Website of the Department of Health

What is the CRC Scheme?

• The Carbon Reduction Commitment (CRC) Scheme is a new Government backed mandatory emissions trading scheme for the UK. It will cover large business and public sector organisations.
• CRC is intended to have a significant impact on reducing UK carbon emissions and offers the potential to save money through energy efficiency. It is designed to drive changes in behaviour and infrastructure, generate corporate awareness of the detrimental impacts of carbon emissions, and improve energy management practice.
• The Scheme will begin in April 2010.  Organisations that meet the criteria to participate will have to monitor emissions from energy use, report these emissions annually, and purchase and surrender a corresponding number of carbon emission allowances on a cap and trade basis.
• CRC is considered to be broadly revenue neutral to the Exchequer. All revenue raised from the annual sale of allowances will be recycled back to participants. A proportion of this repayment will be based on the participant’s performance in the Scheme.

Key milestones

• 2008   Qualification year
• March 2009  Consultation on draft CRC regulations published
• April 2010   Introductory phase begins
• April 2011   First sale of allowances
• October 2011   First league table published + first revenue recycling payment
• April 2013   Next phase begins + first auction

Development of CRC Scheme

• CRC was launched in the 2007 Energy White Paper
• This was based on analysis by the Carbon Trust in 2005 which highlighted that, in the absence of targeted Government intervention, large business and public sector organisations were failing to take up cost effective energy efficiency measures that could save them money as well as reduce carbon emissions
• The Scheme has been developed with extensive input from stakeholders
• In March 2009 DECC launched a third consultation on the Draft Order to implement the CRC
  

CRC Scheme coverage: how do I know if my organisation is included?

• Large organisations who purchase their electricity through half-hourly meters (HHM) and use more than 6,000 MWh/annum will qualify to be included within the Scheme. The CRC will then include at least 90% of all types of energy use in all buildings at an organisation, not just HHM electricity.
• All government departments will participate in the scheme regardless of their size. Public sector bodies, including the NHS and State Schools are also included.
• If even one part of the participating organisation meets the 6,000 MWh/annum of half-hourly metered electricity threshold then all parts of that organisation will fall into compliance.
• Organisations that have a half-hourly meter settled on the half-hourly market but do not meet the 6,000 MWh/annum participation threshold, will also be to obliged to disclose information on their half-hourly electricity use once per phase.
• The CRC will complement existing policy by covering all emissions not currently covered within Climate Change Agreements (CCAs) and direct emissions outside the EU Emissions Trading System (EU ETS). Individual organisations or subsidiaries with more than 25% of their energy use emissions currently within CCAs will be completely exempt.

How the CRC will operate?

• This starts with a three-year introductory phase. With effect from April 2010, an unlimited number of carbon allowances will be sold at a fixed price of £12/tonne carbon dioxide (C02) equivalent to £44 per tonne carbon. The information from the introductory phase will allow Government to appropriately set the cap in future years, and help organisations prepare for the capped phases to begin in 2013. In all capped phases, 100% of allowances will be auctioned annually.
• CRC is considered to be broadly revenue neutral to the Exchequer. The revenue raised will be recycled to participants proportional to their 2010/11 emissions, adjusted by a bonus or penalty related to performance in a league table.  This will provide the financial incentive to reduce emissions, in addition to the cost of allowances.
• Participants must monitor their emissions from all energy sources and calculate which energy sources will be included in the Scheme. Some very small sources can be exempted in order to minimise administrative burden
  - at least 90% of total emissions must be regulated either by CRC; EU ETS or CCAs (see User Guide)
  - information about how to address renewable energy sources and Combined Heat and Power sources are detailed in the User Guide.
• Participants will then be required to purchase allowances corresponding to their emissions from included energy use, and then surrender them by the year end.
• Participants have the flexibility to set their own emissions targets and decide how they will comply. They can choose to reduce their own emissions or buy a greater number of allowances which gives them the right to emit. This makes it possible for emissions reductions to be made by the sector where it is most cost effective.
• Participants' performance will be published in the form of a league table to create a reputational incentive; a corporate social responsibility driver; as well as providing a basis for the revenue recycling bonus/penalties.
• The league table will be based on weighted performance metrics, which are, for the introductory phase: change in absolute emissions reductions (60%); relative emissions (20%); and a measure of ‘early action’ (20%).  Performance in the first league table will be based entirely on the early action metric.  In future phases, there will be no early action metric (EAM).  There are 2 components to the EAM:
  - The percentage of an organisation’s emissions from electricity and gas (excluding those covered by mandatory HHMs) which are covered by voluntarily installed automatic metering (AMR) at the end of March 2011
  - The percentage of an organisation’s annually reported CRC emissions covered by the Carbon Trust Standard or the Energy Efficiency Accreditation Scheme at the end of each compliance year of the introductory phase.
• The bonus/penalty rates will increase over time.  In year 1 of the scheme, an organisation at the top or bottom of the league table would get a 10% bonus or penalty respectively.  This will rise to +/-20%, and increasing to +/-50% by year five. The advice of the UK Climate Change Committee will be taken into account in determining subsequent bonus/penalty proportions.
• The CRC will have significantly lower administrative burdens than the EU ETS.  Rather than 3rd party verification of all sites, participants will self-certify emissions. Verification will take place through a risk based audit regime.

Raising awareness of the Scheme

The Scheme administrator, the Environment Agency, is arranging a number of introductory seminars and providing on-line training during the course of 2009.

DECC has published a Draft User Guide for potential participants alongside the consultation document:

• Carbon Reduction Commitment: How will I comply? (opens new window)

The NHS Sustainable Development Unit (SDU) are working with the Local Government Information Unit on a scheme which will simulate the carbon trading mechanism established by the CRC, the idea being to allow organisations to benefit from the experience of a realistic large scale trial of the carbon trading market with full support, before they are required to join the real thing next year.

The SDU will be contacting energy managers in Trusts likely to be covered by CRC inviting them to join the trading scheme which is due to commence in the next few months.