Making Sense of the UK's CRC Energy Efficiency Scheme

The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a government-managed carbon-trading scheme that aims to reduce the energy consumption of larger UK businesses and public-sector organizations.

On the surface the CRC scheme looks pretty complicated. And to be perfectly honest it is pretty complicated.

We've read up on the subject and condensed the information into an overview guide that's hopefully a little easier for someone relatively new to the CRC Scheme to digest. Please feel free to link to this article or forward it on to collegues or associates that might find it useful.

First a short word of warning

We've gone through a lot of information on the CRC, but we're not the authority on the subject. Our summary leaves out many of the details and subtleties that we know about, and probably many that we don't. We hope that you will find this article useful as a starting point, but please don't think of it as a substitute for the official information at the UK government website – they have a lot more details than we have here.

OK? Good, then let's move on:

Is the CRC relevant to your organization?

Firstly, it's your organization's UK electricity consumption that matters. If you don't have UK buildings that use electricity, you don't need to worry about the CRC.

Secondly, for the CRC to be relevant, you need to have one or more electricity supplies with half-hourly metering that is settled on the half-hourly market. "Settled on the half-hourly market" means that your electricity supplier is billing you based on the half-hourly records of electricity consumption that your metering is recording. Any UK electricity supply with a maximum demand of 100 kW or more should have such a half-hourly meter. See our page on half-hourly data for more on this. Half hourly metering that you've installed yourself, independently from your electricity supplier, doesn't count.

If you have a half-hourly meter that's settled on the half-hourly market, the CRC administrator should send you a qualification pack for the CRC Energy Efficiency Scheme through the post.

The "information disclosure" level of involvement

If you have a half-hourly meter that's settled on the half-hourly market, at the very least you'll need to make an "information disclosure" to tell the CRC administrators about your energy usage. For this you'll need to make sense of the half-hourly energy-consumption records that your electricity supplier will give you – a task for which you will probably find our Energy Lens software useful.

Whether you need to go beyond the information-disclosure level depends on how much half-hourly electricity you use...

The "full participation" level of involvement

If your total annual half-hourly-metered electricity consumption exceeds 6,000 MWh, you will probably need to be involved in the CRC Energy Efficiency Scheme at the "full participation" level.

6,000 MWh, equivalent to 6 GWh or 6,000,000 kWh, is a lot of electricity – roughly half a million pounds' worth of electricity. If your total annual electricity bill is nowhere near £500,000, you probably won't need to participate in the CRC scheme.

Organizations that are regulated by CCAs or the EU ETS are probably exempt

Around 2,500 UK organizations, mainly large energy-intensive industrial businesses, are already regulated by Climate Change Agreements (CCAs) or the EU Emissions Trading System (EU ETS). The Carbon Reduction Commitment (CRC) isn't intended for these organizations, so they will generally be exempt.

Calculating your organization's carbon emissions for the CRC

Once a year you'll need to calculate and itemize the carbon emissions that your organization is responsible for, or at least the proportion of those CO₂ emissions that the CRC scheme is interested in.

Although it's only electricity consumption that determines whether or not your organization is required to participate in the CRC scheme, participating organizations also need to account for several other sources of CO₂ emissions. The relevant sources of emissions are: electricity, gas, and other fuel types such as coal, oil, LPG, diesel etc. Fuel for transport or onward supply is not considered relevant to the CRC.

Collecting and itemizing this information gets complicated, not least because of the numerous terms that the CRC scheme uses: "relevant emissions", "total footprint emissions", "regulated emissions", and finally, the one that matters most, "CRC emissions".

• Your "relevant emissions" are your CO₂ emissions from energy use, excluding transport and onward supply.
• Your "total footprint emissions" are only different to your "relevant emissions" if you have members within your organization that are exempt from the CRC (e.g. because their energy usage is covered by a Climate Change Agreement or CCA). If your organization has such CRC-exempt members, subtract their emissions from the "relevant emissions" to get your organization's "total footprint emissions".
• Your "regulated emissions" can be up to 10% smaller than your "total footprint emissions". Basically you can skip the detailed accounting of up to 10% of your "total footprint emissions", provided that 10% comes from small "residual sources" of energy – the sorts of sources that would be a pain to account for. You need to itemize the emissions from all your "core sources", which include any gas or electricity supplies that have significant consumption (the rules specify the thresholds etc.) or that are easy to account for because they are automatically metered (e.g. by any form of interval metering).
• Your "CRC emissions" are your "regulated emissions" minus any emissions that are covered by Climate Change Agreements (CCAs) or the European Union Emissions Trading System (EU ETS).

At the end of all this, you need to provide the CRC-scheme administrator with a footprint report that covers:

• total footprint emissions;
• CRC emissions; and
• details of any CCA exemptions.

Timescales for the Carbon Reduction Commitment Energy Efficiency Scheme

CRC years start in April. The first year starts in April 2010.

During the first CRC year, participating organizations need to register within the "registration period", between April 2010 and the end of September 2010.

The first three years of the scheme are to form the "introductory phase" of the scheme. Rules will be a little different for this period.

CRC year 4, starting April 2013, will begin the "capped phase" of the scheme.

Keep reading for more on these phases of the CRC Energy Efficiency Scheme.

Carbon allowances and carbon emissions trading

At the end of each compliance year, CRC participants will need to surrender one "allowance" for each tonne of CRC emissions (i.e. each tonne of CO₂) that they emitted during the year.

At the start of each compliance year, the government will run a month-long sale, selling allowances to CRC participants. The participants will typically buy allowances based on their estimates of the CRC emissions that they will be responsible for over the following year.

At the end of a year, some participating organizations will have more allowances than they need, whilst others won't have enough. Participants will be able to trade allowances between themselves, for whatever costs they see fit.

The government will also have a "safety valve", which will enable organizations to buy allowances at any time throughout the year. The safety-valve system looks a little complicated, but the idea is that the safety-valve allowances will always cost more than the allowances sold during the month-long sale.

During the three-year introductory phase

During each month-long sale of the 3-year introductory phase, the government will offer allowances at a fixed price of £12 per allowance.

Since organizations will be registering throughout the first half of the first CRC year, it wouldn't be practical for them to buy their allowances in advance of the 2010/11 year. So there won't be a month-long sale at the beginning of April 2010. Instead, the first month-long sale will be in 2011, and it will be a double sale in which organizations will need to buy allowances for 2010/11 retrospectively (this is not normal for the scheme), and for the forthcoming 2011/12 year (this is normal for the scheme).

After the three-year introductory phase – the capped phases

The fun will really begin when the capped phases kick off in April 2013:

• Each year there will be a cap on the total number of allowances made available...
• The allowances will be sold by auction i.e. no more fixed-price allowances...
• Each participating organization will be limited to a certain percentage of the year's allowances, to prevent any organization from cornering the market.

Revenue recycling and the CRC performance league table

One might say that this is the clever part...

At the end of each CRC year, the revenue that the government made from its month-long sale/auction of allowances is redistributed, or "recycled", back to the participating organizations.

But it isn't distributed evenly...

There's a performance league table that ranks the participating organizations in terms of how well they have reduced their emissions. The better an organization performs within that table, the more of the money will be recycled to them. Organizations near the top of the table should get more money back than they put in, and organizations near the bottom should get less.

How to get league points to improve your score in the league table

• You can reduce your absolute CRC emissions relative to previous years (this is calculated using the "absolute metric").
• You can reduce your CRC emissions relative to your turnover (or revenue expenditure if you're a public-sector organization). This is calculated using the "growth metric" which is supposed to correct for the fact that an organization's emissions would typically be affected by growth or decline of the organization itself.
• During the introductory years only you can demonstrate good energy management prior to the beginning of the scheme. This "early adoption metric" is based on two factors:
  • how much automated metering, or AMR (basically interval metering), you installed voluntarily before 31 March 2011; and
  • how much of your emissions are covered by a Carbon Trust Standard or Energy Efficiency Accreditation Scheme.