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Beyond the CRC

08 June 2011

Roger Hawes

With boardrooms now viewing the CRC as an additional utility tax how can organisations and FMs continue to maintain the momentum of their carbon reduction strategies? Roger Hawes explains.

THEY SAY THAT YOU NEVER KNOW WHAT YOU HAVE until it is gone. I am in danger of now looking back at the original Carbon Reduction Commitment (CRC) with misty-eyed memories.
Prior to the Government’s amendments to the scheme following the Comprehensive Spending Review, I viewed the CRC as a clever carbon reduction tool that financially incentivised action and had the potential to deliver real carbon savings across the public and private sectors.
The original scheme was innovative. Boardrooms across the country were engaged because the opportunity to unlock financial reward from action was a new profit line. Individuals with responsibility for their organisation’s CRC performance were focused. Nobody in one these positions wanted to face their board and explain that the ‘recycled payment’ their company was due to receive was going to be lost as a penalty for not cutting enough carbon.
Unfortunately all this is now lost. The changes to the CRC have weakened its potential to deliver significant carbon savings. As soon as ‘revenue recycling payments’ were taken out of the equation, many boardrooms across the country tuned out and started to view the CRC as an additional utility tax burden.
Businesses have been largely confused about their obligations and with uncertainty over the future shape of the scheme it has made it difficult for them to plan. Worse still, in many organisations, the changes have undoubtedly derailed carbon management plans and energy management best practice – precisely the opposite of what the original intended to achieve.
The Department of Energy and Climate Change has been consulting with business on how to simplify the scheme and following feedback on potential options in March it will be launching a formal consultation process later in the year. At this stage we can only conjecture on the future of Phase One and what Phase Two (which will come in effect from April 2014) will look like.
We need clarification on the following areas: how will a double sale of emissions be avoided prior to the start of Phase Two when a forecasting based approach is to be used? Will the participants league table continue as a CSR indicator with no real teeth. Will the cap and trade system for Phase Two onwards be simply abolished due to perceived complexity with the attendant loss of its abatement potential and just replaced with a higher CRC ‘tax’? It is difficult to see that in the current financial climate that the CRC will return to include a financial incentive mechanism other than price. And with the Government’s binding carbon reduction targets to reduce carbon emissions by 80 per cent by 2050, it is highly unlikely that the scheme will be completely scrapped. Against the current unknowns, FMs and energy managers have a challenge to help their organisations maintain or re-engage their carbon reduction and energy saving initiatives. I strongly believe that all organisations need to see the CRC as one element of their carbon and energy reduction plans because with or without the scheme, energy efficiency makes sound commercial sense.
With energy prices continuing their interminable increase, this should be a good enough incentive for all businesses to view energy as precious resource which without effective management and efficiency programmes will continue to severely impact the bottom line.
The reality is that energy prices are not going to come down and all organisations need to brace themselves for long-term prices rises. The disaster at Fukushima has delayed plans for nuclear power in Britain and with the Sunday Times recently reporting that more than 20 of our current coal, oil and nuclear power plants set to close over the next decade, I believe that the impact on energy prices could be severe.
Proactive FMs and energy managers have a responsibility to send these messages to board members and make them aware of the future scenario so that they can start planning for the future. Effective energy management can only be achieved if there is board level buy-in.
While FMs and energy managers can help to put these critical issues on the table, it is also advantageous that energy / carbon reduction targets are written into the personal objectives of board members.
Aside from planning to mitigate current and future energy prices, companies need also to plan for the CRC and its financial implications. With uncertainty over so many elements of the scheme, this is difficult to assess. However, it is has been estimated that that the loss of revenue recycling payments will add around 10 per cent to participants’ energy bills. With the first sale of CRC allowances, now due to occur in 2012, relating to energy used in the 2011-12 compliance year (i.e. as a back payment), CRC participants could be facing a double payment in 2012 to cover 2011-12 and 2012-13 emissions.
The reality is that as we move to the start of phase two in 2014, CRC participants could be looking at carbon allowances increasing to £20 a tonne as from the current £12. Improved financial performance is one major incentive for all organisations to reduce energy usage and carbon. The other is their Corporate Social Responsibility (CSR) obligations and the reputational risks to their company of failing to take action. The CRC performance league table, which will be published each October aims to use reputational risk as a tool to drive carbon reduction. While some businesses will be protective over their league position and will not want to lose any brand equity, it is difficult to predict the number of organisations that will actually fear the results of this exercise. I believe that without further hard-hitting legislation, the league table will not drive enough widespread action.
FMs and their colleagues in sustainability and energy teams looking to push through reduction programmes face tough challenges. In organisations that are not engaged, they must ensure that carbon reduction is positioned as a key part of their company’s ongoing ‘corporate license to operate’. They could also work alongside their marketing teams to assess the impact on their brand of not being perceived to be an environmentally focused business.
At G4S FM, we continue to drive awareness of energy efficiency and carbon reduction on all of our contracts. We have also continued to advise clients on their CRC requirements and how they should have robust systems to collect data.
Aside from this support, one area where we also believe there is real scope to deliver further energy savings is through the optimisation of BMS systems. We are embarking on a new initiative to interrogate and optimise BMS systems at specific customer sites which could in some cases unlock over 10 per cent annual fuel savings. While the original scheme is now a distant memory, but no organisations can afford to put carbon and energy management on the back burner for any longer.
Roger Hawes is head of energy & environmental management at G4S FM

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