The Carbon Reduction Commitment (CRC) - the UK's new carbon emissions trading scheme - is almost upon us. The scheme, which is now known as the CRC Energy Efficiency Scheme, officially starts in April 2010. However, landlords need to understand now whether they are in or out of the scheme as the registration process is about to begin - registration packs will be landing on your desks any day now.

More landlords will be caught than you might expect. Despite some press reports, if you have an electricity bill of about £450,000 per year, you may be caught by the scheme. That's about the amount of electricity used by a 110,000 square foot office building. An energy customer with at least one half hourly meter who meets the minimum qualification criteria (annual electricity consumption of 6,000 MWh) could have to pay around £40,000 p.a. for allowances to cover that electricity. Additional allowances must be purchased for emissions from certain other sources of fuel such as gas.

Last week, the Department of Energy and Climate Change issued its response to the latest consultation on the scheme. As a result, some of the details of the original scheme have changed.

In deciding whether you are in or out of the CRC Energy Efficiency Scheme, you need to consider:

  • Many landlords hold their investments in individual SPVs. But the CRC rules look at "organisations" which includes group companies and certain joint ventures. It's the electricity consumed by the group as a whole that determines whether you are in or out of the CRC. The Government has announced in the consultation response that large subsidiaries (those that meet the qualification criteria in their own right) can, in certain circumstances, opt to register separately. However, this cannot affect the obligation of the remaining members of the group to participate in the scheme.
  • Energy costs are usually paid by tenants, either directly to the supplier or by reimbursing the landlord. However the application of the CRC does not depend on whether you actually pay the costs but whether you are "responsible" for the energy supply. Despite changes announced in the consultation response, the rule relating to supplies between landlord and tenant has not been altered. So if you have multi-let investments where you are the bill payer, you may be caught by the scheme - even if the cost is recharged to tenants.
  • Curiously, green electricity is treated no differently for the purposes of the qualification criteria, and must be included in order to decide whether an organisation reaches the 6,000 MWh threshold. This will strike many as counter-intuitive, but the Government has stated that its primary focus is to achieve emissions reductions through increased energy efficiency (hence the scheme's change of name).

This is the first in our alerts to bring you up to date with CRC and how it will affect landlords. More will follow once the nitty-gritty of the legislation has been issued and the registration packs have landed.