Carbon Reduction Commitment – the big concern

The Carbon Reduction Commitment (or CRC) will be a mandatory emissions trading scheme, targeting up to 5,000 large organisations many of whoms emissions are currently not included in the EU ETS or Climate Change Agreements.  The CRC was formerly known as the Energy Performance Commitment (EPC).

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 on an annual compliance cycle.  In the initial phase the carbon price will be £12/tonne carbon dioxide.
  • The scheme will have approximately 4-5,000 participants, many more than, for example, UK installations within the EUETS. 
  • The scheme will be mandatory, to increase the chance of management attention. Inclusion in the scheme will be based on whether an organisation’s total electricity consumption is over 6,000 MWh/year from its half hourly meters, 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. This avoids double counting, reduces administrative burden and should deliver environmental integrity.
  • Once the organisation is deemed to be in the scheme, CRC will include electricity use and all 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 January 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. 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 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 non-core 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