1. How to manage carbon reduction,
and make it pay
A hands on management briefing on real life ways
big UK companies cut carbon, and their costs
Executive Summary
The full report is available at www.ethicalcorp.com/crc
Ethical Corporation
2008
June 2008
2.
3. HOW TO MANAGE CARBON REDUCTION
Contents
Overview............................................................................................................................................................ 5
Section 1: The Carbon Reduction Commitment (CRC)
1.1 Quick facts.................................................................................................................................................... 6
1.2 How does the CRC work? ............................................................................................................................ 6
1.3 Who benefits? .............................................................................................................................................. 6
1.4 Who is targeted? .......................................................................................................................................... 7
1.5 What am I reporting on? .............................................................................................................................. 7
1.6 My company is already involved in other schemes .................................................................................... 7
1.7 Which part of my organisation is responsible for CRC participation? ........................................................ 8
1.8 How will it be regulated? ............................................................................................................................ 8
1.8.1 Non-compliance penalties .................................................................................................................. 9
1.9 What stage are we at? ................................................................................................................................ 9
Debate: BT and Defra on the treatment of onsite renewables and renewable
obligation certificates ...................................................................................................................................... 10
Key dates for your diary .................................................................................................................................. 12
Section 2: The marketplace structure
2.1 How the market works .............................................................................................................................. 17
2.2 The introductory phase (2010) .................................................................................................................. 17
2.3 The capped phase (2013) .......................................................................................................................... 18
2.4 The safety valve ........................................................................................................................................ 18
2.5 Revenue recycling and the league table.................................................................................................... 18
Section 3: The qualification process
3.1 The energy suppliers’ role.......................................................................................................................... 20
3.2 The qualifying organisations’ role ............................................................................................................ 20
Section 4: Monitoring, reporting and audit of emissions (MRA)
4.1 Monitoring ................................................................................................................................................ 22
4.2 Reporting .................................................................................................................................................. 22
4.3 Risk-based audit........................................................................................................................................ 22
Section 5: Compliance costs
5.1 Costs of scheme coordination .................................................................................................................. 24
5.2 Benefits: Energy saving ............................................................................................................................ 24
Section 6: Case studies
ITV – Challenge: Medium-sized firm spread over multiple locations .............................................................. 25
Land Securities – Challenge: Negotiating landlord-tenant agreements for CRC compliance .......................... 25
Alliance Boots – Strategy: Emissions quantification and data collection ...................................................... 26
Asda – Abatement strategy and CRC performance ........................................................................................ 27
Ecotricity: Industry comment from a green energy supplier .......................................................................... 28
Section 7: Looking forwards ............................................................................................................................ 29
References ...................................................................................................................................................... 30
4. HOW TO MANAGE CARBON REDUCTION
Tables and boxes
Box 1: CRC objectives ..........................................................................................................................................5
Box 2: List of Acronyms ......................................................................................................................................5
Box 3: The “top-down” approach ........................................................................................................................6
Box 4: Trading strategy........................................................................................................................................6
Box 5: Target sectors ..........................................................................................................................................7
Box 6: British Retail Consortium (BRC) on the franchisor responsibility ............................................................8
Box 7: Insider advice: Constructing a marginal abatement curve ....................................................................17
Box 8: Will cap-and-trade deliver emissions reductions? ..................................................................................17
Box 9: Trading strategy – the “prisoner’s dilemma” ..........................................................................................18
Box 10: League table loopholes ........................................................................................................................19
Box 11: Data collection, processing and reporting ............................................................................................20
Box 12: Estimating the cost of CRC compliance ................................................................................................24
Box 13: landlord tenant scenario ......................................................................................................................25
Box 14: The polluter pays principle ..................................................................................................................26
Box 15: Need for supplier information mandate ..............................................................................................27
Table 1: Calendar of CRC integration ..................................................................................................................12
Table 2: Key administrative activities ................................................................................................................23
5. HOW TO MANAGE CARBON REDUCTION
Foreword
his briefing has been produced for businesses dates, examples of challenges by specific companies,
T managers and executives who need to understand
the new carbon emissions regulations in the UK.
monitoring and cost estimates. The briefing
concludes with five case studies that explore real life
It aims to provide a clear overview of Dea’s ways big companies are preparing for the new regula-
Carbon Reduction Commitment (CRC), and help tion and are reducing their carbon emissions.
companies with a UK presence prepare for the We hope that the guidelines presented in this
Government-led, mandatory cap-and-trade scheme. report will prepare readers for the new UK emissions
The briefing finds that some of the aspects of CRC regulation and enable them to respond ethically and
are still contested. Many of the up to 5000 firms that effectively.
will be implicated by the scheme are not aware of Dea is confident in their design of the CRC.
their responsibilities or only in the initial stages of However, its implementation will be closely
developing a compliance strategy. monitored, and specifications and dates may be
Section 1 through 5 walks the reader through the adjusted in the future.
new regulations in a step-by-step fashion. It explains Ethical Corporation is grateful to all corporations
the issues that are critical to business. These sections that contributed valuable data, opinions and company
include an overview of current debates, a diary of key strategies.
Ethical Corporation
Acknowledgements
Ethical Corporation is grateful to Rikki Stancich for leading this research and the Defra CRC Team for their
significant contributions. In addition, we wish to thank Alliance Boots, Asda, the British Retail Consortium, BT, Ecotricity,
E.ON, Carbon Trust, ITV, Land Securities, New Carbon Finance, and Point Carbon for providing valuable insight and
assisting us with our research.
6. HOW TO MANAGE CARBON REDUCTION
Overview
n today’s business-as-usual environment, oces,
I retail outlets, supermarkets and restaurants are
unwittingly generating over one-third of the UK’s
Box 1: CRC objectives
“The CRC is designed to be simplistic, with minimal
total emissions through inecient energy usage at administrative burden; revenue neutral (in that firms
their premises alone. And according to the Depart- recoup the upfront costs via the revenue recycling
ment for Environment, Food and Rural Affairs scheme); and to overcome behavioural barriers with
(Dea), this figure is rising at a disturbing rate – regard to energy efficiency.
emissions om large non-energy intensive organisa-
tions will increase by approximately 11% by 2030 “Essentially the CRC aims to make firms examine their
compared to 2010 levels. electricity bills a couple of times a year and identify
Previously, the energy bills of large, non-energy- where they can lower their costs and cut their
intensive private and public sector organisations have emissions.”
received scant attention om firms, given that they
generally account for as little as 1-3% of overall Jonathon Farr, Spokesman, Defra
operating costs.
From 2010, this will no longer be the case. By
introducing a mandatory cap-and-trade scheme
targeting these sectors, the UK Government will in
effect be forcing companies to examine how they can
reduce their energy bills – and their emissions.
At present the Government indicates that all firms
whose half-hourly metered electricity use exceeds
6,000MWh – which currently translates as an
electricity bill in excess of £500,000 – will be
required to participate in the Carbon Reduction
Commitment (CRC) scheme.
This year (2008) is the qualification period for the
first phase of the scheme, which will begin in 2010.
Roughly 5,000 firms in the UK will be involved – and
many are either unaware of this, or are at no later
than the embryonic stage of developing a compliance
strategy (Dea 2008a). Box 2: List of Acronyms
While the scheme has been designed to be as light AMR – automatic meter reading
touch as possible, with minimal compliance costs and BSC – balancing and settlement code
potential rewards for strong performers, non-compli- CCA – climate change agreement
ance will result in tough penalties. The Government CHP – combined heat and power
expects to set penalties that are comparable to EU ETS CSR – corporate social responsibility
penalties. For example, if an organisation has under- DA – devolved administration
reported or has not provided data two months aer EEAS – energy efficiency accreditation scheme
the deadline, then they would be liable to pay a EU ETS – european union emissions trading scheme
substantial fine. This fine may be set at a rate of HHM – half hourly meter
£25/tonne of CO2. This fee rate would rise to kVA – kilovolt ampere
£70/tonne of CO2 aer the introductory phase. kW – kilowatt
Issues relating to CRC responsibility continue to be MAC – marginal abatement curve
contested by a handful of industry sectors, including MWh – megawatt hour
the UK anchisor and renewable energy sectors. NPV – net present value
Meanwhile, proposals such as supplier information PFI – public finance initiative
mandates for CRC quantification purposes and the PPP – polluter pays principle
nature and extent of the inclusion of the National PPP – public private partnership
Health Service has yet to be agreed upon. This will RO – renewables obligation
be discussed during the forthcoming autumn 2008 ROC – renewables obligation certificate
consultation. SME – small-medium enterprise
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