UK: The Carbon Reduction Commitment Is Due To Commence In January 2010. Is Your Organisation Ready?

Last Updated: 22 July 2008
Article by Tom Bainbridge

KEY FEATURES OF THE CRC

  • Mandatory scheme for large non-energy intensive businesses (such as large offices, hotels, large shops, supermarkets, shopping centres) and public sector organisations (local authorities and central government departments) whose annual half-hourly metered electricity use is above 6,000 MWh.

  • Based on 'cap and trade' and designed to cut carbon dioxide (Co2) emissions.

  • Who is covered? Those who have: (i) half hourly metering; and (ii) aggregate annual electricity use above 6,000 MWh (c. £500,000 p.a.) measured across the entire "organisation".

  • What energy use needs to be measured and when? Initially, electricity use in 2008 in order to determine whether the scheme applies to you and then energy use from January 2010.

  • Requires data gathering of total 2008 electricity use and submission of data by June 2009 to confirm whether the scheme applies.

  • Scheme commences January 2010 with a three year introductory phase (fixed price allowances and no cap). From 2013 there will be a Government imposed cap on the number of allowances and such allowances will be sold by auction each year.

  • A "light touch" approach – relying on self-certification of emissions rather than third party verification.

WHAT IS CRC?

The Carbon Reduction Commitment (CRC), formally adopted as Government policy in the Energy White Paper 2007, outlines the Government's strategy to cut CO2 emissions by 1.2 million tonnes carbon per year by 2020.

It is a UK mandatory 'cap and trade scheme' imposed by the Government on commercial and public sector organisations whose annual halfhourly metered electricity use is above 6,000 Mega Watt hours (MWh) (and 70kVA metering systems in Northern Ireland) (inclusion threshold).

In general, organisations with half hourly metering and spending more than £500,000 per year in the UK on electricity are likely to be included in the scheme.

Once above that initial inclusion threshold, CRC targets both direct energy use emissions (from burning gas, oil, etc.) and electricity use emissions.

Energy-use which is already covered by the EU Emission Trading Scheme (EU-ETS) and UK Climate Change Agreements (CCA) will be exempt. Companies within an organisation's corporate group with more than 25% of their energy-use emissions in CCA's will also be exempt from CRC.

WHO IS COVERED BY CRC?

This involves answering several questions.

  • Is any electricity used by your business half hourly metered? If so, who is the party directly responsible for payment of electricity delivered via the half hourly meter?

  • Who is the "highest UK parent company" (ie ultimate UK controller) of that party?

  • Is the annual electricity consumption by the "highest UK parent company" or equivalent and all its subsidiaries (i.e. the group) more than 6,000 MWh? If so, the group is covered by CRC.

The phrases "parent company" and "subsidiary" have the same meaning as in the Companies Act 2006 and are often commonly understood. However, this language is not particularly helpful in many other instances, eg public sector, joint ventures, outsourcing and mulit-let shopping centres.

Private Sector: in most cases it will be clear which organisation is responsible for a particular source of energy-use. The highest UK parent organisation will be identified by reference to the definitions of organisations and subsidiaries set out in the Companies Act 2006. In the case of an overseas parent company with several intermediate UK holding companies, the Government proposes to group them to form a single CRC organisation (effectively, the 'UK arm' of the overseas based business).

Joint Ventures: in the case of majority stakes (51% or more), the joint venture's energy-use will be aggregated with the majority stakeholder. Where an organisation only holds a minority stake (50% or less) of a joint venture, the joint venture company's energy-use should not be aggregated with that of its minority shareholders. In such case, if the jointly owned company meets the inclusion threshold it would qualify in its own right for the scheme.

Public Sector: all central government departments are included in the scheme, regardless of whether they meet the inclusion threshold. Details are still being finalised in respect of the National Health Service. The Government does not propose grouping public sector organisations, instead the majority of public sector organisations within the scheme will participate as separate CRC organisations. For example, the Government proposes that the energy use from the colleges of Oxford, Cambridge and Durham universities should be grouped under their respective universities.

PFI/PPP/Outsourcing/Facilities Management: often, a business or government outsources the procurement of its energy to a third party and the third party/contractor takes on the obligation to supply energy to the business/government facility. In such instances where more than one party has an interest in the use or procurement of the same energy, the default approach is that the highest UK parent organisation of the 'counterparty to the electricity supply contract', will be the CRC organisation responsible for the emissions. In the above outsourcing example, the 'counterparty to the electricity supply contract' will usually be the contractor and therefore the contractor will responsible for the energy use under CRC.

Real Estate Sector: in the case of owner-occupiers and sole tenants under a full repairing lease, the tenant will almost certainly be paying the half-hourly metered electricity bill and responsible for the energy use under CRC. In the case of multi-let properties, the landlord may be paying the half-hourly metered electricity bill for all electricity use within the building. This electricity will count towards the eligibility threshold for the landlord's highest UK parent organisation. This is the case even where the costs incurred are passed to the tenant through the service charge (based on simple floor area or the extent to which an individual tenant's energy use is separately sub-metered).

In the case of multi-let properties, such as shopping centres with separate metering for tenant space, the landlord will be responsible for energy use in the common areas and the tenant will be responsible for the energy use in their tenanted area.

What is important to remember is that the CRC inclusion threshold is group wide and when calculating the amount of electricity consumption, you are required to add all electricity consumption of your UK subsidiaries/ operations.

AUCTION AND LEAGUE TABLE

The CRC will operate on a cap and trade basis. Organisations covered by the scheme will need to measure and record their energy-use and calculate their CO2 emissions. They will then be required to purchase 'allowances' corresponding to their CO2 emissions from energy-use. At the end of each year, the organisation will have to show that they have a sufficient number of 'allowances' to cover the CO2 they have emitted. If they hold too few 'allowances', they will have to reduce their energy consumption accordingly and/or buy allowances from other participants. If they hold too many, they can sell them.

There is a three-year introductory phase commencing January 2010, during which time organisations will be required to buy carbon 'allowances' at a fixed price of £12 per tonne of CO2 from the Government. There will be no cap during this introductory phase.

The capped phase will begin in January 2013, at which time these 'allowances' will be auctioned. A 'safety valve' will be used to prevent prices rising too high, in the form of a buy only link to the EU-ETS but with a minimum floor price.

The CRC is intended to be broadly revenue neutral and the Government plans to recycle most of the money raised in the introductory phase and auction process back to the CRC participants, proportional to their 2009 emissions, adjusted by a bonus or penalty related to their performance on the published CRC league table.

The league table will be calculated based on the CRC participant's performance in three different areas:

  • 'absolute' metric - the organisation's percentage emissions reductions, comparing their current annual emissions to their average emissions over the preceding rolling five years (i.e. not including the current year);

  • 'early action' metric - a measure to give recognition for good energy management undertaken prior to the start of the scheme. The metric will be based on a) the percentage of emissions covered by voluntarily installed automatic metering beyond the legal minimum and b) the percentage of the organisation's emissions covered by the Energy Efficient Accreditation Scheme1; and

  • 'growth' metric – designed to give recognition to organisations that are able to grow cleanly within the scheme, as well as accounting for the effects of organisational decline. The metric will be based on the organisation's percentage reduction in emissions per unit turnover (revenue expenditure for public sector), comparing their current level relative to their average over the preceding rolling five years.

The three metrics are to be weighted 60:20:20 (absolute: early action: growth). It is proposed that the Government will eliminate the early action metric at the end of the introductory phase and maintain the 3:1 ratio between the absolute and growth metrics.

PENALTIES AND AUDIT

Due to the lightly regulated nature of the scheme, the penalties for noncompliance will be strict and nonparticipation in the CRC will be a criminal offence. The main types of offences will be: 1) failing to participate; 2) the supply of false or misleading information; and 3) failing to supply data or failure to register or surrender allowances. Such offences will be punishable by a penalty or a fine. Noncompliance will also be stated in the league table, which could result in an adverse stakeholder reaction. Further details of penalties will be included in the summer 2008 consultation on the draft CRC regulations.

To ensure compliance and adherence to the self-certification regime and accompanying criteria, a risk-based audit will take place during the introductory phase, resulting in an audit of 20% of CRC organisations annually.

MORE INFORMATION

The CRC scheme is still subject to enactment through regulations; the draft of which will be consulted on in the coming months.

Also see the Defra website: www.defra.gov.uk/environment/climatechange/uk/business/crc/index.htm

Footnote

1. the independent emission reduction award scheme in the UK (EEAS) supported by the Carbon Trust

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.