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Carbon Reduction Commitment – letting out the frustration

As with many new things, it takes time to see their strengths and weaknesses.  Part of the problem with the Carbon Reduction Commitment (CRC) is that it has changed significantly since its inception, so that now we are dealing with a very different thing from the original concept.

For those that have been out of the country or not paying much attention, the original idea was to create a scheme which rewarded performance, was fiscally neutral and created economic incentives to encourage organisations to increase their energy efficiency and so reduce their carbon emissions. Companies could gain high ranking through ‘early action metrics’ by gaining the Carbon Trust Standard and introducing automatic metering (AMR). By coming high in the rankings organisations could be rewarded, while poor performance would be penalised. Since the 2010 general election this has been amended to become, basically a carbon tax. The rankings still exist but without any rewards. Organisations simply pay out in proportion to their carbon footprint.

Among many environmental professionals there was a sense of inevitability about the shift in policy and a resignation that all the past three years’ planning and preparation had been largely undone. While it remains true that reducing carbon emissions through becoming more energy efficient has its own financial rewards, there are other considerations.

An environmental professional seeks to work to identify and minimise the risks to their organisation or client. When policy shifts so dramatically with a change of government, the environmental professional loses credibility but more importantly the organisation starts to review its position on environmental issues. If Government and its regulations are perceived as not taking an issue seriously then organisations are likely to reflect this.

It is perfectly acceptable to modify legislation after a period of time to test its effectiveness or if it was proving costly to regulate, but a change based entirely on political doctrine leaves a very nasty taste. As we have subsequently discovered the u-turn over CRC was a precursor for many others.

This policy shift, is however only the tip of the iceberg in relation to the problems that CRC has created.

The scheme has always been complex, both to understand and then to use. While the scheme provided incentives and penalties, there was a value to the complexity. With the 2010 change of policy, this complexity has remained and serves virtually no value. Indeed it could be said that leaving the complexity in place was a deliberate ploy to discredit a scheme now viewed as politically unnecessary. On the one hand one could argue that leaving things as they were in terms of process provides the opportunity to return to the original fiscally neutral scheme where good performance was to be rewarded.  On the other hand, and if one was being cynical, keeping the system complicated would support the argument that legislation is bureaucratic and thus support calls for deregulation.

The complexity of CRC creates a huge drain on time and a requirement for new expertise. There will be instances when organisations will inaccurately report – either disadvantaging themselves or under reporting. An example of this is that one can obtain an end of year statement from energy suppliers, however some companies have found discrepancies between internally derived consumption figures and those from their suppliers. Without the internal capacity to check and verify, reliance on energy company data could lead to errors and potential financial implications for CRC participants.

In the early days before the 2010 changes, the Carbon Trust Standard (CTS) offered forward-thinking organisations an opportunity to gain credits for the early action metrics and thus improve their initial ranking position with associated cost benefits as outlined above. Initially CTS did not have any competition, but following successful lobbying other equivalent schemes (e.g. CEMARS by Achillies, Kitemark for Energy by BSi and Carbon & Energy Management Scheme by LRQA) have become established. All of these schemes, however, are not directly comparable with CTS because they require certification to or verification against an additional ISO standard – ISO 14064 or ISO 16001. This additional element is not required by CRC and leads to additional complexity and internal resource to service and maintain the data and monitoring for apparently little additional benefit – at a time for many organisations when resources are stretched to near breaking. Since 2010 it would appear that the Carbon Trust still dominates the UK market however the demand for the CTS has fallen off since the u-turn on CRC.

Automatic Meter Reading or AMR is the other CRC early action metric.  In large organisations with many, diverse and sometimes remote sites, the practicalities of installing AMR have been over-looked and regarded over-simplistically by government and regulator. To gain 100% on AMR the difference in effort and cost in getting there is huge if comparing an organisation which needs two AMR against one that needs 6,000. One could argue that this is organisations having a bit of whinge – “it’s not fair that we’re a big company” (said in the tone of a slightly sulky teenager). There are practical issues for companies with remote sites with limited mobile signal – as AMR work using mobile phone networks – a small quarry in deepest Devon or remote water pumping station in rural Northumberland might simply not be able to communicate. There are a surprising number of these types of sites and for some organisations to achieve 100% on this early action metric would be impossible.

With such a complex scheme, guidance needs to be effective and accessible. In practice this is not universally so. Guidance is often vague and has to be discussed with the help-line, and when guidance is compared it has sometimes been found to be inconsistent. This all adds to the time needed to comply with the regulations. An example of inconsistent guidance is the interpretation on how to treat and exclude EU Emission Trading Scheme (EUETS) operations within CRC. This is especially so when considering the treatment of renewable energy supplies in small-scale power generation. Due to the multiple layers of emission trading (and purchase of credits), environmental permitting, and renewable obligation certificates (ROCs) there will inevitably be examples of double accounting or disincentives for the use of renewable fuels.

And so to sum it all up – it would appear from talking to many people over the past year that are closely involved with the CRC – it’s a bit of a mess and the over-riding sentiment is frustration. Frustration with the changes, frustration with the complexity and time-consuming nature of the data gathering and frustration in the lack of consideration of the effect of all this on organisational strategy. Many now feel that if CRC is in effect a Carbon Tax then remove the complexity and simply levy a fixed sum per MW of energy and charge it through the energy bill. But this will not have the desired outcome as many companies will pass it on to the customer, while others such as local authorities and water utilities will not be allowed to do the same. It’s a muddle which needs to get sorted out.

This blog is my views based on many conversations with professionals and reading on this subject – I have not attributed comments and have decided to make some of the comments generic rather than specific to a particular company or sector.

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