The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) - Technology sector

January 2011

Technology

Contacts

Summary

Whilst the CRC has the potential to deliver benefits to the technology sector such as an increased take-up of clean tech services and products, it could also result in UK technology operations (in the event of non-compliance) incurring increased costs, damaged reputation and criminal prosecution. This briefing should be read in conjunction with the Norton Rose briefing: “The CRC - Navigating the New Regime” which provides a general overview of the CRC’s compliance obligations.

Key industry impacts

Risks

Outsourcing: UK Outsourcing Service Providers (OSPs) and Third Party Data Centres (TPDCs) will be responsible under the CRC for the electricity used on behalf of their customers should the CRC qualification criteria be met (facilities meeting the qualification criteria will normally exceed 5,000 square feet in area). This will mean that they will bear the entire cost of CRC compliance unless such costs can be passed on to customers. New customers are unlikely to be willing to sign up to contractual terms requiring them to share CRC compliance costs. Furthermore, existing customers (whose arrangements are usually subject to long term contracts) are unlikely to consent to contract amendments to allow for costs to be shared. Whether costs sharing contractual terms are accepted will depend on the bargaining strength of the parties. However, due to increasing competition from overseas, is generally considered that the bargaining strength of OSPs and TPDCs is likely to be weak.

League table ranking: Participants who fail to perform under the CRC will be “named and shamed” by the publicity of the league table. This risk is particularly relevant for OSPs and TPDCs. In particular, the league table will not: (a) show which organisations have transferred their energy use to a TPDC or OSP; or (b) compare emission improvements by industry (comparing like for like).

League table metrics: Participants seeking to expand their UK operations may be penalised by the league table ranking system which (following the Introductory Phase) largely considers a participant’s absolute growth in emissions which would naturally increase with an expansion in business operations/growth. This risk is particularly relevant for UK OSPs and TPDCs where demand for their services increases as a result of the CRC.

Opportunities

Cost savings: Compliance with the CRC has the potential to make CRC participants more energy efficient with attendant cost savings.

Demand for clean technology: The CRC may serve to promote the use of clean technology by CRC participants where such products enable them to function more efficiently and to reduce emissions. For example, logistics software can optimise fleet movements and electronic communications can reduces paper use and travel.

Demand for remote working technology: The CRC may increase the number of organisations encouraging employees to work from home. Where employees work from home, their energy use will be classed as “domestic” and will therefore fall outside of the CRC.

Demand for OSPs and TPDCs: The CRC is likely to lead to the significant growth of TPDCs and OSPs as CRC participants look to outsource their IT infrastructure and other energy emitting functions in order to: (a) reduce their emissions (and thereby achieve a better position in the league table); and/or (b) fall below the qualification criteria for participation in future phases of the CRC.

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