CRC Spending Review
By Oznur Thursday, October 21, 2010
Comprehensive Spending Review – Changes to the Carbon Reduction Commitment (CRC)
The Comprehensive Spending Review set out by Chancellor George Osborne on 20th October contained unexpected changes to the Carbon Reduction Commitment Energy Efficiency Scheme (CRC).
Upcoming Changes with the Comprehensive Spending Review
Most importantly, the government had originally intended to “recycle” revenue earned from selling allowances back to participating organisations through bonuses and penalties, based on the league table rankings. This financial incentive scheme has been abolished. Instead, according to the Treasury, revenues from allowance sales “will be used to support the public finances, including spending on the environment.” The Treasury estimates that this will raise £715 million in 2011-2012, £730 million in 2012-2013, £995 million in 2013-2014 and £1 billion in 2014-2015. Calculations put this at the equivalent of roughly a 11% increase in energy bills for participating organisations. And although this obviously makes participating in the scheme more expensive, it does have the advantage of making it easier to assess the costs from a cash flow perspective.
The second big change relates to the sale of the first allowances, and this is more favourable to participants. Instead of purchasing the first allowances in 2011, organisations will now not have to purchase 2011-2012 allowances until 2012. A short term respite from the cash flow perspective.
The Background
What CRC is
CRC is designed to be a mandatory emissions trading scheme that reduces the UK’s carbon emissions by incentivising energy efficiency. Qualifying organisations – both private and public sector – will have to monitor their energy consumption and purchase allowances from the government for each tonne of carbon dioxide they anticipate emitting in the upcoming year. At the end of the year they then surrender allowances equivalent to their actual emissions. If an organisation has too many allowances it can either hold them in reserve or sell them on the secondary market. If an organisation does not have enough allowances to cover its emissions it must purchase the shortfall – either on the secondary market or from the government. A league table will then be published ranking organisations by their performance.
Who CRC affects
Organisations are required to participate based on their electricity supply and level of consumption. Those supplied with electricity by at least one settled mandatory half hourly meter (HHM) anywhere in the organisation are eligible. If the organisation consumes at least 6,000 MWh of electricity supplied on the half hourly market, it qualifies for full participation. If the organisation consumes less than 6,000 MWh but has at least one HHM then it qualifies for an information disclosure, in which information must be reported but allowances need not be purchased.
An estimated 5,000 organisations currently qualify for participation, with another 15,000 qualifying for information disclosure.
Current status of CRC
April 2010 marked the beginning of the so-called Introductory Phase, which will last until 31st March 2013. Organisations qualify for participation during this first phase based on their 2008 electricity consumption. Between 1st April and 30th September, those that qualified for either full participation or information disclosure were required to register with the Environment Agency.
For the first full year – from 1st April 2010 to 31st March 2011 – participating organisations must monitor their emissions to work out allowances for the following year, but do not need to purchase allowances. From the 2011-2012 financial year allowances must be purchased.
For more thoughts on CRC from Claude Lyons MD Jim McIlfatrick see the September/October issue of Maintenance & Engineering magazine at http://www.maintenanceonline.org.
