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How New Greenhouse Gas Conversion Factors Will Affect CRC

Ashleigh Williams
Jul 07, 2016

How new Greenhouse Gas Conversion Factors will affect the CRC Scheme

On 1 June 2016 The Department of Energy and Climate Change (DECC) released the latest greenhouse gas conversion factors. The Carbon Reduction Commitment energy efficiency scheme (CRC) use these emissions factors for reporting and the latest figures will apply to the next compliance year (2016/2017), for which reports should be submitted in July 2017.

What are the main changes?

Due to the significant decrease in the generation of coal-based electricity, and an increase in electricity generated from gas and renewables, the emission factor for electricity will reduce by around 10 to 11%. This change means that tonnes of CO2 (tCO2) will also reduce.

CRC scheme participants are required to purchase allowances to offset their business’s carbon emissions and the current cost of compliance is £16.90 per tonne of CO2. This figure is likely to rise to £17.20 per tonne of CO2; therefore, the question is: “What effect will the changes have overall?”

If we take into account these factors, the CO2 tonnage will decrease, plus if the cost for CRC allowances is set at £17.20 then the cost for total allowances is also likely to decrease (see example below):

Example
In the 2015/2016 compliance year, 6,000,000 kilowatt hours (6,000 megawatt hours) of grid electricity would currently work out at approximately 2,978 tonnes of CO2 and will cost £50,328.20.

Taking into account the change to the emissions factor and allowance price, the same amount 2016/2017 compliance year would be approximately 2,680 tonnes of CO2 and will cost £46,096.00. This example demonstrates that although the allowance cost has increased and electricity consumption has remained the same, the allowance fee has reduced. Please note that these workings are based on Buy to Comply prices and not on forecast sale prices.

6,000,000 kilowatt hours (6,000 megawatt hours) of self-supplied on site renewable energy would currently equate to roughly 2,751 tonnes of CO2 which will currently cost £46,491.90. Next year this figure will reduce to roughly 2,457 tonnes of CO2, which will cost £42,260.40.

Although this is good news for CRC scheme participants, the potential rise in energy cost may not be offset.

What does the closure of the CRC Scheme mean for businesses?

Please also note that following the 2019 submission the CRC scheme will be abolished. This means that businesses will save money; however, the £900 million CRC funding gap will have to be accounted for. This means that the Climate Change Levy (CCL) which is applied to all business energy bills will increase from 0.583 pence per kilowatt hour to 0.847 pence per kilowatt hour for electricity.

Find out more

We are running a series of events to help your company manage existing and emerging energy regulations, as well as providing advice on energy management and how to keep your electricity and gas costs down. Visit our energy events web page for further information.

Alternatively, if you have any further questions regarding these changes please contact a member of our Environmental Compliance Team on 03450 682 572 or at env.compliance@valpak.co.uk

Disclaimer: The opinions expressed in this weblog represent those of the individual authors and not those of Valpak Limited or any other organisation.