Public and Commercial Services Union

Update - March 2011 Changes to the CRC energy efficiency scheme were announced in the Comprehensive Spending Review (October 2010) to simplify the scheme and delay the first sale of allowances until 2012.  Revenues from allowance sales (£1 billion a year by 2014-15) will be used to support the public finances, including spending on the environment, rather than recycled back to participants.

Following a consultation at the end of 2010, amendments to the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme were agreed in February Their main purpose is to extend the first phase of the CRC by one year to the end of 2013/14. They also delay the start of scheme’s second, cap-and-trade, phase by two years to 2013/14 and emissions trading to 2014/15 and they revoke the requirement for organisations that are not full participants to continue disclosing information on energy use. The government is currently seeking feedback on how to simplify the scheme. Further updates will be posted here.

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Overview

The Carbon Reduction Commitment (CRC), now known as the CRC Energy Efficiency Scheme, is a UK government mandatory emissions trading scheme. The aim of the scheme, which covers around 20,000 of the largest public and private sector ‘low-energy intensive’ organisations, including government departments and agencies, is to encourage energy efficiency.

The scheme, which came into effect in April 2010 with a three-year introductory phase,  is part of the government’s strategy for meeting UK targets for emissions reductions under the Climate Change Act 2008.

Like other emissions trading schemes, the CRC scheme provides a financial incentive to reduce emissions by putting a price on carbon. Participants have to purchase allowances equivalent to their emissions each year - the more CO2 they emit, the more allowances they have to buy. Overall emissions are reduced by placing a cap on the total number of allowances that are available.

The scheme will work alongside the existing European Union Emissions Trading Scheme (EU ETS) and Climate Change Agreements (CCAs) which cover energy intensive sectors of the economy.

CRC aims to achieve a saving in carbon emissions of at least 4 million tonnes per year by 2020. As organisations will have to monitor their emissions, the scheme should encourage the development of energy management strategies, improved understanding and awareness of energy consumption and behavioural change.

Participants will benefit from savings on energy bills achieved through energy efficiency measures. The Office of Government Commerce (OGC) estimates, however, that in the first year of the scheme the risk/benefit to government departments under CRC could range from £3b benefit to £3b cost.

In addition to financial incentives under the scheme, participants will be ranked according to their performance in a league table which will be available for public scrutiny. There are penalties for failing to comply with the scheme and for poor performance in the league table.

Who participates?

CRC covers around 20,000 large organisations (all those on half-hourly electricity meters who must initially report to the scheme by ) in both the public and private sectors including central government departments, local authorities, hospitals, prisons, schools, universities, shops, hotels and banks.

Organisations will be only be required to fully participate if they have used over 6,000 megawatt-hours (MWh) of half-hourly metered electricity during the 2008 calendar year. At today's prices, this is roughly equivalent to spending around £500,000 per year on electricity – expected to be around 5,000 organisations.

Those whose annual energy supply is less than 6,000 MWh do not have to participate in CRC, though they will have to make an information disclosure.

All UK government departments and executive agencies are required to participate regardless of whether they meet the above qualification criteria. NDPBs are only required to participate if they meet the qualification criteria.

Qualifying organisations have to comply with the scheme or face financial and other penalties.

How the scheme works

1. Organisations participating in the scheme must first of all calculate their CO2 emissions - this is based on energy use over the ‘footprint year’ (for the introductory phase this will be the 2010-2011 financial year - see ‘how footprint emissions are worked out’ below).

2. Participants in the scheme then have to produce a ‘footprint report’ identifying their total CRC emissions. The first footprint report must be submitted by the end of July 2011 for the 2010 calendar year. If a participating organisation fails to produce a footprint report by the deadline it will have to pay a fine of £5,000.

3. Once participating organisations have calculated their emissions they can decide how many allowances they need to buy. The basic principles for the CRC Energy Efficiency Scheme are:

• organisations are required to surrender one allowance for each tonne of CO2 they emit during the reporting year
• allowances are sold by government at the start of each year; organisations should buy as many as they think they will need to cover their CRC emissions
• if an organisation makes efficiency savings and reduces the amount of energy it uses it will need to buy and surrender fewer allowances, so reducing not only the costs of the scheme but cutting its energy bills too
• all revenue raised through the sale of allowances will be ‘recycled’ to participants. A proportion of this is allocated to organisations according to their relative performance in the league table.

If an organisation needs to purchase additional allowances because it exceeds its emissions targets, it can do this either through the secondary market (other CRC participants and traders) or via the ‘safety valve’ (asking for extra allowances throughout the year – this to protect against the price of allowances becoming too high).

Government will sell allowances annually, during a month-long sale period at the start of each year. Only CRC participants will be allowed to buy allowances during this period and it is up to each organisation to decide how many allowances it wishes to purchase.

During the three year introductory phase allowances will be sold to participants at a fixed price of £12 per tCO2. There is no limit to the total number of allowances that can be bought. There is no sale of allowances in the first year; the first sale takes place in April 2011 when participating organisations will buy allowance for the 2012 financial year.

After the introductory phase, the annual sale of allowances will be conducted via a closed auction to CRC scheme participants. If an organisation has more allowances than it needs during a year it can either sell some of the allowances through the secondary market or bank them for future use.

4. An annual report of actual emissions must be produced by the end of July (in the first year, 29 July 2011). A corresponding number of allowances must be surrendered in respect of the reporting year ending the previous March – for example, if an organisation reports 1,000 tCO2, it must surrender 1,000 allowances. If an organisation fails to submit an annual report by the deadline it will incur a £5,000 fine.

Performance league table

At the end of each year, information will be gathered from the annual reports of all CRC scheme participants and used to compare performance of how successful organisations have been in reducing emissions. The comparative performance will be published as a league table. An organisation can improve its chances of doing well in the league table if it:

• Installs automatic meter readers (AMR); and
• Attains the Carbon Trust Standard (or recognised equivalent accreditation) which recognises organisations that are “measuring, managing and reducing carbon use” and certifies that an organisation has genuinely reduced its carbon footprint and is committed to making further year-on-year reductions. To achieve certification against the standard an organisation must measure its GHG emissions, show good carbon management performance and be able to show emission reductions over the last year.

The league table will be published after the end of each annual reporting year on the DECC website.

Voluntary disclosure - employee engagement

Alongside the league table, information will be published about other issues that indicate organisational commitment to carbon reduction. Organisations are asked to provide information about these issues via tick-boxes when submitting their annual report:

1. Does your organisation disclose long-term carbon emission reduction targets, which cover the majority of your CRC emissions, in its annual reporting?
2. Does your organisation disclose performance against these emissions targets in its annual reporting?
3. Does your organisation name a director with management responsibility for overseeing carbon performance in its annual reporting?
4. Does your organisation actively engage with its employees to establish means of reducing energy usage?

Participating organisations can tick the employee engagement box if they meet at least one of the following criteria:

• energy management training is offered to the majority of employees in the organisation
• the organisation has active employee working groups on energy management, which report to senior management, and take forward initiatives to reduce the organisation’s carbon emissions.
• where an independent trade union is recognised for collective bargaining purposes, energy management issues are considered in these joint discussions and members actively take forward initiatives to reduce the organisation’s carbon emissions.

The tick-box on employee engagement was included after the TUC asked DECC to insert this clause and it provides an opportunity for unions to argue for consultation and involvement in the scheme.

It is not mandatory to provide this information and answers to these questions do not affect the organisation’s league table score. However the information will be made public and organisations who tick one or more of these boxes are required to keep records to support their responses.

Recycling payment

The league table is used as one of the factors to determine each organisation’s ‘recycling payment’. This is revenue recycled back to participants from the sale of allowances each year which includes a bonus for the best performers. The recycling payment is based on an organisation’s proportion of total CRC emissions in the first year of the scheme, adjusted by a bonus or penalty payment based on the organisation’s position in the league table. So if there are 5,000 participants, the best performing will receive 5,000 points and the worst performing one point.

Auditing and penalties

The CRC Energy Efficiency scheme is based on self-certification of emissions but there is an audit procedure to verify the accuracy of participants’ records and returns.

Each year a proportion (around 20%) of organisations will be audited. All organisations can expect to be audited at some point every five years and the data collected must be made available for assessment. An audit will begin with an assessment of the evidence pack provided by each participant to find out whether the data in the participant’s reports is correct and based on sufficient records. Site visits will be made where necessary.

If an organisation has reported information to the administrator incorrectly, it will have to pay a penalty of £40 for each tCO2 incorrectly reported, where there is a margin of error greater than 5%.  

If an organisation provides incorrect information in its reports it will incur a fixed fine of £5,000 where this information doesn't affect the emissions total. If the incorrect information affects an organisation’s league table position an additional fine double the amount of any financial gain from an improved performance score will be imposed.

If an organisation has failed to keep adequate records in their evidence pack, they will have to pay a penalty of £40 for each tCO2 of total emissions reported in their most recent CRC annual report.

How effective will the scheme be?

Emissions trading schemes are controversial. Friends of the Earth argues that such market-based mechanisms involve the buying and selling of an artificial commodity – the right to emit carbon dioxide – and are ineffective because they fail to drive technological innovation and mean the economy is locked into a high-carbon infrastructure instead of relying on investment and regulation to bring about change to a low-carbon economy.

These concerns are reinforced by the Committee on Climate Change, set up under the Climate Change Act, which has said that the EU ETS cannot be relied upon to deliver low-carbon investments.

The Sustainable Development Commission and the House of Commons Environmental Audit Committee have both raised concerns about the CRC Energy Efficiency Scheme in government departments and agencies and particularly how it will interact with Sustainable Operations on the Government Estate (SOGE) targets.

Noting that the baseline year (2010/11) is the same as for the SOGE interim carbon target, the SDC says departments may already have made carbon reductions to comply with this target and may therefore have difficulty in making further reductions for the CRC scheme. They will therefore have to buy allowances from other participants in the scheme and this could mean that private sector organisations may gain through the scheme’s financial incentives at the expense of the public sector (see ‘performance league table’ above).

On the other hand, organisations that have made very little effort before to look at their energy consumption will be in a position to make significant reductions and so show big savings in carbon emissions and maximize their position in the league table.

There are however benefits for unions from the CRC scheme. There is a potential for significant savings under the scheme. Organisations will need to seriously take on board the potential for energy savings and carbon reduction and take a more strategic approach to energy consumption.

The requirement to collect and record data about energy use and carbon emissions also means that this information should now be more easily available. The voluntary disclosure clause on employee engagement can be used to strengthen the case for measures such as environmental audits and setting up joint environment committees (JECs)

What reps should do
 

• Ask for energy efficiency to be on the agenda at joint environment committee/sustainability forums etc.
• Find out how the information needed to complete the 'footprint report' will be collected  - and ask for information on energy used (by workplace, site).