The Carbon Reduction Commitment will typically result in a range of costs for participating organisations. These could include administration and consultancy advice, implementation of new technology, as well as the potential for fines and penalties due to non-compliance or poor performance.
However, in the long term, it is likely that most organisations will enjoy significant financial benefits due to improved efficiency and lower energy costs.
For some organisation that do well on the CRC league table, the Carbon Reduction Commitment presents the opportunity to benefit from bonus payments that could more than outweigh any financial investment.
If a company fails to register by the required deadline it could receive a fine of £5,000, plus an additional £500 per day, until it is successfully registered on the scheme.
Where an annual report is submitted late, the fine looks as though it could be £5,000 + £0.05 per tonne of allocated allowances per working day
Where submitted carbon emission details are more than 5% variation from actual, a fine of £40 per tonne of allocated annual allowances (compared to £12 per tonne of first phase allowance costs).
Where an evidence pack is incomplete or not up to date - £5 per tonne of allocated allowances.
Non conformance will be treated as a civil offence. However, failure to respond to subsequent demands will lead to issue being treated as a criminal offence.
Having identified their total annual CO2 emissions, participating organisations will have to purchase carbon allowances at a fixed price of £12 per tonne during the first two years. The initial two-year introductory phase of the CRC will run from the beginning of April 2010 to the end of March 2013. However, allowances will not be sold until the end of the second year. If a participant does not purchase enough allowances during April, it can purchase additional allowances through the secondary market and safety valve, which will have a minimum price of £14 per tonne.
When purchasing allowances, organisations will be allowed to purchase unlimited quantity and bank these allowances for future years, but only within each phase of the carbon reduction commitment scheme. To this end, participants may purchase several years allowances in 2012, but cannot be banked beyond the end of March 2013.
There are no free allowances in the scheme. All allowances must be bought and sold, and cannot be borrowed between organisations for any period. The revenue raised from the sale of Carbon Reduction Commitment allowances will be kept by the treasury. As a result, there will be cash flow implications during the period from April to October while all organisations in the scheme wait for the revenues to be recycled.
In April 2013 the carbon reduction commitment will adopt an auction trading mechanism for allowances, using sealed bids.
The carbon reduction commitment originally aimed to use a bonus and penalty scheme as part of the incentive for organisations to reduce their levels of emissions. Any bonus for penalty administered to an organisation will be based on their position in the league tables.
However, following the Government's Spending Review on 20th October 2010, the bonus and penalty scheme appears likely to be dissolved, with all revenue from allowances being kept by the Treasury.
The carbon reduction commitment emissions trading scheme will target of emissions that are not currently included in the European Union's emissions trading scheme all climate change agreements. It is anticipated that the trading scheme will affect approximately 5000 of the UK's largest organisations.
During the initial phase of the carbon reduction commitments emissions trading scheme, starting 2010, all allowances will be sold at a fixed price of £12 per tonne of CO2. However, it is anticipated that from 2013, all allowances will be allocated through auctions that will develop a market price. Over time, the number of available credits will diminish which is likely to drive up the price.
The carbon reduction commitment's recycle payments will take place over three stages.
First stage - based payment
During the first year, from April 2010 to March 2011, calculations will be made to identify each organisation's share of the total carbon covered by the scheme. This percentage share will then be used for all subsequent years. The percentage share will then be multiplied by the recycled pot
Second stage - bonus or penalty
During the first year, the organisation at the top of the league table will receive only 10% bonus.
Adjustment factor
The adjustment factor will be applied to all participants of the scheme to ensure that there are enough finances in the total pot to make payment of the recycles
whilst the carbon reduction commitments does not officially start until April 2010, there is still a large amount of work that many organisations may have to do prior to that date.
Identify organisational structure
the carbon reduction commitments operates under special rules that may mean some organisations will be included in the scheme even though they think they are too small and energy user to have two participate. To this end, it is imperative that all companies identify exactly where they fit in with larger parent or group organisations, and where at how each will be liable to the carbon reduction commitment.
The carbon reduction scheme applies at the highest level of the organisation, except where there are significant subsidiaries. Significant subsidiaries are defined as individual energy uses that in themselves consumed more than 6000 MWh during 2008. As such, the significant subsidiary could be included into the carbon reduction commitment scheme in its own right, and made separate from the rest of the organisation.
Organisations will also need to identify which parts of their energy consumption already fall under climate change agreements and the EU emission trading schemes; and therefore be excluded from the carbon reduction commitment. One these elements have been identified, the total needs to be calculated to account at least 90% of the organisation's total carbon footprint
Electricity consumption
Having identified the organisational structure, the next step will be to ascertain the total amount of electricity consumption from all half hour meters. If the sum exceeds 6000 MWh during 2008 in the organisation will fall under the carbon reduction commitment scheme