Why CRC?

• Existing mandatory carbon reduction initiatives such as EU ETS, CCAs and IPPC focus on energy intensive organisations. CRC targets a different group of organisations reflecting a desire to balance the UK’s climate change abatement effort across the economy.
• Analysis by the Carbon Trust identified that the CRC sector was failing to take up cost-effective abatement opportunity, due to a variety of barriers – including lack of awareness, regulatory failures, split incentives. This led to the recommendation for a cap and trade scheme to improve take-up of available opportunity.
• By driving on energy efficiency, the CRC can deliver emissions reductions cost-effectively, saving business and public sector organisations money, and enabling green growth – yielding a positive net present value to participants of £755m.
• Further independent analysis demonstrated that CRC compared favourably to other policy approaches in terms of potential coverage, certainty of emissions reductions, administration costs, and overall NPV.
• Progressive UK businesses and public sector bodies – particularly the retail sector (e.g. Tesco, Sainsbury’s, Alliance Boots) and leading local authorities – have actively helped to push the agenda forward, publicly voicing their backing for the scheme, and working closely with Government on policy development. This is likely to have been driven by desire to level the playing field, and decrease regulatory uncertainty. Industry groups such as the Corporate Leaders Group, the UK Business Council for Sustainable Energy and the Institutional Investor Group on Climate Change played a key role in highlighting the need for robust action in the sector.

Key features of the scheme

• The CRC will target emissions from energy use by large organisations. Likely qualifying organisations include large businesses, retailers, banks, landlords, supermarkets, hotel chains, restaurant chains, water companies, government departments, large local authorities, universities etc.
• Qualification for the scheme will be determined by half-hourly electricity consumption. All organisations that, in 2008, have at least one half-hourly meter settled on the half-hourly market will have to monitor their electricity consumption for that year and take action. Those whose annual half-hourly metered electricity consumption is lower than 6000 MWh will have to disclose information to the administrator. Those whose annual half-hourly metered electricity use is above 6,000MWh will have to register and participate in the trading scheme. (A useful proxy for this threshold is organisations with an annual electricity bill of over £500,000.)
• The CRC is designed to be as simple as possible and “light touch” in terms of administrative requirements. Organisations will carry out self-certification of their emissions, which will then be backed up by an independent risk based audit regime (as opposed to the administratively intensive EU ETS system of 3rd party verification of all sites).
• The concept of emissions trading will be new to many organisations captured by the scheme. To allow participants to adjust to a trading scheme, and to enable Government to establish accurate data on emissions across the target sector, CRC will feature a 3 year introductory phase. In this phase, there will be a simple fixed price annual sale of allowances where there will be no cap on the total number of allowances available. Participants must buy allowances equivalent to their annual emissions, which they must then surrender along with an annual report at the end of the year.
• Following the introductory phase, 100% of CRC allowances will be purchased by means of an annual online auction. The volume of allowances available will be fixed according to the Government-set cap and participants will bid for the number of allowances they require according to their projected emissions and cost of abatement options.
• CRC will be broadly revenue neutral to the Exchequer. Sale/auction revenue will be recycled back to participants by means of a direct annual payment proportional to 2010 emissions, with a bonus/penalty depending on an organisations position in the performance CRC league table. This provides an additional incentive to organisations to reduce emissions.
• The scheme will feature a performance league table – included in the scheme as a means of leveraging corporate social responsibility drivers. Relative performance against other participants in the scheme will be calculated on the basis of three weighted metrics: (1) Absolute metric - Reduction in absolute emissions (60%) (2) Growth metric - emissions per unit of turnover or revenue expenditure (20%) (3) Early Action metric - in the introductory phase only, a measure of ‘early action’ (20%).
• The CRC focuses on those emissions not covered by the UK’s Climate Change Agreements (CCAs) and outside the direct emissions covered by the EU Emissions Trading Scheme (EU ETS). In addition, firms with more than 25% of their energy use emissions in CCAs would be completely exempt.

Further information and policy background can be found here

Timeline of CRC

• 2008 – Qualification year
• Early 2009 – Consultation on draft CRC Regulations
• Autumn 2009 – Regulations are expected to come into force
• April 2010* – Introductory phase begins
• April 2011 – First sale of allowances
• October 2011 – First performance league table published and first recycling payment to participants
• April 2013 – Capped phase begins

*From the start of the scheme in 2010, the CRC year will be consistent with the financial year (April-March).

Contacts

• Philip Douglas (Head of Branch)
  Email: philip.douglas@defra.gsi.gov.uk
  Tel: +44 (0)207 238 4717
• Chiara Sorisi (Senior Policy Advisor)
  Email: chiara.sorisi@defra.gsi.gov.uk
  Tel: +44 (0)207 238 3174