A year on from its inception, there is confusion surrounding the CRC Energy Efficiency Scheme

Originally proposed by the Labour Government as a scheme to incentivise energy efficiency, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme has since changed beyond recognition.

Last October’s Comprehensive Spending Review (CSR) saw the new Coalition Government strip out the revenue recycling aspect of the CRC which would have allowed businesses to make money back from the scheme if they made progress on reducing carbon emissions. As a result, the public sector and businesses that fall under the scheme are now regarding CRC as a carbon tax.

When you look at the figures it’s easy to see why the Government has made this change; without the revenue recycling aspect, the Treasury stands to make over £1bn annually by 2014/15. But taking away the financial incentive has also taken away the enthusiasm for the scheme and this, along with considerable confusion about the finer details, has resulted in the CRC being viewed as a bit of a burden.

The scheme was designed to improve energy efficiency among big businesses and public sector organisations – a group responsible for about 10 per cent of UK carbon emissions.

Tackling emissions not already covered by Climate Change Agreements and the EU Emissions Trading Scheme, transport emissions are excluded with the main focus being on carbon generated by buildings and the people in them. Organisations qualify for compulsory registration if they consume more than 6,000 megawatt-hours of electricity per year, while those that do not consume as much as this have to complete an information disclosure. Businesses that fail to register will face fines.

As well as the removal of revenue recycling, the timescales of CRC implementation have also changed to allow for the responses of a consultation on simplification of the scheme to be considered. Carbon allowances will now no longer be sold this year on the basis of projected carbon use; they will now be sold in 2012 against information on 2011 emissions, removing the scheme’s trading element completely.

So far, 78 per cent of registered participants are from the private sector and this is likely to include companies such as banks and supermarkets. Twenty per cent of registrations have come from the public sector and a further two per cent from organisations and individuals. There are 175 full participants in Scotland, while a further 800 have made information disclosures to the Scottish Environment Protection Agency (SEPA) which will regulate the scheme north of the border, auditing participants to make sure the scheme is being properly implemented.

Speaking at Holyrood’s conference on the CRC which was held in Edinburgh this month, SEPA’s head of national operations Janice Milne sought to put people’s minds at ease regarding the approach that would be taken to those who had made mistakes in their Annual, and Footprint Reports, both due for submission on 31 July this year.

“Given that there may well be some anxieties about enforcement, I want to cover the principles under which SEPA will enforce the regulations. We must focus on deliberate non-compliance rather than any misunderstanding of the regulations or guidance where there have been genuine efforts to comply,” she explained.

“There are discretions when applying civil penalties under the scheme – civil penalties should be used as a last resort. It may be appropriate for SEPA or the other regulators to waive penalties in certain circumstances and this will be particularly the case in the early years of the scheme when participants are adjusting to their new obligation. Any action taken by SEPA will be as consistent as possible with that taken by the other UK regulators.” Milne added that penalties would be considered by SEPA in cases where “it is considered that the participant is purposely or negligently not complying with the scheme”.

One of the main features of the scheme in its original form was a league table of energy efficiency, ranking participants in order of energy efficiency. As a direct result of the removal of the revenue recycling element of the scheme, the league table has become far less significant.

“The league table is now fundamentally a reputational driver – it all depends whether or not you care enough about your reputation to worry about where you come in that particular league table,” Dr Andy Johnston, director of the Local Government Information Unit and CEO of Local Energy told the conference.

“My understanding of talking to carbon trading public sector participants was that there are plenty of other things to worry about at the moment, frankly, and where you come on the CRC league table is not a hugely important part of your corporate strategy.” However, Fraser Wilson, director of risk assurance at PricewaterhouseCoopers (PWC), disagreed with this point. He said that while a straw poll earlier in the day had shown only three or four delegates were concerned about the reputational damage a low rank on the league table could do, he felt this was not something being taken seriously enough.

“The financial risk is quite high. There’s at least one major PLC in the UK that when CRC first came out, they considered the impact of the league tables which would have been about 18 months to two years away, and they decided to pull together a board paper positioning how they will go to market and explain poor performance,” he said.

“There are a number of businesses seriously concerned about the impact of the league tables and a lot of that will be driven by consumers – what does the public think?” Wilson also added that PWC had been asked for differing levels of help with collating the data needed to complete CRC reports from a wide range of organisations.

“Some need all of it – a couple of people have actually tried to outsource the whole thing. Is it an option to say, ‘ok, take the whole thing off my hands, give it to someone else’? That then doesn’t embed it in the ongoing organisation and treat carbon as a cost to their business – it becomes an add-on they forget about.” But for many, outsourcing will undoubtedly seem like the best option as collating the data required has so far caused confusion.

The Environment Agency does provide a spreadsheet for doing this, however, many public sector organisations have said that this can be a difficult way to bring together data from a number of buildings. For example, a local authority with responsibility for schools as well as office buildings would be expected to present their final emissions data on one spreadsheet, but if there is a mistake in amongst those results it can be very difficult to find it.

Wilson’s point that outsourcing CRC would not allow the scheme to be as effective as it might, in terms of changing attitudes toward climate change, is something the Government needs to consider. Software options to help guide businesses through the data-collection process have started appearing, and promoting the use of these might help CRC achieve its original goal of driving energy efficiency. ManageCO2 is one company that has developed a software package for carbon management based on International Organization for Standardisation standards.

As ManageCO2’s managing director Adrian Fleming explains: “Our tagline is to make carbon management easy for organisations, in fact, essentially we provide software for companies to measure and report their carbon footprint. That enables two things – the organisation can take control of their own emissions internally so they don’t have to go and get expensive consultants in, they can use the software to gather the data, measure the carbon footprint and report it easily, quickly and effectively.” The ManageCO2 software takes users through each step of CRC data collection using interactive on-screen dashboards, interactive tools and video tutorials and attempts to explain each part of the process in plain English.

Fleming says: “Essentially in the private sector, people just want to see what their carbon footprint is and they want to report it to the CRC doing that in the most costeffective manner possible.” He adds that for the public sector, the software should make collecting data for a number of different buildings more manageable.

However, since October’s shake-up of the CRC, there is an element of uncertainty surrounding the whole scheme. The UK Government’s response to the simplification consultation is expected soon, although an exact date is not known. The message to conference delegates in the meantime?

“Wait and see,” was Johnston’s advice.

“We already know that the Government has pressed the nuclear button on CRC once, when we’re looking at the simplification process, you’re out there on a scale from ‘do we tinker with the way the league table is put together’ to ‘do we actually do without it all?’ and all these things are potentially up for grabs and so you need to think about that in terms of any investment decisions that you make.”