Carbon Reduction Commitment Energy Efficiency Scheme

The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is a new mandatory emissions trading scheme, first discussed in late 2006, that aims to reduce the amount of carbon dioxide (CO₂) emitted in the UK.

CRC will affect large, non-energy intensive organisations in both the public and private sector ranging from retail chains and the hotel and leisure industry to local authorities, large hospitals and educational establishments. Organisations that meet the qualification criteria, which are based on how much electricity they consumed in 2008, will be obliged to participate in CRC. Participant organisations will have to monitor their emissions and purchase allowances, sold by Government, for each tonne of CO₂ they emit.

Government estimates indicate that around 20,000 commercial and public sector organisations will be required to participate in CRC in some way. The majority of these will simply be required to disclose their carbon footprint information once every few years, assisting the scheme administrator to monitor their electricity usage. Of these, around 5,000 organisations will be required to participate fully in CRC. This means they must not only record and monitor their CO₂ emissions, but also purchase allowances.

During the introductory phase, allowances will be sold by the Government at a fixed price of £12 per tonne of CO₂; on one estimate, the threshold of 6,000MWh annual electricity consumption would require allowances under the CRC costing £38,000. Following the initial sale period, participant organisations can buy or sell allowances by trading on the secondary market. This enables organisations that have reduced their energy consumption more than they expected to sell some allowances, while those that have higher emissions than anticipated can purchase extra allowances. In the event that total demand for allowances exceeds supply, the CRC administrator will have powers to purchase additional allowances from the EU Emissions Trading Scheme. Such allowances may attract a higher price than £12 per tonne of CO₂.

CRC is a key element of the Government's climate change policy and is intended to ensure that participant organisations contribute to UK targets to reduce greenhouse gas (GHG) emissions including:

• the legally-binding carbon budgets, defined under the Climate Change Act, requiring GHG emissions by 2020 to be reduced by between 34% and 42% relative to a 1990 baseline; and
   
• the target to reduce GHG emissions by 2050 by at least 80% compared to the 1990 baseline; and
   
• the EU Directive requiring EU-wide reductions in GHG emissions by 2020 of at least 20% compared to a 1990 baseline