In the November edition of Property Update we reviewed the changes to the CRC Energy Efficiency Scheme (CRC) which were announced in the Government's Spending Review.
The Government has now published a consultation on other amendments to the Order which implements the scheme. The main aim of the proposed changes is to give Government time to carry out its broader review into simplifying the scheme. The key points are set out below.
Extension of introductory phase
The consultation proposes to extend the introductory phase of the scheme for one year, and consequently postpone the start of the second phase. This means that any measures which arise from the "simplification" review can be incorporated in time for Phase 2.
In the (new) fourth year of the introductory phase, allowances will still be sold at a fixed price. However, Government proposes that the league table rankings will use the weightings of the second phase of the scheme rather than the introductory phase. This means that participants' position in the league table in year four will be determined solely on the basis of their absolute and relative changes in emissions. The "early action metric" (based on energy saving measures taken before the start of the CRC) will not apply in year four.
Start of second phase
Whereas currently allowances for Phase 2 would need to be purchased as early as 2013-14, under the latest proposals this would be deferred until the 2014-15 scheme year. This will not affect participants in the introductory phase, since they will continue to buy allowances under the extension of that phase. However, the proposal will be welcomed by organisations which did not qualify for the current phase but may be caught by the scheme in its second phase.
The qualification year for Phase 2 would also change. Many organisations may currently be gathering data on their energy consumption since, as things stand, 2010-11 is the qualification year for Phase 2. However, if the proposals are adopted, the qualification year for the second phase would be put back to 2012-13.
Information disclosures abolished
The Government proposes that, from Phase 2 onwards, information disclosures will be abolished. In the introductory phase, organisations which have a half-hourly meter but did not consume enough energy to meet the qualification criteria still had to make an information disclosure under the scheme. For future phases, if an organisation does not meet the criteria to be a full participant in that phase, then it will not be required to take any action.
Landlord and tenant rule
It is interesting to note that the consultation also contains proposals to disapply the landlord/tenant rule in relation to buildings occupied by Government departments in Northern Ireland. The landlord and tenant rule means that where energy is supplied by a landlord to its tenants (as opposed to the tenant arranging for its supply directly from the utility company), that energy will count as the landlord's consumption under the scheme, rather than the tenant's.
The arrangements under which Northern Ireland departments occupy their accommodation results in a single department being considered responsible, as landlord, for the majority of energy supplied to all Government departments in Northern Ireland. The consultation states that because the occupying department is best placed to influence energy usage and efficiencies, it is proposed that this department should be responsible for the relevant energy supply under the scheme; even where that supply is provided by the landlord department.
At first sight this appears a startling concession, since similar submissions have been made - and ignored - in relation to the private sector. The proposal is particularly striking given that the landlord department is arguably in a better position to influence energy usage by the occupying department than most private landlords would be in relation to their tenants. Despite this, the consultation re-states that Government does not propose amending the landlord/tenant rule in any other circumstances.
However, the proposal would not result in fewer emissions being covered by the scheme, since public bodies are mandated to participate. By contrast, in the private sector, emissions from a building might fall outside the scheme if responsibility was passed on to the tenants, since those tenants may not qualify in their own right for the scheme.
Nonetheless, the proposal is bound to re-ignite discussion of the landlord and tenant rule. If landlords are intending to pass CRC costs on to their tenants, tenants might prefer - like the Northern Ireland government departments - to take control of purchasing allowances for their own emissions. This may be particularly true if they are a scheme participant in any event. On the other hand, a tenant which does not currently qualify for the scheme may find that if the energy used at all its leasehold premises were aggregated together, it would need to register in the next phase. The same tenant may not have to pay anything at all under the current rules where its landlord is not a participant in the scheme.
How to respond to the consultation
Because registration for Phase 2 is due to start in April 2011, the period for responding to the consultation is shorter than usual. Responses should be submitted to CRC@decc.gsi.gov.uk by 17 December 2010.