THE UPDATED CRC ENERGY EFFICIENCY SCHEME

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1 A Quick Guide to... THE UPDATED CRC ENERGY EFFICIENCY SCHEME Produced by CMR Consultants Limited

2 INTRODUCTION The CRC Energy Efficiency Scheme is a mandatory programme aimed at improving energy efficiency and cutting emissions in large public and private sector organisations, which account for a significant volume of UK carbon emissions. When it was introduced in 2010, the scheme had a range of reputational, behavioural and financial drivers to encourage organisations to cut energy use. Since then it has seen a number of significant changes which this Quick Guide will aim to explain.

3 WHAT IS THE CRC ENERGY EFFICIENCY SCHEME? To meet the energy and climate change targets for 2020, the UK needs to reduce its greenhouse gas emissions by a third on 1990 levels. With large public and private sector organisations being responsible for 10% of UK emissions, the previous government introduced the CRC Energy Efficiency Scheme (previously named the Carbon Reduction Commitment) in April 2010 to improve energy efficiency. The scheme has since seen a number of changes, such as the abolishment of the CRC Performance League Table (PLT) and more recently a change to the emissions reporting requirements. Going forward further changes are predicted, particularly with the introduction of Phase 2. WHO IS ELIGIBLE? Under the scheme, large organisations are required to buy allowances to cover the emissions they produce. In Phase 1 organisations are mandatory participants in the CRC if during 2008 (the qualification year) they consumed more than 6,000MWh through their half-hourly electricity meters. Some emissions linked to Climate Change Agreements (CCAs) or the EU Emissions Trading Scheme (EU ETS) may be exempt. This covers organisations spending around 500,000 per year (before CCL and VAT) on electricity through half-hourly meters. Organisations that did not meet the 6,000MWh threshold had to make an information disclosure of their half-hourly electricity consumption during the qualification year. The highest parent of an organisation is normally the primary member who must carry out administrative actions on behalf of the subsidiary members of a group. Although another group member may be nominated as the primary member, particularly if the parent is an overseas company.

4 Where an organisation has subsidiaries that would be eligible to participate in their own right were they not part of a group (known as Significant Group Undertakings), it has the choice to disaggregate these large subsidiaries to participate in the CRC separately. Phase 2 will see all organisations having to re-register for the CRC, with new qualification criteria (see below). HOW DOES THE CRC CURRENTLY WORK? The CRC currently comprises two key elements: 1. An emissions reporting requirement Participants in the CRC must measure and report on their carbon emissions annually, following a specific set of measurement rules. These have recently been updated - please see below. 2. A carbon price Since 2012 participants have had to buy allowances from the government each year to cover their emissions in the previous year e.g in 2013 an organisation must buy allowances to cover their emissions from April March This means organisations that decrease their emissions can lower their costs. When the scheme was originally designed, the money raised from the sale of carbon allowances was to be recycled back to participants. However in 2010 the Treasury decided that money raised from the sale of allowances would be retained by the government. The first sale of allowances took place in June and July 2012, these allowances were then surrendered in September last year. The next will take place in July As allowances are bought retrospectively, the 2013 sale will be for allowances to cover emissions. The cost of carbon allowances remains at 12 per tonne of CO 2 for Phase 1. Phase 1 covers emissions and emissions. In Phase 2 organisations will have to measure and report on emissions for April March The allowance cost for this period has yet to be confirmed by the Treasury (see below).

5 Participants must submit an Annual Report and order their emissions allowances each year, by the last working day in July. This report summarises the organisation s emissions in the 12 months to the end of the previous March (the Reporting Year) that are classed as CRC supplies. Participating organisations from both the private and public sectors have to comply or be penalised. Failure to provide an Annual Report or its late provision can lead to an immediate fine of 5,000 and a further fine of 500 for each subsequent day of delay, up to a maximum of 40 working days. ALLOWANCE COSTS Charging for allowances under the CRC began in This means from 1 April 2012 businesses were charged 12/t CO 2 and many businesses felt the extra burden of administration to comply with the scheme. The CRC allowance price will remain at 12/t of CO 2 in and until the end of Phase 1. Phase 2 will begin measuring and reporting emissions from April 2014, with the first Annual Report due Currently the government has not declared the allowance price for Phase 2, however legislation does appear to be being put in place that suggests allowances may be auctioned or bought on the open market in the future. This means carbon emissions used from April 2014 onwards may come at a higher cost. CHANGING RULES Last year, as announced in the Autumn Statement issued early December, the PLT was abolished. It was said to place an unnecessary burden on businesses. At the same time, the government noted a full review of the CRC will take place in 2016 and the tax element will be a high priority for removal when public finances allow. Later in December, the government also provided more detail on its simplification package and set out 46 changes that aim to create a new, leaner, simplified and refocused CRC.

6 Among the changes, the number of fuels that participants have to report on will be reduced from 29 to just 2 electricity and gas for heating. An organisation-wide 2% de-minimis threshold for gas for heating will also be introduced to protect organisations that use very little. This change means that, from a participant will not have to report on gas for the last two years of the first phase of the scheme, or purchase allowances to cover these emissions, if their gas consumption is below 2% of its electricity consumption. Other simplifications will see the removal of the 90% rule, which requires all participants to account for at least 90% of their carbon footprint emissions. The government also said it will consider how the CRC can be used to encourage on-site renewables generation. State-funded schools in England will also be completely withdrawn from the scheme. PHASE 2 Whilst the first phase of the scheme runs from April 2010 to the end March 2014, the second phase concerns 1 April 2014 to 31 March Organisations need to register for Phase 2 this year between 4 November and 31 January and the qualification criteria will relate to the year April March It is important to note that the qualification criteria for Phase 2 does differ from Phase 1. WHAT SHOULD I DO NEXT ABOUT CRC? Despite its simplification, the CRC can impose a significant cost and resource burden on your organisation. In addition, the scheme is being amended on a regular basis by the government and there appears to be no sign of this changing. Two key areas that you must consider imminently include: 1. qualifying and registering for Phase 2 this Autumn 2. developing a strategy to sustainably reduce carbon emissions as you enter Phase 2, with the potential for the price of carbon allowances increasing in the coming years. There are a number of measures and ideas you should consider: Ensure you are measuring and reporting on your energy consumption data in a format that is suitable for compiling your CRC Annual Reports for Phase 1 and Phase 2. CMR Consultants

7 can assist with this or train your team to do this internally using energy management software or a spreadsheet system. Ensure you understand the qualification criteria for Phase 2 and that you are prepared to register by the Autumn. Again, energy consultants, like CMR Consultants, can help take away the burden and make this a simple process. Budget to pay 12/t of CRC liable emissions for your energy consumption for and This works out at about an extra 0.65p/kWh on electricity costs and 0.22p/kWh on gas costs. Be aware the cost of the scheme could increase significantly for emissions purchased in Phase 2 - monitor government CRC updates. Develop a detailed carbon management strategy focusing on how you are going to reduce CO 2 emissions and improve energy efficiency in the short, medium and long-term. An energy consultancy, like CMR Consultants, will have a wealth of strategic experience and can support with target setting, planning and implementation. Investigate energy saving measures, comparing their costs against expected energy bill savings and CRC costs. You can then look to produce a detailed and costed implementation plan of improvement to identify where the best returns on investment lie. Make energy consumption analysis an important part of your role; ensure you monitor and measure your consumption throughout the year. There is a variety of energy management software available to automatically collect and analyse data. Monitoring and targeting software will automatically identify waste and highlight areas for improvement, showing results year on year and helping monitor progress. This article is produced by CMR Consultants and Cornwall Energy Associates. It provides general information and commentary on energy market trends and legislation. While CMR Consultants and Cornwall Energy Associates consider that the information and opinions given in this article are sound, all parties must rely on their own skill and judgement when making use of it. Neither CMR Consultants nor Cornwall Energy Associates will assume any liability to anyone for any loss or damage arising out of the provision of this information howsoever caused. This article makes use of information gathered from a variety of sources that have not been subject to independent verification. CMR Consultants and Cornwall Energy Associates give no representation or warranty as to the accuracy or completeness of the information collected from market participants or from sources in the public domain. CMR Consultants and Cornwall Energy Associates make no warranties, whether express, implied or statutory regarding or relating to the contents of this report and specifically disclaim all implied warranties, including, but not limited to, the implied warranties of satisfactory quality and fitness for a particular purpose.

8 About CMR Consultants CMR Consultants offers independent energy, carbon and water management consultancy to organisations across a wide range of sectors. With many years of experience, our team of professionals is dedicated to identifying opportunities and delivering solutions to reduce energy consumption, carbon emissions and costs. We tailor our services to meet your organisation s needs by understanding your current energy management strategy, practices and potential issues. We can then identify where you have opportunities for improvement and where you can save carbon and costs. As part of the ENER-G group we offer a wide range of products and services that cover every aspect of energy generation and management, including energy procurement, building energy management controls, combined heat and power and anaerobic digestion. CMR Consultants Limited Studley Point 88 Birmingham Road Studley Warwickshire B80 7AS Tel: +44 (0) Fax: +44 (0) E: info@cmrgroup.co.uk