Carbon deadline extended

The deadline for UK companies to sign up to the Carbon
Reduction Commitment (CRC) has been extended by 16 months as the effect of a
growing burden of technical small print around it becomes clearer.

The Department for Environment, Food and Rural Affairs (Defra) wanted
companies to register for CRC by June 2009, but they will now be able to
register between April 2010 and October 2010, giving them time to assess the
requirements and whether they can take part. In this period, companies will have
to submit a report to Defra on their predicted carbon emissions and energy
consumption over the next financial year, termed the ‘footprint year’.

Finance directors have long known that implementation of the CRC would cause
problems, not least because it is the first such scheme to affect companies
outside the manufacturing sector and has already been subject to a number of
changes, making it a complex undertaking. Ownership and implementation of the
CRC will generally fall under the FD’s remit. In addition, under CRC, companies
have to pay for emissions they have not yet used, which could lead to cashflow
forecasting problems in the future.

Timeline
The timeline for the CRC rollout is:
• September 2009 ­ Qualification packs sent out;
• April 2010 ­ Registration and monitoring begins. At the end of 2010, estimated
carbon footprints will be established for all members;
• April 2011 ­ First sale of carbon allowances. Companies included in the CRC
will have to purchase allowances for both the previous year and the coming year,
buying them at £12 per tonne of carbon; and
• October 2011 ­ First CRC league tables published.

While the scheme makes it possible for UK companies to reduce their C02
emissions and, in turn, reduce their annual energy bills ­ which can run into
several millions ­ there remain concerns around its implementation and even
which companies may or may not be included in its scope. The UK government
estimates that 5,000 companies across the public and private sector will have to
comply, but the small print extends that number further. For example, private
equity companies will be part of the commitment, with the government including
all private equity-backed companies as their subsidiaries.

This could give rise to a host of accounting repercussions. Some have asked
if this would compel private equity companies to take a greater role in the
operational aspect of companies in which they have a controlling stake and even
whether, in future, will they look at the environmental management of a company
before backing it.

Other changes that have led to a reshuffle of the timeline include the need
to pay for two years of emissions in one financial year, one retrospectively and
one for the following year. The downside to this is that Defra will require
companies to pay for this in one go, increasing the burden once the UK has
emerged from the recession. Originally, at the start of the CRC, companies would
only have paid for their projected emissions over the coming year ­ for example,
paying at the end of 2010 for emissions they expect to use in 2011.

Harry Morrison, general manager at the Carbon Trust, says, “The government
has responded to concerns from businesses and wants to allow them to hold their
cash for longer. This is an example of the government taking note of business
needs.”

Bad timing
But this move could not have come at a worse time. As Tony Rooke, UK environment
programme manager at Logica, says larger companies using high quantities of
energy could be looking at a hefty bill that could impact the bottom line.

“If you look at BT or some of the larger supermarkets, their energy bills are
in excess of £200m annually. This is going to cost them nearer to 15% of their
[total] bill,” says Rooke. “Most companies don’t have huge amounts of cash in
reserve, so they are going to have to borrow it.”

He adds: “The recession has come at a difficult time for the CRC to be
launched.”

Changes to CRC
Defra has published a document detailing all the changes to the CRC and greater
clarification of what is required of companies taking part. Some of the main
points to consider are:
• The Environment Agency will contact organisations it believes will be part of
the CRC before the end of 2009;
• The first compliant year will be April 2010-March 2011 ­ referred to as ‘the
footprint year’, run similarly to a financial year;
• A report on a company’s emissions for the CRC to show how much CO2 was or was
not used must be submitted by the last working day of July each year, with the
first report to be submitted by 29 July 2011;
• If an organisation has not registered by the end of the registration period it
will be fined £5,000 and a further £500 for every subsequent day; and
• If an organisation has reported its emissions incorrectly it will be charged
£40 for every tonne of CO2 incorrectly reported ­ but the penalty will only
apply to companies with a margin of error above 5%.

Useful links
Read our original guidance on the
CRC timeline

Read the Defra
guidelines on the CRC