UK strengthens carbon pricing under trading scheme
« back to newsletters
Organisations covered by the UK Carbon Reduction Commitment, known as the CRC Energy Efficiency Scheme (CRC), will be able to purchase carbon allowances at a fixed price until 2014 under the latest Government proposals to simplify the scheme. This follows an earlier decision not to return revenues from the Government's sale of allowances to companies and public sector bodies, strengthening the incentive for them to implement energy efficiency measures in order to avoid costs from CO2 emissions.
Amendments to the CRC, proposed by the Department of Energy and Climate Change (DECC) on 17 November, include an extension of the introductory phase from March 2013 until March 2014. This would mean that the price of allowances would be fixed for an extra year, rather than auctioned. However, the price may be fixed at £16 per tonne of CO2 in 2013-14. Allowances will be sold at a fixed price of £12 per tonne of CO2 in 2011-12.
The first sale of allowances to cover CO2 emissions from energy consumption in 2011-12 by some 3,000 organisations registered as participants will now take place in April 2012, instead of at the start of the first trading period in 2011. Under the proposals, companies will now have to surrender allowances from the second year of each phase.
Trucost calculations show that CRC allowance prices could add 10%-13% to energy bills, unless companies reduce their energy use. Companies that spent £750,000 on electricity and £250,000 on gas at average prices during 2010 could see bills rise by over £98,000 if they had to pay £12 for each tonne of related carbon dioxide emissions. At £16/tonne of CO2, bills could be over £131,000 higher.
The consultation follows the Government's announcement in its comprehensive spending review in October that organisations will no longer be able to receive revenues from the sale of carbon allowances. Almost £1 billion a year - expected to be raised by 2013-14 - will no longer be returned to companies and public sector bodies that perform well in a league table ranking them on carbon dioxide emission reductions. The changes to the CRC could have implications for companies that attained the Carbon Trust Standard and were to be given preference when CRC revenues were recycled (see CRC energy Efficiency Scheme - Simpler and Sharper).
Under the latest proposals, the performance league table will be retained as a reputational driver for carbon reductions, organisations would have until 2013 - instead of 2011 - to register for the second phase of the CRC, and companies that are not registered participants may no longer have to make information disclosures.
Spending Review 2010 policy costings, HM Treasury, October 2010
Consultation on amendments to the CRC Energy Efficiency Scheme Order 2010, DECC, November 2010