Carbon dating: the UK government's new carbon reduction commitment is the first mandatory auction-based trading scheme of its kind in the world. Defra's Leanne Jones explains the implications for business.
| Author | Jones, Leanne |
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The UK is demonstrating its commitment to leading efforts to tackle climate change with a new mandatory emissions trading scheme, expected to begin in January 2010. The carbon reduction commitment (CRC) will target energy-use emissions from large non-energy-intensive businesses and public-sector entities, such as large retail organisations, offices, banks, universities, hospitals, large local authorities and central government departments. It will be the world's first mandatory auction-based trading scheme for such organisations and will increase their contribution to cutting the UK's carbon emissions. It could also save them money.
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The CRC is intended to save 1.1 million tonnes of carbon (MtC)--or 4Mt carbon dioxide--a year by 2020. Organisations will be covered by the scheme if their mandatory half-hourly metered electricity consumption is greater than 6,000MWh a year, so it will generally affect organisations that pay annual electricity bills of over 500,000 [pounds sterling]. Such large organisations should find that the benefits gained from energy efficiency measures should outweigh the costs of participating in the scheme. It is expected to affect between 4,000 and 5,000 organisations and, at present, this sector accounts for 14MtC (or 51MtC[O.sub.2])--almost ten per cent of the UK's economy-wide emissions.
The CRC will operate as a cap-and-trade scheme, under which the government will determine the total number of emissions that can be made by the target sector and will distribute a corresponding number of allowances to participants (the cap). The cap will be tightened periodically in line with environmental objectives. The certainty of the environmental objective is maintained by the absolute nature of the cap--ie, the target sector cannot legally emit more C[O.sub.2] than the total number of allowances released to the market. Participants can trade the allowances among themselves, depending on whether they can make cost-effective reductions. A cap-and-trade scheme already exists at a European level--the EU emissions trading scheme (EU ETS)--and the UK ran a pilot voluntary emissions trading scheme (UK ETS) that finished at the end of 2006.
Who will it affect?
The CRC will target the highest UK parent organisation. If this meets or exceeds the 6,000MWh consumption threshold, it will be responsible for reporting on its total energy-use emissions, including those of its subsidiaries. If you are in a subsidiary of a qualifying organisation, therefore, you will need to pass on information about your energy use to your parent company so it can report...
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