Carbon Reduction Commitment - Will Your Business Be Caught?

With the Carbon Reduction Commitment (CRC) scheme commencing in April 2010, now is the time for businesses and organisations to make the necessary preparations to ensure they comply with the scheme. In short, its time for businesses to start getting their carbon management systems in order.

The scheme is the UK’s first mandatory carbon trading scheme, which provides a mandatory “cap and trade” scheme for large energy users. The aim of the scheme is to reduce the level of carbon emissions currently produced by the larger ‘low energy-intensive’ organisations by approximately 1.2 million tonnes of carbon dioxide per year by 2020 and for a 60% reduction overall by 2050.

The CRC will cover both public and private sector organisations. It will focus on the highest parent company or organisation (including its group members). Current government estimates are that the scheme will affect 25% of the total business sector emissions within the UK, equating to potentially up to 20,000 businesses.

Perhaps the next obvious question is what constitutes a “participating organisation”? Under the scheme, an organisation qualifies as a participant in the CRC if it:

• has at least one half hourly meter (HHM) settled on the half hourly electricity market; and
• consumes over 6,000 MWh of half hourly electricity through all of its HHMs during a qualification period.

These are known as the “qualification criteria”. Businesses that meet the qualification criteria will be referred to as “qualifying organisations”. In September 2009, the Environment Agency, the scheme’s official administrator, will send out qualification packs to organisations at all sites that have electricity HHMs. The EA will use information from electricity suppliers to identify these sites.

The types of businesses and organisations that are likely to be covered by the CRC are supermarkets, hotel chains, banks, large offices and retailers, hospitals and government departments. This is not an exhaustive list by any means and once the scheme is underway, the list of qualifying organisations is likely to expand.

Once it is established that a business is caught by the scheme, that business will be required to participate in a “cap and trade” scheme, similar, but not identical, to the European Emissions Trading Scheme under which participating companies will be required to hold and surrender sufficient ‘emission allowances’ at the end of each scheme year that corresponds with its total CO emissions, or, purchase additional allowances. The price of allowances will be set initially at £12 per tonne of carbon dioxide, with all payments recycled among participating organisations according to their place in a performance league table.

Participants of the scheme will have to furnish certain vital information to the administrator including: a footprint report containing specified information including carbon dioxide emissions from all fixed point energy sources; an annual report of their carbon dioxide emissions and other documentary evidence to demonstrate compliance with the scheme.

In the event of an organisation failing to comply with the provisions of the scheme the administrator reserves the power to impose both civil and criminal penalties, including the power to fine an organisation for failing to register and/or for failing to provide any of the information required in the footprint report. Perhaps, rather more worryingly, is the courts’ power to impose custodial sentences for those transgressors who fail to comply with an Enforcement Notice, for knowingly or recklessly making false or misleading statements on material matters or for falsifying records.

With this in mind, coupled with the fact that the scheme is due to come into force relatively soon, it is vital that companies who could potentially be classed as qualifying organisations take early action in preparing for the CRC. A good starting point would be to appoint a designated CRC manager, to collate relevant data and ensure there are robust systems in place for the collection of such data, planning a trading strategy and by preparing for the first auction phase by identifying and planning for potential projects that will increase the organisation’s direct and indirect carbon dioxide emissions.

Clearly the Government’s agenda behind the CRC is to tackle the growing and concerning problem concerning CO2 emissions, which is a worldwide concern. With the advent of the CRC in the coming months, UK businesses will be given their opportunity to help in their own way with this serious issue by ensuring that their own carbon footprint is kept within acceptable and permissible limits.