Carbon Reduction Commitment – the big concern 

The Carbon Reduction Commitment Energy Efficiency Scheme (or CRC) will be a mandatory emissions trading scheme, targeting up to 5,000 large organisations many of whose emissions are currently not included in the EU ETS or Climate Change Agreements.

This scheme will include organisations such as supermarket chains, hotel chains, office-based corporations, government departments and large local authorities.  The aim is to reduce carbon emissions in large non-energy intensive organisations by 1.2 million tonnes of carbon per year by 2020.
The scheme design can be summarised as follows:

  • The scheme is a cap and trade mechanism.  Participants must purchase emissions allowances equal to their actual emissions and surrender them in an annual compliance cycle.  The scheme will start in April 2010.
  • The first year of the scheme will be a reporting year only.  Allowance trading will start in April 2011 when allowances will be sold by Government at £12/tonne of carbon dioxide (CO2).
  • The scheme will have approximately 5,000 participants, many more than, for example, UK installations within the EUETS.   Group subsidiaries that would qualify in their own right will be allowed to participate separately.
  • Inclusion in the scheme will be based on whether an organisation’s total electricity consumption from its half hourly meters is over 6,000 MWh/year, roughly equivalent to an electricity bill greater than £500,000 per year.
  • Organisations or subsidiaries with over 25% of their energy use emissions covered by CCAs will be completely exempt from the CRC. If less than 1,000MWh half hourly electricity remains after the exemption of subsidiaries then the entire group will be exempt.
  • Once the organisation is deemed to be in the scheme, CRC will include all non transport electricity and direct energy use emissions not covered by CCAs and EU ETS.  This avoids double counting, reduces administrative burden and should deliver environmental integrity.
  • The scheme will be revenue neutral to the Exchequer. All revenue from the scheme will be recycled to the participants.  This maximises the level of incentive offered by the scheme.
  • 2008 will act as a baseline to determine if an organisation should be included in the introductory phase of the scheme. If the organisation is included it will be included for the whole phase. Organisations cannot join or leave the scheme during a phase.
  • The first phase will begin in April 2010 and will last for 3 years.  Each subsequent phase will be 5 years long.  This clarity on timescales (along with the safety valve – see below) supports organisations in making longer term investment decisions.
  • The first phase will not have a cap. Trading will start in April 2011 and Government will sell allowances at a fixed price (at £12/tonne carbon dioxide) so that organisations can buy as many allowances as they expect they will need. Subsequent phases will see all allowances auctioned by government when the number of allowances available will be capped.  This provides valuable learning for organisations that might not have participated in such market-based schemes before.
  • Government will establish a safety valve link to the EUETS to limit carbon prices.
  • CRC will be a lighter touch in monitoring, reporting and verification than EU ETS. Self based auditing rather than verification will take place with up to 20% of organisations being audited.  This will reduce the administrative burden for organisations.
  • A league table will be produced ranking the performance of the organisations. Bonuses and penalties will be awarded based on the position in the league table.  This approach maximises the incentive for emissions reductions.
  • Once an organisation meets the criteria to be included in CRC they must include at least 90% of emissions.  All core sources must be included and each organisation will have flexibility to opt-in residual sources subject to the minimum 90% level.

The scheme will also strengthen many organisations' Corporate Social Responsibility (CSR) driver to reduce carbon emissions and improve transparency of company performance.

The Green500 Action Plan can help organisations identify ways to reduce their carbon emissions and thereby comply with CRC and CSR.

Additional Resources.

Read the House of Commons Environmental Audit Committee report on Reducing Carbon Emmissions from UK Business.

The fifth npower Business Energy Index (nBEI 5) canvassed senior managers and energy buyers at SMEs and large industrial and commercial firms on attitudes to energy use, costs and CO2 emissions. Read More