The new mandatory emissions trading scheme is giving carbon cutting a clear place on company agendas, Rachel Calton discovers
With academics pulling the plug on each other’s findings, the non-believer media at the throat of the green crusaders, and too-hip-to-be-hippies having their pictures taken at climate camp, carbon reduction can seem like an arena with far more highfalutin players than on the ground policies. Unless you are a power station, or steel works, it can seem like an up in the air, or voluntary issue: companies can take up the cause, or bury their head in the sand.
The Carbon Reduction Commitment (CRC) energy efficiency scheme, coming into force this month, effecting around 20,000 UK public and private energy users (property owners and occupiers), puts a tangible, quantifiable cost on carbon consumption, designed to send the issue straight to boardroom level. Organisations that qualify can no longer pick and chose as to whether to take note of energy efficiency or not. Companies should by now know whether they will be part of the scheme; the Environment Agency sent letters to the billing addresses of those likely to be effected in October, and the build-up to it has been covered closely.
As an indication, any organisation with half hourly meters for their electricity, with an energy consumption of over 30,000 MWh in the year 2008 will be required, between April 1st and September 30th this year, to register with the Environment Agency online, making a disclosure about their energy consumption (fines of £5000 can apply for failing to comply).
Those with a consumption level of 60,000 MWh or an electricity bill of more than £50,000 for the year 2008 will be required to fully participate in the scheme, that is to register (in the same period) and then report their energy consumption between April 2010 and March 2011 to the Environment Agency.
As of April 2011, they must then estimate carbon consumption for the coming year, and purchase carbon credit (at a fixed rate of £12/tCO2 in the introductory period) to cover this consumption. At the end of the year this allowance must be surrendered according to how much carbon was or was not used. Allowances can be traded with other businesses, on a secondary market, if companies are over or under their original estimate.
The scheme applies to all businesses that qualify, not already covered by the EU Trading Scheme or a registered Climate Change Agreement (CCA).
Energy used for transport is not counted as part of energy consumption, but for full participants of the scheme, everything from electricity, to gas, coal, and diesel will count. Using the information that is gathered, the Environment Agency will calculate (using a tiered metric system) and publish a public league table in October each year, of companies’ carbon cutting behaviour.
The revenue that is generated through the purchasing of carbon credit will be distributed back to the companies in October (six months after it is paid in), according to their position on the league table.
In the first year, those at the top of the table will receive a bonus of plus ten per cent of their share, while those at the bottom of the table will be penalised by receiving only 90 per cent. Rather than a carbon tax, this ‘revenue recycling’ rewards and penalises; it generates no revenue to the Treasury.
“This is an opportunity to profit from carbon cutting in an interesting and creative way that hasn’t existed before”
This introductory phase is to get organisations used to the scheme, (the policy design, piloted over the last couple of years, is built on the EU Emissions Trading Scheme).
Come April 2013, the total carbon allowances available under the scheme will be capped and traded by the government, potentially pushing the price per tonne of CO2 allowance up, by a considerable amount (some models suggest the sums will come to represent 20-50% of utility bills by 2020). The weighting of the revenue recycling will also begin to raise the stakes, come 2013, when the reward/penalty percentages will rise by ten per cent, year on year, hitting fifty per cent in year five.
“It’s a chance for pro-active companies to take revenue directly from their competitors, as well as top them in the league table,” explains Georgia Elliot-Smith, chartered environmentalist, and head sustainability consultant at Appleyards. “For many companies, with ethical investors or a visible public profile, the reputational incentive may be more important than the financial one. Now everyone, from stakeholders to the public, will be in the position to ask questions about carbon credentials.”
One of the complications arising with the scheme in the case of tenants and landlords is who CRC responsibilities fall with (it’s quite simply, whoever’s name is on the energy bill). Where new contracts are being made, CRC is often being passed onto FM companies, which, Elliot-Smith reckons, is a short-term outlook.
“This is an exciting opportunity to profit from carbon cutting in an interesting and creative way that hasn’t existed before,” she explains.
By 2020 the government estimates potential savings instigated by the scheme to be £1 billion a year.
Registering and information disclosure for the scheme is carried out online. The process can be saved at any point if more information needs to be gathered – a clear user-guide is available on the Environment Agency website, where a dedicated (email only) customer response desk exists. However, the various administering, monitoring, sorting of responsibility, ‘weighting’ of the league table, and investing/trading expertise required by the scheme makes it by nature a complex one to implement, or to make clear cost-benefit analyses from, at the outset.
The best advice, Elliot-Smith explains, is to get up to speed with the long-term implications of the scheme, and enter into it with a long-term carbon management strategy devised through a joined-up approach across the company.
Those who were at the workshops run by the Environment Agency in the early stages noted that some companies were not sure as to where the scheme should be dealt with in the organisational structure, as it will touch on marketing, financial, corporate responsibility, facility management, and energy management issues (renewable energy used by a company will be included separately on the league table). While some companies feel they have all the resources to take on board the new initiative and make it work in a way that is profitable to them, there are a wealth of sustainability consultants, lawyers, energy and financial experts gemmed up on the regulations, ready to supply companies with implementation advice.
The ‘Early Action Metric’, Elliot-Smith points out, gets 100% weighting in the first year. Those who can prove by end of December this year that they either already have Carbon Trading Standard accreditation, or, by March 2011, have voluntarily installed Automatic Meter Reading (AMR), can help secure themselves a place at the top of the 2011 league table. “For those who have made efforts over the last three years to cut carbon emissions by around 2-2.5% per year, this measure may well be worth taking. The fee for a Carbon Trust assessment, around £5,000, is a small outlay in terms of long term strategy.
“Doing nothing until the first reports are submitted in 2011 guarantees you sink to the bottom on the table in the first year, and puts you on the back foot for the first three,” Elliot-Smith explains.
The scheme fits into a much bigger strategy, for example, to have zero-carbon new homes by 2016, to link higher education funding to carbon performance, and to see an 80% cut in emissions by 2050. These are all linked to the Climate Change Bill, passed in 2008, giving ministers the power to introduce the emission reduction measures they see necessary to hit goals.
Before, emissions trading schemes applied only to energy-intensive organisations; CRC signifies that threshold is being lowered, whilst aspirations and targets, Elliot-Smith predicts, are only going to get “higher and tougher”.
Companies not fully participating, but disclosing energy consumption, means the government can build a broad picture of where future cuts could best be made. CRC policy has been built to drive good carbon behaviour, making it more profitable to reduce consumption than to up carbon purchase allowance. Before, however considerable energy costs were, they often reflected a relatively small percentage of companies’ outgoings and were overlooked at a senior strategy level.
The new policy is bent on forcing the issue up the management agenda, creating more immediate returns on action taken on carbon reduction, and making the carbon behaviour of large companies fully transparent.
If putting a rising price on carbon is something the government is this ready to push, businesses may have to pull their heads out of the sand, sharpish.