UK: Carbon Reduction Stick v Renewable Generation Carrot – Opportunities

Last Updated: 28 May 2010
Article by Humphrey Douglas

"By running our business responsibly and efficiently we reduce C02 emissions and costs - making progress on the environment and helping our customers save money" - Sir Terry Leahy (CEO, Tesco plc).

Prompted by cost savings, corporate social responsibility and client requirements, corporates have voluntarily already made significant inroads in trying to reduce carbon footprints. Now, motivated in significant part by national C02 targets (and the Climate Change Act 2008), the UK Government is increasingly regulating carbon emissions and energy efficiency (the stick) and incentivising green energy generation (the carrot).

April 2010 sees the implementation of the Carbon Reduction Commitment (CRC) scheme together with the small-scale low-carbon electricity feed-in tariff (FIT), amendments to the Renewables Obligation and the introduction of the Renewable Heat Incentive.

The Carbon Reduction Commitment

The CRC scheme applies to organisations with one or more electricity meters settled on the half hourly market (HHM) and which use over 6,000 MWh (approximately £600,000 worth) of electricity per year. Addressees with HHM settled accounts should already have been contacted by the administrator, but registration should occur (online) between April and the end of September 2010. Organisations are required to monitor energy supply and collate evidence during 2010, and in April 2011 and thereafter, must buy allowances forward (relating to energy consumption in general, i.e. not just electricity consumption) at an initial price of £12 per tonne of C02 emitted, which from 2013 will be priced on a capped supply, auction basis. The general timetable from 2011 onwards will be:


  • Organisations buy allowances (based on projected emissions);


  • Footprint report due (relating to the previous year's total energy supply, emissions and electricity credits);
  • Annual report due (relating to the previous year's emissions included in scheme, turnover/revenue and energy saving measures taken);
  • Organisations surrender allowances (equivalent to annual report emissions);


  • League tables published; and
  • Recycling (bonus) payments made.

League tables will show emissions reduction performance with allowances being sold by the Government to reward high performers with a recycling bonus. When considering registration and collating compliance records, organisations should consider factors including:

  • Organisational scope;
  • Energy supply records (and special events);
  • Existing energy saving measures taken;
  • Anticipated growth;
  • Exemption application information and credits; and
  • Annual C02 emissions footprint report.

In addition to administration and other fees, late registration and other penalties for non compliance will apply. Records should generally be kept for five years but the 2010/2011 year records must be kept for the entire length of participation.

The Feed In Tariff and Renewable Heat Incentive

The FIT is intended to offer a less complicated incentive (than the existing Renewables Obligation) for the small-scale (5 MW or under) generation of electricity from renewables. The Renewables Obligation will continue to be the main support mechanism for most (generally larger) renewable electricity projects in the UK. The RHI is intended to similarly incentivise the generation of specifically heat (as opposed to electricity) from renewables with a range of tariffs ranging from 1.5 to 19 pence per kWh.

Opportunities for stakeholders

Regardless of whether stakeholders wish to simply comply, top the league tables for reputational and other reasons or indeed to try and allocate or pass on compliance costs, contracts including joint ventures, shared use and lease arrangements and so on will now need to consider issues relating to aggregation of supply and allocate CRC allowance cost recovery and rebates on a commercial basis.

Similarly, whilst stakeholders are increasingly looking to generate electricity and heat themselves from renewable energy, investors and financiers are increasingly looking at ways of securitising potential feed-in-tariff revenues and otherwise packaging renewable energy generation for commercial scalability.

Even where renewable generation is not a priority, corporates are improving efficiency by benchmarking, monitoring and encouraging their supply chains, employees and internal divisions to hit environmental and energy efficiency key performance indicators (including ISO, Carbon Trust, Defra and so on minimums). Employees and divisions can be trained, incentivised and motivated by reducing their carbon footprints and suppliers and sub-contractors can become aligned with clients and required to share improvements and know-how.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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