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Carbon Reduction Commitment Energy Efficiency Scheme

Volume 497: debated on Monday 12 October 2009

The UK Climate Change Act makes the UK the first country to set a long-term legal framework for reducing emissions over the next four decades. The Act has demonstrated decisive international leadership, showing the UK is committed to taking up its responsibility for reducing global emissions. As part of this commitment, Government will introduce the carbon reduction commitment, an energy efficiency instrument, next April. The CRC will help large public and business sector organisations reduce their emissions through improved energy efficiency and thereby save £1 billion each year by 2020. I also intend that CRC will deliver emissions reductions of more than 4 million tonnes of CO2 per year by that time. Given the primary focus of the scheme on energy efficiency, CRC will now be known as the CRC Energy Efficiency scheme (CRC). Last Wednesday, the UK’s Administrations published the Government response to the third consultation on the scheme which was held between March and June 2009. That consultation related to the scheme’s regulatory basis. The response finalises the policy for the scheme before its launch in April 2010.

Without new policies, emissions from public and business sectors will not achieve the carbon reductions we require over coming years. This group of organisations in particular has significant potential to achieve cost-effective energy efficiency savings. There are clear benefits from positive, immediate action to tackle climate change and investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century. Government are committed to ambitious targets to reduce the UK’s CO2 emissions, and this will require contributions from all sectors of the economy and from across all parts of the UK.

The basic trajectory of CRC remains. The first introductory phase of the scheme until 2013 will have an unlimited number of allowances. Thereafter Government will set the number of allowances, which will decrease year on year to ensure that the potential for efficiency savings are realised. I will be taking the advice of the Committee on climate change before setting this cap in 2012, but anticipate that the scheme will ensure that large organisations play their full role in contributing to our emissions reductions of at least 34 per cent. by 2020.

The UK Government have worked together with devolved Administrations and stakeholders in Scotland, Wales and Northern Ireland to ensure that the CRC is in keeping with our shared long term vision for a “light touch” yet robust scheme, which provides both financial and reputational incentives for these sectors to increase energy efficiency and deliver emissions reductions.

In light of feedback from the consultation, I am pleased to announce that I have adjusted the scheme to ensure that the financial impact from the purchase of allowances will be similar in all years. I have decided that the retrospective purchase of allowances for 2010-11 will no longer be required. Participants will be required only to correctly report their emissions in the first year. I have therefore halved the financial impact in the first year, compared to a double sale of allowances.

Other changes include the possibility for subsidiary organisations that would qualify in their own right to be able to participate in the scheme independently from their parent or fellow subsidiary organisations. This will give organisations greater flexibility to choose the approach that best works for them, without losing emissions coverage of the scheme. I have also given extra weighting in the second year to the measurement of early action, which will feature in the league table. This change responds to stakeholder feedback and better reflects the expected life of the contribution made by such early action to an organisation's energy efficiency.

The CRC is the only UK scheme focused on energy efficiency measures, and therefore the main league table on which revenue recycling is based will remain an energy efficiency league table. I have carefully considered stakeholders’ views on the role of renewables in the scheme and in particular that many participants are also looking to invest in onsite renewable electricity generation to help play their part in a transition to a low carbon economy. I therefore want to recognise these efforts, alongside energy efficiency achievements, and will publish a second table which sets out the contribution made from both energy efficiency measures and the onsite generation of electricity from renewable resources, where this is also consumed onsite.

In achieving our climate change ambitions, it is critical that senior management throughout the economy are engaged in achieving these objectives. The CRC provides the policy framework to ensure that the existing best practice of our leading organisations will be more widely taken up, and that carbon becomes correctly considered, reported and valued. The scheme sits alongside the “Guidance on how to measure and report your greenhouse gas emissions”, published by Government on 30 September, explaining how all organisations should measure and report their greenhouse gas emissions, including those organisations captured by the CRC. Investors and the public will increasingly make judgments about organisations’ achievements on both saving energy and tackling climate change. I believe that the scheme will be an effective tool in helping the public and private sector play their part in avoiding catastrophic climate change.