18 April 2011 | Tierney Smith
Carbon, Energy, Europe

 

The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a UK wide, mandatory scheme to improve energy efficiency and cut CO2 emissions in large public and private sector organisations.

While the scheme accounts for 10 per cent of UK emissions, and therefore could contribute towards significantly lower emissions, it has faced much criticism, for its complexity, its set-up and its overlap with other schemes that affect UK companies.

Climate Action examines the scheme, and the proposed changes currently being considered by the Government to see if the CRC can really live up to it’s potential.

What is the CRC?

The Carbon Reduction Commitment was introduced by the Government in April 2010, as a way of encouraging large, emitting, but non-energy intensive companies to lower their carbon emissions by improved energy efficiency.

It covers both public and private sector organisation – 10 per cent of UK emissions – and features an annual performance league table that ranks participants on their energy efficiency.

Together with reputational considerations, the scheme encourages organisations to develop energy management strategies that promote a better understanding of energy usage. Participating organisations will have to monitor their emissions and purchase allowances, initially sold by the government, for each tonne of CO2 they emit. The more CO2 an organisation emits, the more allowances it has to purchase.

Under the initial plans, revenue from the CRC was to be recycled back to participants. The higher a company or organisation was on the CRC league table, the more recycled revenue it would receive.

Who qualifies for the CRC?

Organisations qualify as a CRC participant based on their half-hourly electricity usage. This can include supermarkets, water companies, banks, local authorities, including state-funded schools and all central government departments.

For an organisation to qualify electricity consumption has to be over 6,000 megawatt-hours once energy used for transport and domestic accommodation has been excluded. A summary of steps to determine whether an organisation qualifies can be found on the Environment Agency website.

An organisation must act as one entity, and include all subsidiaries and parts. The highest parent organisation will be the ‘primary member’ and carry out administrative actions, while other groups provide information about their energy use to the primary member.

If the ‘primary member’ is based outside of the UK, the group must nominate a UK subsidiary to represent the whole organisation.

The scheme should not include those companies that are already covered by the Climate Change Agreements (CCAs) or the EU Emissions Trading System (EU ETS).

October 2010 consultation

As part of the October 2010 spending review, the Government initiated a review of the CRC in order to simplify it and reduce the burden on businesses, with the first allowance sales from 2011/12 emissions now taking place in 2012.

They are responding to a call from businesses saying the scheme was too complicated, and did not incentivise action.

While one consultation paper looked at policy overlaps; the scheme having come under criticism for overlapping with the EU ETS and the Climate Change Levy, and the other four documents looked in more detail at the complexities of the scheme.

In March’s budget the price of CO2 under the scheme was announced at £12 per tonne.

The Government also announced that the sale of CRC allowances (totalling £1 billion each year by 2014-15) will be used to support public finances, including spending on the environment, rather than recycled back to participants who lower emissions.

Concerns and complaints

In their report entitled ‘Maximising the Efficiency of the CRC’, Carbon Retirement look specifically at the overlap between the CRC and the EU ETS, and aim to offer solutions for the CRC to get the most effective scheme possible. Meanwhile, the CBI look more at the wider implications of the scheme, in particular the removal of the revenue recycling incentive, in their report ‘Back to the Answer, making the CRC work’.

Carbon Retirement – Maximising Efficiency

The Carbon Retirement argues that for the most part, the CRC does not provide an effective framework in which emissions reductions can be created. It believes the double path of the CRC and the EU ETS should be more closely linked, ensuring savings from one are not transferred to increases in other sectors.

The report, 'Maximising the Efficiency of the CRC' said: “If the CRC succeeds in its goal of incentivising participants to reduce their electricity use, UK electricity consumption will go down, and electricity production will therefore go down. As a consequence, power companies will need to buy fewer allowances to cover their emissions. This will make more allowances available to other sectors – cement and steel or energy companies for example – across the rest of the Europe.

“So although CRC participants will have worked hard to reduce their electricity use, no net reduction in emissions will result from their actions. Allowances that are left unused by UK power generators will be used instead by other companies; the emissions will be displaced, not eliminated.”

They calculated that between 2011 and 2020, as much as 90 million tonnes of savings from the CRC participants are expected to achieve could be emitted by heavy industry in Europe.

The Carbon Retirement’s two solutions:
1. Suggest that the government retire – remove from the EU ETS – allowances to match the CRC participants’ reductions. They believe this would remove the allowances altogether and would resulting in real emissions reductions.

2. Rather than buy CRC permits for their emissions, the Government retire EU allowances with the money instead. This way they could sell non-energy intensive companies EU allowances, which they could ‘cancel’ at the end of the year, removing emissions from the market.

To see the full report, click here.

The CBI – Making the CRC work

Tom Leveridge, Business Environment Directorate at the CBI, released a report ‘Back to the answer: Making the CRC work’ in which the Government’s proposals to simplify the CRC have been addressed.

One of the CBI’s major concerns was that by removing the revenue recycling incentive, the scheme would end up as little more than a tax on businesses who emit.

The report said: “The scheme is now, in all but name, a tax designed to generate revenue for the Government. The Government has estimated that the benefit to the public purse of removing the recycling revenue from the CRC will be £175 million, in 2011-12, rising to £1,020 million in 2014-15. While the CBI, wholly recognise the need to support the public purse, the CRC was never designed to act in this way.”

They believe that the original principles of the CRC should be upheld, and that the Government must look at who is covered by which reduction policy, streamlining the process and removing policy overlap. They also believe the data for all CRC emissions coverage should be available to stakeholders.

The report concluded that unless the scheme can be taken back to its original, core principles, a new, simplified mechanism must be found to replace it.

To see the full report, click here.

While trying to simplify scheme, the Government has continued to raise questions about its layout and the principles. While the scheme has the potential to reduce emissions from some of the UK’s largest companies (responsible for 10 per cent of all emissions) many concerns are still being voiced about its ability to really drive, effective change.

 

Image 1: Eric Schmuttenmaer | flickr

Image 2: Elliot Brown | flickr

Image 3: Jon Robson | flickr

Image 4: Centre for Neighbourhood Technology | flickr
 

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