Carbon Reduction Commitment: UK energy efficiency scheme takes effect on 1 April; organisations urged to consider the impact of carbon levy

March 30th, 2011 by KPMG

  • Energy usage from 1 April determines size of carbon levy in the UK
  • KPMG encourages participants to account for carbon costs
  • Four months to submit accurate energy evidence packs and avoid penalties

April 1st is the start date for a UK levy on carbon, impacting on the 3,000 UK businesses and organisations participating in the CRC (Carbon Reduction Commitment): Energy Efficiency Scheme.

These organisations should take action in order to comply with the legislation and address the fact that their energy usage will now determine their levy, according to KPMG, which has published a guide to the scheme; ‘What Happened to our Commitment?’.

From 1 April, scheme participants must pay for every tonne of carbon resulting from energy usage on sites they control. This carbon levy, initially set at £12 per tonne, is estimated to add approximately 7 to 9% to energy costs, ranging from £39,000 to millions of pounds Sterling. It will be calculated on energy usage monitored from 1 April 2011 to 31 March 2012 and will need to be paid after the end of March 2012.

As a consequence of the 2010 Spending Review’s transformation of the scheme into a levy (albeit potentially only for the next three years), KPMG believes that participating organisations should carefully consider accounting for their carbon cost as an operating expense in their profit & loss account.


Vincent Neate, head of Climate Change & Sustainability at KPMG (©KPMG - click image to expand)

Vincent Neate, KPMG’s head of Climate Change & Sustainability, explains: “At present, there is no authoritative accounting guidance within IFRS or UK GAAP explicitly for transactions involving carbon allowances but now that this cost is a known entity it is sensible to account for it in line with an organisation’s existing accounting principles.

“Although the Spending Review has delayed the scheme’s impact on cash flow, the accounting treatment of the cost should be addressed now. The costs of the CRC are incurred every time a unit of carbon is emitted. This implies that it would be appropriate to recognise an accrual for the cost of carbon allowances at the point an organisation can determine the quantity of energy consumed.

“As the CRC now operates in a very similar way to the CCL, though paid at the end of the CRC year rather than with each energy bill, we recommend organisations consider treating the two in a similar way in the accounts.”

The 1 April also marks the end of the initial CRC reporting year (April 2010 to March 2011) meaning participants need to prepare the required evidence packs detailing their energy usage during this period. Organisations have four months, until 29 July, before these must be available for inspection by government auditors or heavy financial and reputational penalties may be incurred.

KPMG encourages participants to take meter readings at the end of March to make to the evidence pack data collection process easier and more accurate.

Vincent Neate said: “The CRC scheme becomes real in April. Not only must all participants start actually reporting, paying for and accounting for their carbon footprint but a company director must also take responsibility for confirming that sufficient auditing of their CRC data has taken place.

“We are being contacted by a large number of organisations seeking comfort that their evidence packs meet compliance requirements, therefore avoiding steep data misstating penalties of £40 per tonne. And, with our experience showing that more than half of organisations are indeed misstating their data, financial and reputational penalties are a very real risk.”


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