In the winter issue of Real World we reported on fundamental changes to the CRC Energy Efficiency Scheme (“the Scheme”) including the scrapping of recycling payments following the Comprehensive Spending Review. In June 2011 the Department of Energy and Climate Change (“DECC”) published proposals to simplify the Scheme in an effort to further reduce the administrative burden on businesses. Interested parties have until 2 September 2011 to comment on the proposals. DECC will consult on draft legislation in February 2012 and the changes will come into force from April 2013.

Simpler Qualification Rules

DECC suggests a streamlined “one step” qualification process in place of the existing two step process. Participants will only be required to prove that they use a certain amount of electricity from a settled half hourly meter. If this proposal is accepted the 6,000 MWh threshold may need to be revisited to maintain the Scheme’s current coverage.

Move from Cap and Trade to Fixed Price Allowance Sales

DECC suggests that, rather than capping the number of allowances and auctioning them annually, from 2014 (the start of the second phase of the Scheme) there will be two sales of fixed price allowances each year. The sales would be by uniform price sealed bids which, they say, avoids participants having to develop auctioning strategies. The first sale is intended to be at a lower price than the second retrospective sale. This allows participants to control their own compliance, by either forecasting energy use and purchasing cheaper allowances at the beginning of the year, or “buying to comply” in the second retrospective sale when they have reported on their actual energy use. Any additional allowances required could be purchased on the secondary market from participants with excess allowances. This would not affect the retrospective sales of allowances in the introductory phase for £12 per tonne.

Fewer Fuels Covered

Scheme participants must currently report on their emissions from 29 different fuels. On the basis that 95% of emissions covered by the Scheme come from just four fuels, it is proposed that only emissions from gas, electricity, kerosene and diesel will be covered by the Scheme. The objective is to reduce the administrative burden of the Scheme without compromising the emissions it captures.

Simpler Organisational Rules

DECC’s proposal to allow organisations to participate as “natural business units”, rather than in large CRC groups which do not reflect their structure, acknowledges that the existing rules do not readily translate to typical company or fund structures. Although the existing rules will be retained for Scheme qualification purposes, participants will have the option to disaggregate more flexibly thereafter to allow natural business units to monitor, manage and report their energy use separately, thus introducing greater flexibility. No detail has yet been provided as to what DECC regards or defines as natural business units.  

Reducing Overlap with Other Schemes

DECC suggests that sites covered by Climate Change Agreements or within the EU Emission Trading System will automatically be exempt from the Scheme (by being regarded as “self supplies”).

Landlord and Tenant

Importantly, DECC proposes no change to the rule that landlords are responsible for supplies of energy to their tenants (unless the tenant arranges and receives the energy supply itself). DECC acknowledges that “the split between landlords and tenants is a difficult area - a classic case of split incentives”, but states that alternatives, such as joint responsibility, would be difficult to operate. DECC takes the view that the landlord is in the best position to implement the most cost effective energy efficiency measures.  

Conclusion

It is clear that DECC has listened to calls for change and the proposals go some way to achieving its stated aims of providing greater business certainty, reducing complexity and administrative burden and increasing flexibility for participants.