The CRC Scheme has undergone a number of changes since it was first introduced in response to stakeholder criticism of the Scheme's complexity and administrative burden.  In his Autumn Statement in December 2012 the Chancellor announced that the CRC Scheme would be further reviewed to see if the administrative burden could be "significantly" reduced.  If the review concluded that this could not be achieved then the scheme could have been replaced with a straight-line tax.  The Department of Energy and Climate Change has concluded that the scheme can indeed be simplified to reduce the administrative cost of compliance significantly and this week published a new draft Order that seeks to implement the simplifications. 

Although the Government has opted not to replace the scheme with the straight-line tax many had expected and some had hoped for, the measures to simplify the scheme are a positive step forward.  DECC believes that they will deliver "a 55% reduction in overall administrative costs", equating to an estimated saving to CRC participants of £272m up to 2030.

In summary, the principal changes are:

  • A considerable reduction in the number of fuels included in the CRC Scheme, from 29 to 2.  It will now only cover emissions generated from the consumption of gas and electricity.
  • Gas is only counted when used for "heating purposes" and there is also a new organisation-wide 2% de minimis threshold for gas.  So if a participant's gas consumption is below 2% of its electricity consumption in the first annual reporting year of a phase, it will not have to report on gas or purchase allowances for it.
  • All state-funded schools in England will now be exempted from participation in the CRC Scheme. 
  • The league table of CRC participants has been abolished.       

The Government is expected to lay the draft Order before Parliament soon with a view to it coming into force on 1 June 2013.  The majority of the simplified proposals will take effect at the start of the second phase in 2014/2015.

The Government still plans to review the effectiveness of the CRC Scheme again in 2016.  This review will consider whether the CRC remains the appropriate policy to meet carbon reduction objectives and will consider alternative approaches.