CRC due for a change?

Not much has happened recently on the Carbon Reduction Commitment (CRC). The helpdesk tells me that the Performance League Table for 2011/12 will be out some time this month. No great urgency, then. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor did mutter something earlier in the year about replacing CRC. Will he announce this in the Autumn Statement on Wednesday, 5th December? As far as I can see he has three options:

•       Leave things as they are and let the “tax” keep rolling in


•       Increase the price of carbon allowances


•       Announce the replacement of the scheme, (no doubt preceded by another consultation)

My prediction is that he will do nothing beyond reducing the list of 28 fuels to four, as already suggested . He will not increase the carbon price because he doesn’t believe in restricting emissions if this will restrict the short-term performance of the economy. He won’t replace the scheme because it will take time and whatever he ends up with will have to yield as much revenue as CRC does at present, so why bother? In any case, the civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. Yet.

Let's see what Wednesday brings!

Green Double Whammy for George Osborne

George Osborne has made no secret of his environmental scepticism and claims that emissions targets and environmental measures could damage British industry. He’ll find it more difficult to maintain this position in the face of today’s call from the world's largest investors for more decisive action by governments on climate change.

The letter from global investor networks representing institutional investors responsible for over $22.5 trillion in assets calls for a new dialogue between investors and governments on climate policy.

They set out seven key tasks, including the need to favour low-carbon investment over high-carbon investment and to stop subsidising fossil fuels. This does not fit well with Osborne’s plan to redevelop Britain’s power stations with a new dash for gas!

The investors conclude that “governments are key in reducing the serious risks, losses and damage that climate change will cause, and the risks to the investments and retirement savings of millions of people. While we commend governments that have implemented supportive policy, much further work is needed to decarbonise economies and portfolios and to stimulate private investment in low-carbon solutions.”

At the same time, the influential Environmental Audit Committee (EAC) is urging the Chancellor to “restore investor confidence” in the government’s energy policy with a clear decarbonisation target.

Joining the growing chorus of calls for a 2030 decarbonisation goal for the power sector in the forthcoming Energy Bill, Committee chair Joan Walley MP says:

“The government needs to reassure investors by setting a clear target in the Energy Bill to clean up the power sector by 2030. A second ‘dash for gas’ could lock the UK into a high-carbon energy system that leaves us vulnerable to rising gas prices.”

The Committee wants the Treasury to explain how new incentives for gas-powered energy generation can be compatible with the UK’s legally binding carbon reduction targets.

Walley also alludes to the much-reported rift between the Treasury and the Department for Energy and Climate Change.

“The Treasury must end the uncertainty on energy policy and give investors and businesses the confidence to seize the enormous opportunities presented by new clean technologies,” she adds.

So what future for the “greenest government ever”?

And what future for us?

CRC or GHG? Welcome back to work!

This week’s cabinet re-shuffle is generally accepted as a move to the right and it also looks like a move away from the green agenda. The coalition’s promise of “the greenest government ever” is long forgotten. Boris Johnson has made no secret of his anger at Justine Greening’s removal from Transport. This is because he’s against the expansion of Heathrow and he thinks her departure will lead to the government changing its mind on a third runway. Last week Tim Yeo urged David Cameron (are you a man or a mouse?) to build the third runway without delay. Tim Yeo is chairman of the Commons Select Committee on Energy and Climate Change. You couldn’t make it up!

Of course Boris isn’t against airport expansion – he just wants a brand new airport in the Thames Estuary. Fine for London and the Southeast, but not so handy for the rest of us! That’s not the issue, though. Such an airport will take at least 20 years to build and probably 50 years to pay for itself. In the short term it will create lots of jobs and the economic growth that all politicians are chasing. In the medium and long term it will make it more and more difficult, if not impossible, to reach our carbon reduction targets. More to the point, within 50 years oil is likely to be so expensive that we’ll think twice about even driving to the airport and air travel will once again be only for the rich. Boris Island or LHR3 will be a white elephant. (Remember, a white elephant was given by Indian rulers to courtiers they didn’t like. It costs so much to maintain a white elephant that it’s expected to bankrupt the owner.) Who will own, or at least underwrite, these new airports? Why, the taxpayer. So that’s all right then!

What’s changed on the CRC front?

For the moment, nothing’s changed. Except that a shift to the right makes it more likely that George Osborne will review the CRC scheme with a view to replacing it.  He threatened to, earlier in the year. We should learn more at the Comprehensive Spending Review (CSR), which is likely to take place shortly after 15^th October.

My predictions? CRC will continue for the moment, at least until the end of the first phase. The Chancellor will therefore collect another £750m next July and again in 2014. This assumes that he stays with £12/tonne. He will have to weigh the temptation of extra revenues from a higher carbon price against the pressures from the business lobby. Again, the CSR will reveal all.

And how does GHG reporting fit into the picture?

There’s been a lot of comment over the summer about greenhouse gas reporting. (GHG) We’re told it demonstrates the government’s firm commitment to the green agenda. Am I missing something? From where I’m standing it looks just like greenwash. Why?

▪                GHG reporting will apply to some 1,100 companies and therefore leave out many of the 2,700 CRC participants.

▪                Companies can choose their own reporting formats. They need to be consistent from year to year but do not need to conform with any other organisations.

▪                Companies must report on Scope 1 and Scope 2 emissions and account for the six Kyoto gases, including fugitive emissions. Given the constant attempts to simplify CRC this looks like a highly complex requirement, but if there is no reporting standard how can it be monitored or regulated?

▪                CRC was set up with a financial performance measurement which was turned into a financial levy. GHG reporting has no financial structure or incentive, so it will be impossible for the government to use it to raise revenue. How will they replace the £750m from the CRC if they scrap the scheme – or will they simply retain it and demand GHG reporting as well? Did someone mention cutting red tape?

Have your say!

The original consultation on GHG reporting took place in 2011. DEFRA has published a Summary of Responses here

A succinct summary is available from the Institute of Environmental Management and Assessment (IEMA) here.

Draft regulations have now been published and are open for consultation. Here are some of the key provisions additional to those mentioned above:

▪       An option to delay the introduction of mandatory GHG reporting until October 2013; to tie in with other planned changes to company reporting;

▪       A planned review of the GHG reports published in the first two years and a decision in 2016 whether mandatory reporting should be imposed on all “large” companies;

▪       The regulations will be made under the Companies Act 2006 and enforced by the Conduct Committee of the Financial Reporting Council (FRC). This means your GHG report will have to be audited.

▪       Transparency is a requirement, but not the method of reporting;

▪       Existing data developed for compliance with the current EU ETS, CRC and CCAs can be used;

▪       The report must include an ‘intensity ratio’, using a financial or activity factor;

▪       Emissions must be reported in tonnes of carbon dioxide equivalence;

▪       The emissions data reported in the first year must be reported in subsequent years to allow comparison.

You have until 17th October 2012 to respond.

If yours is not a quoted company then of course you are outside the GHG net. The public sector is completely excluded as well. Apparently the further consultation in 2015/16 could bring another 24,000 organisations into the net. But hey – that’s three years off, and the other side of a general election! Well there’s nothing urgent about carbon reduction is there?

If you’d like to talk about your corporate carbon footprint, about sustainable business strategies or scenario planning for sustainable survival, you can email me or call 07803 616877.

 

Anthony Day

First CRC Penalties

£99,000 of civil penalties have been levied on four participants of the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) for failing to provide reports on time.

The four companies, Saur (UK) Ltd, Henkel Ltd, BI Group plc and Tomkins Ltd were fined £41,000, £38,000, £10,000 and £10,000 respectively and although the fines seem steep they are set as described in the CRC Energy Efficiency Scheme Order 2010. In fact in two of the cases (BI Group plc and Tomkins Ltd) discretion was exercised resulting in a reduction of the penalty imposed. These companies, the administrator judged, had taken all reasonable steps to comply or rectified the failure as soon as possible.

The reports that these companies had failed to provide were those for the first year (2010/11) of phase one, where CRC participants were obliged to provide a footprint report and an annual report by the end of July.

These penalties show that the enforcement agencies are taking non-compliance seriously, in spite of doubts about the future of the CRC.

They also serve as a reminder to participants that annual reports for the reporting year 2011/12 should have been submitted by 31st July 2012, allowances  paid for by 31st July and that the allowances should be surrendered by the 28th September 2012 deadline.

August – and it’s all gone quiet

The Olympics are over, and everyone seems to have gone on holiday.

What have we got to look forward to when we get back? CRC is still with us for the foreseeable future. There were suggestions that it would be abolished in the Autumn, or replaced with something simpler, but will the Chancellor give up the £750m it yielded this year?

Mandatory Greenhouse Gas Reporting (GHG) has had wide press coverage. It’s been hailed as an example of the UK being a world leader in carbon management. How can this be?

• It will apply to UK-registered companies quoted on the Main Market of the London Stock Exchange, European exchanges, NYSE or NASDAQ. That’s about 1,800 companies, whereas CRC covers 2,700.


• The proposals are to monitor the six Kyoto gases. There are constant calls for CRC to be simplified, and that scheme only monitors the one gas – CO₂. They are even talking about including Scope 3 emissions (created by your product in the hands of your customer.)


•  There are no plans to impose penalties or charges for emissions.


• There is no standard methodology required for reporting.


• The whole consultation is very vague (only 6 pages.)

Greenwash, anyone? Oh, I forgot, it’s the silly season.

Hopefully there’ll be some sense by the time the consultation closes on 17^th October, but aren’t we leaving things a bit late? If the government is truly going to reduce the nation’s emissions by 80% by 2050 or even 30% by 2020, is a vague scheme which will allow people to report in any way they like really going to make a difference?

This certainly looks less and less like the greenest government ever. Was I really naïve enough to believe the hype?

In September, our new Sustainability Works website launches, based on my new keynote speech and my book of the same title.

You can keep ahead of the game because the book is AVAILABLE NOW on Kindle. 

 

Pay CRC PDQ. Is GHG your new USP?

CRC payments are due tomorrow – 31st July – which means the money must be cleared and in the government’s bank account by then.

Although it’s likely that the Chancellor will announce a consultation in September on replacing the CRC, it’s not over yet. The scheme could survive until the end of the first phase, which means that we’ll be reporting – and paying – right through to July 2014.

If the CRC is replaced, something will have to be done to replace the government’s £750m revenue from the sale of allowances.

There’s another consultation out since last week. DEFRA wants your opinion on the Greenhouse Gas Reporting draft regulations. Answers, please, by 17^th October.  At the moment the suggestion is that they will review reports by quoted companies in 2015 and consider widening the net in 2016 to include other large organisations. There is no suggestion of financial levies or penalties, but then, CRC was supposed to be financially neutral.

There is already controversy over the GHG Reporting proposals, particularly that no consistent method is required for measuring emissions. This and other concerns are raised in a recent Guardian blog. The idea of reporting is that shareholders and stakeholders will be made aware of the risks that the reporting companies face and presumably will encourage them to act responsibly. Doesn’t all this sound incredibly laid-back? Doesn’t it sound as though we’ve got all the time in the world?

So how is the government going to maintain or replace its CRC revenues? In the short term, while the scheme still exists, it could get the goose to lay as many golden eggs as possible by raising the price of carbon allowances. Watch out for the Chancellor’s Autumn Statement in October! Or maybe they’ll follow the example of the Australians, who are now taxing major CO_2e emissions from landfill at AU$23/tonne (£15.35). Or perhaps they’ll do both. But will it really make a difference?

Managing emissions is only one part of sustainability. I’ve just published a review of the issues called Sustainability Works. You can buy it for your Kindle here for only £1. Or if you’d like a free copy send me an email and I’ll let you have a link to the pdf version.

Something to read on holiday – and if you’re going on holiday have a good one!

 

 

Carbon Capture and Storage - New research from UKERC shows tough road ahead to realise potential.

Following the government’s announcement of £1bn to support the development of Carbon Capture and Storage (CCS) the UK Energy Research Centre today publishes a report which is cautiously optimistic about the technology. It identifies four key issues which the government must address:

1. Choice of technologies. There are several different options but so far no clear indication of which will be best. For the moment the government should not attempt to save money by backing a single solution.


2. There must be financial support, not financial regulation. Penalties for emissions cannot be effective until abatement technologies exist.


3. Developing the technology will take a long time and will essentially be unpredictable. There may be a tipping point where it becomes clear that public money would be better spent on other methods of reducing carbon emissions.


4. There will be a long-term storage liability. Government must take lessons from the nuclear industry and protect the interests of future generations.

Clearly CCS is no quick fix. We hope that the government will also look at short-term cost-saving projects to cut carbon and improve energy efficiency without waiting for CCS to prove itself. (Or not)

 

The full text of the report can be found at
http://www.ukerc.ac.uk/support/tiki-read_article.php?articleId=1881

CRC – Consultation on Simplification

Introduction

Opening the Consultation

The Department for Energy and Climate Change (DECC) published its latest consultation on the Carbon Reduction Commitment Energy Efficiency Scheme on 27^th March 2012. The proposal document is accompanied by an impact assessment and a report from KPMG on the costs incurred by participants in setting up and managing compliance with the scheme.

There are 46 proposals, many of which have already been put forward. Some will simplify the process by reducing the scope of the scheme. Others attempt to simplify it by changing parts of the scheme which have proved difficult to interpret and have led to confusion.

We thought that the proposals would relate only to Phase II, but tucked away at the end of the document is the question (paraphrased) “Do you agree with bringing in the simplifications at the beginning of Phase II, or would you like to see them in place for the final years of Phase I?” As you will remember, Phase II starts in 2013/14 for new participants, but 2013/14 is the last year of Phase I for existing participants. (Simples!)

Closing the Scheme?

In his budget statement George Osborne said that the CRC scheme might be closed “should very significant administrative savings not be deliverable”.  The KPMG report on costs concluded that the principal costs were incurred in setting the scheme up and that they would be significantly reduced in subsequent years. They calculated that for every tonne of CO₂ reported, the administration cost in the first year averaged £1.36 but only £0.11 per tonne for each of the remaining years of Phase 1. On this basis it could be argued that significant administrative savings are on the way, so there’s no need to close the scheme. On the other hand, many people are already arguing that it should be closed and replaced by changes to CCL and CCA, but that’s another debate. (See question 37)

Here is a summary of the proposals. The proposal number is indicated at the end of each paragraph. Some are quite complex, especially the ones about simplification. Some will lead to debate and need further clarification. If in doubt, refer to the full text at http://www.decc.gov.uk/en/content/cms/consultations/crc_simp_cons/crc_simp_cons.aspx

The Details

Things we expected

• The list of fuels to be reported on is cut from 29 to 4: electricity and gas, and gas oil and kerosene used for heating.
  
  
  
  • Bottled gas and gas used directly for electricity generation will be excluded.
  
  
  • Self-supplied gas will be included only when it is natural gas.
  
  
  • Bio-methane and other gases will be excluded.
  
  
  • The 90% rule is abolished
  
  
  • There will be no residual measurement list and no distinction between core and residual energy
  
  
  • No footprint reports in future
  
  
  
  

Things to make life simpler

• 
  
  
  
  • Qualification will be based on supplies through settled half-hourly meters only. (1)
  
  
  • Automatic registration. Most participants in Phase I will also participate in Phase II and will have to register in 2013. If there is no change, details will not need to be re-entered but will be carried across automatically from the original registration. (3)
  
  
  • Class 01 and class 02 electricity meters to be excluded, since these are almost always for domestic supplies. For the same reason gas meters registering less than 73,200kWh per annum will also be excluded. (7)
  
  
  • Gas, gas oil or kerosene used to power CHP will be excluded. However, the Electricity Generation Credit (EGC) will be removed from such plants.
  
  
  • CRC emission factors to be aligned with DEFRA’s Greenhouse Gas Reporting Guidelines. As we move towards mandatory GHG reporting it make sense to have universal values.
  
  
  • CCA facilities and EU ETS installations to be removed from the scope of CRC. The intention has always been to avoid double taxation of emissions but participants have found the existing rules very complex. This proposal appears to be for the blanket exclusion of CCA facilities and EU ETS installations from the scheme, but those units will be tightly defined. Exemption will only apply to those parts of an SGU or site which are directly affected by CCA or EU ETS. The rest of the activity will be covered as before.
  
  
  • Increased flexibility to disaggregate. SGUs will be able to disaggregate regardless of size, allowing groups to participate more in line with their financial reporting structures and corporate GHG reporting requirements. If a parent’s consumption falls below the qualifying level following the disaggregation of a subsidiary, that parent still has to participate. Disaggregation will require the mutual consent of the units involved. Disaggregation will be permitted on an annual basis. (19/20/21/22)
  
  
  • Allowance Sales will be carried out after the end of each compliance year for the rest of Phase I. The government has confirmed the price of £12/tCO₂ for 2011/12 and the same price was confirmed in the Budget for 2012/13. For Phase II there will no longer be a cap on allowances and there will be no safety valve. Instead there will be two fixed price sales; one before the end of the compliance year and one after the year-end at a higher price. Participants who have surplus allowances will be able to trade them on a secondary market. (It’s difficult to see how this would arise, unless they bought too many at the first sale before the year-end.) It will be possible to bank allowances and to sell them to other participants or to keep them for a later year. It will still not be permissible to bank allowances from one phase to another. At the end of Phase I any surplus allowances held will simply expire. (34/35/36/37/38)
  
  
  • Surrender Deadline. This will be deferred to the end of September from  2013. Allowances for 2011/12 still have to be surrendered by the last working day of July 2012. (39)
  
  
  • 2013/14 – only one Annual Report. As noted above, 2013/14 is both the last year of Phase I and the first year of Phase II.  The government will accept a single annual report for both purposes. (40)
  
  
  • Retaining Records. This is generally reduced to 6 years. Previously some records had to be held for as much as 12 years. (41)
  
  
  • Timing of Changes. Do you want to wait for Phase II, or would you like to see some changes introduced earlier?  An example which DECC suggests is bringing in the reduced fuel list.
  
  
  
  

Things we’ll need to think about

The rest of the document deals with particularly complex issues and special situations. In several cases the proposals are not specific; rather a request for participants to submit their own ideas. Here is a summary of the main points. Again, the proposal number is given after each paragraph. (Note that proposal numbers are not the same as question numbers.)

• Supply at the direction of another party. This covers the situation where a third party is involved in procuring the energy. That company would be liable under CRC, but might claim relief in respect of ‘unconsumed supply’. Is this an attempt to clarify the PFI situation? In some circumstances a PFI operator purchases the energy and provides it to the building user as part of the package without separate itemisation. (4)


• Payment requirement. At present payment must pass to confirm a supply relationship, but this will not be required in future. Again, this may be intended to clarify the PFI situation if building users are not specifically charged for energy. (5)


• Unmetered supplies. The proposed changes will mainly affect local authorities and their use of energy for street lighting. Certain types of unmetered supply currently fall outside the scope of CRC. The proposal is intended to close this loophole. (6)


• Unconsumed supply. Proposal 8 does not apply in a landlord/tenant situation. Where an organisation procures energy and supplies all or part of it to a third party it can only claim that that energy is unconsumed if it has a supplier relationship, including metering, with that third party. There are scenarios and diagrams in the consultation document to explain what is intended. Going back to the PFI situation: if a PFI operator is supplying energy to a building there will be a meter which shows how much energy is being supplied to that building. The operator can claim that there is a supplier relationship even if there is no specific charge for energy because proposal 5 removes the payment requirement for defining supply. The PFI operator will claim unconsumed supply and the energy will be the responsibility of the operator of the building for CRC. (8)


• Ground lease – landlord/tenant. The government does not propose any radical change to the landlord/tenant rules which have given rise to much disagreement and confusion, but the consultation does ask for suggestions. They claim that no clear consensus has so far come from stakeholders. The one change they do propose is that where the lease is for the land only, and the building and all related services are solely the responsibility of the tenant, then the landlord will not be responsible under CRC. The ground lease must be for a minimum of 40 years. (9)


• Modification to self-supply exclusions and cross-licensed activities. Broadens the exclusion of energy used for the transmission of energy. (10)


• Revised emissions factor for self-supplied electricity. Corrects for the fact that there are no transmission losses for electricity consumed at the point of generation. (11)


• Energy Suppliers’ Statements. The government will work with energy suppliers to ensure that their statements are more in line with CRC requirements. In some cases the information has been incomplete so that participants have suffered the 10% penalty for estimating. From Phase II the requirements for the timing of readings will be more flexible. Suppliers of gas oil and kerosene will also be required to provide statements. (15/16)


• Electricity Generating Credits (EGCs). These credits are awarded to very small generators and offset the emissions from the fuel to the generating process. Under proposal 10 this fuel will be excluded, so the EGCs will be withdrawn. The net effect should be negligible. (18)

 

The remaining proposals are quite specific, relating to Academies, to designated changes and post-qualification organisational changes. Organisations which are directly affected by these issues should review proposals 23, 24, 25 and 26 and take professional advice as appropriate.

 

There are general questions on whether the parameters of the Performance League Table should be moved from law into guidance, whether independent third parties should be appointed to hear appeals and whether Scottish ministers should continue to hear Scottish appeals.

 

Finally, participants are asked if they could report emissions by geographic region, and are invited to provide details of their administrative costs broken down by one-off, registration, annual report and external costs.

 

Wouldn’t it just be simpler to load it all on to the Climate Change Levy?

 

 

 

 

CRC - Latest Consultation Published

DECC has today published its latest consultation on simplifying the CRC. Maybe that means it won't be abolished despite George Osborne's hints!

We have until 18th June to respond and there will be information sessions in London and Manchester - dates to be announced. I'm off to read the documents now. I'll let you know what I think.

Full details of the consultation are here.