By CivilServiceWorld

21 Apr 2010

April saw the launch of a scheme which will result in departments paying tariffs for all their carbon emissions. The Environment Agency’s Tony Grayling tells Ruth Keeling about a radical move to improve sustainability

Departments have, for some time, been under instructions to become more sustainable. After all, how can the government tell members of the public to recycle more, use less water, or switch to energy efficient light bulbs if public bodies are failing to do the same themselves? Until recently, progress was patchy and, at times, disappointing – as shown by a number of critical verdicts from bodies such as the Sustainable Development Commission. Performance has improved, however, and now there is a new reason for departments and other public bodies to get their houses in order: they will soon have to pay a charge for every tonne of carbon they emit.

The CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment scheme), administered by the Department for Energy and Climate Change (DECC), was established in the 2008 Climate Change Act and started operating this month. Covering organisations in the private, public and voluntary sectors, it is an emissions trading scheme that will punish those organisations that fail to reduce their energy use, and reward those that do (see box for details).

The scheme is targeted at organisations whose energy use is relatively small – at least compared to heavy industry and other energy-intensive operations – and where energy doesn’t represented a major corporate expense. Many such organisations won’t have paid much attention to energy efficiency in the past. Tony Grayling (pictured above), head of climate change and sustainable development at the Environment Agency – which has developed the scheme for DECC – says the CRC is aimed at a sector that contributes to up to 12 per cent of the UK’s CO2 emissions, and therefore has an important role to play if the country is to meet its target of reducing greenhouse gas emissions by 34 per cent by 2020 (from a 1990 baseline). For this reason, he believes the scheme “is probably the most important new carbon-abatement policy since the introduction of the EU emissions trading system” – the union’s flagship carbon emissions market.

The EU trading scheme has come in for a lot of criticism because less-than-rigorous baselines allowed “gaming” by participants, says Grayling – indeed, there were reports that companies were over-reporting their emissions at the start of the scheme, allowing themselves to increase emissions thereafter without penalty. As a result, the cap on allowances – and, therefore, emissions – was set at a high level, depressing the market value of allowances. The CRC scheme will not get into the same problems, Grayling believes: its first year is reporting only, to set accurate baselines; and the Committee on Climate Change, an independent advisory committee set up by the Climate Change Act, has been asked to set the cap on allowance sales when it comes into force in 2013-14. The Environment Agency has already advised that the government’s initial calculation – which envisaged that the scheme would produce an eight per cent reduction in participants’ emissions – should be increased to 20 per cent.

Grayling, it is worth noting, is passionate about environmental issues, which have been central to his career. Before joining the Environment Agency, he was special adviser to environment secretaries David Miliband and Hilary Benn while the Climate Change Act was being prepared. He has also been the head of the sustainability team at think-tank IPPR, and before that adviser to transport minister Gavin Strang, working on the ill-fated integrated transport white paper. He joined the Environment Agency, he explains, because he wanted to get some delivery experience.

His links to Labour – earlier in his career, he was researcher for the Labour MPs Ron Davies and then Anne Campbell – shouldn’t count against him if the Conservatives win the election, he says. “My job is non-party political,” he argues. “I put aside my own political views when I come to work.” Also, he adds, climate change and environmental protection have become non-party political issues, with “a competition to see who can have the best policies”.

Interestingly, Grayling once wrote a paper for the IPPR, criticising the EU trading scheme for failing to include transport; yet the CRC scheme also does not include transport – only emissions from ‘stationary installations’ such as buildings. Grayling admits that his personal view is that transport should be included in the scheme, but emphasises that that has not been the advice of the Environment Agency to the government – though the agency has set itself targets on emissions from travel, despite the exclusion of transport emissions from the Office of Government Commerce’s (OGC) sustainability targets for public bodies.

Grayling says the scheme has to start somewhere, and he and his colleagues are focused on getting it up and running successfully. After the first reporting year, participants will have to pay £12 per tonne of carbon emitted, but Grayling says the financial incentive is only a part of the scheme; he believes it will be reputational concerns that will really motivate people. The financial penalties, when looked at in comparison to the overall budgets of the organisations involved, “are not huge”, he points out, whereas the very public league table “will probably affect how their customers view them”.

One of the scheme’s aims is to get the attention of the participating organisation’s leaders. Because these are companies whose energy bills are not huge, “there will be energy managers within those large organisations who are concerned about energy use, but the directors and the members of the boards probably haven’t taken a huge amount of notice”, explains Grayling.

This problem of leadership interest in sustainability has bedevilled the civil service in the past, Grayling admits. “I just don’t think until recently that it has been the focus of the attention of senior civil service and ministers – but it is now,” he says. The change, he believes, is due to the pressure placed on departments by the need to complete climate change action plans, and by the inclusion of sustainability in permanent secretaries’ performance appraisals. Now all permanent secretaries have the CRC scheme to think about, he adds, after “the government rightly took the decision that all government departments would be participants” – regardless of whether departments use enough energy to formally qualify for inclusion in the scheme.

Sustainability has long been an aspiration of government, and this might suggest that Whitehall departments may have an advantage over private sector participants in the CRC. There will, for example, be CRC credits for organisations which install smart metering and adhere to Carbon Trust standards – already a requirement under the OGC’s sustainability framework for departments. However, as the Sustainable Development Commission’s 2009 report stated, departmental performance on such benchmarks is still variable.

Public bodies cannot, in other words, afford to rest on their laurels. Not only may they have to pay out for carbon allowances at a time of falling budgets; but they also face the embarrassing prospect of being shown to be less sustainable than commercial counterparts, at a time when government is instructing those same companies and members of the public to act on climate change. This would be embarrassing for political leaders – and, thus, uncomfortable for civil service leaders.

The CRC scheme: how it will operate
Each April, organisations will be able to purchase carbon emissions allowances from the government for the year ahead. They will be able to sell surplus and buy additional allowances on a secondary market throughout the year. The income from allowances will be returned to participants according to their position in a league table, rewarding both improved performance and good positions in the league.

The scheme works on a trust basis, but each year 20 per cent of participants will be checked. Penalties have been set at £40 for each tonne incorrectly reported, plus a fixed fine of £5,000. If the incorrect data influences their position in the league table, there’s a further fine equal to double the amount of financial gain from improved performance. Inadequate records will also be penalised, with a fine of £40 for each tonne of carbon.

There are a number of phases to the scheme:

2010-11: Reporting year, in order to create baseline statistics;

2011-12 and 2012-13: Fixed price of £12/tonne; early action credits available for organisations that install smart metering and meet Carbon Trust standards of reductions in energy use;

2013-14 and onwards: A cap is introduced on sales of allowances; government’s annual sale will be by auction; credits for early action cease.

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