?
To avoid overlap with emissions schemes, the CRC does not target emissions covered by Climate Change Agreements nor direct emissions covered by the EU Emissions Trading Scheme.
Who is responsible?
The basic rule is that any electricity consumption counts as the responsibility of the organisation that holds the contract with the electricity supplier for that electricity supply, whether a public authority, a landlord, a holding company or another organisation to whom responsibility for the emissions of subsidiaries is attributed under the CRC. Although eligibility for the CRC is determined by electricity consumption, the total emissions for which the participant will be responsible include electricity supplied through HHMs and AMRs, gas supplied through AMRs and non-daily metered gas where more than 73,200 kWh p.a. Transport emissions are not included.
3 Register / provide information
The first compliance year is the Footprint Year and begins on 1 April 2010. Organisations who qualify must register or make an information disclosure by 30 September 2010. A fine of £5,000 plus a daily fine of £500 will be imposed on organisations who fail to meet the deadline.
4 Purchase allowances
The start of the second compliance year is 1 April 2011. At this point organisations must buy allowances to cover the total emissions. In the Introductory Phase participants must purchase sufficient allowances to cover their actual emissions from April 2010 to March 2011 and their forecast emissions for April 2011 to March 2012. This double whammy will impact on cash flows and participant organisations must prepare for this. In subsequent compliance years participants will only be required to purchase allowances for their forecast emissions.
5 Report
Participants must provide the Environment Agency with a Footprint Report and Annual Report by the end of July 2011 which sets out the participant's energy consumption. Once this has been provided, participants must surrender the allowances that have been purchased to cover emissions in the compliance year.
6 Repeat the process
The third compliance year starts on 1 April 2012 and steps 2 -5 should be repeated within the same timescales.
7 Comply with on-going obligations
In addition to the obligations set out above, the organisation must monitor the emissions throughout the compliance years and implement emissions reduction schemes.
Participants must keep a signed statement that CRC records have been kept and comply with their obligations in respect of ensuring that they have sufficient allowances and surrendering sufficient allowances to cover the participant's emissions in its annual report.
Contractual and Subsidiary Relationships
The CRC legal framework does not determine how responsibilities as between CRC participants and those for whose emissions they are responsible are to be allocated. For example, CRC participant local authorities may be responsible for the emissions from many properties, even where they do not have the power to require emissions savings to be undertaken. Similarly, landlords may not have the powers they require in order to compel tenants to reduce emissions nor tenants the power to require that they benefit from a share of any recycling payments. Umbrella CRC participants should already be considering these relationships and determining what steps may be appropriate to enable them to protect their interests. In the meantime, the British Property Federation has published a Guide to the CRC that highlights some of the considerations. Please click here to view the Guide.