The Carbon Reduction Commitment

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The Carbon Reduction Commitment
Keith Allott, Head of Climate Change, WWF-UK 12th
September 2007
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Setting the context the Climate Bill

• Every sector of the economy needs to be preparing
  for sustained and deep emissions reductions
• The Climate Change Bill once enacted will put
  in place legally binding carbon emission
  reduction targets out to 2050. The Government is
  proposing a 60 cut by 2050
• To avoid dangerous climate change, industrialised
  countries need to achieve at least an 80 cut by
  2050. This is confirmed by research commissioned
  by the UK Government!
• The Bill also proposes enabling powers for new
  emissions trading schemes including the Carbon
  Reduction Commitment (formerly the Energy
  Performance Commitment)

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CRC what is it and why do we need it?

• Emission targets for 2050 and 2020 cannot be met
  without many new policies including regulation,
  standards and fiscal measures as well as trading
  schemes
• The CRC is a new cap and trade scheme which will
  cover larger, less energy-intensive organisations
  including supermarkets, hotel chains, multiplex
  cinemas, government departments, hospitals and
  local authorities etc.
• The scheme will cover 9 (14MtC) of the UKs
  emissions. Emissions from CRC sectors are growing
  strongly forecast to rise by 11 by 2030.
• The CRC will fill a policy gap the only
  policy dealing with these sectors is the climate
  change levy, which is not a material cost for
  less energy-intensive organisations

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How will it work?

• Cap established for installations within the
  scheme. Approximately 4,000 installations will be
  covered.
• Sectors will have to purchase all their
  allowances at auction and/or on the open market.
• Revenues from auctioning will be recycled back to
  participants depending on their performance in a
  league table. The aim is a double incentive to
  improve performance
• As proposed, it will be massively cost-effective
  and should unlock savings of 1.3-2.5 billion
  in reduced energy bills

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Key improvements (1)

• Robust cap needed currently proposed that the
  scheme will deliver a 1.1MtC per year reduction
  from the sector by 2020. This is a cut of just 8
  from current emissions (14MtC) yet the economy
  as a whole is expected to achieve cuts of 26-32
  by 2020 under the draft Climate Change Bill.
• Emissions should be capped from the start of the
  scheme the scheme is due to start in 2010 but
  there wont be a cap until 2013. There will be a
  3 year pilot phase where no emission reductions
  are required.

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Key improvements (2)

• Can we simplify the scheme? Revenue recycling
  from auctioning greatly complicates the
  administrative arrangements. Could the revenue be
  ring-fenced to drive forward innovation in energy
  efficiency and low-carbon technology in CRC
  sectors?
• Greater differentiation of revenue recycling -
  Currently proposed that payments back to
  participants will vary by /- 10 depending on
  ranking in a performance league table. This would
  only vary energy bills by /- 2 - a very limited
  incentive
• Can we simplify the framework? We now have a
  number of policies affecting different companies
  in different ways the CRC, the EU ETS, the
  climate change levy, the climate change
  agreements. Could the CRC evolve to include the
  future version of climate change agreements?

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Next steps

• October 07 - consultation closes
• Summer 08 consultation on draft CRC regulation
• 2009 CRC regulation in force
• January 2010 the scheme begins