The Carbon Reduction Commitment – An Update

[Derek_Parkinson]

Now that the dust has settled on public consultations, the final form of what started life as the Carbon Reduction Commitment can be seen more clearly. Now called the Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES), there is more than a simple name change involved, with a sharper focus and clearer details in the revised regulations.

The change of name is significant though. Most obviously, it signals a stronger emphasis on reducing energy consumption and improving efficiency than in previous drafts. In particular, questions about what part renewable energy would play in reporting consumption have been addressed.

Previously, some companies had argued that participants generating their own renewable power should be able to claim Renewable Obligation Certificates – tradable permits issued by the government – for the energy they sold, but also count the power they used from these sources as zero carbon for the purposes of CRCEES. Under the revised proposals it is possible that the league table will include some data on emissions saved by renewables, although it will not influence the ranking of a company.

End of the “double whammy”

One of the other main concerns raised in consultations was the impact of the scheme on cashflow at a time when we are emerging from a recession. The original timetable required participants to purchase allowances for two full years in April 2011, but the Government has relaxed this requirement so that participants will now just report their emissions in the first year, and buy allowances for each subsequent year of the scheme.

Rewards for early action will affect league ranking, and so have been the focus of attention for participants. Among the concerns voiced in consultation include:

• Concerns that Early Action Metrics will not take account of measures taken before the start of the scheme

• The scheme could encourage participants to delay action on emissions reductions before 2010–2011 to ensure they reap maximum rewards within the scheme

• Use of the Carbon Trust Standard in preference to metrics based on existing ISO or BS standards

It is unlikely that the Carbon Trust Standard will be dislodged as the preferred basis of the Early Action Metric, but the rewards for implementing it will be greater. As before, credit for implementing the standard will diminish in proportion to the Absolute Reduction and Growth Metrics as the scheme progresses, but now it will diminish more gradually, from 100% in the first year, to 40% in the second year and 20% in the third year.

New options, clearer guidance

Very large organisations will have greater flexibility in how they participate. For example, a subsidiary organisation that is large enough to participate in its own right has the option of being treated as independent for the purposes of the scheme, although there is an important qualification to this. “One arm of an organisation can register to operate separately, but you can't do that if it means the parent organisation goes out of the scheme as a result,” says Jonathan Woodthorpe, of RWEnpower Energy Services.

The Government has also taken steps to clarify what counts as an energy supply for the purposes of CRCEES. This addresses the complex mix of supply options available, such as facilities management companies and other independent suppliers, or self-generation, for example.

Companies must now determine whether their supply falls into the following basic categories. First, there is direct supply, where an organisation has an agreement for the supply of electricity, gas or any other type of fuel for its own consumption, as measured by a “fiscal meter”. The status of the supplier has been left open deliberately, and so can include a licensed or unlicensed supplier as defined in law, or any other third party organisation. As a result, organisations that buy energy as part of a facilities management agreement, for example, will be responsible for emissions from the supply they receive.

A participant will also be responsible for indirect supplies it receives. This covers cases where gas or another fuel is used to operate a plant that provides energy exclusively to a CRCEES participant. Lastly, there are new self-supply criteria but these are relevant mainly to energy supply companies themselves.

Some uncertainties remain

Clarifying what counts as a supply is welcome, but important questions about the end user remain. “There are concerns because of the complex structure of organisations – franchises are a good example. Also, in some cases organisations don't understand the portfolios of their sites. That isn't necessarily a failure on their part – they just haven't had to do this before,” Woodthorpe says.

“Then there are people under the misapprehension that they are exempt because the parent company is based abroad, but they can still be in the scheme. Incidentally that applies to us – our own parent, RWE is based in Germany,” he says.

Among other forms of exemption, transport is an area where companies are becoming confused. Strictly speaking energy used for transport such as road haulage is not included, but some companies are taking a somewhat inventive approach to what counts as transport. “I've heard some people argue that conveyor belts and lifts are transport – trying to stretch it as far as possible – but it won't work, I'm afraid,” says Woodthorpe.

Some companies are also confused about how the revenues from the scheme will be recycled. “One fairly common misapprehension is that the payments back from the scheme will be a percentage of the money a company has spent on participating, but in fact it's a percentage of the total money in the scheme,” says Woodthorpe.

One of the obvious remaining difficulties concerns how CRCEES will affect landlord-tenant relationships. “The obligation falls on tenants to make the appropriate changes to buildings, however there have to be good incentives for them to do this. Some of the benefits will fall to landlords if a commercial building is refurbished, so landlords and tenants will need to have a discussion about this,” he says.

Key questions:

• Are we clear about our obligations under CRCEES?
• What steps have we taken to implement the Carbon Trust guidance?
• What impact will CRCEES have on our landlord/tenant relationships?