Cracking the CRC

24 June 2009

The Carbon Reduction Commitment comes into force next April but there is plenty for FMs to think about and plan for because, as Robin Putman explains in the June issue of PFM magazine just published, there could be a significant role for them in managing the process

Although the Carbon Reduction Commitment (CRC) was announced in the 2007 Energy White Paper, it is only now that many organisations are becoming aware of its implications. And while some of the details have yet to be finalised we are at least in a position to predict the key implications for facilities managers, and the wider enterprise, when the scheme begins in April 2010.

In order to fully appreciate the implications for FMs - these may be quite far-reaching - it’s important to understand how the CRC programme is expected to work and which organisations will be affected. Furthermore, the CRC needs be viewed in context – as one of a raft of measures that have been introduced by government to curb energy consumption.

The CRC is designed to reduce carbon emissions from large commercial and public sector organisations by 1.2m tonnes of carbon per year by 2020. It is a mandatory scheme and any organisation that does not comply with its legal obligations under CRC will be subject to financial penalties.

Initially, participation in the scheme will be determined solely on electricity consumption, based on 2008 figures, which will be supplied to government by electricity supply companies. There are three levels of participation based on a threshold of 6,000MWh – approximately equivalent to an annual electricity bill of £500,000.

A predicted 5,000 organisations that are on half hourly metering and consume more than 6,000 MWh will be required to participate in the scheme fully. They will need to appoint a board director to take responsibility for CRC and they must record and monitor their CO2 emissions and purchase allowances equivalent to their emissions each year. Once an organisation has been ‘captured’ into the full CRC process, gas and oil consumption are also included in the energy consumption figures. Transport emissions are not included.

Organisations on half hourly metering that consume less than 6,000MWh will be required to participate partially. This is expected to cover a further 15,000 organisations. This will involve appointing an administrator, measuring electricity consumption and, if consuming more than 3,000MWh, disclosing total annual consumption of half hourly electricity consumption.

With the exception of central government departments which are included irrespective of consumption, those organisations that are not on half hourly metering and consume less than 6,000MWh will not need to participate.

In addition, where an organisation already has 90 percent of its emissions covered by the EU emissions trading scheme or the climate change agreement, it may be exempt from the CRC.

Where an organisation is part of a group, CRC requires one part of the group to participate on behalf of all of the group’s UK operations, even when subsidiaries would qualify for CRC in their own right. Where the highest parent company is based outside the UK, all parts of the organisation within the UK should be grouped together as a single CRC entity.

In the case of joint ventures such as PFI and PPP schemes, the joint venture’s energy use is aggregated with that of the majority owner organisation. Where the venture has no single owner with a stake greater than 50 percent, the joint venture is counted as a separate organisation. Non-departmental public bodies and autonomous public corporations with their own legal status participate separately if they meet the
qualification threshold.

How it works
CRC starts in April 2010 and is divided into set time periods known as phases, beginning with a three-year introductory phase followed by subsequent seven-year phases. The first two years of each phase are preparatory and overlap with the preceding phase. Each of these phases is divided into periods (see panel left).

In April 2011 each fully participating organisation participant will have to buy carbon permits from the government to cover their actual emissions for 2010/2011 and their forecast emissions for 2011/2012. The cost will initially be set at £12 per tonne of CO2 (equivalent to 0.63p/kWh for electricity and 0.23p/kWh for natural gas) but as this first phase covers two years the actual cost will be £24 per tonne. This has clear
implications for cash flow.Following this initial sale period, participant organisations can buy or sell allowances by trading on the secondary market. Organisations that have reduced energy consumption more than expected will be able to sell some allowances, while those that have higher than anticipated emissions must purchase extra allowances from other participants, thus fixing overall carbon emissions from the sector.

League tables
Depending on an organisation’s position in the league table (see below), the cost of permits will be repaid each year. In this way, CRC is designed to be cost-neutral and redistribute the money paid for allowances amongst all participants. The position in the league table is used to calculate either a bonus or a penalty, thus rewarding organisations that reduce energy consumption and penalising those that do not. The first
redistribution payment will be in October 2011.

At the end of each year the government will publish a league table of all participating organisations.
Scores and rankings will derive from three factors, with the following weightings:
● 60 percent: Absolute reduction in energy consumption compared with the year April 2010 to March 2011.
● 20 percent: Early Action metric. Optional. Zero score if figures not submitted.
● 20 percent: Growth Metric: the percentage change in emissions per unit turnover (or revenue expenditure for the public sector) relative to a participant’s annual average since the start of the scheme. Optional. Zero score if figures not submitted.

In the first year, 2010/11, league table position and the redistribution payment are based solely on the Early Action metric. From 2013/14, the league table will no longer include the early action metric and will be based 75 percent on absolute reduction in energy consumption and 25 percent on the growth metric.

Starting in 2010/11 the bonus/penalty calculated from the league table will be applied to companies in the top and bottom 10 percent of the table.These then increase by 10 percent each year until year five where 50 percent will receive a bonus and 50 percent will pay a penalty. The formula for year six and beyond has yet to be finalised.

The monitoring and reporting aspects of CRC will be based on self-certification via Evidence Packs (see panel below) which will have to be signed by a director of the organisation, as a means of ensuring that they are accurately and carefully maintained. It is clear that FMs will play an important role in ensuring energy consumption is measured accurately and energy consumption data is available.

In parallel, it will be important to verify the figures on electricity consumption provided by the electricity supply companies. Experience shows these are not always accurate and any inaccuracies could prove very expensive.

The CRC will also have implications for recharging of tenants and departments and service charges will have to be increased to fund the first payment in April 2011. However, if tenants are included in the CRC and are sub-metered, they can take on the CRC obligation for their energy if they wish.

In addition, the CRC may have important implications for decisions relating to energyconsuming equipment such as building services plant. One obvious example is the imminent phase out of HCFC refrigerants in air conditioning plant in line with EC Regulation 2037/2000. Building operators have the option of retrofitting an alternative refrigerant or replacing the plant. The former has a lower capital cost but could reduce the efficiency of the chiller plant thus increasing energy consumption. Consequently, organisations participating in the CRC may find it more economical to buy new, more efficient plant.

This need to establish the right balance highlights the complexity of the whole energy efficiency scenario. As noted earlier, the CRC does not operate in isolation; it complements and reinforces the other energy initiatives that have been introduced in recent years. Furthermore, the energy picture is set to become more complex as CRC and other schemes evolve. For example, in 2013 the Committee on Climate Change will place a limit on the number of allowances available to CRC participants and allowances will be auctioned. There is also a strong chance that the CRC will be extended in its scope, possibly using a lower threshold value that also includes fossil fuel consumption, thus ‘capturing’ more organisations.

In navigating a path through this maze, the majority of organisations will look to their FM departments to make a significant contribution in the areas described above. As a result, many FMs will need to seek specialist input that can assist with every aspect of energy management, from measuring consumption and monitoring billing through to improving the efficiency of systems and making strategic decisions on plant investment that take account of CRC implications.

● Robin Putman is Technical Services Director with Cofely. Cofely is the new name for the merged of Cofathec, Elyo and Axima businesses, all parts of the GDF and Suez conglomerate which forms the 17th largest company in Europe. Cofely is now the largest provider of energy services in Europe operating in 15 countries.

CRC - Phases and Periods
Each phase is divided into periods, as described below. Dates shown refer to the introductory phase.
Qualification period: organisations must assess whether or not they qualify to make an information disclosure or participate fully in CRC (2008).
Registration period: participating organisations must either submit their information disclosure or register as a participant with the administrator (April to September 2010).
Footprint Year: where participants must monitor their total emissions from energy use, determine what emissions must be included in CRC and submit a footprint report (April 2010 to March 2011).

Evidence Packs
The Evidence Pack consists of three main categories of information:
Structural records: including information about an organisation’s structure and locations, names of responsible persons, and information about energy consumption measurement.
Data records: to include half-hourly and automatic meter readings, consumption of liquid and solid fuels and financial information about the organisation.
Special event records: covering events that may influence the accuracy of the audit trail, such as change of energy supplier, meter breakdowns, changes in company structure and transfers between tenants and
property owners.