Costs, confusion greet new UK carbon trade scheme

LONDON (Reuters) - Britain's new scheme to cut corporate energy usage and carbon emissions will slash billions from power bills, according to the government, but companies remain confused over compliance and concerned over its costs.

The mandatory Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES), which begins Thursday, forces businesses like banks, hotels, hospitals and schools to help cut annually by 2020 British greenhouse gas emissions by 4 million tonnes and corporate energy bills by 1 billion pounds.

Some 5,000 companies that spend over 500,000 pounds ($753,600) per year on energy are forced to monitor usage and report related emissions annually. From April 2011 they will also need to estimate future emissions and buy carbon permits.

"The scheme is far more complicated for companies to interpret and then comply with at registration than any consultant or government department thought it would be," said Chris Stubbs, director at WSP Environment and Energy.

"The amount of effort being expended is far in excess of what's justified for the level of emissions reduction targeted."

Companies must register with the UK Environment Agency by September 30, 2010, or face steep fines starting at 5,000 pounds. All are exempt from buying carbon credits in the first year.

The CRCEES is one of two incentive schemes launched on Thursday which the government said are key to meeting the UK's target to cut emissions by 34 percent below 1990 levels by 2020.

Feed in tariffs are also being introduced to spur growth in small-scale, locally produced renewable power.

"From today the rewards for businesses and householders who act to cut their carbon emissions really start to pay off. It's no longer simply about doing the right thing for the environment, it's now a sure-fire financial investment," said UK energy and climate secretary Ed Miliband.

COMMUNICATION BREAKDOWN

A survey published on Monday by energy supplier npower found that nearly half of UK businesses affected by the CRCEES are unaware of how to forecast their emissions or buy credits, and called government guidance "inadequate."

"Businesses have been consulted on the scheme for more than a year and most have known it was coming for longer than that. Though it launches today, firms still have six months to register and are not required to buy credits for another year," said a DECC spokeswoman.

"We will continue to communicate extensively ahead of the September deadline."

An annual league table will highlight the performance of all CRCEES participants, with companies that have cut their energy usage the most getting a bonus payment transferred from companies that have made the least progress.

The bonus/penalty will start at 10 percent of total energy expenditure in 2010 and grow to 50 percent in 2015.

DECC said the revenue-neutral scheme will raise the worst performing companies' energy costs, which it said were typically around 1 percent of total overhead, by 10 percent while other companies save money on power bills or profit through bonuses.

PwC forecast these costs to be higher, with the average firm seeing a 4-6 percent rise in energy bills by 2011 and the worst performers incurring an increase of nearly 20 percent by 2015.

The advisory firm said the top performers could cut energy bills by 8 percent by 2015, saving upwards of 150,000 pounds.

(Reporting by Michael Szabo; Editing by David Gregorio)