CRC energy efficiency scheme - a business opportunity

10 June, 2010

The UK has made a commitment to reduce greenhouse gas emissions by at least 80% from 1990 levels by 2050. This is a tough target – which will require significant changes in the way businesses and the public sector operate.

The CRC Energy Efficiency Scheme is a new energy saving and carbon reduction scheme designed by the Government to ensure that large organisations, whether public or private, do their bit. It could reduce carbon dioxide (CO2) emissions by approximately 11.6million tonnes per year by 2020 - the equivalent to taking roughly four million cars off the road.

The scheme is also expected to save organisations money through reduced energy bills – benefiting the economy by more than £1 billion a year by 2020, making it a valuable business opportunity.

From 1st April 2010, large private and public sector organisations that had a half hourly meter during 2008 must register under the scheme. Around 20,000 organisations need to register for the scheme with the Environment Agency before the 30th September 2010. About 5,000 of these will qualify as full participants in the scheme (see below).

Compliance with the CRC Energy Efficiency Scheme will require financial, audit and carbon management adjustments to be made by participating organisations. By planning and preparing for these now, participating organisations can not only make sure they fulfil their legal duty, but that they can make the most of the opportunities offered by the scheme in cutting energy bills, reducing upfront CRC payments, increasing payouts from the scheme and enhancing their reputation.

Who qualifies for the scheme?
If your organisation had a half-hourly electricity meter and consumed at least 6,000 mega-watt-hours of electricity through all of its meters during 2008 (equivalent to an electricity bill of around £500,000), then you will need to participate in the scheme by monitoring energy consumption and purchasing allowances.

However, if your organisation has a half-hourly meter and you consumed less than this amount of electricity you will be an Information Declarer. This means that all you will need to do is identify your half-hourly meters and you will not have to purchase allowances.

Whilst the Environment Agency’s aim is not to prosecute organisations, we do have the power to impose serious penalties for eligible organisations that do not register with CRC by the end of the registration period. They may be handed a fixed fine of £5,000, then for each subsequent working day they fail to register, they will be fined an additional £500 per day, for a maximum of 80 working days, together with a publication of non-compliance. It is therefore essential that qualifying organisations register before 30th September 2010.

Understanding CRC
It’s important to understand how CRC will affect your organisation. You will need to decide who will be responsible for the ongoing data collection and CRC reporting. In most organisations, the day-to-day CRC management basis would be dealt with by an energy or facilities manager.

You will also need to make sure all the preparation has been made so that the right data is collected. Under CRC, you will need to report all of your emissions in the first year. After that, you will need to monitor your fuel and energy use as well as reporting your CRC emissions to the Environment Agency at the end of each compliance year.

Participants successful in reducing energy consumption will not only save money on energy bills. They will also receive financial and reputational incentives. These savings should be well in excess of the costs of participating in the scheme.

Reducing energy use
There are many steps organisations can take to cut energy use. Simple actions such as turning off lights and unnecessary equipment are important, but there are also more significant changes that can be made to cut energy use on a larger scale.

It’s important to look at where most of your organisation’s energy is used. For example, heating and hot water can account for up to 60 per cent of your organisation’s total energy costs, while lighting can account for around 25% of electricity use. However, steps can be made to make heating and lighting more energy efficient. It can be simple things such as ensuring that buildings are not overheated or heated when not in use, as well as bigger investments such as installing more efficient boilers.

You can also explore energy efficiency technologies such as voltage optimisation, which moderates electricity use. Other improvements to improve energy efficiency include adequate insulation, motion sensored lighting and de-stratification fans, which circulate the air in rooms with tall ceilings to prevent the warm air at ceiling level going to waste. While some improvements may require significant upfront costs, in the long term these costs will be outweighed by substantial reductions in energy bills.

How the CRC Energy Efficiency Scheme will reduce emissions
The CRC Energy Efficiency Scheme will be phased in over three years. Once fully operational, CRC Participants (not Information Declarers) will be required to monitor their emissions and purchase allowances for each tonne of CO2 they emit at the beginning of each reporting year.

The scheme is revenue neutral overall meaning all revenue raised from selling allowances is re-distributed back to Participants according to their position in the annual Performance League Table. As a consequence, reducing carbon emissions means Participants will save money on their energy bill, will purchase fewer allowances and receive greater financial reward through revenue recycling.

Participants that perform well will also be placed higher in the Performance League Table, which will be published annually by the Environment Agency. In an age of eco-conscious public, being higher up the league table will have the added benefit of enhancing the organisation’s reputation.

Take action now
If you believe your organisation is likely to fall under the CRC Energy Efficiency Scheme, the first step you need to take is to identify your highest parent organisation, as that’s the body responsible for registering for CRC on behalf of the entire organisation.

Before registering, determine if your organisation qualifies for CRC as a Participant or Information Declarer. This will require taking account of all half hourly meters in your organisation and their total electricity consumption for the calendar year 2008. You should also find out what emissions are excluded from CRC and determine if your organisation, or part of it, qualifies for an exemption due to a Climate Change Agreement. If you have an exemption, you must still register with the Environment Agency.

Once you know if you are a Participant or Information Declarer, you will need the following information to register for the scheme: your registration address, the names of senior officers and contact details along with the half-hourly meters your organisation has and those meters’ electricity consumption. Making sure this information is easily available and getting all the data in order beforehand will make registration simpler and quicker.

If you are a Participant, you will also need to consider the financial commitment your organisation will have to make in order to purchase allowances to emit carbon. During the CRC’s introductory phase (2011/2012), one allowance, which corresponds to one tonne of CO2, will cost £12. However, after the three-year introductory phase, the total number of allowances will be capped, and these allowances will be auctioned rather than sold at a fixed price. As a result, the cost of purchasing allowances will become higher, making it financially more attractive for participating organisations to reduce their CO2 emissions by introducing energy saving measures.

Time to take charge of climate change
The CRC Energy Efficiency Scheme gives financial and reputation incentives to businesses and public sector organisations to reduce their CO2 emission. However, the real opportunity lies in the financial savings to be made by improving energy efficiency.

Organisations have the choice between viewing CRC as a benefit or a cost. CRC can be a cost on poor energy management or a financial incentive for low carbon leadership. The Environment Agency hopes other organisations will follow our lead and embrace their role in helping to fight climate change.

Tony Grayling is the Head of Climate Change& Sustainable Development at the Environment Agency, and a leading authority on the CRC Energy Efficiency Scheme.

For more information about the CRC Energy Efficiency Scheme and to download the CRC Registration Guidance visit www.environment-agency.gov.uk/crc. For assistance or queries about the scheme contact the CRC dedicated helpdesk at crchelp@environment-agency.gov.uk.