CRC are the three letters on everybody’s lips at the moment. There is certainly a lot being said about the UK Government’s upcoming Carbon Reduction Commitment scheme, but how much of this is translating into action, and what impact will the CRC have on the outsourcing and offshoring industries? The answers unfortunately are not all that clear but there’s a lot going on, and it is all going to become more and more relevant to us all.

Looking at CRC on face value, its aims seem noble and methods logical. At its most basic level, the CRC is one new weapon in the government’s mission to cut UK carbon emissions. The UK has ambitious targets in this respect having committed to cutting carbon emissions to 80 percent of 1990 levels by 2050. On this basis, whatever ‘sticks’ and ‘carrots’ are thrown at industry to get them moving, they clearly need to work very well.

The CRC programme is aimed at the UK’s larger and largest businesses; those that have both sizeable emissions and the scale to be able to take tangible and innovative steps. In April 2010, those companies consuming greater than 6,000 mega-watt hours – an estimated 5,000 UK organisations – of electricity per year, will need to be signed up to the scheme. In the following years, emission allowances will have to be purchased for energy usage, while those that do not comply with the scheme will face punishment in the form of scalable fines. As an additional incentive to act, the Department for the Environment, those in charge of the scheme, will publish league tables of the best and worst performers.

And there are further incentives to act quickly, says Gary Worby, MD at energy consultancy EnergyQuote, “Acting now to become an energy-aware business will give you a better chance of gaining a competitive edge and also deliver significant cost savings and an improved corporate image. The CRC even offers a bonus for early adoption if you can demonstrate three years of an advanced implementation plan to reduce energy and carbon.”

However, despite such incentives, there still isn’t the feeling of urgency that environmental science and the green lobby would like to instil. “Current studies indicate that as much as 10 percent of the CRC’s audience are not going to comply with registration,” comments Worby.

Despite this, mixed messages abound currently about the level of preparedness in the industry. For example, recent research from IMServ showed that, ‘Only two percent of UK businesses do not know whether they qualify for the scheme. This compares to figures of 20 percent in the public sector and 30 percent in the private sector a year ago…and…only two percent of organisations are ignorant of their carbon footprint in contrast to nearly 70 percent last year.’ It seems that the real story on compliance may only emerge when Defra releases initial registration figures in April next year.

A sizeable problem is that the confusion over preparedness levels is also mirrored in compliance with the CRC initiative. A recent poll from edie in September, an environmental business portal, found that ‘42 percent of companies said they were not totally up to speed [with CRC] and only 31 percent said they felt well prepared.’ If this level of unpreparedness continues until April next year, many will face fines and reputation damage. It is also a worrying sign so close to the initial registration deadline. Apparent deasons for this confusion range from not knowing how to measure overall energy consumption and difficulties with data gathering to simple lack of understanding as to what reporting will be required.

Mark Kobayashi-Hillary, Offshoring Director of the NOA and Chair of the NOA Green Steering Committee, comments, “I speak to a lot of companies about the fact that the green agenda is about to hit the top of their to-do-list in 2010, yet most executives seem to have forgotten that this is going to happen. It’s as if there was some interest in green business when Al Gore made it cool, then the recession came along and everyone had to focus on survival, no matter what. Well, 2010 is just around the corner.”

One area that does seem clear has invoked the ire of many in the outsourcing industry – that of the supply chain for products and services. This is an area the government seems intent on perusing. In his inaugural statement last month, the government’s new chief energy scientist, Professor David MacKay, commented, that “The UK’s apparent reduction in carbon emissions since 1990 is merely an “illusion”, because manufacturing has been outsourced to developing countries”. According to industry voices, the CRC initiative represents a bittersweet change for the outsourcing industry, punishing some for working hard while rewarding others out of circumstance.

Kate Craig-Wood, MD of Memsets, lays out a clear case against the initiative from the UK datacentre perspective in her blog on the subject, saying “The government’s scheme plans to allocate the entire carbon liability to the utility bill payer, irrespective of whether the bill payer is in fact using the energy, or a key player in the decision to use this energy.”

And this is where the problem lies. The CRC scheme appears to have been created with little thought to the outsourced, and increasingly offshored, business world we now live in. By targeting the company paying the utility bills, the CRC inadvertently both encourages outsourcing whilst penalising outsourcing suppliers for taking on work as they have to purchase further carbon emissions allowances from the government due to extra capacity requirements.

This, Craig-Wood says, “will actually be a good thing for my business, but I so firmly believe that the CRC as it stands will be detrimental to our emissions overall that I am speaking out against it.” So the extra business gained by outsourcers may actually outweigh the added costs they have to pay for emissions, but it may not aid the government in reducing overall emissions. However, as we know, with scale and specialisation comes both effectiveness and efficiency. So while the mass outsourcing of energy-intensive processes will inevitably drive the growth of environmentally friendly suppliers, it will be making sure the balance tips in the right direction that will overall ensure success for the government.

Kobayashi-Hillary comments, “It’s as if the concept of outsourcing was never really considered when the CRC was designed, because there is no clear way of managing carbon created through the entire sourcing supply chain. Let’s face it, every company sits in a supply chain somewhere because every company buys and sells products and services.”

Having said this, there is another industry that is also likely to benefit from the CRC – those in offshore outsourcing. The CRC, of course, is a UK-centric scheme, so will make offshoring increasingly attractive to UK companies. Likewise those outsourcers with both UK and offshore capacity will also be more likely to carry out increasing amounts of work offshore. This is a great trend for globalisation but also creates somewhat of a ‘pass the parcel’ situation in terms of global carbon emissions as UK end-users ‘dump’ emissions into Europe and elsewhere. It is also an interesting result in light of upcoming VAT changes that will see offshore providers paying VAT on the services they provide to the UK. This clash in UK government policy certainly create an interesting dynamic.

It’s clear that a more European and even global approach may be needed if possible. The National Outsourcing Association, for one, is supporting this goal. The Association lays out its thoughts in a green whitepaper from its newly created Green Steering Committee.

The document states ‘By creating one standard, organisations will have to meet a set of uniform requirements in order to classify themselves as green/carbon neutral. The ultimate green tick would allow organisations to conduct business with vendors, safe in the knowledge that they have met international regulations. Suppliers would also be able to tender for projects knowing that they have met the minimum green requirements established by the international community. This would create a safer and greener market for organisations to engage in, as any business that did not have this standard approval, would not be able to tender for work that demanded it as part of the selection criteria.”

The trouble is that the ability of global governments or business organisations to create such a standard appears limited. There are countless standards proffered by numerous professional organisations but the lack of standardisations causes sizable problems. The standards convey a sense of ‘greenness’ but still lack a sense of certainty, requiring a leap of faith on the part of customers and stakeholders. The future of green business is obviously global; it is now time for governments to catch up and make things work worldwide. The upcoming Copenhagen meeting provides the perfect opportunity for progress towards this goal. Thankfully the outsourcing industry has little time to wait to see whether the global community is up to the challenge.