Data is the key to the CRC - by EDF Energy
Businesses involved in the CRC will soon be asked to look at their environmental impact in a way they have never done before. Laurent Mineau of EDF Energy says that gathering the data will be the toughest, and most important, part of the processThe introduction of the Carbon Reduction Commitment (CRC) heralds a new era for companies to take control of their carbon emissions as a business as usual practice. This is a significant step towards establishing the effective mechanisms and encouraging the development of the new carbon conscious business culture required to meet the tougher national carbon reduction targets announced in the Climate Change Act last year.
However for many participating organisations this will require a completely new approach to determining, managing and reporting their carbon emissions. Even for those organisations already reporting on their carbon emissions each year, for example in annual CSR reports, the change will be significant. In fact, judging by customers' reactions to the scheme during our CRC customer education programme last year, it looks as though the challenges of the data gathering exercise could make the actual carbon saving activity look relatively simple.
We thought it would be useful to outline four key data challenges we believe many organisations may struggle to manage if they leave their preparations to the last minute. None of these are insurmountable, but it will take time and effort to work them through.
What is my CRC organisation?
Even determining how your organisation will participate within the scheme isn't as clear cut as one might expect. That is because the easy targets for carbon management schemes, large carbon emitting sites, are gone. They are already involved in either the Climate Change Agreements (CCA) or the EU Emissions Trading Scheme (EU ETS).
The 5,000 or so large, non-energy intensive organisations that the CRC is targeting still have significant carbon emissions untouched by a CCA or the EU ETS. They are estimated to account for roughly 10% of the UK's annual carbon emissions. CCAs and the EU ETS target high carbon emitting sites, whereas the CRC targets high carbon emitting organisations.
What this means in practice is that instead of monitoring a few hundred sites each responsible for significant carbon emissions, the scheme has to monitor many thousands of commercial sites that individually are not significant carbon emitters. Exactly how many sites this involves, no one really knows - finding out is part of the purpose of the first three year introductory phase of the scheme. But to achieve that goal of capturing the maximum volume of carbon emissions within the scheme, the CRC defines organisations by the highest parent level. In other words all their subsidiaries and sites (owned and/or occupied) are considered. This poses a problem for organisations with complex ownership structures, particularly where subsidiaries are unconnected, for example, there is a common holding company but no operational interrelationship. Joint ventures and franchise business models can also confuse matters. The parent risks significant penalties if it erroneously concludes that the organisation, in full or in part, does not qualify because it considered its subsidiaries in isolation.
So the first step in preparing for the CRC is to develop a clear view of the organisation's legal boundary.
Which sites count?
Knowing the legal structure of the organisation is the first step. Determining the carbon emissions ownership for energy used at each site related to the subsidiaries is the next.
In designing the CRC, the Department of Energy and Climate Change recognised that firms can only really undertake carbon management practices where they have sight of and control over the energy used on site. For instance, in many cases tenants in commercial buildings have little or no real control over the energy efficiency of their rented premises, particularly in multi tenanted buildings. Landlords decide whether or not to upgrade the fabric of the building and the building's metering may not split out energy usage per tenant. So the scheme determines carbon ownership according to whichever party takes responsibility for the supply of energy by signing the energy supply contract. Normally this will be the bill payer.
This adds more complexity in reporting for many businesses and public sector organisations. Not all the premises they occupy will generate carbon emissions that they have to report on, only the ones where they are the counterparty to the energy supply contract.
Likewise, they maybe responsible for carbon emissions of businesses occupying buildings they own. For commercial landlords captured by the CRC, monitoring the carbon emissions of their tenants is effectively a new mandatory requirement.
From discussions with clients with large portfolios and disparate operations, it appears the practical implications of gathering up the details of the energy supply contracts are administratively daunting. These agreements may be negotiated at a local level and not stored centrally. Tough as it may be, step two in overcoming the data challenge is to compile a thorough site inventory listing all owned and occupied premises, and determine the counterparty to the energy supply contract for each site.
Which emissions are relevant?
Although the scheme aims to cover as many commercial sites and as much of the energy used on those sites as possible, it recognises that the greatest impact on carbon emissions is likely to be achieved by focussing a business's attention on its main energy uses at its more energy-hungry sites. This is where the notion of core fuel sites enters.
The core fuels are typically electricity and gas used in sufficient quantities to be billed on a monthly basis - the remainder are called residual emissions. Emissions from core fuels at these sites will have to be covered by allowances and reported on every year. Residual emissions do not have to be covered by allowances as long as the emissions from core fuels (and those emissions covered by a CCA or the EU ETS) account for at least 90% of the organisations total emissions footprint. It may be advantageous for a participating company to only buy the minimum amount of allowances for core fuels to reduce the cash flow impact, or conversely to include residual emissions in their CRC profile because the energy saving potential is great on those sites which may help with performance within the league table.
Step three is therefore to enrich the site list associated with the organisational structure with the emissions status of the energy used on site.
Getting the data?
The obligations for compliance rest firmly on the shoulders of participating organisations. It is their responsibility to ensure they can meet the reporting deadlines, submit accurate reports, and provide evidence that their reports are based on hard facts if called to audit by the Environment Agency. For many organisations in this sector, energy use and carbon emissions is not information they have been used to tracking. Even those that produce carbon footprint data of their operations for annual environment reports often only include sites of significant scale.
Data from energy bills is the accepted reporting currency within the CRC. But for many participants there is a strong likelihood that multiple energy suppliers are involved in supplying electricity and gas (never mind any other fuels) to the various sites within their portfolio. Collating bills from these various sources could easily be a very time consuming task.
A good place to start is online. Most energy suppliers offer a 'my account' service (EDF Energy's is called Energy Zone) which provides business customers with online access to their account information, including copies of bills.
The CRC does contain an obligation on energy suppliers to provide an annual statement of emissions for their customers. The annual statement avoids the need for customer's to toil away collating mountains of bills. However it is only necessary for energy suppliers to provide this report on request from 2011, and then only to report on the sites that their customers specify.
Of course most energy suppliers will develop compliant reporting services earlier than 2011, but the customer will still have to specify which sites and subsidiaries the energy supplier should include within the report. Making that request should be easier for companies that have followed the guidance in the steps one to three, than those that are still struggling to understand their organisational boundary, their site inventory by subsidiary and CRC emissions status of each fuel used.
Data is key?
The need to cut carbon emissions is real and urgent. The CRC is a good scheme to encourage companies to develop the reporting mechanisms to enable carbon savings through energy efficiency. The change in management culture could cause some short term pain, particularly in 2009 and 2010.
However this pain can be minimised by taking a logical approach to preparing for the scheme and should be offset by the lower energy costs derived from the greater energy efficiency focus the CRC will create.