Climate Change Act 2008: implications for business

Primarily, the 2008 Act will do three things:

The government plans to meet the 2050 target in the 2008 Act by setting a series of “carbon budgets”. These will set out the maximum amount of GHG that the UK can emit during certain periods. The Climate Change Committee (CCC) will advise the government on how to set these budgets and meet the overall 2050 target.

The government has said it will announce the proposed levels for the first three carbon budgets (2008-2012, 2013-2017 and 2018-2022) alongside the Budget in spring 2009 and publish, in mid-2009, its proposals on how to meet those budgets.

The aim is to give the private and public sectors in the UK greater certainty about future regulation of carbon emissions and financial incentives to enable them to make long-term decisions about investments in energy efficiency and low-carbon technologies (such as wind and solar power, biomass, biofuels and carbon capture and storage).

Companies that consume significant quantities of energy and generate a substantial chunk of the UK’s GHGs (such as the power sector and the steel and cement industries) are already covered by the EU Emissions Trading Scheme (see Environment briefing “Carbon trading: how does the market work?”, this issue).

The CRC, which is expected to come into operation in April 2010, is designed to catch other companies (and public sector organisations) that consume less energy, but which cumulatively are responsible for 10% of the UK’s total carbon dioxide emissions.

The CRC will apply to businesses and other organisations whose mandatory half-hourly metered electricity consumption is greater than 6,000 mega-watt hours per year. The scheme is likely to apply to around 4,000 to 5,000 businesses and organisations: primarily those with annual electricity bills above £500,000. This will include large offices, large retailers, banks, supermarkets, hotel chains, rail operators, hospitals, schools, central government departments and the larger local authorities.

Under the CRC, the government will set a limit on the total amount of carbon dioxide the relevant businesses and organisations can emit in any one year (referred to as allowances). The government will then auction these allowances to CRC participants. At the end of each year, participants will have to show that they have enough allowances to cover the amount of carbon dioxide they emitted. For some, this will involve the buying and selling of allowances.

A league table will be prepared at the end of each year, naming and shaming the best and worst performers. Revenue obtained from the auctioning of CRC allowances will be recycled back to participants, with bonuses and penalties depending on their rankings in the league table.

The government has said it will consult on the draft CRC regulations in February 2009. Those likely to be caught by the scheme would be well advised to contact the relevant organisations representing their sector to ensure that their views are fed into the consultation. The CRC is meant to be a “one size fits all” type of scheme but different sectors may be affected in significantly different ways by the scheme.

The Secretary of State has until 1 October 2009 to publish guidance on how companies should report on their GHG emissions, so that the reports can be more easily understood and compared (section 83, 2008 Act).

The Secretary of State must review the contribution that reporting is making to the achievement of the UK’s climate change objectives and must report on this to Parliament by 1 December 2010 (section 84, 2008 Act).

In addition, the Secretary of State must, no later than 6 April 2012:

The government has stated that it will consult in 2009 on the detail of how companies’ carbon emissions should be defined and measured. The outcome of that consultation will be reflected in the guidance. The government has said that after the consultation it will be in a better position to see the gaps between what is being reported and what should be reported.