Responding to the simplified CRC Energy Efficiency Scheme

Buderus, boiler, CRC Scheme
The positives of the simplified CRC Scheme — Mike Southall.

The Carbon Reduction Commitment Energy Efficiency Scheme has been met with uncertainty since its introduction in April last year, with many believing that the scheme is overly complex. As the Department of Energy & Climate Chance looks at ways to simplify the scheme, Mike Southall explains why it is still a positive incentive for large public and private-sector organisations.

The premise of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme from the outset has always been to use it with the aim of improving the energy efficiency and emissions of the UK’s largest organisations. They are responsible for some 10% of the country’s overall emissions, so they will need to play a significant part in helping the country to achieve the Government’s target of an 80% reduction in carbon emissions by 2050 compared to the 1990 baseline.

Whilst the original details of the scheme proposed a revenue-recycling mechanism, this was subsequently cut to support public finances following the Comprehensive Spending Review. Despite initial claims that this shift presented itself as an unwelcome tax, the reality is that it simplified the way in which public and private sector organisations can make financial allowances for any initiatives implemented to reduce emissions. Contactors and consultants alike are now in a position where they can plan full initiatives without having to make allowances for any potential redistribution of revenue, and I would urge them to take advantage of this opportunity.

Back in June [2011], we saw the Government announce plans to further simplify the CRC following a period of dialogue between DECC and the scheme’s participants. My feeling is that this move had to be made; a scheme which is deemed mandatory should be as simple and as cost effective as possible to implement. Ultimately, the industry shares a common goal, and we have to make this goal as achievable as possible.

One of the ways in which the scheme has been simplified is by reducing the number of fuels from 29 to four. I applaud this decision, as the administrative requirements of the scheme originally appeared impractical. What this move has done is discounted the fuels which represent just 5% of the sector’s usage — allowing us to focus our attention on electricity and gas as well as kerosene and diesel when used for heating.

Further to this, from 2013 onwards, there will be two sales of fixed-price allowances per year, giving participants the opportunity to purchase carbon allowances at the start of each year based on forecasted figures or retrospectively at the end of a compliance year. Again, the incentive here is for those participating in the scheme to have certainty over their expenditure, which helps with decisions regarding investment. The flexibility here will also give organisations greater opportunity to improve their energy usage.

Following the Government’s pledge to simplify the scheme, however, the Environment Agency announced in August [2011] that 95% of those businesses required to comply with the first CRC deadline managed to do so. Not only does this suggest that the vast majority are up to speed with the requirements but also that conclusive reporting processes have been implemented, which is a model we need to sustain as the drive towards a wholesale reduction in emissions gathers pace.

I expect the publishing of the first league table, charting organisations’ usage, to spur those participating organisations on to further improvements to enhance their business reputation. As this competitive attitude takes force, installers and HVAC contractors alike will have renewed opportunity to upgrade heating systems to incorporate energy-saving measures and renewable technologies. We have already seen the market for low-carbon commercial and industrial heating technologies grow, and I expect this growth continue year on year. There is no definitive ‘one-solution-fits-all’ approach to improving efficiency, so different organisations will inevitably look at different ways to achieve their desired improvements, with some looking to take a step approach towards achieving their desired targets. Again, this challenges contractors and consultants alike to design innovative systems in a move which should be embraced by the industry.

With Greg Barker, Minister of State for Energy & Climate Change, considering shifting the future administration of the scheme to the Environment Agency, it is hoped that we will soon have a one-stop shop for the regulation of our energy efficiency. My hope for the future is that this move will encourage the Government to liaise closely with the Environment Agency to establish challenging yet achievable targets for the sectors to work towards.

The heating industry as a whole can view the CRC Energy Efficiency Scheme as a significant move towards improved efficiencies and reduced emissions by offering stakeholders a positive set of incentives to take into consideration. The early signs are very positive, as shown by the stimulation in the market for low-carbon technologies, and I expect this demand to continue to increase as formal consultation of these new proposals is implemented over the coming months.

Mike Southall is director of business development with Buderus.

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