Ethical Corporation Report Summary - Carbon Reduction Commitment
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How to manage carbon reduction, and make it pay A hands on management briefing on real life ways big UK companies cut carbon, and their costs Executive Summary The full report is available at www.ethicalcorp.com/crc
Ethical Corporation 2008
June 2008
HOW TO MANAGE CARBON REDUCTION
Contents
Overview............................................................................................................................................................ 5 Section 1: The Carbon Reduction Commitment (CRC) 1.1 Quick facts.................................................................................................................................................... 1.2 How does the CRC work? ............................................................................................................................ 1.3 Who benefits? .............................................................................................................................................. 1.4 Who is targeted? .......................................................................................................................................... 1.5 What am I reporting on? .............................................................................................................................. 1.6 My company is already involved in other schemes .................................................................................... 1.7 Which part of my organisation is responsible for CRC participation? ........................................................ 1.8 How will it be regulated? ............................................................................................................................ 1.8.1 Non-compliance penalties .................................................................................................................. 1.9 What stage are we at? ................................................................................................................................
6 6 6 7 7 7 8 8 9 9
Debate: BT and Defra on the treatment of onsite renewables and renewable obligation certificates ...................................................................................................................................... 10 Key dates for your diary .................................................................................................................................. 12 Section 2: The marketplace structure 2.1 How the market works .............................................................................................................................. 2.2 The introductory phase (2010) .................................................................................................................. 2.3 The capped phase (2013) .......................................................................................................................... 2.4 The safety valve ........................................................................................................................................ 2.5 Revenue recycling and the league table....................................................................................................
17 17 18 18 18
Section 3: The qualification process 3.1 The energy suppliers’ role.......................................................................................................................... 20 3.2 The qualifying organisations’ role ............................................................................................................ 20 Section 4: Monitoring, reporting and audit of emissions (MRA) 4.1 Monitoring ................................................................................................................................................ 22 4.2 Reporting .................................................................................................................................................. 22 4.3 Risk-based audit........................................................................................................................................ 22 Section 5: Compliance costs 5.1 Costs of scheme coordination .................................................................................................................. 24 5.2 Benefits: Energy saving ............................................................................................................................ 24 Section 6: Case studies ITV – Challenge: Medium-sized firm spread over multiple locations .............................................................. Land Securities – Challenge: Negotiating landlord-tenant agreements for CRC compliance .......................... Alliance Boots – Strategy: Emissions quantification and data collection ...................................................... Asda – Abatement strategy and CRC performance ........................................................................................ Ecotricity: Industry comment from a green energy supplier ..........................................................................
25 25 26 27 28
Section 7: Looking forwards ............................................................................................................................ 29 References ...................................................................................................................................................... 30
HOW TO MANAGE CARBON REDUCTION
Tables and boxes Box 1: CRC objectives ..........................................................................................................................................5 Box 2: List of Acronyms ......................................................................................................................................5 Box 3: The “top-down” approach ........................................................................................................................6 Box 4: Trading strategy........................................................................................................................................6 Box 5: Target sectors ..........................................................................................................................................7 Box 6: British Retail Consortium (BRC) on the franchisor responsibility ............................................................8 Box 7: Insider advice: Constructing a marginal abatement curve ....................................................................17 Box 8: Will cap-and-trade deliver emissions reductions? ..................................................................................17 Box 9: Trading strategy – the “prisoner’s dilemma” ..........................................................................................18 Box 10: League table loopholes ........................................................................................................................19 Box 11: Data collection, processing and reporting ............................................................................................20 Box 12: Estimating the cost of CRC compliance ................................................................................................24 Box 13: landlord tenant scenario ......................................................................................................................25 Box 14: The polluter pays principle ..................................................................................................................26 Box 15: Need for supplier information mandate ..............................................................................................27 Table 1: Calendar of CRC integration ..................................................................................................................12 Table 2: Key administrative activities ................................................................................................................23
HOW TO MANAGE CARBON REDUCTION
Foreword
his briefing has been produced for businesses managers and executives who need to understand the new carbon emissions regulations in the UK. It aims to provide a clear overview of Dea’s Carbon Reduction Commitment (CRC), and help companies with a UK presence prepare for the Government-led, mandatory cap-and-trade scheme. The briefing finds that some of the aspects of CRC are still contested. Many of the up to 5000 firms that will be implicated by the scheme are not aware of their responsibilities or only in the initial stages of developing a compliance strategy. Section 1 through 5 walks the reader through the new regulations in a step-by-step fashion. It explains the issues that are critical to business. These sections include an overview of current debates, a diary of key
T
dates, examples of challenges by specific companies, monitoring and cost estimates. The briefing concludes with five case studies that explore real life ways big companies are preparing for the new regulation and are reducing their carbon emissions. We hope that the guidelines presented in this report will prepare readers for the new UK emissions regulation and enable them to respond ethically and effectively. Dea is confident in their design of the CRC. However, its implementation will be closely monitored, and specifications and dates may be adjusted in the future. Ethical Corporation is grateful to all corporations that contributed valuable data, opinions and company strategies.
Ethical Corporation
Acknowledgements Ethical Corporation is grateful to Rikki Stancich for leading this research and the Defra CRC Team for their significant contributions. In addition, we wish to thank Alliance Boots, Asda, the British Retail Consortium, BT, Ecotricity, E.ON, Carbon Trust, ITV, Land Securities, New Carbon Finance, and Point Carbon for providing valuable insight and assisting us with our research.
HOW TO MANAGE CARBON REDUCTION
Overview
n today’s business-as-usual environment, oces, retail outlets, supermarkets and restaurants are unwittingly generating over one-third of the UK’s total emissions through inecient energy usage at their premises alone. And according to the Department for Environment, Food and Rural Affairs (Dea), this figure is rising at a disturbing rate – emissions om large non-energy intensive organisations will increase by approximately 11% by 2030 compared to 2010 levels. Previously, the energy bills of large, non-energyintensive private and public sector organisations have received scant attention om firms, given that they generally account for as little as 1-3% of overall operating costs. From 2010, this will no longer be the case. By introducing a mandatory cap-and-trade scheme targeting these sectors, the UK Government will in effect be forcing companies to examine how they can reduce their energy bills – and their emissions. At present the Government indicates that all firms whose half-hourly metered electricity use exceeds 6,000MWh – which currently translates as an electricity bill in excess of £500,000 – will be required to participate in the Carbon Reduction Commitment (CRC) scheme. This year (2008) is the qualification period for the first phase of the scheme, which will begin in 2010. Roughly 5,000 firms in the UK will be involved – and many are either unaware of this, or are at no later than the embryonic stage of developing a compliance strategy (Dea 2008a). While the scheme has been designed to be as light touch as possible, with minimal compliance costs and potential rewards for strong performers, non-compliance will result in tough penalties. The Government expects to set penalties that are comparable to EU ETS penalties. For example, if an organisation has underreported or has not provided data two months aer the deadline, then they would be liable to pay a substantial fine. This fine may be set at a rate of £25/tonne of CO2. This fee rate would rise to £70/tonne of CO2 aer the introductory phase. Issues relating to CRC responsibility continue to be contested by a handful of industry sectors, including the UK anchisor and renewable energy sectors. Meanwhile, proposals such as supplier information mandates for CRC quantification purposes and the nature and extent of the inclusion of the National Health Service has yet to be agreed upon. This will be discussed during the forthcoming autumn 2008 consultation.
I
Box 1: CRC objectives “The CRC is designed to be simplistic, with minimal administrative burden; revenue neutral (in that firms recoup the upfront costs via the revenue recycling scheme); and to overcome behavioural barriers with regard to energy efficiency. “Essentially the CRC aims to make firms examine their electricity bills a couple of times a year and identify where they can lower their costs and cut their emissions.” Jonathon Farr, Spokesman, Defra
Box 2: List of Acronyms AMR – automatic meter reading BSC – balancing and settlement code CCA – climate change agreement CHP – combined heat and power CSR – corporate social responsibility DA – devolved administration EEAS – energy efficiency accreditation scheme EU ETS – european union emissions trading scheme HHM – half hourly meter kVA – kilovolt ampere kW – kilowatt MAC – marginal abatement curve MWh – megawatt hour NPV – net present value PFI – public finance initiative PPP – polluter pays principle PPP – public private partnership RO – renewables obligation ROC – renewables obligation certificate SME – small-medium enterprise
Ethical Corporation report centre Recent publications cover topics such as anti-corruption, voluntary initiatives in CSR, emerging market issues, and managing carbon emissions. You can also visit Ethical Corporation’s website and download some free research papers: www.ethicalcorp.com/reports Anti-corruption, ethics and compliance in Russia Practical information to develop local compliance strategies and overcome corruption challenges. For more information, current prices or online ordering, visit: www.ethicalcorp.com/russia Anti-corruption, ethics and compliance in China and Counter corruption in your supply chain in China Learn more about the issues critical to your operational security, ethical management and success in China. For more information, current prices or online ordering, visit: www.ethicalcorp.com/china Best practices for designing effective ethics programmes Find out which ethics and compliance training is most effective and productive. For more information, current prices or online ordering, visit: www.ethicalcorp.com/ectraining How to manage carbon reduction, and make it pay A hands-on management briefing on real-life ways big UK companies cut carbon, and their costs. Order online or obtain more information at: www.ethicalcorp.com/crc Corporate greenhouse gas emissions reporting Learn how your competitors are calculating and verifying their GHG emissions – and discover which metrics and verification standards will work for you. For more information, current prices or online ordering, visit: www.ethicalcorp.com/greenhousegas Guide to industry initiatives in CSR Get the inside track from some of the world’s key industry-based initiatives. For more information, current prices or online ordering, visit: www.ethicalcorp.com/initiatives Job-specific guides for embedding CSR throughout your company Winning methods for integrating sustainability into operational departments including communications, finance and facilities. For more information, current prices or online ordering, visit: www.ethicalcorp.com/csr Essential strategies for effective emissions trading and offsetting With practical information from the leading companies, this report is everything you need to develop your company’s emissions trading and offsetting strategy. Including case studies from 15 companies across industry. For more information, current prices or online ordering, visit: www.ethicalcorp.com/emissionstrading The must-have guide to water ethics, footprinting, programmes and supply security Learn how water risks factor into your operations, and what you should do to ethically manage water use. For more information, current prices or online ordering, visit: www.ethicalcorp.com/water
Order options:
Ethical Corporation report order form Your information
Secure online form: www.ethicalcorp.com/reports Telephone: Client Services at +44 20 7375 7500 Email: [email protected] Mail this form to: 7–9 Fashion Street, London, UK E1 6PX
First name: .............................................................................. Last name:.......................................................................... Company:.............................................................................................................................................................................. Telephone: ............................................................................................................................................................................ Email:.................................................................................................................................................................................... Address:................................................................................................................................................................................ City:..........................................................................................State/Province: .................................................................... Zip/Postcode: ..........................................................................Country: .............................................................................. Report name: ........................................................................................................................................................................ Quantity: .................................................................................. Final price+VAT: .................................................................. Payment Details Name (as it appears on card): ............................................................................................................................................ Card number:
■■■■ ■ ■■■ ■■■ ■ ■■■■
Type of card: ...................................................................................................................................................................... Expiry date: ............................................................................Security Code: ....................................................................
Ethical Corporation In-depth responsible business research, training and advisory Ethical Corporation produces robust and accessible business intelligence reports for business executives. Reports focus on cutting edge ethical business management issues are based on in-depth research with leading multinational companies.
© Ethical Corporation 2009 All rights reserved
Ethical Corporation 2008
June 2008
HOW TO MANAGE CARBON REDUCTION
Contents
Overview............................................................................................................................................................ 5 Section 1: The Carbon Reduction Commitment (CRC) 1.1 Quick facts.................................................................................................................................................... 1.2 How does the CRC work? ............................................................................................................................ 1.3 Who benefits? .............................................................................................................................................. 1.4 Who is targeted? .......................................................................................................................................... 1.5 What am I reporting on? .............................................................................................................................. 1.6 My company is already involved in other schemes .................................................................................... 1.7 Which part of my organisation is responsible for CRC participation? ........................................................ 1.8 How will it be regulated? ............................................................................................................................ 1.8.1 Non-compliance penalties .................................................................................................................. 1.9 What stage are we at? ................................................................................................................................
6 6 6 7 7 7 8 8 9 9
Debate: BT and Defra on the treatment of onsite renewables and renewable obligation certificates ...................................................................................................................................... 10 Key dates for your diary .................................................................................................................................. 12 Section 2: The marketplace structure 2.1 How the market works .............................................................................................................................. 2.2 The introductory phase (2010) .................................................................................................................. 2.3 The capped phase (2013) .......................................................................................................................... 2.4 The safety valve ........................................................................................................................................ 2.5 Revenue recycling and the league table....................................................................................................
17 17 18 18 18
Section 3: The qualification process 3.1 The energy suppliers’ role.......................................................................................................................... 20 3.2 The qualifying organisations’ role ............................................................................................................ 20 Section 4: Monitoring, reporting and audit of emissions (MRA) 4.1 Monitoring ................................................................................................................................................ 22 4.2 Reporting .................................................................................................................................................. 22 4.3 Risk-based audit........................................................................................................................................ 22 Section 5: Compliance costs 5.1 Costs of scheme coordination .................................................................................................................. 24 5.2 Benefits: Energy saving ............................................................................................................................ 24 Section 6: Case studies ITV – Challenge: Medium-sized firm spread over multiple locations .............................................................. Land Securities – Challenge: Negotiating landlord-tenant agreements for CRC compliance .......................... Alliance Boots – Strategy: Emissions quantification and data collection ...................................................... Asda – Abatement strategy and CRC performance ........................................................................................ Ecotricity: Industry comment from a green energy supplier ..........................................................................
25 25 26 27 28
Section 7: Looking forwards ............................................................................................................................ 29 References ...................................................................................................................................................... 30
HOW TO MANAGE CARBON REDUCTION
Tables and boxes Box 1: CRC objectives ..........................................................................................................................................5 Box 2: List of Acronyms ......................................................................................................................................5 Box 3: The “top-down” approach ........................................................................................................................6 Box 4: Trading strategy........................................................................................................................................6 Box 5: Target sectors ..........................................................................................................................................7 Box 6: British Retail Consortium (BRC) on the franchisor responsibility ............................................................8 Box 7: Insider advice: Constructing a marginal abatement curve ....................................................................17 Box 8: Will cap-and-trade deliver emissions reductions? ..................................................................................17 Box 9: Trading strategy – the “prisoner’s dilemma” ..........................................................................................18 Box 10: League table loopholes ........................................................................................................................19 Box 11: Data collection, processing and reporting ............................................................................................20 Box 12: Estimating the cost of CRC compliance ................................................................................................24 Box 13: landlord tenant scenario ......................................................................................................................25 Box 14: The polluter pays principle ..................................................................................................................26 Box 15: Need for supplier information mandate ..............................................................................................27 Table 1: Calendar of CRC integration ..................................................................................................................12 Table 2: Key administrative activities ................................................................................................................23
HOW TO MANAGE CARBON REDUCTION
Foreword
his briefing has been produced for businesses managers and executives who need to understand the new carbon emissions regulations in the UK. It aims to provide a clear overview of Dea’s Carbon Reduction Commitment (CRC), and help companies with a UK presence prepare for the Government-led, mandatory cap-and-trade scheme. The briefing finds that some of the aspects of CRC are still contested. Many of the up to 5000 firms that will be implicated by the scheme are not aware of their responsibilities or only in the initial stages of developing a compliance strategy. Section 1 through 5 walks the reader through the new regulations in a step-by-step fashion. It explains the issues that are critical to business. These sections include an overview of current debates, a diary of key
T
dates, examples of challenges by specific companies, monitoring and cost estimates. The briefing concludes with five case studies that explore real life ways big companies are preparing for the new regulation and are reducing their carbon emissions. We hope that the guidelines presented in this report will prepare readers for the new UK emissions regulation and enable them to respond ethically and effectively. Dea is confident in their design of the CRC. However, its implementation will be closely monitored, and specifications and dates may be adjusted in the future. Ethical Corporation is grateful to all corporations that contributed valuable data, opinions and company strategies.
Ethical Corporation
Acknowledgements Ethical Corporation is grateful to Rikki Stancich for leading this research and the Defra CRC Team for their significant contributions. In addition, we wish to thank Alliance Boots, Asda, the British Retail Consortium, BT, Ecotricity, E.ON, Carbon Trust, ITV, Land Securities, New Carbon Finance, and Point Carbon for providing valuable insight and assisting us with our research.
HOW TO MANAGE CARBON REDUCTION
Overview
n today’s business-as-usual environment, oces, retail outlets, supermarkets and restaurants are unwittingly generating over one-third of the UK’s total emissions through inecient energy usage at their premises alone. And according to the Department for Environment, Food and Rural Affairs (Dea), this figure is rising at a disturbing rate – emissions om large non-energy intensive organisations will increase by approximately 11% by 2030 compared to 2010 levels. Previously, the energy bills of large, non-energyintensive private and public sector organisations have received scant attention om firms, given that they generally account for as little as 1-3% of overall operating costs. From 2010, this will no longer be the case. By introducing a mandatory cap-and-trade scheme targeting these sectors, the UK Government will in effect be forcing companies to examine how they can reduce their energy bills – and their emissions. At present the Government indicates that all firms whose half-hourly metered electricity use exceeds 6,000MWh – which currently translates as an electricity bill in excess of £500,000 – will be required to participate in the Carbon Reduction Commitment (CRC) scheme. This year (2008) is the qualification period for the first phase of the scheme, which will begin in 2010. Roughly 5,000 firms in the UK will be involved – and many are either unaware of this, or are at no later than the embryonic stage of developing a compliance strategy (Dea 2008a). While the scheme has been designed to be as light touch as possible, with minimal compliance costs and potential rewards for strong performers, non-compliance will result in tough penalties. The Government expects to set penalties that are comparable to EU ETS penalties. For example, if an organisation has underreported or has not provided data two months aer the deadline, then they would be liable to pay a substantial fine. This fine may be set at a rate of £25/tonne of CO2. This fee rate would rise to £70/tonne of CO2 aer the introductory phase. Issues relating to CRC responsibility continue to be contested by a handful of industry sectors, including the UK anchisor and renewable energy sectors. Meanwhile, proposals such as supplier information mandates for CRC quantification purposes and the nature and extent of the inclusion of the National Health Service has yet to be agreed upon. This will be discussed during the forthcoming autumn 2008 consultation.
I
Box 1: CRC objectives “The CRC is designed to be simplistic, with minimal administrative burden; revenue neutral (in that firms recoup the upfront costs via the revenue recycling scheme); and to overcome behavioural barriers with regard to energy efficiency. “Essentially the CRC aims to make firms examine their electricity bills a couple of times a year and identify where they can lower their costs and cut their emissions.” Jonathon Farr, Spokesman, Defra
Box 2: List of Acronyms AMR – automatic meter reading BSC – balancing and settlement code CCA – climate change agreement CHP – combined heat and power CSR – corporate social responsibility DA – devolved administration EEAS – energy efficiency accreditation scheme EU ETS – european union emissions trading scheme HHM – half hourly meter kVA – kilovolt ampere kW – kilowatt MAC – marginal abatement curve MWh – megawatt hour NPV – net present value PFI – public finance initiative PPP – polluter pays principle PPP – public private partnership RO – renewables obligation ROC – renewables obligation certificate SME – small-medium enterprise
Ethical Corporation report centre Recent publications cover topics such as anti-corruption, voluntary initiatives in CSR, emerging market issues, and managing carbon emissions. You can also visit Ethical Corporation’s website and download some free research papers: www.ethicalcorp.com/reports Anti-corruption, ethics and compliance in Russia Practical information to develop local compliance strategies and overcome corruption challenges. For more information, current prices or online ordering, visit: www.ethicalcorp.com/russia Anti-corruption, ethics and compliance in China and Counter corruption in your supply chain in China Learn more about the issues critical to your operational security, ethical management and success in China. For more information, current prices or online ordering, visit: www.ethicalcorp.com/china Best practices for designing effective ethics programmes Find out which ethics and compliance training is most effective and productive. For more information, current prices or online ordering, visit: www.ethicalcorp.com/ectraining How to manage carbon reduction, and make it pay A hands-on management briefing on real-life ways big UK companies cut carbon, and their costs. Order online or obtain more information at: www.ethicalcorp.com/crc Corporate greenhouse gas emissions reporting Learn how your competitors are calculating and verifying their GHG emissions – and discover which metrics and verification standards will work for you. For more information, current prices or online ordering, visit: www.ethicalcorp.com/greenhousegas Guide to industry initiatives in CSR Get the inside track from some of the world’s key industry-based initiatives. For more information, current prices or online ordering, visit: www.ethicalcorp.com/initiatives Job-specific guides for embedding CSR throughout your company Winning methods for integrating sustainability into operational departments including communications, finance and facilities. For more information, current prices or online ordering, visit: www.ethicalcorp.com/csr Essential strategies for effective emissions trading and offsetting With practical information from the leading companies, this report is everything you need to develop your company’s emissions trading and offsetting strategy. Including case studies from 15 companies across industry. For more information, current prices or online ordering, visit: www.ethicalcorp.com/emissionstrading The must-have guide to water ethics, footprinting, programmes and supply security Learn how water risks factor into your operations, and what you should do to ethically manage water use. For more information, current prices or online ordering, visit: www.ethicalcorp.com/water
Order options:
Ethical Corporation report order form Your information
Secure online form: www.ethicalcorp.com/reports Telephone: Client Services at +44 20 7375 7500 Email: [email protected] Mail this form to: 7–9 Fashion Street, London, UK E1 6PX
First name: .............................................................................. Last name:.......................................................................... Company:.............................................................................................................................................................................. Telephone: ............................................................................................................................................................................ Email:.................................................................................................................................................................................... Address:................................................................................................................................................................................ City:..........................................................................................State/Province: .................................................................... Zip/Postcode: ..........................................................................Country: .............................................................................. Report name: ........................................................................................................................................................................ Quantity: .................................................................................. Final price+VAT: .................................................................. Payment Details Name (as it appears on card): ............................................................................................................................................ Card number:
■■■■ ■ ■■■ ■■■ ■ ■■■■
Type of card: ...................................................................................................................................................................... Expiry date: ............................................................................Security Code: ....................................................................
Ethical Corporation In-depth responsible business research, training and advisory Ethical Corporation produces robust and accessible business intelligence reports for business executives. Reports focus on cutting edge ethical business management issues are based on in-depth research with leading multinational companies.
© Ethical Corporation 2009 All rights reserved
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