Scheduled to start in April 2010, the national system, called the Carbon Reduction Commitment, applies to non-energy intensive sectors not already covered by climate change agreements and the EU Emissions Trading System.
Following the passing of the Climate Change Act in November 2008, the UK is now legally required to cut its greenhouse gas emissions by at least 80 percent by 2050, and 34 percent by 2020.
The Carbon Reduction Commitment is intended to encourage improvements in energy efficiency which can save organizations money while reducing the risk of climate change. The scheme has been designed to generate a shift in awareness in large organizations especially at the senior level, and to drive changes in behavior and infrastructure.
The plan is a central part of the UK government’s strategy for controlling carbon dioxide, CO2, emissions. The policy has been developed in partnership by the British Department of Energy and Climate Change and the Scottish Government, the Welsh Assembly Government and the Department of Environment Northern Ireland.
Chromium factory at Eaglescliffe, County Durham, England (Photo by Ian Britton courtesy Freefoto.com)
The Carbon Reduction Commitment is a novel way for inducing changes in companies' behavior through a set of incentives, including a trading system of CO2 certificates covering emissions triggered by the use of energy, a "name-and-shame-policy" publishing the environmental performance of participants, and financial incentives in the form of additional grants financed through the revenues obtained by auctioning emission permits.
Authorizing the Carbon Reduction Commitment today, the European Commission said the distortions of competition resulting from the introduction of the scheme will be limited, because of the relatively small amounts of money involved in the state aid and the low proportion of energy costs in the total operating costs of the benefiting companies.
The system provides a financial incentive to reduce emissions by placing a price on carbon emissions. Participants must purchase allowances equivalent to their emissions each year. The overall emissions reduction target is achieved by means of a cap on the total number of allowances available to the group of participants.
Within that overall limit, individual participants can determine the most cost-effective means to reduce their emissions. The Environment Agency, which has responsibility for implementing the scheme, says it will achieve emissions reductions of at least four million tons of CO2 per year by 2020.
It is estimated that energy efficiency measures encouraged by the new system will benefit participants by an estimated £1 billion by 2020.
Revenue raised by auctioning of emissions allowances would be paid back to participants as a subsidy and will include a bonus for the best performers.
In addition to financial incentives, the Carbon Reduction Commitment will provide an incentive for participants to improve their reputations as environmentally conscious companies. Participants will be ranked according to their performance on a Performance League Table and the ranking will be made available for public scrutiny.
The combination of financial and reputational incentives are intended to encourage organizations to develop energy management strategies and also generate awareness of emissions at a senior level.
As organizations will have to monitor their emissions it will also lead to improved understanding of both energy consumption and opportunities for energy efficiency.
Around 20,000 organizations across the UK may be affected by the scheme. Failure to participate will result in penalties including monetary fines.
Organizations with half hourly meters need to determine their electricity use for 2008 based on information provided by their suppliers. If electricity consumption through these meters was greater than 6,000 megawatt hours during 2008, that organization must prepare to participate in the Carbon Reduction Commitment.
In September 2009, the Environment Agency will contact all UK billing addresses with settled half hourly meters providing them with Qualification Packs.
The first compliance year - April 2010 to March 2011 - is what the government calls a "Footprint Year." The first six months of the Footprint Year is also the registration period. Organizations that qualify must register or make an information disclosure by September 30, 2010 or risk a monetary fine.
The first sale of allowances is scheduled for April 2011. Allowances will be sold to participants at a fixed price of £12 per tonne of CO2. This first sale will be unique, as it will be for both 2010/11 allowances and 2011/12 allowances. All subsequent sales and auctions will only be for allowances for the year ahead.
Damage to an oak tree in southern England caused by bacteria that may be exacerbated by drought. (Photo courtesy Forestry Commission)
In 2013, auctioning of carbon allowances begins for the first capped phase of the system.
The EU's approval comes one day ahead of the UK Government's scheduled publication of an Energy White Paper and three related strategies for decarbonizing the country and delivering its share of the EU Renewable Energy Directive.
The Brown Government is acting to reduce the country's vulnerability to climate change that forecasters project will lead to drastic changes in the British Isles.
In June, the UK Climate Projections 2009, based on science provided by the British weather service, the Met Office, showed that in the absence of global action to cut emissions the UK faces warmer and wetter winters, hotter and drier summers, increased risk of coastal erosion and more severe weather.
The medium emissions scenario of the UK Climate Projections shows that by the 2080s, the UK could be faced with:
Energy and Climate Change Secretary Ed Miliband said, "Now is the time to act. The UK has set an example to the world through our Climate Change Act, committing to cut UK emissions by a third by 2020 and by 80 percent by 2050. We are well placed to achieve this and are determined to seize the economic and job opportunities presented by the shift to low carbon."
Copyright Environment News Service, ENS, 2009. All rights reserved.