Changes to CRC - how will it impact you?
Background
The Government consulted on its proposals for the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) legislation between March and June this year. It has now published its response to this consultation and explained the reasons for each of the changes it intends to make. There are no further planned major policy updates or consultations - the position as it now stands will be how the CRC is implemented. This note describes the main policy changes and their implications for organisations covered by the CRC. The next step is that the Environment Agency will write to all potential participants explaining the registration process in more detail.
Key policy changes and their implications
Policy change | Implications for participants | Action needed |
| Significant Group Undertakings (formerly Principal Subsidiaries) can now participate in their own right, provided this disaggregation does not leave a part of the group below the qualification threshold. | Subsidiaries that operate as distinct and separate brands can now approach the CRC entirely separately, avoiding the complexity of cooperating on the data, financials and trading aspects. | Such organisations have an important decision to make – there will be cost, potential revenue and brand/ PR pros and cons of participating separately or together. This needs to be examined sooner rather than later. Overall, this is likely to increase the number of participants. |
| The Carbon Trust Standard (CTS) or equivalents will now be accepted for the early action metric - guidelines on what counts as equivalent have been prepared. | There is currently no clear equivalent, but one may emerge, giving participants a choice of how they satisfy this metric. | Participants should keep a careful eye on this over the next couple of months to see if alternatives do emerge quickly enough to be useful to them, then to decide which way to go. |
| The first year of the scheme will now be a reporting only year - there will be no requirement to buy allowances for 2010/11. | This reduces the cash flow implications as there will be only a single sale in April 2011. This reduces the case for getting remotely read automatic meter reading meters (AMRs), CTS or equivalent as previously these would count for all of the maximum bonus for a double recycle and it will now only be a single recycle. It reduces the overall value at risk for the introductory phase. | Participants need to consider how this change affects their strategy and tactics for the CRC during its first phase. This is likely to lead to a change in priorities for many organisations in terms of exactly what they would do to perform well in the scheme. |
| The weighting of the early action metric in the second year (ie second league table) has changed. It will now be 40% early action, 45% absolute emissions reduction and 15% growth metric. | This strengthens the case for getting AMR, CTS or equivalents, but not enough to outweigh the previous point. | Participants need to consider how this change affects their strategy and tactics for the CRC during its first phase. |
| The definition of franchises has been updated. | This means multiple different franchise operations on the same site will not be counted as franchisees for CRC. Instead, responsibility will lie with the customer of the supply. This avoids the complexity and costs of submetering or estimating consumption for units within a larger site. | Participants who operate multiple franchise agreements from single sites need to consider whether the updated definition changes who will take responsibility for their emissions. |
| Government will now publish details of renewables-related emissions savings alongside the league table, but still won't treat them as carbon free if Renewables Obligation Certificates (ROCs) or Feed-in Tariffs (FITs) are claimed. | This gives some recognition to those investing in on-site renewables. | There is some PR benefit for organisations with renewables that have ROCs/FITs. Now that this debate has been closed, organisations can get on with investigating options and calculating what actions to take to reduce carbon as part of a holistic strategy. The economic analysis could be complex; it will involve attempting to directly compare energy efficiency and energy supply/renewables actions that sit within or outside the various mechanisms including the CRC. Marginal abatement cost curve (MACC) analysis is the most effective way to determine this. |
| There will now be a legal obligation on franchisees to assist their franchisor in complying. | For franchisors this means greater leverage to get the data they will need to comply. | Franchisors must set up the data collecting and management systems necessary to comply with the scheme and engage proactively with their franchisees. |
| There will now be a legal obligation on tenants to cooperate with landlords for compliance. | Greater leverage for landlords to influence tenants, but it is not clear what this means in practice. | Landlords are more likely to use green leases. |
| Organisations that exceed the qualification threshold may use approximation techniques to estimate the half-hourly consumption over the threshold when they register. | Potentially reduced admin effort for organisations with complex network of half hourly meters, especially AMR. | Less staff time required. |
| Climate Change Agreements (CCA) and EU Emissions Trading Scheme (EU ETS) data for the Footprint report can be based on the compliance years in those schemes, not adjusted for CRC years. | Reduced admin burden for any organisation in CCA or EU ETS. | Less staff time required. |
| Businesses claiming exemption on CCA grounds can do this at the registration phase. | Reduced admin burden that would otherwise be involved in preparing separate Footprint report. | Less staff time required. |
| The basis for emissions responsibility has changed so that the end customer is responsible in cases of third party purchasing, such as facilities management (FM) arrangements. | Less responsibility for FM companies, but organisations that are customers to those arrangements can't escape CRC. | More staff time required. Participants that are party to energy supply arrangements affected by this change need to review their compliance strategy. |
| Transport exemption changed, including new definition of excluded activities. | The inclusion of all off-road vehicles makes it clearer whether operators in quarries, mines, etc will have to include their mobile machinery. | Participants with on-site transport equipment need to review their CRC coverage. |
| There is a new fourth league table tick-box question relating to employee engagement. | Organisations looking to accelerate results and gain PR benefits should look at how to satisfy this. | Activities such as training and employee clubs are now being encouraged by the CRC. Behaviour change is often one of the most cost effective actions that an organisation can take to reduce carbon (as shown in MACCs). This league table recognition provides a further incentive, if one is needed, to help make the case within an organisation. |
| There have been some changes to penalties, fees and charges as outlined in the policy response | Costs of non-compliance for participants has changed. | Costs of compliance need to be reassessed. |