The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is a mandatory emissions trading scheme which requires a participant to buy allowances for the amount of CO2 emissions associated with their energy consumption.  The scheme applies to large businesses and public sector organisations in the UK and aims to help the UK reduce its greenhouse gas emissions by 80% by 2050.

The CRC applies to non-energy intensive organisations in the private and public sectors and specifically includes hotel chains amongst other businesses.  These businesses are thought to account for around 10% of the UK’s total greenhouse gases.

The government originally estimated that around 5000 organisations would have to participate in the CRC, primarily those with annual electricity bills over £500,000.00 per year.

The scheme requires organisations to buy allowances and collate data concerning their energy use and CO2 emissions, reporting on an annual basis, with a view to incentivising energy efficiency.

The CRC Energy Efficiency Scheme Order 2010 brought the CRC into operation from 1st April 2010.  This Order was amended on 1st April 2011.  The amendments included changes to the timings of the scheme, extending the initial phase by a year to allow simplification of future phases.

The CRC is regulated by the Environment Agency in England and Wales who are responsible for operating the CRC registry and publishing energy use and emissions.

Qualification for the CRC

In order for an organisation to qualify as a participant to the CRC, electricity must be supplied by a settled half hourly meter during the year of qualification for the relevant phase of the scheme and the organisation must be supplied with over 6,000 MWh of half hourly electricity through all of its half hourly meters during the same period.

Who is responsible for compliance?

The organisation responsible for the energy supply is the organisation who must comply with the CRC.  Generally this will be the organisation that contracts for the supply of energy, receives the supply with that supply being metered by a metering device or being a dynamic supply.  On this basis it is worth noting that facilities companies who contract for the supply of energy would not generally be considered to be the qualifying organisation and the qualifying organisation could be either a landlord or a tenant.

Registration with the regulator

The qualification year will run from 1st April to 31st March before the start of each phase of the scheme.  During this period organisations must assess whether they must participate in the scheme for the coming phase.  For the approaching phase 2, the qualification year is 1st April 2012 to 31st March 2013.  If an organisation qualifies, they will need to register with the scheme prior to a deadline.  It is noted that the registration window for phase 2 has not yet been finalised.

Annual Reports and Sale of Allowances

Annual Reports must be submitted by the last working day of July following the end of a compliance year and must set out supplies relating to emissions, any estimation adjustments made and the amount of any renewables generated.

At the end of the compliance year, the organisation will have to surrender enough allowances to cover their emissions in that period.

Monitoring

The regulator proposed to produce a league table of participants and carry out an audit of around 20% of participants each year.

Penalties

Failure to comply with the scheme can lead to both criminal and civil penalties, punishable by imprisonment and/or fines.

Proposals for the scheme going forward

Due to the administrative burdens of complying with the scheme raised in the March consultation last year, the Department of Energy and Climate Change together with the Environment Agency have last month published a response to the March consultation.  The response confirms that the scheme will be retained and simplified in order to reduce the burden on participants as opposed to being scrapped as had been indicated in the March 2012 budget.  The changes are expected to reduce the administrative costs by 55%.

The December 2012 statement indicated that:-

  • The performance league table would be scrapped;
  • The price of allowances would be £12 per tonne of CO2 in 2013-2014, £16 in 2014-2015 and from 2015 onwards the price would increase in accordance with the RPI;
  • The fuels required to be reported on would be reduced to just 2 (electricity and gas) from 29 and there will be an assumption that all gas used is for heating purposes unless demonstrated otherwise;
  • There will be a 2% de minimis threshold for reporting on gas supplies and no de minimis threshold for electricity supplies; The requirement for participants to show that at least 90% of their emissions are regulated under the CRC or other legislation is to be removed with participants now required to report on 100% of supplies of electricity and gas;
  • The auctioning of a limited number of allowances in phase 2 is to be replaced by two fixed priced sales per year.  There is to be a first cheaper, forward sale followed by a more expensive sale at the end of the reporting year;
  • A new Order is proposed, to come into force on 1st June 2013;
  • The government confirmed that the scheme would be reviewed in 2016.

New Leases of property

As the scheme is to be retained going forward, it will be important to ensure that new leases of property accurately reflect the parties understanding of the CRC arrangement for that property and the costs associated therewith.  Drafting must make sure that the document is clear as to who is responsible for the various costs resultant from any CRC obligations and whether the landlord is to absorb these costs or recoup the same from any tenant.