CRC fast facts - what businesses need to know (and do) now

The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) will be introduced in April 2010 and is designed to incentivise energy efficiency and reduce energy use.

With the imminent implementation of the Scheme, businesses need to know what it is about, what it will cost them and what they need to do to ensure they are fully compliant.

The CRC will affect approximately 20,000 large non-energy intensive organisations, namely schools, colleges, local authorities, companies and charities.

It works through the Government setting a cap on the total amount of CO2 all of the obligated organisations can emit in any one year and the organisation will have to purchase allowances to cover the amount they require.

Whilst the scheme is based solely on electricity consumption for qualification purposes (organisations with a usage of 6,000 MWh of electricity per year through Half Hourly Meters (HHMs) must participate), once an organisation qualifies for the CRC, it is required to consider all energy use. Organisations must register between the start of April and the end of September 2010.

During the "introductory phase", running for three years from April 2010, allowances will be sold at a fixed price of £12 per tonne of CO2. There will be no sale of allowances in the first year of the introductory phase which will now be a reporting only year. In April 2011, organisations will have to purchase allowances to cover their anticipated emissions from April 2011 - April 2012. From April 2013, the government will cap the amount of carbon allowances available. CO2 allowances will then be sold in a sealed-bid, uniform-price auction at the start of each year.

At the end of each compliance year, the CRC administrator gathers information from participants which is then used to produce a 'name and shame' league table. The government hopes that this will give organisations financial and reputational incentives to reduce their emissions. Where organisations have tak en 'early action' in reducing their carbon emissions, this will be taken into consideration, but only in the introductory phase.

As the CRC is intended to be revenue neutral, all the money raised from selling allowances will be "recycled" back to participants. Participants will receive a Revenue Recycling Payment (RRP), based on their performance in that year. For clued-up organisations there will be the opportunity to reap the rewards for good performance as it is anticipated that approximately 50 per cent of CRC participants will actually make money from the CRC.

If businesses plan ahead, they will have a good chance to take advantage of the system while improving their green credentials at the same time. But to do this companies must decide now who is responsible for championing the green agenda and ensuring it is at the heart of business thinking.

There are penalties for non-compliance with the Scheme, including:

* £5,000 fine for failing to register plus £500 per day (up to a maximum of 80 days);
* Failing to surrender adequate allowances (cost of allowance plus £40 penalty per allowance required);
* £1,000 for failing to disclose information; and
* Criminal offence for providing false/misleading information

What should organisations be doing now?

* Work out organisation structure - e.g. group companies or multiple properties;
* Collating "auditable" energy data to see if they qualify for the Scheme;
* Assign responsibility for compliance to relevant personnel within the business;
* Consider abatement options and targets;
* Consider transactional and landlord and tenant issues; and
* Prepare for the administration costs and cash flow issues in purchasing allowances and delay in receiving RRP.

Information compiled by Claire Brook, Senior Counsel at national law firm Dickinson Dees