How does the CRC interact with carbon offsets?

Whilst many organisations are using and investigating the plethora of carbon offset schemes, they will be unable to use offsets towards meeting their CRC targets. The CRC scheme is a cap-and-trade scheme and will allow successful companies to sell excess carbon credits and less successful ones to purchase them in an open market. Initially the price will be set by the government at £12 per tonne, with the aim of the market finding and setting its own level.

Offsets will not be interchangeable with the CRC scheme even if companies have a carbon neutral status.

Of course the knowledge gained through offsetting will be invaluable in reducing an organisation’s carbon footprint and making them more energy efficient. This will help in the mandatory carbon reduction commitment and make them more efficient. The flip side is that because the CRC is mandatory and offsets have no impact, it may discourage companies form also investing in carbon offsets.

The US, typically will have a different model under the Boxer-Kerry climate bill. The utilities industry is expecting their own version of a cap-and-trade scheme where they will be likely to be allowed to use offsets to meet some of their targets.

CRC broadened

The government has broadened the Carbon Reduction Commitment to become the “CRC energy efficiency scheme”. It still however, aims to reduce carbon emisisons by 1.2 m tonnes pa by 2020 in large non-energy-intensive organisations.

Last week, the government said that no money would change hands in the first year, but results would still populate a league table. Early actions will gain a greater weighting in getting a rebate on the purchase of the carbon emission credits.

Revision to the Carbon Reduction Commitment gives a reprieve

The government has announced a revision to the CRC which means organisations do not need to account for the financial implications in next year’s budget.

This is no doubt partially driven by the economic downturn, but just as likely to be driven by the fact that the public sector is far from being ready for it.  A recent Carbon Trust survey found that only 1% of councils surveyed were fully prepared for the launch of the CRC next April.

40% of the respondents claimed that a lack of government financial incentives was the biggest hurdle they faced. But 25% also said there wa a problem of a “lack of will” in local politics. Part of the aparent lack of readiness stems from the councils implementing energy measurement programmes in preparation ofr reducing consumption of energy.

Councillors also seem to be less informed than council officers and therefore are behind the curve and not as aware of the challenges.

All local authorities will be required to comply with the CRC

All local authorities will be required to report to comply with the carbon reduction commitment coming into force in April 2010. This means Along with all of the other 5,000 or so public and private sector organisations they will need to report on their energy use and subsequently buy allowances that correspond to their emissions. The scheme aims to save 4.4 million tonnes of CO2 per year by 2020.

The Environmental Industries Commission (EIC), a trade group for environmental technology, welcomed the legislation but voiced concerns over the awareness of it within local authorities.

The EIC was also sceptical of the anticipated savings and said that under current levels the planned savings represent only a 7.6% carbon reduction by 2020, way below the government’s recent carbon reduction pledges. However we see this level being substantially increased as the threshold for compliance is reduced below the £500k or so of annual energy consumption currently required.

Quick wins for facility managers

The Carbon Reduction Commitment, is going to give a boost to those sectors that can effect quick returns for organisations affected by the CRC.

One such technology is Combined Heat and Power (CHP) products. these are looked upon favourably by the CRC and are even supported by interest free loans from the government and managed by the Carbon Trust.

Ian Manders of the CHP Association predictably picked up on this at the recent Heat & Energy 09 conference; “It is perfect for hard-to-treat buildings. Once you have done all the easy stuff – insulation, changing light bulbs and getting people to switch things off – it is very hard to get more savings from older buildings without CHP. It is a proven technology, there is an established industry to back it up and it can be retrofitted to existing heating systems easily…giving you control over your energy costs while also immediately cutting carbon emissions by at least 10%.”

With a payback of around six years as being a typically quoted figure coupledwith interest free loans, it’s difficult to disagree with him.

Government issues new CRC reporting guidelines

DEFRA has today published new guidance on how organisations should measure and report on their energy consumption and carbon emissions. The new guidance states that liable businesses should measure all their direct emissions from electricity and vehicle use as well as staff commuting, purchased fuels, and waste disposal.

Usefully, DEFRA also provides an official definition of “carbon neutral” rather than rely on schemes which are seen as greenwash and devaluing the phrase.   It provides useful advice and recommendations on setting and meeting reduction targets using a three stage process of calculating, reducing and offsetting emissions.

DEFRA’s guidelines are boradly based upon the Greenhouse Gas Protocol, which is the international standard for business accounting and reporting of greenhouse gas emissions produced by the World Business Council for Sustainable Development.

Outside of the CRC, DEFRA have also released a very useful publication targetting smaller businesses entitled: Small Business User Guide: Guidance on how to measure and report your greenhouse gas emissions

How does CRC incentivise business

The principle incentive to businesses in the UK’s Carbon Reduction Commitment is to recoup as much of the cost of up-front carbon cost as possible.

The way the CRC works is that for those eligible organisations, they must record and submit their anticipated energy consumption figures at the start of each financial year from April 2010. The second phase is to then purchase an allowance to emit the corresponding amount of carbon at a price of £12 per tonne.

This need to dig deep at the start of the financial year will make visible the amount of emissions a company is creating and incentivise the company to reduce the cost of these emissions. We should take with a pinch of salt any complaints over an additional burden to business as it will be the worst performers that pay. this is not necessarily the biggest energy users but those least able or willing to cut their emissions. For those that do make improvements and reduce their emissions will get a greater refund than the initial payment.

This is however only one of the carrots. In investing on low energy technology and practices, it will reduce energy bills and further save costs. Added to this the interest free loans being offered by the government for replacing inefficient technologies with energy efficient technology and it does seem like a positive step forward.

Accountants “not ready” for new CRC legislation

An article in Accountancy Age claims that a survey of 1,000 accountants  by RSA reveals that 40% aren’t even aware of the CRC legislation and 60% have no idea what to do about it. This is a pretty shocking state of affairs when you consider that the same report estimates that 6% of a participating organisation’s current energy spend will be used to purchase carbon allowances and a likely further 5% on compliance related admin costs.

The RSA estimates that allowances will amount to 6% of an organisations current energy spend and a further 5% for administration costs.

This means a company at the threshold of the scheme spending £500K pa on energy will have a combined additional bill of £55,000 to comply with the new legislation.

Saving money by combining energy and power

A useful article in Heating and Ventilating points to a positive response to using combined heat and power sources as retro-fit to buildings to make an immediate carbon reduction of at least 10%. With an ROI of less than 6 years and th opportunity for interest free loans adminstered by the carbon trust on behalf of the UK government it looks like a no-brainer for everyone.

Will the CRC encourage energy reduction in the public sector

The introduction of the CRC next year is intended to encourage participants to reduce energy consumption amongst the largest energy consumers by forcing them to buy carbon credits at £12 per tonne for the carbon they consume/create. It is raising some interesting comments about the usefulness and incentives that it provides. For instance, Amanda de Swarte, change manager for the London Energy Project, states: ‘The actual cost of energy is £200 to £225 per tonne. I can’t see why people would get excited about saving £12 a tonne when they haven’t been particularly excited about saving £200.’

De Swarte also cautioned that a bad strategy in buying and selling carbon credits could result in a council losing money. She recommended that directors tackle CO2 by concentrating first on reducing energy usage. When one considers however, that around 50% of a typical council’s energy bill comes from schools, it’s easy to see how a bad winter can throw the best laid calculations out.