Carbon Reduction Commitment

Green taxes and reducing carbon footprints

The Carbon Reduction Commitment scheme was started in April 2010 and it requires companies to which it applies to record their energy consumption, and to purchase allowances from the government to cover the amount of CO2 which is emitted as a result of their energy consumption.

An organisation is required to participate in the Carbon Reduction Commitment if it meets the following criteria:

• The company has at least on Half-Hourly Meter. A Half Hourly Meter is an electricity meter which is used on large commercial and industrial premises which records electricity consumption in blocks of 30 minutes this is because electricity companies have demand surges throughout the day and may require large scale consumers of electricity to pay higher prices during peak demand to reduce overconsumption.
• In 2008 the company’s total electricity consumption across all Half Hourly Meters was at least 6,000 MWh

Any organisation which has at least one Half Hourly Meter but which does not have an annual electricity consumption in excess of 6,000MWh will not be required to participate in the scheme, however it will need to make disclosures on electricity consumption.

How the scheme works

Organisations must record their consumptions (and thereby co2 emissions) over the introductory year and must monitor their emissions against this standard in subsequent years. Each company must purchase CO2 “allowances” or “credits” from the government during the course of the year and at the end of each year it will need to surrender sufficient credits to the government to cover its emissions. Allowances currently cost £12 for each tonne of CO2. At the end of each year, organisations may retain surplus allowances and can trade these with other organisations which have exceeded their own allowance.

The scheme is supposed to work as a kind of indirect tax to incentivise reduction of carbon emissions, and the administration of this scheme can be just as complicated as the administration of many of the other taxes which are levied on businesses. Familiarity with the rules of the scheme is essential as there are severe financial penalties for non-compliance.

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