Many public-sector bodies in the UK are failing to prepare appropriately for the Carbon Reduction Commitment (CRC), a new regulation that could have a significant impact on their budgets next year.
This was the view reached following discussions with the Head Teacher of a primary school in the London borough of Southwark. A recent visit to the school yielded an interesting discussion on the benefit of its decision to invest in solar panels and how little the school knew about, and was prepared for, the CRC. Public-sector bodies are implementing environmentally conscious initiatives but often fail to tie this in with the specific requirements of the CRC. In particular, they often lack information and time to understand how the CRC might affect them.
The CRC requires organisations to measure and report on – and ultimately to reduce – their energy consumption. Organisations who fail to meet targets (both in measuring and reducing consumption) will be hit with a potentially significant financial penalty. Details on how the CRC works and how public sector bodies should respond are presented here.
Currently, energy bills typically represent of the order of 1% of a local authority’s annual budget and this proportion has been increasing steadily over the last four years as energy prices have risen by about 50%. In a time of higher costs and tighter budgets, the CRC could add another 4% to the energy bills of public organisations that drop to the bottom of the CRC rankings. As the CRC is based on relative positioning, public sector and private organisations will effectively compete with each other, with the least compliant organisations making net payments to the most compliant ones.
The first priority for public-sector bodies is to become CRC-compliant. This means compiling detailed energy consumption information (primarily gas and electricity) and tracking purchases of other fuels (such as diesel for emergency electricity generators). For larger bodies, aggregating this information for many different sites and departments will require time and specific skills. To ensure adherence to the stated criteria, the Environment Agency plans to conduct audits (up to 20% of registered organisations each year) and the cost of non-compliance (currently estimated at GBP20 per MWh of electricity) could run into millions of pounds for a typical local authority.
The next objective relates to energy efficiency: under the CRC framework, public-sector bodies will be in direct competition with private companies for places on the CRC league table. This ranking will be mostly based on organisations’ success in reducing energy usage. Investing in monitoring systems (including new electricity and gas meters), heat insulation and energy-efficient lighting should therefore be at the core of public-sector bodies’ plans. To fund these plans, priorities may have to be reshuffled or new budgets secured. Private organisations with strong brand names and public profiles will have a stronger motivation to outperform others in addition to the financial incentives of the CRC, and may have access to greater financial means to achieve this.
Given the specific criteria that determine the CRC rankings, it is important for public-sector bodies to focus on the right activities to ensure investment in the areas that offer the best results in the CRC framework. One way to gain a head start in the initial CRC league table is for organisations to be certified by the Carbon Trust Standard (as the Carmarthenshire County Council has done). By contrast, while the Southwark school’s solar panels are producing clean energy and reducing electricity bills, they may not contribute towards the school’s CRC ranking, unless this clean energy is sold back to the electricity utility.
By July 2011, the CRC will require all public-sector organisations to purchase carbon emission allowances, for emissions spanning 12 months (backdated to 1 April 2011 until 30 March 2012). While this seems some way off, public-sector bodies must start making plans to manage this cashflow. UK local authorities may each have to budget up to GBP1.2 million for the CRC in 2011.
For the last 15 years, Analysys Mason has worked extensively for the public sector in the UK and has set up a specific team to help public-sector bodies to prepare for and reduce the impact of the CRC on their operations and budgets. Details can be found on www.analysysmason.com/carbonreductioncommitment.