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How will climate change cheme affect my business?

PUBLISHED: 16:44 14 April 2010 | UPDATED: 09:42 02 July 2010

The Carbon Reduction Commitment Energy Efficiency scheme could save your business money, according to carbon consultant Zaour Israfilof

The carbon consultant

Zaour Israfilof, 3 Carbon Elements

The Carbon Reduction Commitment Energy Efficiency scheme (CRCEE) is a new climate change agreement introduced in April 2010. Up to 5,000 organizations will have to participate fully in the scheme, in addition to 15,000 which must measure their carbon footprint and report it to the government.

Understandably, the most interesting aspect of the scheme for participants is its financial impact.

The scheme was designed to be revenue neutral as most of the money collected from participants will be refunded. Each participant will get a bonus or penalty depending on its performance in the league table.

There is a common misconception among participants that the maximum they could lose is the maximum penalty on their spend on allowances in that particular year. Many will be surprised to learn that this is incorrect.

The refund is based on three factors:

1. Early Action Metric - this is to reward participants which took voluntary carbon reduction measures before the start of the scheme

2. Performance in reducing the company's own emissions compared to previous years

3. The amount of allowances a participant purchased in the baseline year as a proportion of the total allowances purchased by all participants in the same year.

The third factor is the most significant in establishing CRCEE's financial impact. The entitlement to a proportion of the total refund pot (before the bonus or penalty based on its position in the league table) remains the same.

If the pot shrinks (i.e. the total emissions of all participants decreases) then the refund a participant is entitled to shrinks too.

This base amount is then adjusted by the bonus or penalty factor determined by the league table.

Thus CRCEE employs a clever recycling formula which rewards those that reduce their emissions most quickly relative to those that reduce emissions more slowly or even increase their emissions.

To break even from this measure, participants need to reduce their emissions at the same rate as the overall fund is shrinking.

The scheme also creates the secondary market in which participants will be allowed to freely trade their allowances and make additional profit. However any profit or loss made when trading allowances on the secondary market will not count towards the refund and will be subject to tax.

Companies will also need to factor in the cost of compliance. This includes staff time, registration charges, administration fees, charges levied by the government etc.

3 Carbon Elements is a professional carbon consultancy set up by graduates of the world's first carbon MBA course at the University of East Anglia. For details visit www.3carbonelements.co.uk

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