Under a new government scheme, organisations will have to buy allowances to cover their carbon emissions from 2010.
Do you know how this will affect you?The Carbon Reduction Commitment (CRC) is a new mandatory emissions trading 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:
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 will come into force in April 2010 and introduces carbon reduction targets to other large organisations in the public and private sector. Information packs will be sent out by September 2009, based on 2008 electricity consumption.
The highest parent organisation qualifies as a full participant in CRC if:
Sectors likely to be most impacted include large retailers, 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.
Those organisations that consume less than 6,000MWh through HHMs still need to provide data on their electricity consumption in an ‘information disclosure’.
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 – all electricity, regardless of source or mix, is evaluated using the same carbon emission values. Embedded generation can only be included as zero-carbon if the associated ROCs and LECs are not claimed.
How much will it cost?Normally, allowances are purchased in April for the coming year; however, for the first year allowances are to be purchased in arrears based on consumption in 2010/2011. This could lead to significant cash flow implications in April, especially in 2011 (please see illustration above).
For the first three compliance years (April 2010 – March 2013), allowances will be sold at a fixed price of £12 per tonne CO2. Thereafter 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.
Each year a Performance League Table will be published, ranking the relative carbon emission performance of all organisations included in the CRC. The year’s allowances will then be ‘recycled’ to all participants at the end of October – with either a bonus or a penalty, depending on the organisation’s final ranking in the Table. The bonus/penalty percentages increase from 10% to 50% during the first five years. Please take a look at our detailed example.
When will it happen?Please take a look at our timeline 59K, June 2009
Useful links
Carbon Reduction Commitment
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