Are you carbon-reduction ready?

Are you carbon-reduction ready?

The Carbon Reduction Commitment is currently in (Draft) Order form

Begonia Filgueira   |  29/07/2009

It is a product of the measures contained in the Climate Change Act 2008.

The CRC requires that each organisation nominate a person responsible for CRC. This may be a financial director or energy manager, but the corporate buck will stop with someone. There are also strong financial incentives to comply with the system, and a PR slant. It’s now time to prepare, get a power team together, and start that steep carbon learning curb. Below is a brief introduction to the system.

The CRC comes into effect in April 2010 and will affect around 20,000 organisations across the UK. Its results are likely to be splashed across the media, since the Environment Agency (EA) will publish a league table of best and worse carbon performers. There are financial penalties for non-compliance with the system, and a bonus (or recycling of payments) for the best carbon performers.

If your organisation measures any of its energy consumption on Half Hour Metres (HHM) bought on the Half Hour Market (HHM), then you will be affected in some way. The EA, administrator of the scheme, has already sent a letter out testing the waters, trying to find out if you are responsible under the Draft (Order) and alerting those on the bill of the soon-to-arrive obligations.

Organisations that use more than 6,000MWh per annum and measure any of their energy consumption on Half Hour Metres (HHM) bought on the Half Hour Market (HHM) must enter the trading system; these are called full participants and are likely to spend £500,000 annually on their electricity bills. The exception is central-government departments who participate in the trading scheme regardless of their consumption rate. Where consumption is less than 6,000MWh, organisations only have information-disclosure obligations. They must still register on the EA’s website, calculate their emissions and report how much electricity is consumed through all HHM.

If you are over the 6,000MWh per annum consumption threshold your organisation will become a carbon buyer. During the introductory phase you can buy as many carbon allowances from the government as you need, based on your previous year’s consumption. At the end of the introductory phase you will surrender a carbon allowance for each tonne of CO2 you emitted. If you use more tonnes of CO2 than carbon allowances credited to your account, than you need to buy more carbon credits on the secondary market (ie: from others who have surplus credits, or from traders).

In principle, the person named on the electricity bill has obligations under the (Draft) Order; however, the following are responsible under the Draft Order:

  • the parent organisation is responsible for the electricity used by its subsidiaries, even if the latter consume more electricity;
  • the franchiser is responsible for the electricity consumption of its franchisees;
  • local authorities are responsible for the energy consumption of their schools and other organisations such as nursing homes and residential-care bodies;

The introductory phase of the scheme lasts for three years and starts with the year 2008–2009 (years run 1 April–31 March). This is known as the qualification year, when you need to decide what your obligations are under the CRC (Draft) Order, ie: look at your electricity meterage and consumption. Between April 2010 and September 2010 you will need to take action: either register as a full participant or register and disclose relevant information. 2010–2011 is the first footprint year; during this year organisations need to prepare an accurate and comprehensive record of all energy consumption within the organisation from all energy sources (not only from electricity) and file a footprint report.

In the footprint year you need to calculate your relevant emissions, footprint emissions and CRC emissions, since only CRC emissions count for the cap and trade scheme.

First of all you need to translate your energy consumption into CO2 emissions. You start by adding up the unit usage from each energy source (electricity, gas, diesel, LPG, coal, etc). As each unit of energy from a different source will produce a different amount of CO2 the (Draft) Order provides a factor by which to multiply the total from each energy source. Next step is to exclude emissions from transport or onward supply (supply for generation, distribution, supply or transmission). You now have calculated your relevant emissions.

In order to calculate your footprint emissions you need to exclude from your relevant emissions those which are already counted as part of a Climate Change Agreement. If you are a single entity and a minimum of 25 per cent of your emissions are covered by CCA, all of your emissions are excluded from CRC. If at least 25 per cent of your subsidiaries’ emissions are covered by CCA then you can exclude your subsidiaries emissions from your total emissions. Once these calculations are made, if your total energy usage is less than 1,000MWh then you are excluded from CRC for that year.

Not all your footprint emissions are considered CRC emissions. In order to calculate CRC emissions there are two general rules:

  • include emissions from all core sources electricity through HHMs, AMR metres, profile class 5–8 metres, daily-read gas metres, gas consumed through AMR meters and non-daily metered gas consumption of more than 73,2000kWh per annum) unless they are already regulated under EU ETS or CCA’s;
  • at least 90 per cent of your total footprint emissions must be regulated either by CRC, EU ETS or CCAs.

April 2011 will be the first year in which you buy emissions from the government, and you must budget now. since you will have to buy carbon units for the previous year and the following year. As a guide the carbon unit is averaging around E13.

From 2012, things will change. Phases will run for seven years, and you will not be able to buy as many carbon credits as you like; rather there will be an auctioning of credits at a price to be decided by the EA.

The Carbon Reduction Commitment (Draft) Order’s third consultation closed on 4 June 2009 and a response is awaited.

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European adoption
It seems that under the state aid rules, the EU has already made up its mind to support CRC. I wonder how much competition will be distorted as a result?
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Andy Stone  |  Posted 30.07.09
 

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