The latest carbon emission savings device – the Carbon Reduction Commitment

 The 2007 Energy White Paper proposed a Carbon Reduction Commitment scheme which fills some of the very large gaps in the Emissions Trading Scheme but continues the ETS policy of “cap and trade” as a way of reducing carbon dioxide emissions.

The Carbon Reduction Commitment (which I shall now call CRC) aims to reduce emissions by 1.2 million tonnes of carbon (or do they mean carbon dioxide) by 2020. I always think it hard to “cap and trade” in an item like carbon dioxide that has no commercial value; it is all rather artificial and involves a long lead in time before those aimed at have to undertake carbon reduction measures. Furthermore, these schemes seem to become the end in themselves so that active measures are discouraged until such time as measures prove to be scheme driven.

The CRC covers companies and organisations (including the Government) that use a lot of electricity. If at the start of 2009 your business, university or enterprise is metered half hourly and uses more than 6000MWh through these meters then the CRC applies to you. That involves a lot of electricity – around half a million pounds worth at the current rate.

The CRC Scheme starts in January 2010. From then if you are caught by the scheme you will have to buy “carbon allowances” at £12 per tonne from the Government and there will be no limit to the number of allowances that you can buy. At the end of the year you will need to show that you have enough allowances to cover your emissions.

If you do not have enough allowances you will have to buy more or reduce your electricity consumption. After 3 years the allowances will be rationed forcing you, if you need to buy allowances, to buy them at auction. A mechanism will be put in place to prevent carbon prices from rising too high, and some way of recognizing good energy practice before the scheme starts will be introduced, otherwise there will be an effective penalty for having bought say photovoltaic panels. League tables will show who is good and who is bad.

The CRC is meant to be revenue neutral and is said that it will contain mechanisms that apply fairly if your organisation is growing or contracting, because in these cases historical electricity use as a benchmark is completely useless.

The Government says that the CRC will affect organisations whose overall electricity expenditure is 1% to 3% of their fixed costs so it will not make such organisations uncompetitive. It will apply to universities and hospitals; these are mainly funded by the public purse, and they do not usually have spare money for capital energy projects or for carbon allowances, so I wonder where they are supposed to get their money from.

The obligations that this scheme will place on business will include:-

  • Forecasting emissions for the compliance year, taking into account energy efficiency or carbon abatement strategies.
  • purchase allowances from the Government auction
  • Monitor, assess and manage emissions throughout the emissions year
  • If necessary, buy or sell allowances
  • Report emissions and surrender sufficient allowances to cover the organisation’s emissions
  • Receive recycling payment proportional to the organisation’s annual average emissions since the start of the scheme, with a bonus / penalty based on its position in the published performance league table.

This is said not to add to the administrative burden, but it will take some educated guesswork ranging from how successful the organisation will be in the next 12 months to what the weather will be over the same period.

I also fail to understand how the CRC can ever work fairly. Let us imagine two universities both of similar sizes. One has buildings built in the 1960s with plenty of light but leaking huge amounts of heat, as many 1960s buildings do. The other was built recently – very little heat leakage but much more light needed as well as power for lifts, air conditioning and the rest.

Who is going to assess which university should be doing what? The CRC will need not the “legislative light touch” that is being applied but it will need a veritable army of well trained assessors to ensure that the league tables are fair, and they have to be fair because penalties are applied according to positions in league tables.

I cannot see that extending the Climate Change Levy or creating a separate energy use tax on business would have achieved less at greater cost. I think we are in an age where the government fails to see simplicity as having any merit; they believe that only highly complex solutions will work. The CRC strikes me as a particularly complex way of abating emissions; it will not even guarantee doing that because many organisations may decide to buy the allowances rather than cut down on energy use.

The strangest thing is that the CRC only applies to electricity use. Once again we have a electricity policy, rather than a complete energy policy, although heat is easier to create from renewable sources and much easier to store.

An organisation like a large NHS hospital uses huge amounts of heat and a significant proportion of the heat can come from solar panels, relatively easily and in a reasonable cost effective manner.

Instead of being driven to install solar panels, the hospital will be looking to cut down on electricity use. You can imagine that there will be fewer light bulbs in the wards lower light levels which will hinder elderly patients seeing properly and all sorts of other electrical plant anomalies thrown up; will we see measures to cut down on the use of expensive MRS scanning equipment or sterilisation because of the electricity the equipment uses?


7 Responses

  1. Robert, I have long believed that many heating applications using electricity are wasteful of a high level energy which can be used to power electronics etc which use it many times more efficiently.

  2. Stopping wasting energy is terribly important, but I can’t see any real progress made unless people pay through the nose for wasting energy, which means making them pay for using all energy!


  3. Interesting especially in the light of suggestions we need personal carbon allowances…the point about new and well insulated compared to old and badly insulated universities is a fair point…be nice to have a policy of spending more on insulation rather than another complex market mimicing schemes…more of my thoughts here if you are interested

  4. Derek

    I think that both CRC and Personal Carbon Allowances are flawed; I’ll write about personal carbon allowances soon.


  5. I don’t believe carbon tax does anything but create a bureaucracy that will track our purchases and make it difficult to buy energy.

    For instance, in the US, we have a wealth of oil supply. Some of our deposits may be greater than the Middle East. However, we must suffer, because we’re afraid of adding more carbon in the atmosphere. Man adds only 3 percent of all carbon. Plants use up most of this carbon. The environmentalists want to keep America from progressing. In doing so, our greatness fades, because the emperor has no clothes.

  6. Carbon tax will probably be imposed at the point of energy usage – no personal id needs to be taken any more than it’s taken when you buy goods and pay a sales tax.

    I think that the consensus is that the US does not, unfortunately, have vast reserves of oil. It is dependnent and will become increasing so on foreign fuel. Depending on foreign sources of energy is a sure way ensure that your greatness fades.

    I think that the USA is a truly great country. It has done many great things, and like all great civilisations has done some bad things.

    Its scientists are truly world class. Most of them think that climate change is man made.

    The way to handle this is to use the USA’s leadership and skills to invest in what amounts to insurance in case the scientists are right.

    The challenge is to progress positively, without harming what we have.


  7. Somehow i missed the point. Probably lost in translation 🙂 Anyway … nice blog to visit.

    cheers, Prepossessing!

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