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Preparing for the CRC Energy Efficiency Scheme

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21st Oct 2009
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Jim Green of Envos outlines what affected firms should be doing to prepare for the new Carbon Reduction Commitment scheme.

The Carbon Reduction Commitment Energy Efficiency Scheme (CRC Energy Efficiency Scheme) comes into effect from April 2010, and will herald a major change in the way that many UK businesses use and think about energy. The changes are likely to be just the start of an ongoing process to incentivise companies to reduce their carbon footprints, and penalise those who fail to take action.

The initiative builds on the EU Emissions Trading Scheme, which affects the largest energy users and requires them to buy allowances to produce emissions beyond a base level. The new CRC Energy Efficiency Scheme rolls out the concept of purchasing allowances to cover less energy intensive sectors, such as supermarkets and hotel chains, office-based service organisations and government departments and local authorities.

The scheme will require around 5,000 UK organisations which consume more than 6,000 MWh/year of electricity (amounting to an electricity bill of around £500,000 a year) to register their annual energy usage. Affected organisations have between April and September 2010 to do so or they will incur a fine of £5,000 plus £500 per day for each further delay in registration.

Changes announced recently (early October 2009) now mean that in 2010 – 2011 companies will only have to report their level of energy usage. However, in subsequent years they will be required to buy carbon allowances to permit them to use the required level of energy. Initially these allowances will be sold at a fixed price of £12 per CO2 tonne but from April 2013 allowances will be allocated through auctions and the quantity of allowances available will diminish over time.

Penalties and bonuses
The rub is that companies not only have to buy allowances to cover energy consumption but will also have their efforts to cut energy use/carbon footprints ranked in a league table. The organisations in the top 10% of the table, using the highest amount of energy, will have to pay a penalty and the organisations in the bottom half of the table, which show the greatest reduction in carbon output/ energy usage will receive a bonus.

The scheme aims to be cost neutral by redistributing the funds raised through the sale of carbon allowances to the organisations taking part in the scheme, with payments weighted to reward those taking action to cut energy use.

While the scheme will initially only affect organisations consuming 6,000 MWh/year of electricity, the expectation is the scope of the programme will expand over time to include more organisations which consume lower levels of energy.

Get ready
The onus for demonstrating a reduction on energy usage will fall to the organisations concerned with audits (undertaken by the Department of Energy and Climate Change) ensuring firms are providing accurate information. The first step all affected organisations should take is to ensure they have effective energy use measurement and evaluation processes and systems in place.

This equally applies to organisations consuming lower levels of energy, with many commentators predicting that firms in the 3,000 – 6,000 MWh energy consumption category could find themselves subject to an enlarged CRC Energy Efficiency Scheme in the future.

Early action to install SMART meters and other monitoring equipment will enable organisations to identify where efficiency savings and investments could be made, and will also count towards firms qualifying for the Early Action Metric which triggers a bonus payment and promotion up the league table for those companies taking prompt action to cut energy use.

Future implications
The latest announcement from the government in October also highlighted that organisations investing in onsite renewable energy initiatives (such as solar panels, wind turbines or geothermal heating systems) will get a better rating within the league tables.

Given the CRC Energy Efficiency Scheme aims to cut carbon emissions, early action to reduce energy usage and prove the saving will benefit those groups that are about to register and will stand smaller companies in good stead for any anticipated expansion of the programme.

Even small steps such as installing energy efficient light bulbs, improving insulation in buildings and turning down thermostats will benefit organisations and help them demonstrate they are acting to cut energy use and emissions.

In reality, what impacts on the larger organisations today is likely to affect smaller organisations tomorrow. Early action to measure and reduce energy consumption is likely to pay dividends long term. And in the meantime, it will reduce operating costs and enable organisations to underscore their environmental credentials.

Jim Green is technical director at environmental compliance consultancy Envos.

 

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By the gates of delirium
28th Oct 2009 15:18

It's sad that

this article has been read 397 times but one on the same email on capital vs revenue 3500 times. It shows how much we think in general about these types of issues!

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