UK: Get Ready For The "Carbon Reduction Commitment"

Last Updated: 6 May 2009
Article by John Duffy


The UK Government has committed the Country to reduce greenhouse gas emissions. The Government cannot do it alone, so it has begun to introduce legislation that will incentivise everyone in the UK to reduce their energy consumption.

The latest legislation is contained in the Climate Change Act 2008. This article looks at one aspect of the Act – the creation of a mandatory Emissions Trading Scheme that will apply to public and private sector enterprises in the United Kingdom (the "Regulations").

It is important for every enterprise in the United Kingdom to consider whether they are affected by the Regulations, as hefty penalties will be imposed for non-compliance.

The Trade Scheme Regulations:

In a nutshell, the Regulations will require enterprises to:

  1. notify the Government of its energy consumptions; and, depending on the amount of energy used,
  2. buy credits from the Government for the enterprise's expected energy consumption in each tax year.

If an enterprise is required to buy credits, it will lose one credit for each tonne of greenhouse gasses that are deemed to have been emitted through the enterprise's energy consumption. Excess credits can be banked for use in future years or sold to other participators in the Scheme. At the end of each tax year, all participators in the Scheme are put into a publicised table to show their performance and those that demonstrate a saving in energy consumption obtain a cash bonus from the pool of money that the Government will hold. This bonus will be funded by those whose gas emissions exceed their credits.

Consider whether you are affected:

To decide whether you are affected by the Regulations, you will need to determine whether your "Collective Group" – being your company, any subsidiary company, joint venture body in which you have a majority control, and any franchisees - metered their electricity consumption on a half-hourly basis in 2008.

This basis usually applies to sites with a peak load above 100kw. To determine whether you have a half-hourly meter, call your supplier or look for your metre point administration number ("MPAN") also known as the "supply number" on your bill.

The MPAN will appear in a format resembling the diagram below. If the first two numbers in the top left-hand box are "00", then you have a half-hourly meter. Any other number indicates that it is a non-half-hourly meter.

If there is metering on this basis anywhere in the Collective Group, the next consideration is whether the Collective Group has consumed at least 6,000MWh during 2008.

If this is the case, you are likely to have to fully participate in the Regulations and buy credits. If not, you are likely to have to make disclosures of your energy consumption to the Government.

Landlords need to take particular care in determining whether the Regulations affect them, as the electricity that a Landlord purchases for common parts and, possibly, tenant's space, is deemed to be the Landlord's consumption. Landlords will need to reflect on whether the lease or other agreement under which tenants occupy allow the recharge of Regulations compliance costs to the occupiers.

The way forward:

Full details of the Regulations have not yet been publicised by the Government. However, as the Regulations will take full effect in 2010, enterprises must now prepare themselves by:

  1. working out whether and to what extent they will have to participate in the Regulations;
  2. starting to gather the necessary information – which will include details of all electricity consumed from all the half-hourly meters within the Collective Group;
  3. ensuring that everyone within the Collective Group keeps a look out for a pack that the Government will be issuing in September of this year;
  4. (if participation seems likely) ensuring that your energy suppliers are notified so that they can begin to provide the information that will be required by Government to demonstrate compliance with the Regulations;
  5. considering arrangements to budget for the cost of complying with the Regulations. For those that have to fully participate, this will include the purchase of credits and the payment of participation fees;
  6. considering internal procedures for compiling the reports the Regulations will require and preserving the supporting records;
  7. determining the extent to which the Collective Group participates in the existing EU Emissions Trading System or has a Climate Change Agreement;
  8. considering (if you are a landlord or a franchisor) how you will secure co-operation from your tenants and franchisees in providing information and assistance in compliance with the Regulations - and how to pass on the cost of compliance and participation to them;
  9. planning your future energy requirements particularly as some forms will require the purchase of more credits than others – for example, wood chip burning combined heat and power units compared to taking mains electricity.

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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