Ministers have said that the scheme will be "revenue neutral", meaning all funds will be recycled between the scheme’s participants depending on how they perform. But despite the fact that the scheme starts next April across the UK, research shows that the vast majority of firms are unprepared while many don’t know about it at all.
Firms consuming more than 6000 megawatt hours of electricity in 2008 (around £500,000) will have to pay out an estimated £1.4bn for the allowances when they go on sale at the end of the scheme’s first year in 2011.
Although this will impact on cash flow, because the funds are recycled this will not be a net cost. The price of carbon will initially be fixed at £12 per tonne, but after three years the cap on emissions is applied with the the price likely to increase significantly.
More than 54% of companies do not know if they are affected by the CRC scheme, while 50% of firms do not currently measure their carbon emissions.
The "polluter pays" principle of CRC works by making the energy user purchase allowances for the energy they consume.
Everyone in the scheme is entered into a league table. At the start of the scheme those who perform well and use less energy than when the scheme started will rank at the top of the league table and will be awarded a payment that is calculated by reference to a 10% bonus, while those who perform badly will rank at the bottom of the table and will receive a payment that is calculated by reference to a 10% penalty.
Those percentages will change over time and those who do badly could eventually end up with a 50% penalty.
Joan Ruddock, Energy and Climate Change Minister said: "The CRC is set to save businesses £1billion on fuel bills by 2020, certainly welcome news in these difficult financial times, and those who save the most energy will be rewarded financially.
"It is vital we act now to fight climate change and vital that businesses play a role in cutting carbon emissions. I welcome the property sector’s involvement with the development of CRC and commend this very helpful guide, addressing the needs of both landlords and tenants. This, along with DECC’s own User Guide, will help companies to begin preparing for the introduction of the carbon reduction commitment in 2010."
BPF chief executive Liz Peace said: "CRC puts the fight against global warming on balance sheets by hitting firms where it hurts – in their finance directors’ cheque books.
"The property industry is fully behind moves to cut emissions, but the scheme has not been properly thought through. Large areas of uncertainty remain over how you apply the CRC around existing leases. Landlords have no legal remit to influence how tenants use energy. This guide will help, but Government needs to show a lot more flexibility if the aims of the CRC are to be realised."
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