Powerful argument

BROKERS AND THEIR clients may be among the businesses affected by a mandatory 'carbon reduction commitment' scheme, which is being rolled out by the Department of Energy and Climate Change. The rules are scheduled to come into force in April 2010 and non-compliance could result in fines of up to £500,000 or up to two years in prison.

While 20,000 organisations are likely to have to participate, most will only be required to disclose information once every few years about their electricity usage. Some 5,000, however, are expected to be involved fully in the scheme.

Designed to promote energy efficiency and reduce carbon emissions, the CRC is a 'cap and trade' scheme affecting large public and private sector organisations with an annual electricity consumption of around £500,000.

Organisations falling within the scheme will be expected to buy annual allowances from the Environment Agency that represent their total annual CO2 consumption. The more CO2 an organisation emits, the more allowances it will have to purchase, so there will be a direct incentive for these organisations to reduce their emissions.

As the scheme stands, those organisations which reduce their energy consumption will benefit financially not only from reduced energy bills, but also, potentially, from a rebate. They will be able to trade any allowances that remain unused at the end of the year and bank allowances from one year to the next.

All participating organisations will be ranked in a publicly available 'green' league table which will create additional reputational considerations for those which perform badly and sit at the bottom of the ranking.

Brokers and their clients will need to assess if they qualify for the scheme. During Autumn 2009, the Environment Agency will be sending out qualification packs for all companies to complete.

Having registered, they will then have to disclose data on emissions, prepare a footprint report, along with an evidence pack and annual report with details of CO2 consumption for the green league table. Failure to register or provide the relevant information could result in a £5,000 fine.

They will also need to understand the impact of the scheme on their role as a landlord or tenant. As landlords, they will want to encourage good practice among their tenants to ensure they do not exceed any estimates. A good CRC ranking may help to increase property and portfolio value.

Meanwhile, small businesses might think they are exempt, but could find themselves required to reduce their emissions or contribute toward acquisition of allowances because they are tenants of a large qualifying organisation.

Although details of how the CRC scheme will work in practice still need to be finalised, organisations likely to be affected by the scheme need to be considering its impact on their business now.