Still asking questions about carbon reduction strategy?

Paul Boughton
Time is fast running out for UK businesses to get their Carbon Reduction Commitment Energy Efficiency Scheme in order. Dave Lewis offers this advice for those grappling with its complexities.

I do not expect this will be the first article you will have read on the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) and it probably will not be the last, but if you still have questions on the CRC, it could turn out to be the most important.

The chances are, if you are still asking questions about the scheme, it means you are continuing to grapple with the demands it will place on your business and how you are going to manage them. It is understandable. To all but the most committed energy manager, the CRC can appear confusing, bureaucratic and unwieldy, leaving many unsure about how to best to manage it so as not to fall foul of the scheme's financial and reputational penalties.

What will perhaps come as reassuring news is that you are certainly not alone.

In regular seminars I give on the CRC, many are still asking fairly rudimentary questions about participation and the seventh edition of our annual study into businesses' opinion on energy use and carbon emissions, the npower Business Energy Index (nBEI7), also reveals large numbers are still in the dark about the scheme.

In the latest index, 44 per cent of participants believe the level of guidance on the CRC has not been adequate, while 49 per cent said they do not understand what's required of them to buy carbon allowances, and 44 per cent are also unclear on forecasting their CO2 emissions, two of the schemes' principal actions.

Against the backdrop of the recession, the nBEI also reveals that only 21 per cent of respondents believe the UK's 2050 target to reduce emissions by 80 per cent is realistic. And less than half (42 per cent) feel the same about the plan to cut carbon by 34 per cent by 2020. Moreover, the index suggests that the commercial benefits of a smaller carbon footprint are falling out of favour with businesses.

Only a quarter now believe there is some commercial advantage from lower emissions, down from 31 per cent who thought this in our 2009 research.

It is this feedback that is perhaps most concerning of all as it points to situation in which, conceivably, energy efficiency and carbon reduction programmes will be relegated on the corporate priority list.

This is now a dangerous strategy for all those affected by the CRC - essentially any organisation with half-hourly metered electricity supply.

For the 25,000 or so organisations this applies to, they have only until 30th September to prepare and submit an information disclosure on their electricity consumption.

This must be an accurate report on electricity use through half hourly meters (HHM) in 2008, which is being used as the qualification year. Any organisation whose consumption was 6000 MWh through one or more half hourly settled meters or AMR qualifies for the scheme in full, which means they will need to submit more detailed information on their total carbon emissions.

From April 2011, full participants will need to purchase allowances to cover CO2 emissions for the year ahead; the higher their emissions, the greater the number of allowances required.

For all involved there are potentially significant financial and reputational implications.

The financial penalties come in missing the 30th September deadline and by failing to manage carbon emission allowance purchasing adequately. Late registrants will face a fixed fine of £5000, plus an additional £500 per working day per HHM for every day past deadline, up to a maximum of 80 days. While participants who mismanage allowance purchasing and reporting could potentially face an impact on cash flow of hundreds of thousands of pounds, depending on the size of their organisation.

And this does not even to consider the impact on corporate reputation of a low position in the CRC's league table, which will rank participants on how successful they've been in reducing their carbon emissions. For some sectors, such as retail which is firmly in the public eye, league table position could be more important than the financial implications of the scheme.

With the months fast running out to the registration deadline, it is these risks that we believe will lead businesses to look at solutions to manage the CRC. And with many still unclear on their obligations, and lacking a strategy and in house expertise, it is likely that businesses will call on specialists such as npower for advice.

At npower we are increasingly working with a number of our customers in this way under our new 'CRC Assist' service, which supports organisations in managing their CRC obligations.

The service is designed to help businesses understand the CRC scheme; assist them with the development of an energy management strategy; and manage their participation in the scheme including preparation of registration information, compilation of the year end 'footprint reports', plus forecasting and guidance on the purchasing of emissions allowances.

There are very good reasons for working in this way. Quite aside from the peace of mind it provides, using services like 'CRC Assist' should prove to be time and cost effective, negating the need to recruit and train new staff for the task and avoiding the need to establish a suite of processes and procedures or compliance with CRC, thus freeing up valuable internal resources.

It could also prove to be more productive in the long term as the CRC strategy would be based not only on compliance, but on long term goals to deliver energy savings and carbon reductions focused on performing well under the scheme, financially and reputationally, that are linked to a company's broader business objectives.

The importance of this ongoing strategy cannot be underestimated - while all eyes might be on registration at the moment, we cannot escape the fact that the real focus of the CRC is delivering emissions reduction through energy efficiency.

For many establishments this will require a step change in how they manage current and future energy consumption and the implementation of new tools. For example, organisations will need to have detailed plans in place to record and report on their emissions, and then reduce them. The ability to forecast allowance requirements, understand risk exposure and control cash flow related to allowance purchases will also be crucial.

Smart meters should feature as a priority in these plans. These will capture data on energy use which can then be analysed to make informed decisions on energy efficiency.

Armed with this data, participants can take a longer term view on where energy efficiency measures can be implemented; the capital investment required to deliver these actions; and the expected outcome in terms of energy, and therefore carbon and allowance savings.

Businesses that can do this will stand to succeed under the CRC, also enjoying significant cost savings from reduced energy consumption as well as potentially unlocking financial rewards through lower emission allowances purchasing.

As former Energy and Climate Change Secretary, Ed Miliband, put it when the scheme was launched: "The rewards for businesses who act to cut their carbon emissions are really starting to pay off. It is no longer simply about doing the right thing for the environment, it's now a sure-fire financial investment."

If you want to take a share in these rewards, the important thing is to start the work now and if you can't do this in house, working with a specialist partner could be the best solution for long term success.

- Dave Lewis is head of business energy services, npower, London, UK.