The Carbon Reduction Commitment – Friend or Foe? By Hyder Consulting

The CRC sets business a very clear challenge - to start caring about carbon. But it doesn't have to be a burden, says Paul Maryan. In fact, good monitoring, metering and targeting activity could see your company make a profit from the system

Like it or not, the Carbon Reduction Commitment (CRC) is coming. Put simply the CRC is a ‘cap and trade’ scheme based on set carbon emission limits. Break those limits and you have to buy carbon credits, beat the limits and you have carbon credits to sell. If your business (including any subsidiaries) has at least one site with mandatory half-hourly electricity metering and your total annual electricity consumption (on all sites) is 6,000 MWh or more in 2008/9, then you will be included in the CRC.

Just to be clear, the CRC is aimed at those organisations not currently impacted by the EU Emissions Trading Scheme or in a Climate Change Agreement. In other words, it is seeking out businesses that haven’t had to really think about their carbon emissions before, let alone take responsibility for them. It’s not surprising then that the government’s underlying objective when designing the CRC is to bring about behaviour change with the objective of making business care about carbon. If your business doesn’t care enough – well then you will have pay for your lack of interest. If your business cares a lot – then you will get rewarded with the money collected from those that have chosen not to care. Simple.

This approach also means that the CRC will create winners and losers. The choice that has to be made now is how much effort your business wants to put in to winning the CRC game, or will you simply choose to pay a carbon bill along with the other utility bills? Oh, and just to add some spice, it is likely that the government will publish league tables showing how well your organisation is doing relative to your competitors. So if your customers worry about climate change and their own carbon performance, they can help to drive down carbon impacts by selecting suppliers based on their CRC league table position. Of course, if your business chooses not to worry about its carbon emissions then it might not worry about what poor performance in this area might do to its market share either. It’s your decision.

The trouble is that these effects will become additive. High carbon emissions lead to higher costs anyway, usually from higher energy consumption. Add to this the cost of buying carbon credits as a result of the CRC and the pain grows. Worse, the money a business with a poor carbon performance pays to buy carbon credits will go to any competitor that has chosen to drive down their energy costs and reduce their carbon emissions as a result. The outcome is simple. Your business will become less profitable relative to your competitors. If these competitors then choose to reduce their prices as a result of their lower costs, you stand to lose market share as well on a simple cost basis, irrespective of whether your customers are making their buying decisions based on carbon performance or not.

So, what should you be doing about this? Well, whether you plan to take active steps to reduce your carbon impacts or not, the CRC will require you to start collecting and reporting your energy based carbon emissions. Industry analysts predict that many businesses will have difficulty in collecting reliable carbon emission data. Given that failure to produce accurate carbon data will bring even more legislative misery and cost down on your business, it is likely that you will need to invest some staff time to get your carbon data collection process in order. At this point, every business has a choice. The simple route is to do the minimum to meet the reporting requirements and then get back to the day job. This is fine, but may not represent the best return on your investment. The other route is to make a good job of collecting your emissions data and this may actually represent better value for money. This is because your business can then use the carbon emission data collected as a useful management tool.

Don’t forget that the carbon emissions that your business produces is not just a measure of business activity, they can also be used to identify how efficient your business is at using energy. If you can do the same job with less carbon emissions, you are not only saving yourself money from a lower energy bill, but also potentially from a lower CRC carbon ‘fine’. If you make a really good job of it, your business may even be in a position to start selling carbon credits to provide an additional income stream that will go straight on to your bottom line.

The starting point for all of this is to use the carbon data that your business collects to show you where your energy and carbon savings might come from. The higher the quality of this information, the more useful it will be. What you are looking for here is for your business to have the capacity to apply the tried and tested technique of metering, monitoring and targeting (MMT). MMT has long been a favoured weapon in the armoury of the Energy Manager in business with a large enough energy bill to justify such a position. However, many businesses now facing the realities of living with the CRC may not have come across this technique before. Basically the approach is based on the age old principle that you can only manage what you can measure. So, if you start to measure your carbon emissions in any detail, you will generate data that will allow you to monitor your energy consumption, highlight the ‘hot spots’ and target areas for saving. More importantly, by continuing to measure and monitor carbon emission in this way your business can see just how well it is doing in making savings and where your efforts are having greatest effect.

Energy savings
Just this simple approach has been found by the Carbon Trust to deliver energy savings of between 5 and 15%. Again, the financial benefits from these savings will go straight on your bottom line. This is because much of this saving comes from low or no cost activities that eliminate energy waste, or from working smarter to be more efficient. Both of these outcomes require little or no investment, but are based on people ‘doing the right thing’ within the business by changing their attitude to energy use. This is in fact exactly the kind of behavioural change that the CRC is designed to achieve.

British businesses have delivered similar changes in workforce culture before. The introduction of the Health and Safety at Work Acts achieved fundamental changes in the way that we all work. The stimulus for these changes was completely different being on based threats of large fines or even imprisonment for business managers. The outcome though has been miraculous. It is not too many years ago when to walk onto a factory floor in full PPE was considered as a sign of weakness. Now, all staff are empowered to identify and prevent unsafe acts and they use these powers with vigour. However, while you can only now enter a work area wearing the right safety equipment, once there you can usually flagrantly waste energy with no fear of anyone challenging you. Will the CRC elevate good energy management to the current level of Health and Safety? Only time will tell.

Out of this process of behavioural change will come opportunities for workers and managers alike to identify areas where investment will yield acceptable paybacks and deliver lower carbon emissions. Examples may vary from putting a timer on the vending machine to replacing your inefficient HVAC system. Here, the added potential burden of having to buy carbon credits will make the payback on these investments shorter. Government can also help to lessen the pain of making these larger investments through the Enhanced Capital Allowance (ECA) scheme. This process has identified the top 25% most efficient technologies in a wide range of areas. If you buy equipment from this list then you can claim 100% first-year capital allowances on the money that you spend. Technologies covered include lighting, control systems, motors, drives, boilers, ovens, etc. In fact – you may have already bought equipment that is on the ECA list without knowing and more importantly without claiming your allowances.

So what does all of this mean? Clearly the CRC sets business a clear challenge. It can be your friend and even give you additional income – but only with some investment on your part. Treat it with contempt though and it may well become a costly foe.

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