Act now carbon trading is here
April 1st 2008

The start of the mandatory Carbon Reduction Commitment – which will affect around 5000 larger UK organisations – is approaching. Alan Aldridge, executive director of the Energy Services and Technology Association (ESTA) explains why businesses and public sector organisations need to be preparing now

hile 2010 may seem some time away, the countdown to the launch of the Carbon Reduction Commitment (CRC) has already started and for those organisations which will be included – from both the public and private sectors – now is the time to begin collecting data and preparing for its implementation.

The CRC extends the concept of cap-and-trade emissions allowances, which lies at the centre of the European Union's climate strategy.All those organisations with a half hourly metered consumption of more than 6000MWh will be included in the scheme (70kVA in Northern Ireland).

That applies to both mandatory and voluntary metering and includes virtually anyone with an annual electricity bill of more than £500,000.

With a few very limited exceptions – principally those with 25% of their emissions already covered by a sectoral Climate Change Agreement (CCA) – participation in the scheme will be mandatory.

The CRC will involve each participant in purchasing sufficient allowances to cover their annual emissions and submitting a full accounting of those emissions on an annual basis.The cost of those allowances will in large part be recycled to participating companies, but the funds being returned to organisations will be adjusted to reward those who improve their efficiency most.The rationale behind cap-and-trade schemes like this and the EU Emissions Trading Scheme (ETS) for energy-intensive industries is that the achievement of fixed overall level of emissions (the cap) is achieved at least overall cost. Given the choice between investing in energy efficiency and purchasing allowances an organisation will choose the less expensive option, but since the total number of allowances is limited or capped, the overall level of emissions is controlled. In fact, the CRC will not be capped until 2013 while everyone gets used to it but the framework is there.

Qualifying year is 2008 The introductory phase of the CRC is due to start in 2010, but the qualifying year is 2008: that is, now! If you do qualify for the scheme, then be aware that next year, 2009, is the baseline year for your emissions prior to the start of the scheme.

You will need to know the emissions from at least 90% of all sources in your organisation; not just your electricity, but also gas and any other sources of emissions.This will form the baseline against which future performance will be based – and the recycled funds calculated.

This information will also, of course, form the basis for your own forecasting of the number of allowances you need to buy in 2010 when the scheme is due to go live.

Allowances will be sold at a fixed price of £12 per tonne of CO2 for the first three years of the scheme – there is no cap till 2013.However, there is still a strong incentive to improve performance over this introductory phase.Not only will this reduce initial capital outlay on allowances and reduce energy costs, but it will also increase the proportion of recycled funds an organisation is entitled to.There will also be a reward for 'early adopters' particularly those who have joined the Energy Efficiency Accreditation Scheme or who have installed 'automatic meter reading (AMR) and associated metering and software' – i.e. automatic Monitoring & Targeting (aM&T).

The evidence pack Although the mandatory annual statement will contain basis information about the organisation and emissions levels, as well as items such as AMR and any changes in circumstances (expansion of site,new equipment, etc) more information should be kept in an Evidence Pack.

This will be needed to back up the data in the annual statement should you be in the 20% of sites formally audited each year.The evidence pack will have three parts: structural records showing the type of organisation, type of site and types of energy used; data records showing energy consumption and CO2 emissions; and special event records showing unusual events such as actions taken following a meter failure.While not mandatory, the Government has said that evidence pack "will be key to the audit".Much of the information for this can be started now so that it can be added to progressively in good time for the commencement of the scheme.

The CRC is coming; preparing now will make its implementation much easier than leaving everything till the last minute.

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