CRC: Secretary of State reduces civil financial penalties imposed on Criterion | Practical Law

CRC: Secretary of State reduces civil financial penalties imposed on Criterion | Practical Law

On 21 March 2013, the Secretary of State issued his decision on an appeal brought by Criterion Capital Ltd against two civil financial penalties imposed by the Environment Agency under the CRC Energy Efficiency Scheme.

CRC: Secretary of State reduces civil financial penalties imposed on Criterion

Practical Law UK Legal Update 8-525-4182 (Approx. 4 pages)

CRC: Secretary of State reduces civil financial penalties imposed on Criterion

by PLC Environment
Published on 26 Mar 2013 • England, UK, Wales
On 21 March 2013, the Secretary of State issued his decision on an appeal brought by Criterion Capital Ltd against two civil financial penalties imposed by the Environment Agency under the CRC Energy Efficiency Scheme.
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Speedread

On 21 March 2013, the Secretary of State issued his decision in respect an appeal brought by Criterion Capital Ltd against two civil penalty notices under the CRC Energy Efficiency Scheme (CRC).
The Environment Agency (EA) had served the penalty notices on Criterion on 27 March 2012, for failure to submit a footprint report and an annual report by the relevant deadlines. The EA imposed a penalty of £45,000 for each of the two breaches. Criterion appealed to the Secretary of State.
In his decision, the Secretary of State reduced the financial penalties from £90,000 to £50,000 in total, to reflect the fact that the failures were due to Criterion's agent (RPS) and that Criterion had taken reasonable steps to rectify the failures once these came to its attention.
The decision provides clarification on a number of factors that the EA should take into account when deciding whether it should exercise its discretion to waive or modify a civil penalty under the CRC.

Background: CRC Energy Efficiency Scheme and penalties

The CRC Energy Efficiency Scheme (CRC) is a mandatory emissions trading scheme for large businesses and public sector organisations in the UK. The scheme came into operation on 1 April 2010. Participants have to measure and report on their energy consumption and buy allowances for the amount of carbon dioxide (CO2) emissions associated with their energy consumption.
The CRC is set out in the CRC Energy Efficiency Scheme Order 2010 (SI 2010/768) (CRC Order 2010), as amended by the CRC Energy Efficiency Scheme (Amendment) Order 2011 (SI 2011/234). Note that the CRC Order 2010 will be revoked and replaced by the CRC Energy Efficiency Scheme Order 2013 once this has been approved by Parliament (see Legal update, CRC: draft of CRC Order 2013 published: detailed analysis).
Article 39(1) and (2) of the CRC Order 2010 required participants in Phase 1 of the scheme to submit a footprint report to the Environment Agency (EA) by 29 July 2011. Article 47(1) and (2) required participants to submit an annual report to the EA by 29 July 2011.
The civil penalties for failing to submit a footprint report on time are as follows:
  • An immediate fine of £5,000.
  • A further fine of £500 for each subsequent working day of delay, up to a maximum of 40 working days, or a fine of £40,000 if the footprint report is delayed more than 40 working days after the reporting deadline or not provided at all.
  • Publication of the non-compliance.
The penalties for failing to submit an annual report are the same as for a footprint report, subject to additional provisions relating to the number of allowances that need to be purchased and how to calculate the CRC emissions for the additional allowances.
Article 94 of the CRC Order 2010 gives the EA discretion to waive or modify penalties (albeit in limited circumstances) if a participant can show that it took reasonable steps to comply with the CRC or rectify the failure as soon as it came to the participant's attention.
For more information on CRC civil penalties, see:
For more information on the CRC in general:

Secretary of State decision on Criterion's appeal

The EA served two civil penalty notices on Criterion Capital Ltd, on 27 March 2012, for failure to submit a footprint report and an annual report by the relevant deadlines. The EA imposed a penalty of £45,000 for each of the two breaches.
Criterion appealed to the Secretary of State against the penalty notices. The Secretary of State appointed David Hart QC to consider the appeal and make recommendations.
The Secretary of State issued his determination on the appeal on 21 March 2013, in which he agreed with David Hart QC's recommendations and reduced the financial penalties from £90,000 to £50,000 in total.
In particular, the Secretary of State concluded that:
  • The EA had not provided sufficient reasons for why it had decided not to exercise its discretion to reduce the £40,000 fixed financial penalty, bearing in mind that the failures were due to Criterion's agent (RPS) and that Criterion had taken reasonable steps to rectify the failures once these came to its attention.
  • The Secretary of State therefore decided it would be appropriate to reduce the penalties from £45,000 for each of the two reports to £25,000 per report (£50,000 in total rather than £90,000).
  • The DECC guidance on civil penalties refers to a number of factors that the EA should take into account when deciding whether to waive or modify a civil penalty under the CRC, including:
    • Attitude of the person who is in breach. Criterion failed to respond to any of the EA's communications throughout August 2011 and only responded to the notices of intent in September 2011.
    • Deterrent effect. "Plainly, £90,000 has deterrent effect. So, in my view, does the £50,000 recommended in [David Hart QC's report]."
    • Personal circumstances. The Secretary of State accepted that the London riots put significant demands on the company's management but that this did not fully excuse the delays in rectifying the breaches.
    • Financial implications. Criterion said that "the very people within the Company championing the CRC scheme may not be involved in that role any longer should such a large fine be to imposed on the Company". The Secretary of State took the view that the penalties will not, and should not, have a de-motivating effect. They should instead serve as a reminder to Criterion to brief its agents sufficiently at all stages of the process.

Comment

Although the government has decided to abolish footprint reports from Phase 2 of the scheme onwards, participants will still be required to submit annual reports to the EA and will be subject to financial penalties if they fail to do.
For more information on how the CRC is changing, see Legal update, CRC: draft of CRC Order 2013 published: detailed analysis.

Source

DECC: Determination by the Secretary of State of the appeal of Criterion Capital Ltd and the Environment Agency under the CRC Energy Efficiency Scheme Order 2010 (21 March 2013).