Verdantix: Carbon Reduction Commitment Unlikely To Reduce Carbon
London, UK. September 17, 2008. The Carbon Reduction Commitment, slated for launch in April 2010, is very unlikely to cut carbon emissions before 2013 according to a new report from Verdantix, the independent business research firm. But the complexity of the regulation and severe penalties for non-compliance will make robust carbon management essential for 5,000 private and public sector organizations.
“The Carbon Reduction Commitment (CRC) begins life as a no-cap, no-trade scheme.” said Verdantix Director David Metcalfe. “In phase one, from 2010 to 2013, organizations included in the CRC need a robust management system to ensure they submit emissions data on time and buy sufficient CRC allowances. Failure to comply will be very costly. But the sticks and carrots in phase one won’t incentivize deep carbon reductions or trigger active carbon trading.”
The Verdantix analysis of best practices for CRC compliance is based on the most recent regulatory details from DEFRA, analysis of financial impacts, interviews with individuals responsible for CRC compliance and insights from industry experts. The research found that:
- Eighty per cent of organizations will not reduce emissions. The bulk of scheme participants, including hospitals, universities and retail chains, lack the energy consumption data and executive commitment to cut carbon emissions. Only large blue-chip firms and government departments in the spotlight like DEFRA, which is included in its own scheme, will initiate cuts from 2010.
- Approximately 10% of participants will be non-compliant. Smaller organizations covered by the scheme, like schools, will struggle to comply with the complexities of the regulation. Energy managers using too much estimated data may get caught out by Environment Agency audits. But DEFRA will want to help rather than punish poor energy data… until 2012.
- Failure to report emissions incurs massive fines. Organizations that fail to provide their emissions data to the Environment Agency within one month of the deadline will lose their entire expenditure on CRC allowances. This will be at least £500,000 and could be as much as £4 million. The size of the potential fines makes robust carbon measurement and management essential.
- High energy prices and recession will create a 2009 emissions dip. Emissions from April 2009 to March 2010 will be used as the baseline for the measurement of future reductions. High energy prices and economic recession will cause organizations to trim energy spending and consequently emissions. The 2009 emissions dip will make future reductions harder to achieve.
“Energy managers and finance directors are just becoming aware of the complexities of the CRC” said Metcalfe. “The immediate challenge is to ensure energy data is full and complete and the compliance deadlines are met. Individuals responsible for CRC compliance also need to worry about the impact of what they don’t do today on their standings in the CRC performance league tables and potential losses from the recycling of payments in 2011. To avoid being the odd-man out, decision-makers need to know if their peer group intend to cut emissions, hold flat or increase.”
To help individuals thrown into the cauldron of the Carbon Reduction Commitment, Verdantix conducted research to define CRC best practices. This ground-breaking analysis arrived at the following conclusions:
- Make carbon management mandatory. The CRC requires organizations to provide annual energy consumption and emissions data. This means that carbon emissions measurement, management and reporting is mandatory. CRC organizations should create a carbon management strategy that covers CRC data and also includes fleets, business travel and international emissions.
- Create an action plan prior to April 2009. The effective start date of the CRC is April 2009 because all emissions from that date onwards will determine revenue recycling bonuses and penalties and positioning in the CRC performance league table. Organizations need a plan for 2009/10 or risk poor performance from April 2010.
- Budget for increasing costs. CRC costs include compliance set-up costs, ongoing compliance costs for data management, working capital costs and potential penalties due to underperformance. Organizations should expect CRC costs to increase over time as they are compelled to invest in energy efficiency programs or risk losing out in the recycling of allowance revenue.
- Prepare for a tough regime from 2013. An absence of significant CO2 reductions between 2010 and 2013 could trigger DEFRA to impose a tight cap on emissions resulting in a much higher price per tonne of CO? than the initial £12 / tCO2. Combined with a plus or minus 50 per cent recycling payment this may result in millions of pounds of losses for underperformers.
“Advocates of strong climate change legislation have criticized the CRC for lacking teeth. But the UK Government needs to strike a balance between the desire for cuts in emissions and the ability of organizations to deliver those cuts. Phase one of the CRC makes carbon management mandatory and will prepare organizations for the much tougher phase two which will have a material impact on the profitability of many organizations.”
The report, “Verdantix Best Practices For The Carbon Reduction Commitment” can be purchased online and is available to Verdantix clients at www.verdantix.com
About Verdantix
Verdantix is an independent business research firm focused on climate change, carbon markets and corporate responsibility. For more information visit www.verdantix.com
Press Contact
David Metcalfe Telephone: + 44 (0)207 851 9143
Email: press@verdantix.com
Tuesday, 16 September 2008