Carbon Reduction Commitment - Ernst & Young - United Kingdom

Under a new UK government scheme, which started in April 2010, organisations will have to buy allowances in April 2012 to cover carbon emissions during 2011/2012.

Do you know how this will affect you?
The Carbon Reduction Commitment (CRC) is a new mandatory emissions scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide emitted in the UK. It is central to the UK Government’s strategy to achieve greenhouse gas emission reductions of 80% by 2050 (compared to 1990). CRC participants will need to buy a carbon allowance from the government for each tonne of CO2 that is emitted.

Companies who are affected will face a number of issues that Ernst & Young can help with:

• Collecting and reporting accurate data on carbon emissions
• Dealing with the purchase of carbon allowances in financial accounts
• Option appraisal and funding of energy efficiency investments

Will you be affected?
Encouraging energy efficiency by emissions trading is increasingly being pushed down to smaller individual emitters. The EU Emissions Trading Scheme (ETS) was introduced in 2005 and targets emissions from utilities and large industrials; the CRC came into force in April 2010 and introduced carbon reduction targets to other large organisations in the public and private sector.

The highest parent organisation qualifies as a full participant in CRC if in 2008 (the‘qualification year’):

• It had at least one half hourly meter (HHM) settled on the half hourly market
• Its annual electricity consumption through all HHMs was at least 6,000MWh (an energy bill of at least c.£420,000)

Sectors likely to be most impacted include large retailers, water companies, hotel and restaurant chains, vehicle engineering, glass manufacturers, and wholesaling. Other organisations affected include the public sector (such as universities, hospitals, and local authorities), mechanical engineering, plastics, banks, real estate, and other large service sector companies.

All central government departments will participate, regardless of consumption. All affected organisations will need to submit detailed emissions reports once a year, which could be audited.

What emissions are included?
The CRC covers UK-based CO2 emissions resulting from electricity and gas consumption and other fuel types such as LPG, oil and diesel. The CRC excludes transport emissions, and those already covered by the EU ETS or Climate Change Agreements.

Green electricity purchased is not considered carbon free under the CRC using the same carbon emission values. Embedded generation can only be included as zero are not claimed.

How much will it cost?
Announcements made in the October 2010 Comprehensive Spending Review changed the mechanics of the CRC, from a revenue neutral scheme to a revenue generating scheme, with a significant impact on the cost of the scheme to participants.

For the first year of the scheme (April 2010 – March 2011), allowances do not need to be purchased; in subsequent years allowances are purchased in arrears between April and July of each year, for the previous 12 months ending March. It is suggested that allowances will be sold by the government at a fixed price of £12 per tonne CO2 for the years ending March 2012, 2013 and 2014*; from compliance year 2014/2015* allowances will be sold by auction, and there will be a cap on the total number of allowances available. The cap will reduce year after year, which is expected to increase the cost of carbon allowances. Please take a look at our detailed example.

* Based on DECC's November 2010 consultation; subject to confirmation.

Each year a Performance League Table will be published, ranking the relative carbon emission performance of all organisations included in the CRC.

When will it happen?
Please take a look at our timeline 59K, November 2010

Useful links

• An illustration showing the impact of the October 2010 changes to the CRC
• How can I find the optimal solution for my organisation?
• Contact us