Energy risks and the CRC
August 1st 2008

Companies with an understanding of their energy consumption and an ability to control their future needs through an effdective energy strategy will be the winners of the CRC writes Jonathan Riggall,senior sustainability consultant at Peter Brett Associates LLP

In 2010 DEFRA's Carbon Reduction Commitment (CRC) will come into fruition. The CRC is backed by the UK Government's Climate Change Bill as an attempt to reduce carbon emissions associated with companies operating outside the current EU Emissions Trading Scheme and Climate Change Agreements.

Entrance into the scheme is based on the electricity consumption of a whole business, therefore companies with multiple sites, such as shops and offices, are required to total up their metered electricity consumption from all activities. Any company with a total electricity consumption of greater than 6000MWh,in the baseline year 2008, (approximately equivalent to an electricity bill of £500,000) will be required to enter the CRC scheme.

The Government currently anticipate that between 5000 and 6000 companies will be obliged to enter the scheme but there is currently no absolute figure known. There are some obvious companies that will be participating, such as those within the water utility sector, but there will also be some surprises in store for a number of businesses and, indeed, whole sectors.

The CRC will be based on the entire energy consumption of a participant (electricity, oil, gas and so on). Participants will need to purchase allowances to cover their energy emissions.At the end of an emissions year (April-March) the participant will receive a payment back based on their yearly performance.The net benefit for participants will be realised through energy savings, which should outweigh the costs of an implemented efficiency scheme.

One of the most interesting outcomes from the CRC scheme will be a performance League Table based on the participants' ability to undertake energy efficiency. As a result of a participant's position in the League Table bonuses or penalties will be levied.The league table will inevitably force some interesting comparisons between organisations and between particular company's green public images and the actual reality of their achievements.

Set up a strategy The CRC offers companies an incentive to manage their energy consumption effectively to make significant savings in their energy bills but also to make potential profits through the CRC scheme. It would therefore be prudent for any organisation likely to be affected by the CRC scheme to set out a strategy to embrace these up coming obligations or risk a high allowance purchase requirement, poor league table positions and ultimately financial penalties.

As the CRC is governed by energy consumption, a key way of mitigating against the scheme's risks is to set out a clear and achievable energy strategy. Not only will such a strategy cover the risks associated with entering the CRC but also mitigate against current energy price risk and the likely future carbon constrained economy.

An energy strategy should be founded on a sound understanding of the strengths and weaknesses of a company's current energy position.

This can be done through assessing a wide range of issues such as culture, business management processes, building stock, energy load profiles and current and future energy requirements. From this baseline an appropriate strategy can be taken forward. The strategy should encompass the opportunities available for a company to meet energy demands sustainably. Options should consider appropriateness of new technologies (such as renewable energy) and a time frame for implementation. In addition to these opportunities, threats should also be clearly outlined and appropriate mitigation measures incorporated into the strategy to turn these threats into opportunities.

Hand in hand with the energy strategy a suitable approach can be formulated to enter the CRC scheme.

Companies with an understanding of their current energy consumption and control of their future needs will be able to position themselves favourably within the first phase of the CRC scheme.

Inevitably there will be winners and losers with the CRC. The winners are set to make financial gain and position themselves well within a competitive market place which will in turn offer alternative benefits such as proving corporate responsibility commitments to climate change.