Carbon Reduction in the UK

Formerly known as the carbon reduction commitment, the CRC energy efficiency scheme is mandatory climate change and energy-saving plan designed to achieve an annual reduction of 3.2 million tons of carbon dioxide every year until 2020.

According to npower’s latest business energy index, businesses set to participate in the scheme are already raising concerns that government advice on the new legislation is inadequate. In particular they remain unclear on how to forecast CO2 emissions and purchase carbon allowances – two of the scheme’s principal actions that could leave them exposed to financial penalties.

A key part of the UK’s strategy for improving energy efficiency and reducing CO2 emissions set out in the Climate Change Act of 2008, the CRC scheme has been designed to improve energy efficiency in large organisations. It operates using a “cap and trade” mechanism that provides a financial incentive for companies to reduce carbon emissions produced by energy consumption.

An organisation purchases CRC allowances equal to its annual emissions, and its overall emissions target is achieved by placing a “cap” on the total allowances available to each group of CRC participants. Within this limit, an organisation can decided the most effective way to reduce its emissions – be it through buying extra allowances or investing in ways to decrease the number of allowances it needs to buy.

A league table will be established that allows businesses at the top to benefit by 10% in the first year, escalating to 50% in five years. Organisations at the bottom of the table, however, risk being in deficit by the same percentages.

The scheme encompasses organisations in the public and private sector that are responsible for about 10% of the UK’s emissions.

Eligibility is based on whether a company has at least one half-hourly electricity meter settled on the half-hourly market or if it’s total half-hourly electricity consumption exceeds 6,000MW/h.

Of the 20,000 organisations expected to be impacted by the legislation, only 5,000 will meet the full criteria and be full participants in the scheme, while the other 15,000 will be obliged to provide “information disclosure” and will not fully participate.

According to energy consultancy firm McKinnon & Clarke, food processing companies are likely to fall into the latter bracket. Here we talk to the company’s international project development manager of energy and environmental services, Callum Stuart, about the possible implications the new legislation has for the food processing sector.

Alex Hawkes: How important is it that organisations research the CRC scheme?

Callum Stuart: Companies have to fully understand the legislation before they can act upon it. As this is an entirely new piece of legislation, there is no precedent for the work involved and therefore any company must first and foremost read up on the legislation’s rules and regulations and then act accordingly.

AH: How likely is it that food processing companies will be eligible to fully participate in the scheme?

CS: It would seem food processing companies are in a better position than many others industry sectors. The CRC scheme is backed on to the climate change levy (CCL), which means most food processing organisations will be able to get a full rebate through the Food and Drink Federation.

This means that food processing companies on the whole will not be full participants in the CRC scheme, but will instead be either required to put forward information disclosure or prove an exemption from scheme.

AH: Do you think any food processing company could prove the exception and become a full participant in the scheme?

CS: If the core business of a company is food processing, then it could have multiple sites in the UK and still more than likely prove its exemption from the CRC scheme.

If, however, there is a company which is part of a much broader organisation and only a small part of its overall operation is involved in food processing than perhaps it would not be possible to prove the exemption.

The scheme is for all public or private organisations that consume 6,000MW/h or more through half hourly electricity meters. So it will certainly, for example, have implications for NHS trusts, local authorities, supermarket groups, British Telecom, the London Underground, the Ministry of Defence and a vast array of companies involved in manufacturing.

AH: I understand there will be a league table that dictates which companies receive what benefits each year. Which type of organisation is likely to fair best in this part of the scheme?

CS: The whole idea of the league table is to reward the organisations that have done the most to improve their energy consumption.

I believe private organisations that have the flexibility to consolidate their operations – in other words be able to close down or alter operations significantly in order to complement the demands of the scheme – will benefit most. I think local authorities will, however, have less flexibility. An NHS trust, for example, will not feasibly be able to half its energy consumption and still operate to its full capabilities.

Therefore, private companies that have a large degree of flexibility in how they operate their property portfolio will be able to take most advantage of the scheme and climb the league table.

AH: Finally, what advice can you offer food processing companies researching the scheme over the coming months?

CS: The legislation can seem strange and you do have to pick your way through it to find out which companies it affects and which it doesn’t. It is not straight forward, but I think members of the food processing industry will generally be quite lucky in respect to the CRC and on the whole will be exempt from participating.