Carbon Reduction Commitment

The CRC is an emissions trading program which attempts to expand the scope of carbon regulation to address energy consumption.  It will affect organizations whose half-hourly metered electricity usage exceeds 6,000 MWh per year based on 2008 consumption.  The program will reduce emissions by 4MtCO₂ per year by 2020 as part of the UK goal of reducing greenhouse gas emissions to 80% below 1990 levels by 2050.  The CRC encourages emissions reductions by creating incentives for energy efficiency improvements.  Increased energy efficiency will reduce emissions from energy generation. 

The CRC covers both public and private-sector organizations; participation is mandatory for large emitters.  The scheme will include an estimated 20,000 organizations.  Of these, only around 5,000 will be full participants.  The rest will make semiannual information disclosures regarding electricity usage. Full participants are required to purchase allowances from the government for each ton of CO₂ for which they are responsible.  Savings from reduced energy costs should significantly exceed the cost of allowances, which will cost a fixed price of £12 per ton of CO₂ during the CRC's introductory phase.  If an organization does not comply, it will face financial penalties and legal action.

Organizations are also required to monitor and report emissions data.  The CRC carbon footprint is the sum of organization-wide energy use from electricity, gas, and other fuel types including coal, diesel, and LPG.  CRC participants use the half hourly meter and automatic meter reading to track electricity and gas usage.  In addition to meter readings, energy bills and invoices are important sources of consumption statistics.  Although estimates are permitted, they will automatically be increased by 10%.  Organizations must compile lists of energy sources used to produce a footprint report.  These will be collated as evidence packs.  Such packs contain documents such as structural records, data records, special events records, data for Early Action and growth metrics, and records to support exemptions and energy credits.  Energy use data is converted into carbon footprint by multiplying consumption of each source by the relevant emission factors.  The CRC registry site includes an emissions calculator.

Organizations purchase allowances annually from the government through the CRC registry during a sale period at the beginning of the year.  The number of allowances purchased should reflect projected emissions.  Organizations are required to surrender one allowance for each ton of CO₂ emitted in a compliance year.  If they need to purchase additional allowances, this will be possible through the secondary market or the safety valve.  On the secondary market, other organizations and registered CRC traders can buy and sell allowances at market prices.  Trades can be brokered through the CRC online registry or third party trading facilities.  The CRC includes "safety valve" trading to hedge against the possibility of allowance prices rising too high.  The safety valve lets participants ask the administrator to issue new allowances.  The participant pays a deposit based on the cost of allowances in the previous month; the administrator then purchases EU ETS allowances (and removes them from the EU ETS market) and issues the appropriate amount of new CRC allowances to participants.

If an organization comes to have a surplus of allowances, it may sell them on the secondary market or bank them for use in later years.  Allowances from the final year of the introductory period cannot be used during the capped phase.

The government will create a "performance league table" making the progress made by participating organizations public.  It will be published annually and will be based on three weighted metrics.  The "absolute" metric measures relative change in emissions, the "early action" metric includes steps taken before the beginning of the introductory phase, and the "growth" metric, which adjusts for organizational growth and favors energy-efficient expansion.  In the first year of the introductory phase, "early action" will account for 100% of performance.  In years 2 and 3 of the introductory phase, the "absolute" metric will count for 60% and the other two for 20% each.  In future phases, "absolute" will be 75% and "growth" 25%.  Participants will be ranked in each metric and receive points equal to their rank multiplied by the weighting of the metric.  For example, if there are 5,000 participants the best ranking will be 5,000 and the lowest 1.  The best-scoring organization in the "absolute" metric in Introductory Phase Year 2 or 3, in which this metric counts for 60%, would then receive 5000 x .60 points, or 3000.  The league compares performance of compliant organizations and uses this information to determine how much revenue will be "recycled" back to each organization.

Participants will not need to purchase allowances for activities covered by other programs or government policies such as the European Union Emission Trading Scheme or a Climate Change Agreement.  Transport emissions are excluded.

In April 2010, the CRC will enter its introductory phase, which will last for three years.  After the conclusion of this period, CRC requirements will be structured through successive seven-year capped phases.  Phases are divided into a qualification period, in which the status of an organization is decided, a registration period, for information disclosure and registration of participants, a footprint year, during which participants monitor emissions from energy use and prepare a footprint report, and a series of compliance years in which participants must purchase emissions allowances.

There will be a few important changes from the introductory to the capped phase.  There will be a cap on the number of available allowances based on emissions data results from the introductory phase.  Allowances will be auctioned instead of sold at a fixed price.  These two changes will tie the price of allowances to the demand to emit.  Finally, the performance league table will not include early action.

In England and Wales, the Environment Agency is the regulator; in Scotland it is the Scottish Environment Protection Agency and in Northern Ireland the Northern Ireland Environment Agency.