CRC: government outlines detailed proposals to simplify the scheme

Practical Law UK Legal Update 6-506-7327 (Approx. 8 pages)

CRC: government outlines detailed proposals to simplify the scheme

by PLC Environment

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 I (also known as the Introductory Phase) runs from 1 April 2010 until 31 March 2013. Organisations covered by the scheme were required to register as participants by 30 September 2010.

On 25 January 2011, the Department of Energy and Climate Change (DECC) published five discussion papers seeking views on how the scheme could be simplified. Interested parties had until 11 March to send in their comments. For more information on the discussion papers, see Legal update, CRC: DECC publishes five discussion papers on simplifying the scheme.

For more information on the CRC in general, see:

Practice note, CRC Energy Efficiency Scheme: overview.
CRC Survival Kit.

Proposals for simplifying the CRC

On 30 June 2011, DECC outlined the main changes it proposes to make to the CRC in order to simplify it and reduce the administrative and regulatory burden on participants in the scheme. The following three documents should be read in conjunction:

DECC press release, Energy efficiency scheme for business is streamlined, 30 June 2011.
Ministerial Statement by Greg Barker, Simplifying the CRC Energy Efficiency Scheme - next steps, 30 June 2011.
DECC: Simplifying the CRC Energy Efficiency Scheme: Next Steps. This 59-page document sets out the proposed changes in detail and contains a summary of the responses to the five discussion papers published in January 2011 (referred to in this legal update as the "Detailed Proposals Document"). There are three annexes to this document:
- Annex I: Timeline setting out next steps.
- Annex II: Detailed analysis of the proposed changes.
- Annex III: Summary of the responses to the five discussion papers.

Interested parties have until 2 September 2011 to comment on these proposals. Comments should be sent to [email protected].

DECC will then consult on draft legislation in February 2012. That consultation will run until April 2012. The intention is for the changes to the CRC to come into force in April 2013. See also Next steps below.

The main proposals are as follows:

The CRC will not be scrapped. The government has considered whether the CRC should be replaced by a straightforward carbon tax and has decided that a simplified CRC will provide the most effective reputational, financial and energy monitoring drivers. The government says it has ample evidence that price alone does not ensure organisations will implement energy efficiency measures.
Sites covered by CCAs and the EU ETS will be excluded from the CRC. When assessing whether an organisation is covered by the CRC, it will no longer have to consider electricity supplied to facilities covered by a climate change agreement (CCA) or the EU Emissions Trading Scheme (EU ETS). The government has said it will consult shortly on changes to CCAs.
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). The fixed price sale of allowances in Phase 1 will be retrospective only, with the first sale taking place in 2012, as previously announced. The government has also confirmed its previous announcement that the revenue from the sale of allowances will not be recycled back to participants.
League Tables will be retained. The first League Table will be published in October 2011 as originally envisaged. However, the government has said it may revise the reputational element of the League Tables in light of evidence of how the scheme has operated in the early years.
Rules on organisational structures will be simplified. At the beginning of each Phase, the top parent organisation must notify the Environment Agency of the overall structure of its group but the group will have the option to disaggregate in a way that better reflects its "natural business units". The government believes that this could potentially enable greater alignment of the CRC with organisational boundaries used for financial accounts consolidation.
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 with the genuine commercial interest in the property and its use, and with access to the information and the resources necessary for effective and efficient compliance with the scheme.
No changes to the landlord and tenant rule. Landlords will remain responsible for supplies of energy to their tenants. The government has previously explored options of joint responsibility, but does not think this would be easy to operate. It remains of the view that landlords are better placed to implement the most cost-effective energy efficiency measures, rather than tenants. However, the government is considering the case for revisiting the landlord/tenant rule where the landlord owns only the land that the structures are built on by the tenant, the landlord supplies the energy but the tenant is the sole occupant of the building and is wholly responsible for its maintenance and hence can control its energy performance.
No changes to the rules on franchises.
The number of fuels covered by the CRC will be reduced from 29 to 4. Participants will only need to report on electricity, gas, kerosene and diesel (but only if the latter two are used for heating). This will also mean that diesel used by off-road vehicles will no longer be covered by the scheme.
The qualification process will be simplified. Only electricity measured by settled half hourly meters (HHMs) will count towards deciding whether an organisation is covered by the CRC. Changes to the types of meter involved in the qualification process may result in the government having to revisit the threshold levels. The government first wants to see what the data from the first footprint and annual reports reveal. However, the government has said that it does not intend to expand the scope of the scheme, so if any changes to the threshold levels are made, this will be for the purpose of maintaining the current emissions coverage.
The "90% rule" and footprint reports will be scrapped. Participants will be required to report on 100% of their (non-CCA or EU ETS) supplies of electricity, gas, kerosene and diesel (but only in so far as the latter two are used for heating). This will mean footprints reports and the residual measurement list will no longer be required.
No changes to the treatment of renewable energy. The government remains of the view that renewable energy is already incentivised by other schemes (such as the Renewables Obligation and feed-in tariffs (FITs)).
Evidence pack requirements will be reviewed. The Environment Agency will review the requirements relating to evidence packs at the end of the first auditing cycle (end of 2011/early 2012) with a view to reducing the administrative burdens on participants. In addition, participants will only be required to keep records of their energy usage for six years, instead of 12 years.
The treatment of academies will be reviewed. The government will publish a paper outlining the options shortly.

For further detail on these proposals and on other changes being proposed, see Annex II to the Detailed Proposals Document.

Next steps

Annex I to the Detailed Proposals Document sets out the next steps, both in terms of what the government plans to do and what participants in the scheme are required to do by certain deadlines.

In terms of the government's next steps, it is worth noting the following in particular:

Shortly	DECC will consult on changes to CCAs.
February to April 2012	DECC will consult on draft legislation to amend the CRC Order.
September 2012	DECC will publish responses to the consultation on draft legislation. Environment Agency will publish updated guidance on qualification, registration, supply and organisational rules to reflect the changes made to the CRC.
December 2012	Environment Agency will publish remaining guidance on the revised CRC.
April 2013	Amended CRC legislation will come into force.

The next key deadline for CRC participants is the submission of their first footprint and annual reports by 29 July 2011. Failure to comply with this deadline could lead to significant financial penalties. For more information, see:

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