What does participation in the Scheme involve?

There are some basic key requirements for businesses whose energy usage requires them to participate in the Scheme. In particular, there are reporting requirements involved, as well as some basic costs required to register, participate and make applications for allowances under the Scheme. Additionally, from April 2011, participating organisations of all types will of course need to purchase carbon credits under the Scheme.

The key reporting requirements involve:

• Registering as a participant by September 2010
• Producing a “Footprint Report” once per phase of the Scheme
• Submitting an annual report about the business’s annual emissions covered by the Scheme
• Purchasing and surrendering sufficient allowances to cover the business’s annual emissions
• Maintaining what is termed an “evidence pack” which needs to contain up-to-date records detailing the business’s energy use and emissions

The basic costs of participation include:

• An initial £950 registration fee, which will include the validation of three account representatives from the business
• An annual “subsistence fee” of £1,290 per year, per business
• The requirement to purchase a “Digital certificate” for each account representative direct from a supplier, where the cost per certificate is estimated at around £20
• A £70 fee payable for each identification check required (including those carried out at the registration stage)
• A £10 fee to participate in the fixed price sale
• A fee of £300 when any request is made to purchase a “Safety Valve allowance” – in addition to the cost of any allowances purchased, as well as any related banking, currency and brokerage charges

While the government had initially planned for participating organisations to have to buy carbon credits retrospectively for 2010, this is not now the case: it is now agreed that participating businesses will have to buy carbon credits for their estimated emissions in 2011, in April 2011.

In light of this, it is obviously a commercially sensible decision to spend money now on cutting your carbon emissions if your business or organisation is required to participate in the Scheme: this will reduce the amount of money you’ll need to spend on estimated energy usage for 2011, as well as make your business more energy efficient and “green”. This is of course where tools such as EPIC come into their own.

Can a business or other organisation opt to voluntarily participate in the Scheme, even if it did not use (i) at least one half-hourly electricity meter settled on the half-hourly market, and (ii) a minimum of 6,000MWh of half-hourly electricity in the qualification period?

No, this is not permitted at this time: to participate fully in the Scheme, a business – or any other organisation – must fulfil both these qualifying criteria.

However, any organisation at all can apply to participate in the trading of allowances on the secondary market through the online CRC register. This can be done at any time, but if an organisation wishes to trade allowances in this way, it must first provide information about its organisation to the Scheme Administrator, and identity checks will also need to be carried out.

Any organisation allowed to then open an allowances trading account on the online CRC register will have to pay:

• An initial £285 registration fee
• A £390 annual fee
• A fee of £70 per identity check required
  

What are the “league tables” and how will they work?

As the name suggests, the Scheme’s league tables will indicate how participant businesses and other organisations have performed each year in line with the Scheme’s aims to reduce carbon emissions and increase energy efficiency without relying on carbon offset schemes. To motivate businesses involved in the Scheme, the league tables will be made public. As things stand, league table ratings for the first year of the Scheme will be based entirely on the “Early Action” metric; so, clearly, attaining the Carbon Trust Standard will have a hugely positive effect on not just a business’s refund from the Scheme, but on its public perception via its position on the Scheme’s league tables. This is one way in which the Scheme genuinely promotes energy saving and carbon emissions over carbon offset schemes, and allows the public to see individual businesses’ response to that challenge.

The Early Action metric is only set to be significant only during the Introductory Phase of the Scheme (i.e., its first three years); increasingly during the Introductory Phase and then in future phases, the “Absolute” metric and the “Growth” metric will be crucially important.

In essence, the Absolute metric will form the basis of the league tables from the second year onward, while the Growth metric will eventually account for 25% of the weighting. The Absolute metric will be the percentage change of annual emissions relative to a business’s previous five year rolling average. The Growth metric will measure a business’s percentage change in emissions per unit of turnover relative to its average of emissions per unit of turnover.

The following quotation and table is taken from the Department of Energy and Climate Change’s publication, “Guidance on the Early Action Metric Under the CRC Energy Efficiency Scheme” (available via their website), and outlines how the three metrics will be weighted across the first phase of the Scheme and into the future:

“The league table will rank participants according to their scores in three differently weighted metrics; the absolute emissions reduction metric, early action metric and growth metric.”

Metric weightings:

As you can see, in year one of the Introductory Phase, the league tables will be based exclusively on the Early Action metric, that is on measures put in place before the Scheme started. In years two and three, the weighting will shift as shown in the table; then, in future phases, the weighting will be 75% Absolute Metric and 25% Growth Metric.

It’s important to realise that the Scheme is working to focus improvements in energy efficiency: this is particularly evident when you note that while credit will still be available for investing in on-site renewable energy generation, that credit will not be applicable to the Scheme itself, but separately from it – so, the government won’t be “doubling up” incentives for renewable energy generation (as it has under other schemes). In addition, the Scheme exempts emissions from the transport of people and goods. These factors alone indicate that the focus is very determinedly on providing an incentive to businesses to make genuine improvements in energy efficiency – rather than in areas already targeted by other schemes and legislation.

As such, to perform well on the Scheme’s league tables – and, so, in the eyes of the watching public – businesses need to focus on making energy efficiency in the workplace a priority, as well as on investing in new, lower-energy technologies to enhance their energy efficiency and savings in energy bills.

Identifying where your business uses energy, then, and where it can make real changes, will be crucial to not just the Scheme’s “green” ethos and saving money on energy bills, but to performing well on the CRC league tables. This is of course where EPIC can be of real value. Identifying areas of energy consumption that need rethinking, and helping to identify and implement changes your business can make in key areas such as lighting, heating, refrigeration and insulation, EPIC’s holistic approach, with the potential for savings in the region of 29% on your energy spending year on year, will clearly have a significant impact on your business’s ranking in the CRC Scheme’s league tables.

Will my business be required to provide information to the Scheme Administrators, even if it’s too small to have to participate in the Scheme?

As the Scheme is targeted toward larger businesses and organisations in the UK, a great many businesses are not required to participate because they fall well short of the qualifying requirement of in 2008 both (i) having at least one half-hourly electricity meter settled on the half-hourly market and (ii) having used 6,000MWh of half-hourly electricity.

However, a business or other organisation that did in 2008 have at least one half-hourly electricity meter, even if it fell short of using 6,000KWh of half-hourly electricity, is required to make an “Information Disclosure” via the online CRC registry. An Information Disclosure involves a business having to provide the Scheme Administrator with:

• A list of the settled half-hourly meters – including their identification numbers – for which they are responsible, and:
• If the organisation’s total half-hourly metered electricity consumption was during 2008 at least 3,000MWh, a figure for the total amount of those half-hourly meter supplies and consumption (both settled and non-settled), or,
• If the organisation’s total half-hourly metered electricity consumption during 2008 was less than 3,000MWh, it will only be required to make a simple “Yes/No” declaration, and to supply details of its half-hourly meters (not also of its actual electricity consumption)

If your organisation is required to make an Information Disclosure, that is all the Scheme currently requires it to do: there are no reporting obligations for organisations whose usage was less than 6,000MWh in 2008, nor are they required to purchase allowances or open an allowances trading account. Additionally, there are no fees involved in making an Information Disclosure.

At the same time, if your business was close to using 6,000MWh in 2008, or has since then come close to or exceeded that usage level, it would be eminently sensible to work with a efficiency-enhancing tool such as EPIC to reduce your energy usage and emissions: this could ensure that you are not required to participate in the Scheme in the future, or – if your energy usage exceeds 6,000MWh, can assist you in working with the emission-reduction aims of the Scheme already in mind, so you are well prepared if the times comes for you to participate in the Scheme on a mandatory basis.

Information Disclosure must occur during the registration phase – that is, by September 2010.

What about businesses with multiple sites? How are they treated in respect of the qualifying criteria for participation in the Scheme? What about franchises?

In essence, all multiple buildings and sites across the UK owned by one business/organisation are grouped together: as the Environment Agency puts it, the Scheme “places obligations on the parent organisation, not buildings or sites”. (The Scheme is concerned, though, only with sites and buildings within Great Britain and Northern Ireland – not with any overseas, even in UK territories.)

If a business sells a site that brings it below the threshold for participating in the Scheme during a phase, this will not end its obligation to participate in the Scheme for the rest of the phase. Similarly, if a business buys a site that brings its energy consumption above the threshold, it will not have to join the Scheme mid-phase – unless, that is, the site it purchases was already registered in the CRC Scheme: this is known as a “designated change”, and is treated differently.

Under the Scheme, a franchiser is will take responsibility for the energy use of its franchisees when determining qualification for, and participation in, the scheme. This means that franchises will not have to register separately for the Scheme.

Further details about these and related specific scenarios (for franchises that are also subsidiaries, for instance) can of course be obtained from the Environment Agency.

What happens if an organisation is required to participate in the Scheme but fails to do so?

If any organisation required by law to participate in the Scheme fails to do so, and/or fails to comply fully with its obligations under the Scheme, it may well be fined; additionally, information about organisations that fail to comply with their obligations will be published and made available to the press and the public.

Are any organisations with half-hourly electricity meters and over 6,000MWh of electricity usage exempt from participating in the Scheme?

A few are, yes. It is for instance possible to claim group exemption if an organisation has a sufficient quantity of its emissions covered by a CCA (Climate Change Agreement), and the Environment Agency states that “those organisations with specific UK tax exemption may also be exempt” from the Scheme.

The Environment Agency provides further information on these areas, as well as detailed answers to some other, related questions, on its FAQ section related to the Scheme: http://www.environment-agency.gov.uk/business/topics/pollution/105868.aspx