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Brave new world or another fine muddle?

ImageAfter months of debate, arguments and many a revision the CRC is finally with us. But will it succeed in transforming for ever energy saving in the UK?

The Carbon Reduction Commitment begins in earnest this month. We could be witnessing the birth one of the most imaginative and effective exercises in support of energy efficiency anywhere in the world. Or we could just have created a cheats’ charter, a bureaucratic muddle with bonanzas for clever game players, causing reputational damage for some undeserving institutions.

Over 3,oo0 organisations are involved, both public and private sector, accounting for 13 per cent of total UK greenhouse gas emissions – approaching 67m tonnes of carbon dioxide a year. The scheme – formally called the CRC Energy Efficiency Scheme – captures emissions from large non-energy intensive companies – supermarket chains, offices etc, public sector buildings (hospitals, universities etc), plus practically all industrial emissions not included either in the European Emissions Trading Scheme (EU ETS), and (at present) Climate Change Agreements (CCAs).

Inclusion in the scheme is a legal requirement for any organisation that has at least one “half hour”electricity meter, and consumes over 6,000MWh of electricity– spending around £750,000 – a year. Though the threshold relates to electricity consumption only, the scheme is applicable to other fossil fuels like gas, oil or LPG.

Initially the scheme is based on monitoring only. However, from April 2011 participants will be required to buy carbon allowances to cover their emissions. For the first two years, an unlimited number of allowances will be available at a fixed price of £12 per tonne of carbon dioxide. This is slightly higher than both the existing Climate Change Levy, and of the (current) traded EU ETS price.

After April 2013 the intention is that there will be an absolute maximum set in the number of allowances available, and that a full-scale trading market will then emerge. The Committee on Climate Change, the Government’s official advisor, had been expected to recommend the exact size of that “cap”. Instead they surprised many by suggesting such a complexity might prove unnecessary.

The CRC is revenue neutral. All the money received by Government at the annual April sales is recycled back to participants six months later. The Treasury merely observes (at least, in theory). Who gets how much depends entirely upon the participants’ position in the performance league table.

The amount recycled to each participant depends upon two factors. The first is based on the proportion of the total which the participant was responsible for at the start, to avoid excessive rewards for sensationally improving minnows. The second reflects the changes in emissions comparing current emissions with a five-year rolling average. After 2013, a “growth”metric will seek to reflect emissions intensity related to turnover.

Put crudely, those who have achieved big energy savings will also get their initial stake back. Plus a bonus. Those who haven’t done so well will get only a portion of their initial stake back. And those who have just carried on with business-as-usual may even lose the lot, treating the whole exercise as just another energy price hike they have to pay (plus quite a lot of legally-required paperwork!).

So, good performers will get rewarded twice. Once, via lower fuel bills. And then with a cash bonus from coming “above par”in the performance league table. Which of itself brings in a third reward, arguably the most important of all.

Many companies – and public sector – have reputational commitments. Each promises to be ecologically responsible. Over the past 20 years, “corporate social responsibility” has become a must-have mantra.

The performance league table will be a very public document. Those who come high on the list will rightly publicise that fact. They will receive accolades. They will receive awards. Those in high places will invite them into inner sanctums.

Conversely, those who do badly – especially compared with their obvious peers – will receive opprobrium. Poor headlines await. Customers – both up and down the supply chain – will raise serious questions, particularly if they themselves are doing well. Importantly, staff will feel de-motivated, working for such an irresponsible.

Obviously, the league table will be comparing apples and oranges. The Committee on Climate Change has asked that the public and private sector should have different tables. This is in part because they calculate the public sector’s saving potential to 2017 as half that of the commercial sector’s 27 per cent potential. But also because of distaste at taking public money to reward private sector organisations (squeamishness normally unobserved among commentators).

While I understand their concerns, it is no more unreasonable than placing a small cement works and a leisure complex in the same table. And I fail to see why, for instance, a publicly owned airport should be judged differently from a private sector one.

Many questions remain to be answered before 2013. Should any of the CRC money be used for financial incentives? Should smaller companies be included? Should government set a cap on the absolute number of allowances in the sector? All these, and more, will remain live issues for the next two years.

In the meantime, a brave new world awaits. Let the CRC commence.

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