\ professional development
Mysteries of the Carbon Reduction Commitment
scheme revealed – part one
This is the first in a series of articles looking percentage rate is applied to each year, you can’t
at the Carbon Reduction Commitment (CRC) simply apply the quoted percentage to the
scheme due to be introduced in 2010. CRC is particular year’s purchases in order to arrive at a
an emissions trading scheme covering both best/worst case scenario.
public and private sectors.
Public sector organisations that consume How it works
at least 6,000MWh of electricity (roughly The revenue recycling payment is based on:
equivalent to an annual bill of £500k) and 1. A set payment in proportion to your
have at least one settled half-hourly meter, organisation’s share of the total emissions in
may qualify for the CRC scheme. the first year of the scheme.
Predicting the best/worst case scenario for 2. Plus or minus a bonus/penalty payment based
the recycling payment may not be as easy as it on your position in the league table.
first appears The maximum bonus or penalty rate is set for
The CRC scheme and the method proposed for each year (10% in year one, increasing to 50% by
the recycling of carbon allowances pose a number year five), but this quoted percentage is used early on in
challenges for financial planning and accounting. Not least a three stage calculation. The resulting allowances actually
of these is the proposed method for calculating bonuses and recycled back to an organisation can exceed the percentage
penalties. rate applied – see example below.
Although it may appear from a first read of the Department Find out what CIPFA is doing to address the sustainability
of Energy and Climate Change draft guide that a maximum agenda at www.cipfa.org.uk/pt/sustainability
Confused? An example may help and your organisation receives that much back.
Let us say that in year three your organisation came bottom The table below illustrates this, with just two
of the league table and so the maximum penalty rate for organisations. Organisation 1 receives a bonus for coming
that year ( -30%) was applied to your organisation. top while organisation 2 receives a penalty for coming
1. The -30% is applied to your first year emissions to arrive bottom.
at an adjusted first year emissions figure. Comparing column C with column J you’ll see that
2. Your adjusted first year emissions figure is then organisation 1 bought £9,000 of allowances and received
calculated as a proportion (%) of the total of all the back £20,047, while organisation 2 bought £24,000 and
participating organisations’ adjusted first year emissions. only received back £12,953. In both cases the repayments
3. The resulting percentage calculated at stage 2 is then exceed the 30% bonus/penalty rate applied at stage 1 of the
applied to the total amount of all allowances purchased calculation.
League Table Example – Year 3 (30% bonus/penalty rate)
A B C D E F G H I J
Org. Number of Cost at Actual Rank Year 1 Bonus/ Year 1 + % of total Year 3
allowances £12 per emissions emissions penalty or -% (H divided recycling
purchased tonne (Tonnes (Tonnes % applied (F x G) by repayment
CO2) CO2) H total) (I x total
1 750 9,000 750 1 1,000 +30% 1,300 61% 20,047
2 2,000 24,000 2,000 2 1,200 -30% 840 39% 12,953
Total 2,750 33,000 2,750 2,200 2,140 33,000
While the example above is simplified, with just two Another example can be found on page 45 of the CRC
organisations, it does indicate that estimating the likely user guide (available at www.defra.gov.uk/environment/
repayment including best/worst case scenarios will prove climatechange/uk/business/crc/index.htm ). Note that the
difficult and may cover a wider range than the quoted current guidance is draft and subject to change.
maximum bonus/penalty rate. For further information firstname.lastname@example.org
CIPFA | Spreadsheet magazine | AUGUST 2009 19
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