2nd edition, June 2010

Ethical Corporation

www.ethicalcorp.com/crc

COMPLIM

ENTARY

REPORT

SUMMAR

Y

REPORTNOW ONSALE

THE CARBON REDUCTION COMMITMENTENERGY EFFICIENCY SCHEME

How companies cut carbon, savemoney and meet legal compliance

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What you are getting

In-depth case studies cover the key challenges and exemptions in the scheme

COMPLIMENTARY REPORT SUMMARY

Company Case study focusMcDonalds The franchiser perspective on the CRC

SAP Capitalising on a new opportunity: The CRC as a key to a competitive future

Land Securities Addressing a new challenge: Negotiating landlord-tenant agreements for CRC compliance

Asda Abatement strategy and CRC performance

Sainsbury’s Capitalising on a new opportunity: Proactive engagement with the CRC

Ecotricity Industry comment from a green energy supplier

Alliance Boots Strategy insight: Emissions quantification and data collection

ITVDesigning a strategy to address the challenge of a medium-sized firm spread overmultiple locations

� Receive an independent analysis and critical look at the UK’s new regulation mandating companiesto measure and report their greenhouse gas emissions.

� Hear the opinions and compliance strategies of professionals from over 20 companies interviewed for thisbrand new, 2nd Edition report on how big companies in the UK reduce their emissions, and make it pay.

� The report provides you with eight in-depth case studies on the challenges and solutions of bigcompanies in complying with the CRC.

� Find out what will be the future of the CRC? Hear uncensored opinions from experienced sustain-ability professionals.

The report answers your burning questions1. Will my company be double reporting, if we’re already part of the European Union’s ETS or if we

generate energy through on-site renewable sources?

2. Is a sealed bid system the most effective way and fair way to sell carbon allowances?

3. Will the scheme deliver emissions reductions?

4. What are the regulatory loopholes?

5. Are there ways to guarantee my company is listed near the top of the annually published league table?

6. What does it cost to register, measure emissions, report emissions, purchase allowances and pay anynon-compliance fees?

7. What’s the average number of person days a company devotes to the key administrative activitiescreated by this new regulation?

8. I don’t know what portion of our utility bills we are responsible for, or how to influence purchasingdecisions. What should I do?

and more…

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Key benefits� This is a mandatory UK regulation in effect as of April 2010, with mandatory self-reporting for 5000

UK-based companies. Find out what you need to know and what to do now!

� Get more information that you can't find on government websites.

� The onus to comply is on you. Learn how new UK carbon policy affects you, and how to complyand save money each step of the way.

� Find out how leading companies are benefiting from the scheme.

� Fully understand complexities and contradictions with the scheme, including what issues will

likely be adjusted in the near future.

� Get the information needed to adapt your company's emissions reduction strategy accordingly,

be listed at the top of the annually-published league table, and save money through energy

efficiency.

� Gain access to emissions reduction and compliance strategies from McDonalds, SAP, LandSecurities, Alliance Boots, Asda, Sainsbury’s, Ecotricity, ITV and more.

From this report, you’ll receive:

� Clear, precise guidance on complying with the scheme each step of the way.

� Pointers and real insight from companies that have found ways to make the scheme benefit

their business.

� Easy-to-use diary to remind you of your company’s obligations from 2010 through to 2013.

� Detailed advice on how to ensure your company is measuring carbon emissions in a way that

the UK government requires.

� A clear breakdown of which organisations falls under this regulation, when exemptions are

valid, and which organisations will need to comply during the next phase of the scheme.

� The reasoning behind a market-based approach, how it works, and why it is the best approach.

� In-depth debates on the most contested aspects of the scheme.

This updated 2010 report finds that the changes made to the scheme have been welcomed but thatthere are aspects of the CRC Energy Efficiency Scheme that remain contested.

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The report provides you with:

Insight into how the CRC was designed, such as…The scheme has been designed so that, over the long term, the relatively high price of allowances willmake it more cost-effective for all firms to invest in cleaner technologies, improved productionprocesses and energy-efficiency strategies. In this respect, the cap-and-trade market structure providesan incentive for organisations to reduce their emissions.

Strategic approaches to trading, such as…By identifying and separating out its emissions sources, a firm can plot a marginal abatement curvethat enables the firm to develop the most cost-effective and efficient abatement strategy based on itsexisting emissions. Firms should only purchase CRC allowances if all the abatement opportunities havebeen exhausted. The market price of carbon would need to be lower than the cost of abatement orthere would be mo point in purchasing allowances.

Exemptions from the scheme, such as…Subsidiaries of CRC organisations (or whole CRC organisations if no subsidiaries exist) are exempt ifthey can demonstrate that they have more than 25% of their relevant emissions covered by CCAs.

Last-minute changes to the scheme, such as…Principal subsidiaries have now been renamed to ‘Significant Group Undertakings’, and regulations havebeen made more flexible for this group. Subsidiaries that are large enough to qualify in their own right(over 6000MWh) may now opt to participate in the scheme separately from their organisation group.The caveat here is that organisations cannot opt to disaggregate a nominated SGU if this will bringtheir own energy consumption below the 6000MWh threshold.

Critiques of the scheme, such as…The British Retail Consortium believes that the UK Government has failed to understand the businessrealities of franchising operations, arguing that franchisers have very little control over their franchisees’energy management.

BT contests DECC’s decision to exclude renewable energy, requiring companies to report renewables atthe average grid factor. Several other interviewees echoed BT’s concerns, yet most agreed why DECCseeks to avoid double counting of fuel credits.

A simple presentation of what is required by your company, and associated fines such as…If your organisation is eligible for CRC, but has failed to register by the end of the registration period,you will have to pay a fixed fine of £5,000. Then, for each subsequent working day you fail to register,you will be fined an additional £500 per working day to a maximum of 80 working days, together withpublication of non-compliance.

Expert opinions on the specifics of the scheme, such as…The following quote by an Asda representative: “The problem with a league table is that it is open toabuse, in that companies that have taken no action to reduce their carbon outputs could take rapidaction and be seen as progressive whereas those companies, such as Asda, that have a sensible planto reduce carbon outputs could join the scheme and have an impossible challenge of further reducingcarbon against those companies who have taken little action to date. For the measure to work effec-tively, credit must be given to work undertaken before CRCs came into effect.”

A sample of Ethical Corporation findings

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ContentsOverview ...................................................................................................................................................................... 5

Section 1: The Carbon Reduction Commitment Energy Efficiency Scheme (CRC)1.1 Quick facts .............................................................................................................................................................. 61.2 How does the CRC work? ........................................................................................................................................ 61.3 Who benefits?.......................................................................................................................................................... 61.4 Who is targeted? .................................................................................................................................................... 71.5 What am I reporting on? ........................................................................................................................................ 71.6 My company is already involved in other schemes ................................................................................................ 71.7 Which part of my organisation is responsible for CRC participation? .................................................................... 81.8 How is the scheme being regulated? ...................................................................................................................... 91.9 What stage are we at? ............................................................................................................................................ 9

Debate: Treatment of onsite renewables and Renewable Obligation Certificates (ROCs)and the “double numbers” risk .................................................................................................................................. 11

Key dates for your diary .............................................................................................................................................. 14

Section 2: The marketplace structure2.1 How the market works .......................................................................................................................................... 182.2 The introductory phase (2010) .............................................................................................................................. 182.3 The capped phase (2013)...................................................................................................................................... 182.4 The safety valve .................................................................................................................................................... 182.5 Revenue recycling and the league table .............................................................................................................. 19

Section 3: The registration process3.1 Linking qualification and registration ....................................................................................................................213.2 Information for registration ....................................................................................................................................213.3 The SGU registration window and the registration fee..........................................................................................213.4 Exemptions to the CRC ..........................................................................................................................................213.5 What happens if your company fails to register? ..................................................................................................22

Section 4: Monitoring, reporting and audit of emissions (MRA)4.1 Monitoring ............................................................................................................................................................ 234.2 Reporting .............................................................................................................................................................. 234.3 Risk-based audit .................................................................................................................................................. 23

Section 5: Compliance costs5.1 Costs of scheme coordination .............................................................................................................................. 255.2 Benefits: Energy saving ........................................................................................................................................ 25

COMPLIMENTARY REPORT SUMMARY

Section 6: Case studiesITV – Challenge: Medium-sized firm spread over multiple locations ........................................................................ 26Land Securities – Challenge: Negotiating landlord-tenant agreements for CRC compliance...................................... 26McDonalds – The franchiser perspective on the CRC ..................................................................................................28Alliance Boots – Strategy: Emissions quantification and data collection .................................................................. 28SAP – Opportunity: The CRC as key to a competitive future ......................................................................................29Asda – Abatement strategy and CRC performance .................................................................................................... 30Sainsbury’s Supermarkets – Opportunity: Proactive engagement with the CRC ..........................................................31Ecotricity: Industry comment from a green energy supplier ...................................................................................... 32

Section 7: Looking forwards ...................................................................................................................................... 34

References .................................................................................................................................................................. 36

Tables and boxesBox 1: CRC objectives ....................................................................................................................................................5Box 2: List of acronyms ................................................................................................................................................5Box 3: The “top-down” approach ..................................................................................................................................6Box 4: Trading strategy ..................................................................................................................................................6Box 5: Target sectors......................................................................................................................................................7Box 6: British Retail Consortium (BRC) on the franchisor responsibility ......................................................................8Box 7: An expert view on the changes and the current downsides of the CRC at this stageof its development ........................................................................................................................................................9Box 8: Why not include credits for on-site renewables? ..............................................................................................12Box 9: A cautious view on the league table ................................................................................................................13Box 10: Insider advice: Constructing a marginal abatement curve ..............................................................................18Box 11: Will the scheme deliver emissions reductions?................................................................................................19Box 12: Trading strategy – the “prisoner’s dilemma” ..................................................................................................19Box 13: League table loopholes ..................................................................................................................................20Box 14: Does your organisation qualify? ......................................................................................................................21Box 15: Sage advice for companies considering CRC loopholes and their degree of compliance..............................22Box 16: What will reporting under the CRC really require from companies? ..............................................................23Box 17: An investment expert on company consideration of compliance costs ........................................................24Box 18: Landlord tenant scenario ................................................................................................................................26Box 19: The polluter pays principle (PPP) ..................................................................................................................27Box 20: Alliance Boots preparedness for the CRC ......................................................................................................28Box 21: Company expansion challenges due to the CRC growth metric ....................................................................29Box 22: Implications of a change in the UK Government following the 2010 general election..................................34

Table 1: Calendar of CRC integration ............................................................................................................................14Table 2: Key administrative activities ..........................................................................................................................24

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Ethical Corporation report centreRecent publications cover topics such as anti-corruption, voluntary initiatives in CSR, emergingmarket issues, and managing carbon emissions. You can also visit Ethical Corporation’s websiteand download some free research papers: www.ethicalcorp.com/reports

Anti-corruption, ethics and compliance in RussiaPractical information to develop local compliance strategies and overcome corruption challenges. For more infor-mation, current prices or online ordering, visit: www.ethicalcorp.com/russia

Anti-corruption, ethics and compliance in China and Counter corruption in your supply chain in ChinaLearn more about the issues critical to your operational security, ethical management and success in China. For moreinformation, current prices or online ordering, visit: www.ethicalcorp.com/china

Best practices for designing effective ethics programmesFind out which ethics and compliance training is most effective and productive. For more information, current prices oronline ordering, visit: www.ethicalcorp.com/ectraining

The Carbon Reduction Commitment Energy Efficiency Scheme: How companies cut carbon, save money, and meetlegal complianceA hands-on management briefing on real-life ways big UK companies cut carbon, and their costs. Order online orobtain more information at: www.ethicalcorp.com/crc

Corporate greenhouse gas emissions reportingLearn how your competitors are calculating and verifying their GHG emissions – and discover which metrics and verifi-cation standards will work for you. For more information, current prices or online ordering, visit:www.ethicalcorp.com/greenhousegas

Guide to industry initiatives in CSRGet the inside track from some of the world’s key industry-based initiatives. For more information, current prices oronline ordering, visit: www.ethicalcorp.com/initiatives

Job-specific guides for embedding CSR throughout your companyWinning methods for integrating sustainability into operational departments including communications, finance andfacilities.For more information, current prices or online ordering, visit: www.ethicalcorp.com/csr

Essential strategies for effective emissions trading and offsettingWith practical information from the leading companies, this report is everything you need to develop your company’semissions trading and offsetting strategy. Including case studies from 15 companies across industry. For more infor-mation, current prices or online ordering, visit: www.ethicalcorp.com/emissionstrading

Unlocking the profit in water savings: How big companies manage water risk – and the business opportunities in doing soLearn how water risks factor into your operations, and what you should do to ethically manage water use.For more information, current prices or online ordering, visit: www.ethicalcorp.com/water

2nd edition, June 2010Ethical Corporation

How companies cut carbon, savemoney and meet legal compliance

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COMPLIMENTARY REPORT SUMMARY

REPORTNOW ONSALE

THE CARBONREDUCTION COMMITMENTENERGY EFFICIENCY SCHEME

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Publishing date: June 2010Secure PDF: 38 pages