Getting to grips with carbon reduction

Having been discussed and debated for some time, the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is now a reality. The scheme goes live on 1 April and for the first time will create a direct link between departments’ carbon emissions and their budgeting. As such, those that fail to prepare could face financial challenges, while those that plan for the scheme stand to potentially profit.
For those still getting to grips with the CRC, the scheme will apply to any organisation with half-hourly metered electricity supply, anticipated to be about 20,000 in the UK. In the public sector this is likely to include large local authorities and central government departments with sizeable energy consumption.
At the very least, any organisation with a half hourly meter will be required to make an information disclosure to the Environment Agency on their energy consumption in 2008, which is being used as the qualification year. This must be done by September; any organisation missing the deadline will face fines for any late submissions.
Those whose electricity consumption was 6,000 MWh or more a year in 2008 will be required to participate fully within CRC.

It is once organisations have qualified that the work really begins. Although qualification is based on electricity consumption, once an organisation is in, the CRC will capture emissions for all fuel types, such as gas and oil. Participants will have to forecast their future energy consumption at the start of each trading period and the equivalent emissions. They then need to buy sufficient allowances to cover their emissions for the year at a cost of £12 per tonne of CO2 initially.
At the end of the trading year, participants will submit details of their actual energy consumption, and emissions and surrender the allowances they have purchased.
This information is then used to compare performance in terms of how well organisations have reduced their emissions. To start with, league table position will also be partly based on an early action metric taking into account measures to improve energy efficiency, such as installing smart meters or achieving the Carbon Trust standard.
The league table is important for two reasons. Firstly, monies received for the purchasing of allowances is recycled to participants, based on league table position. Those at the top receive their purchase plus 10 per cent and those at the bottom minus 10 per cent. By year five of the scheme, this will increase to 50 per cent – a potentially attractive incentive to perform well.
Secondly, there is the impact on reputation of league table position. The public relations impact of a low league table position could be as important as the financial implications in a world that is increasingly aware of organisations’ environmental impact.

Strong performance
With this in mind, there is a significant benefit to be had from performing well under the CRC. Indeed, a report from the NHS Confederation, ‘Taking the Temperature’, predicts the NHS could save £60m if it sticks to its primary energy consumption reduction target of 15 per cent by 2010 as a result of energy cost savings; reduced allowance purchasing requirements; and the benefit of league table ranking.
There is concern, however, that due to other pressures, public sector departments are less well placed to respond to the CRC than those in the private sector. A recent study by the Environmental Audit Committee suggested that this could lead to a situation in which the public sector suffers financially under the scheme by missing out on league table bonus payments, or by having to purchase allowances to cover emissions which are higher than their private sector counterparts – this has emerged as a real risk with new data from February.
This revealed that public sector greenhouse gas emissions rose by 6.25 per cent in 2008 despite overall UK emissions falling by almost two per cent. While sectors such as energy supply, agriculture, transport, businesses and industrial processes saw emissions drop, the public sector saw emissions rise from 9.6million tonnes of CO2 equivalent (Mt CO2e) to 10.2 MtCO2e.

It all points to the importance of developing a strategy to manage the CRC for the long term. Organisations will need to have detailed plans in place to record and report on their emissions, and then reduce them. The ability to forecast allowance requirements, risk exposure and cash flow related to allowance purchases will also be crucial.  
For many public sector organisations this will require a step change in how they manage current and future energy consumption and the implementation of new tools. npower has been working with organisations to develop the tools to achieve this. Among these is the newly-launched ‘encompass professional’. This is a new monitoring tool that analyses energy use in detail and combines historic data on consumption levels and energy usage with 20 year weather patterns to calculate future energy use. This information is then used to devise strategies to reduce consumption, costs and carbon, improving management and cash flow.
Better management
Using the tool, organisations will be able to better manage their purchase of carbon allowances through the ability to predict their carbon emissions. This will reduce the financial risk of needing to buy additional allowances on the open market.  
‘encompass professional’ is the latest addition to npower’s ‘m3’ portfolio, a range of energy management tools and services, which also includes energy monitoring and targeting together with guidance on implementing carbon and energy reduction strategies.  
With 2010 a pivotal year for the CRC it’s imperative that organisations grasp the implications the scheme places on their organisation. There is time to respond and get the tools and strategies in place to benefit from the scheme. However, with many private sector businesses already making good progress, it is important that this work starts now.