In earlier postings we have introduced the UK’s Carbon Reduction Commitment (“CRC” or “Scheme”) and have considered the impact for companies and groups and penalties for non-compliance .This is a note on the performance league tables that will rank all CRC participating organisations in terms of energy efficiency. The more efficient will receive bonus payments while the less efficient will be penalised, under a system of “revenue recycling”, which is explained below.
The CRC is a revenue neutral scheme for the Government because it is anticipated that after the costs of the administration of the Scheme, companies that perform well in energy efficiency terms will receive a refund of part of their CRC allowance costs. Companies that perform badly will not.
To determine payments companies will receive, the Government will establish “performance league tables” based on two factors:
- the organisation’s change in emissions compared with average emissions over the previous five years. In the early days this will be compared with the average over the number of years available. This is known as the absolute metric.
- The growth metric which is the percentage change in emissions per unit of sales turnover (gross revenues). This is also relative to the previous five years or number of years available in the early stages of the Scheme.
In the initial three year phase of the Scheme there is also an early action metric which takes into account energy saving measures that the organisation made before 1 April 2011, and for the first year of the Scheme this is the only way of compiling the performance league table.
Whilst the refunds are not expected to be huge, any company wanting to put itself high in the CRC performance league tables whether for corporate good governance or financial return must rely on the early action metric which is based on two factors:
- a percentage based on electricity and gas emissions covered by automatic metering voluntarily installed by 31 March 2011; and
- a percentage of the organisation’s emissions covered by the Carbon Trust Standard or Energy Efficiency Accreditation Scheme Certificate on the 31 March of each compliance year.
Finally, each organisation in the league table will receive back the costs of the allowances, known as revenue recycling, but with a bonus or penalty depending on its position in the table. The maximum bonus/penalty swing will increase from +/- 10% of the cost of an organisation’s allowances to +/- 50% by 2015. The government estimates that this +/- 50% could equal +/- 8% of an organisation’s annual energy costs. So performance in the table could ultimately have significant cost, as well as reputational, implications for the organisation.
The league table will be a public document. Organisations will be asked to provide different additional information about its emissions reporting and the responsible Directors for inclusion in the league table although these do not have to be provided.
One of the big questions that landlords and tenants need to address is where the landlord has signed the fuel supply agreement and if so will it pass the allowance costs on to the tenant? What are the costs of allowances? This is not clear since there may be a refund later (which may in no way relate to that tenant or even that property). What can the landlord do under its existing leases?
There is little mention of the landlord and tenant complications in the draft CRC Order or draft Government Guidance but we will make this the subject of further postings. The British Property Federation has written a paper on the subject for anyone wanting further reading material now.
As ever with these CRC postings this is all based on draft legislation which may change.