Environmental Value at Risk in the Hospitality and Leisure Sector

The CRC is a mandatory cap-and-trade scheme introduced by the UK government and directed at non-energy intensive, non-transport industries which are not covered by the EU Emissions Trading Scheme (EU ETS) or Defra’s Climate Change Agreements (CCAs).

It is estimated that around 5000 organisations will be covered by the scheme and the threshold for participation is electricity consumption of more than 6000 MWh measured through half hourly meters in the 2008 calendar year. This equates to electricity costs of roughly £500,000/annum. The CRC requires participants to purchase allowances to emit carbon dioxide annually from the Government and to report on their emissions. Results will be published in a league table with the Government each year returning participants’ money paid in allowances each year with a bonus or penalty based on their league table position.

Environmental legislation such as the UK Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and the UK Landfill Tax can result in negative impacts on hotels’ costs, cash flow and reputation. For example, PwC modelling suggests that the CRC could add around 3% to energy costs in each the first two years of the scheme, followed by more significant increases once the auctioning of allowances begins. Worst case scenarios suggest a 20% increase in energy costs by 2015. The scheme is also expected to have significant impacts on a company’s cash flow.

The Landfill Tax is also set to double by 2014 and while hotels will not usually pay this directly, waste management contractors will pass the increased costs to their clients.

Hotels need to determine their exposure to the CRC and Landfill tax, identify means of reducing associated financial impacts and integrate waste and energy reduction strategies into their operations. Appropriate management can limit these costs and, in the case of the CRC, can even generate a source of revenue

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