Companies could be underestimating the impact of the Carbon Reduction Commitment Energy Efficiency regulations according to analysis by PricewaterhouseCoopers LLP, illustrating that the scheme could add over 4% - 6% to energy costs in 2011 depending on the size of their energy bills.
A long term scenario to 2015, demonstrates that poor performers could add nearly 20% to their annual energy costs in five years, equating to an additional £500,000 on a businesses’ annual energy costs of £1m.
But companies who plan ahead and perform well could turn an early loss into a gain, seeing their energy costs reduced by over 8% in 2015. For a company with a total energy bill of £1 million, this would be worth just over £85,000 in 2015 alone, or £150,000 over the course of the next five years.
The scheme comes into effect on 1 April 2010, and it is estimated that 5000 businesses with energy bills of roughly £500,000 per annum will be included in the scheme. The CRC requires participants to purchase allowances to emit carbon dioxide annually and report their emissions. Results will be published in a league table, with bonuses and penalties transferred from poor performers to the good performers.
Businesses now have twelve months to devise and implement monitoring systems, working out how many allowances they will need to buy, ahead of then paying the full amount for their estimated carbon emissions in April 2011.
David Walters, partner, sustainability and climate change, PricewaterhouseCoopers LLP said:
“Registration is the easy part of the scheme. 2011 is when the impact on cash flow will really be felt. Businesses need to get on top of the long term energy, cash flow and reporting requirements. Underestimating the impact will hit companies’ bottom line at a time when they can least afford it.”
The PwC modelling demonstrates that it is possible for businesses to reduce the costs of complying by accurately planning their allowances, reducing their carbon footprint and appearing in the top third of the league table.
Baseline energy cost | Scenario | 2011 | 2012 | 2013 | 2014 | 2015 |
£500,000 | Best | -£22,480 | -£17,441 | -£1,405 | £12,033 | £25,471 |
| Middle | -£27,520 | -£27,520 | -£38,360 | -£38,360 | -£38,360 |
| Worst | -£32,559 | -£37,598 | -£82,033 | -£95,471 | -£108,909 |
Baseline energy cost | Scenario | 2011 | 2012 | 2013 | 2014 | 2015 |
£750,000 | Best | -£21,221 | -£13,662 | £15,393 | £35,550 | £55,707 |
| Middle | -£28,779 | -£28,779 | -£40,039 | -£40,039 | -£40,039 |
| Worst | -£36,338 | -£43,897 | -£105,550 | -£125,707 | -£145,864 |
Baseline energy cost | Scenario | 2011 | 2012 | 2013 | 2014 | 2015 |
£1,000,000 | Best | -£19,961 | -£9,882 | £32,190 | £59,066 | £85,942 |
| Middle | -£30,039 | -£30,039 | -£41,719 | -£41,719 | -£41,719 |
| Worst | -£40,118 | -£50,196 | -£129,066 | -£155,942 | -£182,818 |
Fig 1. Modelled impacts on energy costs resulting from three scenarios (see notes)
In the worst case scenario, increased energy costs would be driven by high allowance prices in the CRC, poor performance in the CRC league table, and the purchase of the incorrect number of allowances. The introduction of allowance auctions increases both the maximum cost in the worst case and the potential benefit in the best case. Even in the best case, the capital costs of buying allowances and the operational costs outweigh the benefits of bonus from the recycling payment.
David Walters, partner, sustainability and climate change, PricewaterhouseCoopers LLP said:
“There is a reputational angle to consider as well. Under the CRC a league table of all participants will be published with companies ranked against each other. As a proxy for their overall environmental record there is a real risk the league tables could also start to influence consumer and other stakeholder opinions.”
“The bottom line is that the scheme will cost businesses in year one. Long term, the scheme is an incentive to encourage low carbon growth, but it’s a complex one. A growing business has more energy needs. The reality is if you want to avoid additional costs, you need to grow in a low carbon way."
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