Stakes are high ahead of the CRC Energy Efficiency Scheme

From April 2010, the CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment) will apply to all large non energy-intensive organisations in the UK.

The mandatory cap and trade scheme is designed to improve energy efficiency in large organisations and is central to the UK’s strategy for improving energy efficiency and reducing carbon dioxide (CO2) emissions. The scheme will cover large public and private sector organisations, whose electricity consumption is greater than 6,000MWh/yr – equivalent to an annual electricity bill of approximately £500k. It is expected that around 5,000 large organisations will qualify, including supermarkets, water companies, banks, local authorities and all central Government Departments.

During a planned introductory phase, due to start in April 2010, all allowances will be sold at a fixed price. From April 2013, allowances will be allocated through auctions with a diminishing number of credits available over time.

At the end of each year, company performance, mainly based on absolute carbon reductions since the start of the scheme, will be summarised in league tables outlining the best and worst performers in terms of carbon emissions and reduction. In order to avoid creating an additional financial burden, the auction revenues generated through the initial sale of credits will be recycled back to participants, with companies receiving payments back from government in relation to their first year emissions, plus or minus a bonus or penalty dependent on their position in the league table.

The first year of the CRC league table is based exclusively on early action and efforts made will determine the full bonus or penalty, rewarding organisations that have taken early action to reduce carbon emissions on a voluntary basis before 2010. The Carbon Trust Standard (CTS) and the Automatic Meter reading (AMR) have been recognised as an official early action metric for the CRC and will count towards performance in the CRC league table.

The cost of carbon allowances under the CRC is expected to range from tens of thousands of pounds to millions per individual organisation. With significant financial implications for businesses and organisations it is vital that they understand how it will affect them and how they can profit from early action. Those sitting back and waiting for the scheme to start in April 2010 are taking a huge gamble, as it will affect their ranking in the CRC performance league table and means they will miss out on ongoing financial savings from reducing energy use now.