The Government has published its response to the consultation on the draft Carbon Reduction Commitment Order. The Scheme, known in full as “The Carbon Reduction Commitment Energy Efficiency Scheme” is an obligatory emissions trading scheme. It will have a significant impact on public sector organisations as well as large non-energy intensive businesses such as supermarkets, large offices, retailers, water companies, hotel chains, rail operators and banks.

The Scheme, due to start in April 2010 , will operate as a ‘cap and trade’ mechanism, providing a financial incentive to reduce energy use by putting a price on carbon emissions. Organisations will buy allowances equal to their annual emissions and trade them with each other depending on whether they have a surplus or shortfall at the end of a trading year. The organisations covered by the Scheme are thought to account for about 10% of the UK’s CO2 emissions. The Scheme is expected to apply primarily to organisations with electricity bills above £500k.

Following the Consultation, the Department of Energy and Climate Change (DECC) has proposed several changes to the scheme. Some of the main changes are summarised below:

No purchase of allowances for the first year – When the first allowances come up for sale in April 2011, participants will only be required to purchase allowances for the coming year. Previously, DECC had proposed that at this point participants would be required to purchase allowances for the previous year as well. The change follows prospective participants’ concern that paying for both years would have a detrimental effect on cash fl ow.

Significant Group Undertakings - In the original proposals, the highest company in a group structure was responsible for the energy consumption of its subsidiaries. Large subsidiaries that would qualify by themselves will now be allowed to ‘disaggregate’ and participate in the Scheme separately.

League table – Three metrics are used to calculate the Scheme’s league table of participants: (1) Early Action Metric, (2) Absolute Emissions Reduction Metric and (3) the Growth Metric. The Government has agreed to make alterations to the Early Action Metric to give credit to organisations which have made emissions savings before the start of the Scheme.

Enforcement (1) – Penalties exist to discourage non-compliance with the Scheme. Amendments include that discretion will be encouraged in the use of civil penalties, especially during the early years of the Scheme.

Enforcement (2) – Minor changes have been made to the levels of certain penalties and some additional penalties have also been created.

The removal of the requirement for a double sale of allowances will be welcomed by business. Similarly, the changes made for Signifi cant Group Undertakings will also be considered as being more favourable to industry than the original proposals. Given the limited time available before the Scheme begins, businesses will want to be fully aware of the likely implications of the Scheme for them. Full details can be found at the DECC webpage: