CRC Energy Efficiency Scheme — no Double Sale?

Posted under environment by Daniel Stouffer

The British government was determined to make a difference in the war against climate change and pushed through new legislation to pave the way for the CRC Energy Efficiency Scheme. The path they were paving was indeed groundbreaking and the government went out of its way to solicit feedback from those affected. While the program will not essentially gain any sharp teeth until it’s “cap and trade” auction scheme element kicks in, 5000 organizations are being forced to comply anyway very soon. These companies spend about a half million dollars per year on energy costs and are primary polluters.

When this program was first suggested, legislators wanted companies to buy allowances right from the beginning of the scheme. An allowance would represent a tonne of carbon dioxide emitted and while the company would not actually pay for these funds until the end of the first trading year, this would also signify the time to pay for the following year’s allowances in advance. This was highly unpopular and became known as the “double sale” of emission allowances. It would have been extremely prohibitive from a cash flow point of view.

The British government is rolling out the CRC Energy Efficiency Scheme in phases. The first, three year introductory phase is underway and during this time participants will be required to buy allowances at the rate of 12 per tonne. There are no limits to the amount of emissions purchasable and the actual amount required will be based on the calculations made at the end of what is being called the “footprint year,” which gets underway in the spring of 2010.

When the footprint year of the CRC Energy Efficiency Scheme concludes, companies will have to buy allowances from the government for the following year. This means that in April 2011 a payment must be made, using end of year figures tabulated within the government’s scheme website. Companies are glad that they do not have to pay for the footprint year as well, as had been initially mooted under the double sale idea.

At the end of the footprint year, companies in the CRC Energy Efficiency Scheme will buy their allowances from the government for the subsequent year. Thus, during April 2011 a payment must be made to the government, which must clear its bank before allowances are issued. A registry will be developed during 2010 enabling the transactions in the scheme to be processed centrally.

Some organizations may find that they will need additional allowances during the course of the trading year. This will generally mean that they are using more energy and emitting more carbon than they had hoped and this is not a good position to be in. There will be a secondary market in existence, allowing these companies to trade with other participants to buy further allowances. The terms of the transaction must be agreed with the seller and will not come under the control of the government.

It’s great to see the double sale idea being ditched, as the CRC Energy Efficiency Scheme was already seen as being prohibitive and complex anyway. Now, cash flow arrangements in April 2011 will be only 50% of what they would have been otherwise.

It is in the company’s best interests to initiate energy efficiencies as quickly as possible. The much vaunted league table of participants in the scheme will be slanted toward those companies that take early initiatives, by fitting automatic meter readers and by registering with the Carbon Trust Standard, for example. When actual performance figures are in, the league table will then represent an organization’s pure performance in terms of its efficiency efforts.

Daniel Stouffer has much more information about the CRC Energy Efficiency Scheme and how a visit to www.verisae.com can be of use to you.