exploring crc mechanism
How Whitehall sees the
CRC scheme in practice
The CRC Energy Efficiency Scheme starts in April 2010 and the govern- both criteria apply. (All government depart-
ment believes that it will encourage energy efficiency improvements. ments are part of the scheme by default.) Once
It will reduce carbon dioxide emissions by introducing a cap and trade into the scheme, the participants have to add
mechanism combined with a performance league table for large or- back into their energy total the carbon equiva-
ganisations in both the public and the private sectors. lent of qualifying gas consumption.
The scheme will begin with a three year introductory phase, during At the expense of a cliché, the devil is in the
which allowances will be sold during an annual month long sale at a detail. What constitutes an ‘organisation’?
fixed-price of £12/tCO2 and the number of allowances for sale will not What happens in situations where an organi-
be capped by the government. This is intended to allow participants to sation is artificially extended by entities
become accustomed to predicting their emissions and trading their al- which have been brought into the fold at the
lowances. During this time Government will collect accurate data as stroke of a pen?
the basis for determining the cap (limit) on the number of allowances State schools, for example, are financially
available in subsequent phases. autonomous in many respects from their lo-
When the scheme was projected as an option in the 2006 Energy cal authority and were originally not going to
Review, the CRC scheme was calculated to be broadly revenue neutral be included in the total.
to the exchequer. Revenue raised by the annual auction will be recy- The definition was re-cast in the summer of
cled back to participants in proportion to their 2010/11 emissions, ad- 2008 to include each establishment’s energy
justed by a bonus or penalty based on their rank in the CRC Performance consumption in its authority’s figures. While
League Table. all but a handful of those authorities would
Under a cap-and-trade system, participants have substantial flexibil- have been participants without their schools,
ity to decide how they will comply. They can reduce their own emis- the involvement of the schools sector in this
sions or purchase more allowances that give them the right to emit. way introduces an array of complications
Allowances will be tradable between participants, which the govern- which have yet to be resolved completely.
ment believes will make it possible for emissions reductions to take
place where they are most cost-effective. Those reductions can be achieved
by energy efficiency measures and switching to lower carbon fuels.
Scheme modified after consultation
The aim of the CRC is described as being “. . . both to increase organi- Following a period of consultation in the Sum-
sational awareness and attract senior managers’ attention to carbon mer of 2009, some of the details of the draft
and energy issues, therefore acting as a key driver of behavioural change scheme were modified. Large organisations,
among participant organisations.” for example, could peel off subsidiaries which
The direct financial levers introduced by the CRC (through the addi- themselves would qualify as participants (sub-
tional element of carbon pricing and the risks and rewards implied by ject to the remainder still qualifying for the
the revenue recycling mechanism) are seen as playing a key role in scheme under the established criteria).
attracting sustained management attention. But the government believes There was a change at that stage to the phas-
that these will be accompanied by several other drivers including ing in of the CRC, so that the year from April
• the provision of better information on energy use and emissions
2010 is now being treated wholly as a ‘report-
across participant organisations (through the monitoring and report-
ing year’ and the first purchase of allowances
ing requirements),
will not take place until April 2011. This should
have some beneficial effect on the cash flow
• the general push to raising energy management and emissions up
of participants.
the corporate agenda (through the target setting process that the
scheme encourages and also through the proposed league table and Case made for compulsory CRC
the carbon price);
The case being made for the CRC is that,
• reputational drivers (again, through the proposed league table). within the organisations involved, energy con-
In essence, these additional levers introduced by the CRC (which are
sumption is high, but its cost still accounts for
ultimately indirect financial levers) are expected to be at least as im-
just a small proportion of total operating costs.
portant as the direct financial drivers. §
It is claimed that consumers might be tempted
12
The Informed Executive
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