CRC: summary of DECC consultation on proposals to simplify the scheme | Practical Law

CRC: summary of DECC consultation on proposals to simplify the scheme | Practical Law

The Department of Energy and Climate Change (DECC) published a consultation, on 27 March 2012, proposing changes to simplify the CRC Energy Efficiency Scheme (CRC). This update provides a high-level summary of the consultation. PLC Environment had produced a separate update with a more detailed analysis.

CRC: summary of DECC consultation on proposals to simplify the scheme

Practical Law UK Legal Update 2-518-6723 (Approx. 6 pages)

CRC: summary of DECC consultation on proposals to simplify the scheme

by PLC Environment
Published on 27 Mar 2012 • UK
The Department of Energy and Climate Change (DECC) published a consultation, on 27 March 2012, proposing changes to simplify the CRC Energy Efficiency Scheme (CRC). This update provides a high-level summary of the consultation. PLC Environment had produced a separate update with a more detailed analysis.
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On 27 March 2012, the Department of Energy and Climate Change (DECC) published a consultation paper containing proposals to simplify the CRC Energy Efficiency Scheme (CRC) in order to reduce the administrative and regulatory burden on participants in the scheme. The consultation closes on 18 June 2012.
The consultation proposes changes to the CRC rather than replacing the scheme with a carbon tax. Key proposals include changes to the:
  • Rules on organisational structures.
  • Electricity that counts towards qualification.
  • Requirement to produce footprint reports.
  • Overlap with climate change agreements (CCAs) and the EU Emissions Trading Scheme (EU ETS).
  • Number of fuels covered by the CRC.
  • Sale of allowances.
PLC Environment will publish a detailed update on the consultation.

Terms used in this update

Terms that appear in capital letters in this update are defined in Practice note, CRC Energy Efficiency Scheme: PLC glossary and abbreviations.

Background: consultation on how to simplify the CRC

The CRC Energy Efficiency Scheme (CRC) is a mandatory emissions trading scheme for large non-energy intensive organisations in the private and public sectors in the UK. The CRC was introduced by the CRC Energy Efficiency Scheme Order 2010 (SI 2010/768) (CRC Order) and came into operation in April 2010.
The CRC is divided into several Phases. Phase 1 (also known as the Introductory Phase) runs from 1 April 2010 until 31 March 2014. Phase 2 is due to start on 1 April 2013. The two Phases overlap.
Following criticism from Participants and a number of industry and trade associations about the complexity of the scheme and the administrative burden that it placed on Participants, the Department of Energy and Climate Change (DECC) published five discussion papers on 25 January 2011, which sought views on how the scheme could be simplified (see Legal update, CRC: DECC publishes five discussion papers on simplifying the scheme).
On 30 June 2011, DECC published a document that outlined the changes it proposed to make to the CRC in detail and contained a summary of the responses to the five discussion papers published in January 2011 (see Legal update, CRC: government outlines detailed proposals to simplify the scheme).
The government said in the March 2012 Budget that it would consult in 2012 on how to simplify the CRC. The government also said that if it is not possible to achieve very significant cuts in the administrative burdens, it would bring forward proposals in autumn 2012 to replace the CRC with an alternative environmental tax (see Legal update, 2012 Budget: environmental announcements; CRC Energy Efficiency Scheme).
For more information on the CRC in general, see:

Consultation on proposals for simplifying the CRC

On 27 March 2012, DECC published:
  • A consultation paper containing proposals to simplify the CRC in order to reduce the administrative and regulatory burden on participants in the scheme. The consultation also includes a summary of responses to the proposals set out in the document that had been published in June 2011.
  • A report by KPMG on the administrative cost of the CRC.
The consultation closes on 18 June 2012.
Subject to respondents to the consultation agreeing to changes to the scheme coming into force before Phase 2 starts, the government intends to lay legislation amending the CRC Order in time for the amendments to come into force on 1 April 2013.
The main proposals are as follows:
  • The CRC will not be scrapped. The government has decided that a simplified CRC will provide the most effective way of incentivising organisations to implement energy efficiency measures.
  • No auctioning of Allowances in Phase 2. The auctioning of a limited/capped number of Allowances in Phase 2 will be replaced by two fixed price sales per year (a cheaper forecast/forward sale and a more expensive retrospective sale).
  • Rules on organisational structures will be made more flexible. This will allow organisations to participate in the CRC in their "natural business units" rather than the current rules which require an entire Group to participate under the Highest Parent Undertaking (HPU) and where only Significant Group Undertakings (SGUs) may be disaggregated so that they can participate separately from the rest of the Group.
  • The reporting burden will be reduced. Key changes are:
    • The number of fuels covered by the CRC will be reduced from 29 to 4 so that Participants will only need to report on electricity, gas, kerosene and diesel (but only if the latter two are used for heating).
    • Only electricity measured by Settled Half Hourly Meters (HHMs) will be relevant to determine if an organisation qualifies for the CRC.
    • The requirement to produce Footprint Reports will be scrapped
    • The requirements regarding records will also be reduced.
  • The complexity of the CRC will be reduced by removing the Residual Percentage rule (also known as the 90% rule) and the Climate Change Agreements (CCAs) exemption rules. Participants will be required to report on 100% of their (non-CCA ) supplies of electricity, gas, kerosene and diesel (but only in so far as the latter two are used for heating).
  • Reducing the overlap with other schemes. This will mean that organisations covered entirely by CCAs will not need to register for the CRC and EU ETS installations will not have to buy Allowances under the CRC.
  • Electricity Generating Credits (EGCs) will be scrapped.
  • No decision on Performance League Tables at present. The first League Table was published in November 2011. The government said that it is important to see what impact the Performance League Tables have in creating reputational drivers for energy efficiency and that it is, therefore, not possible to make a decision on the reputational elements of the CRC at present.
  • Changes to rules on trusts. The rules on how the CRC applies to trusts will be amended so that responsibility for compliance with the CRC is allocated to the entity that has the greatest influence over the energy efficiency opportunities.
  • No real changes to the landlord and tenant rule. The government remains of the view that landlords are better placed to implement the most cost-effective energy efficiency measures, rather than tenants. Landlords will remain responsible for supplies of energy to their tenants, except in situations where:
    • the landlord owns only the land and the structures that are built on the land by the tenant and the landlord supplies the energy to the tenant; but
    • the tenant is the sole occupant of the building and is wholly responsible for its maintenance, and hence can control its energy performance.
  • Four options for the treatment of academies. The options range from local authorities continuing to meet CRC liabilities for maintained schools and academies, to a new scheme being introduced for these Participants.
PLC will publish a detailed update on the proposals contained in the consultation shortly.

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