Harsh penalties await firms that are energy inefficient

Food and drink processors that are not energy efficient could be in for an unpleasant surprise, as the government's Carbon Reduction Commitment (CRC) Energy Efficiency Scheme starts to take effect.

"There is a lot of ignorance [in the food sector] in relation to what CRC does and is seeking to achieve," Eversheds partner Dave Gordon told a round table on Sustainability organised by Food Manufacture in London last month, sponsored by Eversheds, British gas and pump supplier Seepex. "It is going to be a huge issue for many [manufacturers] and not many people are well prepared in respect of it It has obviously been put in place to try and cover 10% of the emissions in the UK which are generated from low energy users."

The CRC is a mandatory 'cap and trade' scheme that seeks to reduce carbon dioxide emissions from large non-energy intensive organisations.

Its three-year introductory phase starts in April 2010. An unlimited number of allowances will be available at a price of £12/t of carbon dioxide. From the second compliance year, participants will annually have to purchase allowances, monitor energy use, report emissions and surrender allowances. They will receive an annual revenue recycling payment.

In phase 2, from 2013, government will cap the number of allowances available each year and they will be auctioned. The cap will be set with advice from the Committee on Climate Change, which they will provide in 2010.

According to Eversheds' head of climate change practice, Michael Wood, the CRC will only apply to sites that are not subject to any existing climate change measures.

If an organisation fails to meet its obligations under CRC it will incur a civil penalty, which could range from £1,000 for failing to disclose information to £5,000 for failing to register as a CRC organisation by the end of the qualification period, with a further £500 per working day until registration, warned Wood.

Firms will qualify for CRC if companies in their group collectively used more than 6,000MWh of electricity via half-hourly meters in 2008. Given the large electrical loads of many sub-sectors of the food industry such as frozen/chilled foods and flour milling, CRC is likely to catch a considerable number of food manufacturers, said Wood.

Last month the Department of Energy & Climate Change announced that it had made the CRC more acceptable for business. One of the most significant amendments was that subsidiaries that are large enough to qualify in their own right (at least 6000MWh) may opt to do so separately. Also, recognition would now be given to organisations that use onsite renewable energy such as wind turbines or solar panels in making carbon savings.

Organisations that are likely to qualify can expect to receive introductory information and qualifying packs from the Environment Agency this month, and must register as CRC organisations by the end of September 2010.

Those which qualify for CRC must purchase annual allowances and surrender them for each tonne of carbon dioxide they emit. As these allowances can be traded, participants have a vested interest in reducing their carbon footprints as this will allow them to sell any 'spare' allowances. Alternatively, the allowances can be 'banked' for use in future.

At the end of each year all revenue from the sale or auction of allowances will be recycled to scheme participants in the form of a 'revenue recycling payment'. The award will be adjusted by way of either a bonus or a penalty based on the participant's position in a performance league table published at the end of each year.