CRC should link with EU Emissions Trading Scheme

An energy-saving company claims that the CRC will have no net effect on UK carbon emissions. The reason for this, says Carbon Retirement, is that the CRC does not operate […]

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By Kelvin Ross

An energy-saving company claims that the CRC will have no net effect on UK carbon emissions.

The reason for this, says Carbon Retirement, is that the CRC does not operate in tandem with the European Union’s Emissions Trading Scheme.

And separately, the CBI has branded the current CRC set-up as a “sad state of affairs [that] risks distracting organisations from the real goal of energy efficiency”.

The government is looking to overhaul the structure of the CRC and has invited interested parties to put forward their views by this Friday.

Ahead of this deadline, Carbon Retirement has published a report, Maximising the Efficiency of the CRC. Carbon Retirement is a CO2-offsetting company with clients including the Committee on Climate Change and the Diocese of London.

In its report, Carbon Retirement states: “If the CRC works, participants will invest in energy efficiency and reduce their electricity and gas use. Reductions in energy use by CRC participants will mean energy production goes down. But this is not where the chain of causation stops.

“Power companies are covered by the EU Emission Trading Scheme. If energy production goes down, power companies will need to purchase fewer EU allowances to be compliant within the EU ETS. Allowances left unpurchased by power companies can then be purchased by other industries.

This means that the more successful the CRC is in driving energy efficiency, the more allowances will be available to heavy industry in Europe.”

And the report calculates that between 2011 and 2020, the 90m tonnes of savings CRC participants are expected to achieve through energy efficiency will be emitted instead by heavy industry.

Carbon Retirement offers two solutions to this problem. The first is for the government to retire EU Allowances to match CRC participants’ reductions. The government would calculate the volume of emissions reductions achieved by CRC participants each year. It would then retire allowances from its national allocation in the EU ETS to match this volume. This, argues Carbon Retirement, would ensure that the allowances left unpurchased by power companies due to energy efficiencies in the CRC were not then available to other industries.

The second option put forward by Carbon Retirement is that the government could work with the existing EU ETS to sell non-energy intensive companies EU allowances instead of creating and selling a new kind of ‘CRC permit’. By requiring the EU Allowances to be retired, or cancelled, at the end of each year, this would have the dual effect of generating revenue for the government, while also crucially reducing emissions.

Another organisation urging the government to act on the CRC is the CBI. Its director for business environment, Neil Bentley, said: “An effective CRC would encourage businesses to cut their energy use, but in reality many firms’ experiences of complying with the scheme have been slow and arduous. It is a sad state of affairs that the current CRC risks distracting organisations from the real goal of energy efficiency.”

Mr Bentley added: “The government must act now to simplify a system hamstrung by complexity, and enhance the incentive to cut emissions. A good start would be to guarantee that the league table accurately reflects and rewards best efforts to improve energy efficiency.”