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What price a reduced carbon future?

The latest scheme to drive down the UK’s carbon emissions is about to kick in. Jackie Whitelaw reports on the Carbon Reduction Commitment. Carbon Trading By Jackie Whitelaw.

A year from now, in April 2010, 5,000 organisations including all government departments, local authorities, water companies, Network Rail, large retailers and the NHS, will have to buy allowances at £12/t for all their C02 emissions on top of the cost of their power bills. If they don’t buy enough they’ll have to trade for some more on the open market.    

The Carbon Reduction Commitment (CRC) will have arrived and will be having an impact on the budgets and strategy of many of the civil engineering sectors’ major clients.    

This could be a washout if its not ambitious enough in the future price of carbon

The CRC is the latest piece in a puzzle of legislation and financial incentives designed to dramatically reduce C02 emissions and put Britain on the map in terms of tackling climate change ahead of the UN Climate Change Conference in Copenhagen in December.    

That puzzle includes the Climate Change Act and EU Emissions Trading Scheme, the Renewables Obligation, new building regulations, new vehicle emissions standards and product standards for consumer goods.    

Alongside are a raft of other initiatives like the recently launched Low Carbon Cities Programme in which Manchester, Leeds and Bristol are to pave the way for lower energy, lower emissions conurbations and which demonstrate that, when it comes to emissions reduction, the UK has moved from talk to action.   

It is the CRC that is expected to have the most impact as it brings with it the chance for organisations to make or lose money and reputation

But it is the CRC that is expected to have the most impact as it brings with it the chance for a lot of organisations to make or lose money and reputation. The aim of the scheme is to get businesses using 6,000MWh/yr to reduce their emissions (excluding transport emissions) by saving energy. And the hope is that this will help meet the now legally binding target established by the Climate Act of December 2008 of reducing emissions to 80% below 1990 levels by 2050. An interim reduction target of 26% by 2020 is the first step on the way.    

Organisations set a base line footprint, buy emissions allowances for what they expect to need and if they use less they need to buy less.    

The money for the allowances goes into a pot and at the end of each year those companies doing best will receive their money back plus 10%. Those doing badly get their money back less 10%. And there will be league tables to show who are the winners and losers, the good guys and the bad guys. But everyone will be expected to reduce their emissions year-on-year. And the initial £12/t price of carbon is expected to rise.   

 “We think this is a very good policy with a chance to make a real impact,” says Danny Stevens, policy director for the Environmental Industries Commission. “The CRC is billed as a trading scheme but it’s the league tables that will have the most impact, particularly with regards to reputation. “But it could be a washout if it’s not ambitious enough in the future price of carbon. And a lower threshold of 1,000MWh/yr would have even more impact.”  

UK financial incentive schemes for energy efficiency and carbon reduction

EU Emissions Trading Scheme

Affects

  • Large energy generators and heavy industry

Mechanism

  • National allocation
  • Cap and trade
  • Dependent on market price of carbon

Carbon Reduction Commitment

Affects

  • Non-energy intensive organisations using over 6,000MWh/yr

Mechanism

  • Cap and trade
  • Price set for 3 years then auction
  • Performance league tables

Climate Change Agreements

Affects

  • Large users of energy

Mechanism

  • 80% discount from the Climate Change Levy in return for 10 year energy efficiency/carbon reduction targets

UK Climate Change Levy

Affects

  • Commercial & industrial

Mechanism

  • Fixed tax £/kWh for direct and indirect energy use
  • Revenue neutral (returned through reduction in NI and technology funding)

 

Carbon reduction commitment timetable

2008 is the qualifying year of energy use for the Carbon Reduction Commitment. Large energy generators and heavy industry that are already tied into the EU Emission Trading Scheme are exempt.    

From April 2010 to September 2010, qualifying firms under the CRC need to register for the scheme. They will also need to have worked out by then how to measure their CRC emissions for a footprint report to be compiled in the footprint base year of April 2010 to March 2011 onwards. The first compliance year is April 2010 to March 2011.    

Organisations won’t be able to buy allowances for 2010/2011 until 2011 when they will have to buy them retrospectively. At the same time they will have to forward buy their 2011/2012 allowance.    

As the Government guidance says, slightly tongue in cheek: “Organisations may wish to budget ahead for this double sale.”

The first capped year will be 2011/2012.

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