Carbon reduction commitment - an update on the latest developments and issues

19 December 2013

Key points:

Introduction of CCA for Data Centre Sector

There was little mention made in the Autumn statement of the CRC Scheme (see update below), but the government did announce that it will introduce a Climate Change Agreement (CCA) for the data centre sector by the end of 2013.

techUK (the UK trade association for the ICT industry, formerly known as Intellect), of which Wragge & Co is a member, has been collating data on the energy intensity of data centre operators and lobbying the Department of Energy and Climate Change for the introduction of a CCA for data centre operators in the UK, for the last few years.

CCAs are part of the package of government measures designed to deal with climate change, which also includes the CRC Scheme (see below) and Climate Change Levy. The CCA scheme has been operating since early 2000, and data centres will now be included in the scheme together with other energy intensive sectors (traditionally manufacturing).

The introduction of a CCA is likely to promote energy efficiency and accommodate growth. A CCA will also be more advantageous financially to participants, unlike the CRC Scheme which is often seen as penalising growth. The CCA will reduce taxes for the data centre sector in exchange for meeting certain efficiency targets.

The introduction of a CCA for the data centre sector is well received, recognising the importance of technology and the data centre industry in the UK, which is now likely to remain an attractive location to operate data centres and for inward investment into the sector.

CRC Background

The carbon reduction commitment energy efficiency scheme (CRC Scheme) was put into operation in the UK on 1 April 2010. Its main aim is to improve the energy efficiency of public and private sector organisations which consume large amounts of electricity. The ultimate aim is to reduce the amount of carbon emitted by those organisations.

There have been various amendments to the CRC Scheme since its introduction. Stakeholders have consistently argued that it is overly complex and administratively burdensome, especially where it overlaps with the EU Emissions Trading Scheme, Climate Change Levies or with Climate Change Agreements. The government has, therefore, consulted from time to time on suggested changes, and we have reported on many of these.

Allowance prices

Despite alterations to the CRC Scheme, it remains complex. Perhaps this is why there was only one mention of it in the Autumn Statement delivered by the Chancellor on 5 December 2013: to set the 2014/15 allowance prices. Each "allowance" is equal to one tonne of carbon dioxide emissions, and participants must first buy, and later surrender, enough allowances to cover their CO2 emissions.

In the CRC Scheme year 2014/15, participants will have to pay:

  • £15.60 per tonne of carbon dioxide in the forecast sale (i.e. where they buy allowances in advance, based on the organisation's predicted CRC emissions); and
  • £16.40 per tonne of carbon dioxide in the buy-to-comply sale (i.e. if any further allowances need to be bought when the actual amount of emissions is known).

As of the CRC Scheme year starting on 1 April 2014, there will no longer be an auction for any additional allowances which a participant needs to acquire (for example, if they underestimated how many allowances they would need for the year). Instead, there will now be a second fixed-price sale each year; the buy-to-comply.

Abolition of the performance league table

In the performance league table (PLT), participants were ranked according to their energy efficiency performance when measured against a range of metrics. The first PLT was published on 8 November 2011, for the CRC Scheme year 2010/11. The second PLT, for the CRC Scheme year 2011/12, was published on 26 February 2013.

Many CRC Scheme participants felt that insufficient credit was given for measures taken to improve their energy efficiency performance, and that this resulted in a lower ranking in the PLT than was warranted. Participants were concerned that the potential for reputational damage was immense in such circumstances.

In last year's Autumn Statement, the Chancellor announced that the PLT would be abolished. This step has been taken, and details of its replacement - the Annual Report Publication (ARP) - were issued by the Environment Agency (EA) in October 2013. On 14 November 2013, the first ARP was issued, in relation to the CRC Scheme compliance year 2012/13.

The ARP comprises a spreadsheet containing information about each CRC participant, together with a narrative report in which the EA provides an explanation of, and gives some context to, the information laid out in the spreadsheet.

The spreadsheet is prepared in alphabetical order of participants, rather than being in order of ranking. The idea is that energy consumption and emissions information will still be publicly available, but without the application of the metrics, calculations and rules which were previously felt to be inadequate.

The EA prepares the ARP spreadsheet by taking various pieces of information from the reports which participating organisations must submit to the EA, including:

  • Disaggregation information;
  • Number of "designated changes";
  • CRC Emissions for the current reporting year (in this case, 2012/13) in tonnes of carbon dioxide (tCO2);
  • For the same period, any:
    • Electricity Generating Credits emissions in tCO2
    • Renewable Obligation Certificates (ROCs) emissions in tCO2
    • Feed In Tariffs (FITs) emissions in tCO2
    • Self-supply ROCs and FITs emissions in tCO2
  • Participant responses to corporate responsibility questions;
  • Historic emissions data, including each participant's total CRC emissions, again expressed in tCO2, in the 2010/11 and 2011/12 annual reporting years.

The narrative report highlights the following points:

  • The previous two sets of CO2 figures are not directly comparable to the 2012/13 figures, due to changes introduced in May 2013, such as the reduction in the number of fuels to be included in consumption and emissions calculations.
  • There were 2,071 CRC participants in 2012/13.
  • The total emissions during the CRC Scheme year 2012/13 were 56,324,886 tonnes of carbon dioxide, and the value of CRC allowances surrendered for that period was £655,817,724.

However, the narrative report otherwise contains very little analysis of the data contained in the spreadsheet. It therefore remains to be seen whether being listed on the spreadsheet - without any form of ranking - has lost the "bite" of the reputational driver.

Yet another consultation

On 20 November 2013, the government department responsible for the CRC Scheme, DECC, published a consultation paper relating to - most particularly - the question of how the CRC Scheme can incentivise the uptake of on-site, renewable, self-supplied electricity. Responses are required by 17 December 2013. Any resulting changes are expected to come into force on 1 April 2014.

Registration exercise for the next phase

The next phase, which will run between 1 April 2014 and 31 March 2019, is now known as the "initial phase", having previously been called "phase 2". Somewhat confusingly, it is still referred to as phase 2 on the EA's website and in its CRC-related publications.

The registration exercise for the next phase is currently underway, having begun on 4 November 2013. Full details of which organisations are likely to satisfy the qualification criteria, and how to register, can be found in the EA's guidance paper. Registration for this second phase closes on 31 January 2014.

The qualification criteria have changed since the first phase, so current participants should consider the criteria afresh: they may not need to register for the second phase. If a current participant has to continue in the CRC Scheme, they must re-register. There are financial penalties for late or non-registration, whether by an existing participant or by an organisation which now falls within the qualification criteria. Full details are again given in the EA's guidance paper.


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