How it works
Each year, the CRC will require participating organisations to purchase and submit sufficient allowances to meet their annual emissions covered by the scheme. The scheme will start with a reporting year from April 2010, with the first sales of allowances held in April 2011. During the introductory phase, all carbon emission allowances will be sold at a fixed price of £12 per tonne of carbon dioxide. From April 2013, allowances will be auctioned by the government, with fewer available each year.
Revenues from the sale of allowances will be recycled back to organisations within the scheme. Each organisation will be repaid in proportion to their historic emissions with a bonus or penalty depending on the extent to which they have reduced their emissions compared with other organisations within the scheme.
In the event of excessive allowance prices within the CRC, a "Safety Valve" mechanism allows EU Emissions Trading Scheme (ETS) allowances to be purchased via the Environment Agency for use in the scheme.
Background
The sectors targeted by the Carbon Reduction Commitment scheme generate over 10% of UK Carbon Dioxide (CO2) emissions, around 55 MtCO2. The Carbon Reduction Commitment scheme aims to reduce carbon emissions from these organisations by at least 4 million tonnes of carbon dioxide per year, by 2020.
The Carbon Reduction Commitment scheme was announced by the Government in the Energy White Paper (May 2007). The need for an incentive in this sector was originally highlighted by the Carbon Trust, in our report The UK Climate Change Programme: Potential evolution for business and the public sector.
For more information on this scheme, visit the DECC website.
Practical advice
For guidance on how the CRC affects your organisation see our guide to Managing the Carbon Reduction Commitment (CRC) as a business opportunity.