Clock ticking down for participants in Carbon Reduction Commitment

Business advisors KPMG has published a guide to Carbon Reduction Commitment timed to co-incide with the introduction of the Government’s new directives which came in to force at the beginning of April.

Organisations across the UK need to start complying with the Government’s new Carbon Reduction Commitment (CRC), or face penalties that will hit their bottom line, even before carbon trading begins in 2011, warns KPMG.

From 1 April, organisations with annual electricity bills of approximately £1 million or more must start measuring and accurately reporting their energy usage to Government auditors. Those that submit late or inaccurate data could be penalised and publicly chastised for those failures.

KPMG’s work with organisations preparing for the CRC has found that compliance failures, such as incorrect reporting, pose the greatest immediate risk to both reputation and the bottom line.

The firm’s experience shows two thirds of businesses are currently misstating their carbon numbers by a margin that will incur fines.

From April 2011, the Government will publish league tables ranking participants on their success at managing and reducing their carbon emissions. This will inform a bonus and penalty system which effectively sees money from the worst performers given to those nearer the top, to reward their performance.

“There are still signs, even at this late stage, that many of the scheme’s participants are not yet fully prepared for the CRC,” said Vincent Neate, UK Head of Sustainability at KPMG: “Some are hopeful of a last minute postponement of the scheme, thinking this is signalled by the delays in clarifying some of the more complex areas of the scheme. However we believe the scheme is going to start in April and all organisations should be prepared by now.

“Looking across the sectors impacted by this, many companies within the telecoms, media and technology industries will fall within the reach of the CRC scheme. Those organisations, such as data warehousing and media, who are likely to grow and significantly increase their electricity usage over the coming years are like to be among the most impacted by the scheme. Those who perform poorly in the league table will pay a significantly higher price of carbon than other participants. It will take preparation and a detailed understanding of the scheme to ensure cost models incorporate this expense.

“The penalties for late or inaccurate data submission mean organisations could find themselves incurring unexpected costs and their efforts to establish green credentials could be severely set back. Furthermore, many organisations don’t fully understand the implications of the CRC league table’s early action bonuses so may miss out on this form of potential return on investment.

“The Government’s hope is that the scheme will incentivise large, non-energy intensive organisations to reduce their carbon emissions; indeed it expects to achieve an annual saving of 4.4 million tonnes of CO2 by 2020. We estimate the CRC will affect up to 5,000 full participants while a further 10,000 or more will have compliance obligations, although will not have to trade carbon – for now.”

Vincent Neate commented: “Organisations that understand the scheme have an opportunity to be rewarded for improved energy efficiency while others will be penalised and face reputational damage. The scheme effectively creates a financial and reputational price for not being ‘green’.”

KPMG has published a guide to the Carbon Reduction Commitment, Step by Step, which is available at their web site.

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