Carbon Reduction Commitment: Part II

The Carbon Reduction Commitment Energy Efficiency Scheme (the "CRC"), which comes into effect in April next year, is a rare example of the UK government getting it mostly right (see Part I of this article for an overview of the CRC). For too long has the Labour party held back on introducing major legislation aimed at increasing corporations' awareness of their energy consumption. Now the scheme is close to implementation, they ought to be commended on a scheme which certain other European countries would do well to consider implementing in a form complimentary to their own policy maps.

There is however, as with all things, much room for further improvement. A delicate balancing act has been performed by the CRC's creators, with environmental sustainability, i.e. the imperative for greater energy efficiency on one side of the scales, and economic sustainability, i.e. the importance of not imposing too great an administrative burden on companies in a time of financial crisis on the other. The result is a scheme which dare not ask too much of its participants. The framework of this legislation is, however, ideal for organic growth as soon as prevailing conditions change and it becomes economically sustainable to ask more. As administration of the CRC becomes second nature to businesses, the UK government would do well to recognise the potential for widening the scope of and continuing to reinvent the scheme.

The following are a series of suggestions as to what some elements which make up that trajectory might look like, starting with the inclusion of certain forms of transport within the ambit of the scheme and concluding with the future potential for the CRC to look outside the sphere of environmental sustainability to measure and reward the social efforts of participants.

(i) Modifying the current exclusion for transport

The CRC excludes certain forms of transport from its ambit, so that taxi rides or flights a company's employees take are not accounted for in its annual report on energy use. In terms of ease of administration for the initial phase of the scheme, this was a sensible carve out. However, as the scheme progresses, unsustainable and unnecessary transport is a must for inclusion.

An example of such transport is the hundreds of thousands of taxi journeys firms in the City of London are responsible for each year. Many of these firms will be required to participate in the CRC, and currently have taxi policies which allow employees to opt out of taking a 35 minute bus ride home in exchange for a 25 minute taxi ride when the journey is made outside normal office hours, or allow cabs to be taken to all business meetings during the day. These taxi journeys will receive favourable tax treatment from HMRC, largely on the basis that the audit HMRC perform in order to discern whether they are in fact a taxable benefit can realisitically never be thorough enough to prove that the majority should not in fact qualify for this tax break.

Not only is this having a negative impact, albeit very minor, on puplic coffers, but it also impacts on balance sheets. I would approximate that within my own firm, which will not be dissimilar to many others, around 75% of the journeys made by taxi could be made by public transport with very little or no inconvenience to the employee or the employer in terms of time and comfort.

For example, a return journey between the City and Canary Wharf will cost an oyster card user a fixed £4. In a taxi this journey would cost around £24, rising significantly if a pre-booked taxi is required to wait due to meetings overrunning. There is relatively little business sense in not encouraging workers to utilise London's public transport rather than firms such as Computer Cab when you consider the number of such journeys made each year. If a firm of 2,000 workers allows each member of the work force to make an average of 20 equivalent trips per year that would equal £800,000 of potential savings, lost. The actual figure of potential savings would, I believe, be very significantly higher than this if such an organisation put a halt to all inefficient business travel.

The introduction of a relatively minor amendment to the text of the CRC to include certain modes of transport within its ambit would mean participants would have to better scrutinise their transport policies, resulting in cost as well as carbon savings. The Carbon Trust, who have collaborated with the Government in respect of the CRC, already offer a means to help businesses calculate the impact of their business travel, which could be refined to feed into this part of the scheme.

The complex nature of the different travel arrangements found within the 5,000 or so organisations required to participate in the CRC would require the Government to consult extensively on the inclusion of transport within the scheme. It is submitted that given the case for altering the CRC's current transport exclusion to ensure companies do not continue to permit unnecessary transport, the Government should begin this consultation as soon as possible.

Once the final form of the CRC text is released ahead of it being made law in April, I will take a look at exactly how the wording dealing with sustainability might be altered.

(ii) Making one law a framework for sustainability

The ability to alter the text of the CRC rather than introduce new law should be fully utilised once the scheme is up and running. This rings particularly true where greenhouse gas ("GHG") emissions reporting under the Climate Change Act 2008 is concerned. Labour have recently released their guidelines for voluntary GHG emissions reporting, which may become mandatory in the relatively near future (http://www.defra.gov.uk/environment/business/reporting/index.htm). Sadly, the lack of cohesion between this scheme and the CRC looks set to result in unnecessary administrative complexity for those with obligations under them, and in its current form it should not be too hastily encouraged for that very reason.

Also, whilst a more onerous emissions reporting regime than the CRC provides for is certainly needed, and whilst it is useful to make businesses and consumers more aware of product related emissions, without an attached capping regime these things are only of limited use. Various elements of the envisaged GHG emissions reporting regime could be integrated with the CRC as the scheme moves forwards into future phases, to avoid having two differing reporting requirements.

Not only is the CRC a great base for furthering energy efficiency in the UK, but should the scheme prove successful in practice, its basic structure could be transposed to the worlds of water use and waste creation in order to tackle other growing problem areas. Once organisations have familiarised themselves with the regime in respect of energy use, it would be relatively easy to apply the same reporting requirements to water use and waste creation. Again, it is submitted that the Government should be consulting on this possibility if the early years of the scheme prove successful, as this will require significant work from legislators.

Water is already beginning to look like the next big item on the sustainability agenda for European governments, and whilst a less urgent concern for the UK than that of energy supply, the Government would do well to become more active in this area. Not enough is being done to create single legislative models which have application in more than one sphere, whilst too much is done to needlessly complicate the current sustainable policy sphere. A Water Reduction Commitment ("WRC") would be a great deal easier to administrate than the CRC given the ease with which volume of use can be measured. However, given that water conservation in the UK lacks the urgency and appeal of energy issues, it will take longer to entrench better practices unless high penalties are levied in the early stages of a WRC. On the basis that to do this would be less preferable than to start thinking ahead, it might well be time for DEFRA to put its thinking cap on and consider the potential mechanics of a WRC.

Social sustainability does not have a place in the scheme, which is primarily aimed at helping Britain meet the relatively ambitious targets set in its first 'carbon budget' back in April 2009 (see more on this topic by clicking here). However, a model much like the scheme's various performance metrics for taking into account organic growth or efforts to reduce emissions before the beginning of the scheme could be employed to reward those expending capital on community projects. If the endgame of the CRC is to ensure that UK companies are as energy efficient as they can be, the question becomes how to incentivise those who get there first to continue putting their efforts into sustainability? As the scheme stands, as soon as a participant becomes 'energy perfect' in its approach to its business, it will be penalised. Admittedly, this scenario is a very long way off, but having a CSR metric would enable those who quickly reduce their emissions under the scheme to continue profiting from sustainable behaviour.