Many retailers will already be familiar with the CRC Scheme. This is the UK’s mandatory emissions trading scheme aimed at improving energy efficiency and cutting carbon dioxide emissions in large public and private sector organisations in the UK, it applies to non-energy intensive organisations and as such many retailers are affected. Under the CRC Scheme participants have to measure and report their energy consumption and buy allowances in respect of the amount of CO2 emissions associated with that energy consumption.

By way of reminder the CRC Scheme is divided into phases and we are currently in Phase 1.  An organisation had to participate in Phase 1 where in calendar year 2008, the organisation as a whole (including all group members owned by the same ultimate parent company) had at least one half-hourly electricity meter settled on the half-hourly market and used 6,000 megawatt hours of electricity or more through half-hourly meters or dynamic supplies.

As those following CRC will be aware various amendments have been made to the scheme since its introduction. Probably the key change was the Government’s decision, as part of the Spending Review in October 2010, that revenue raised from the sale of CRC allowances would not be handed back to participants, as was originally proposed, but would instead be used to support the public finances. This decision turned what was a fairly complex scheme into little more than a tax for many participants. Many felt that the complexities and administrative burdens of the scheme were no longer worth the effort and calls were made to get rid of the scheme altogether or to simplify it substantially.

On 10 December 2012 the Government published its response to the Consultation on simplifying the CRC Scheme.  The scheme will remain albeit in a simplified form for the short term.  Its longer term future (post 2016) is still uncertain as the scheme will be subject to a further review at that time.  The bulk of the proposals consulted on will be implemented as proposed.

Key Changes to the CRC Scheme

The bulk of the changes will be introduced from the start of the second phase.  Some of those of particular interest to the retail sector are:

  • qualification criteria for phase 2 will now be linked to supplies through settled half hourly meters only and not all half hourly meters as it the case at present.  Despite the potential loss of coverage here the qualification threshold will remain at 6,000MWh;
  • technical changes to the definition of supply will be introduced;
  • the general Landlord and Tenant Rule will be disapplied in respect of ground lease arrangements. CRC responsibility will pass to the tenant where:
    • there is a long-term lease (30 years plus);
    • the tenant agrees to construct, and if so required remove any buildings;
    • and the tenant agrees to be responsible for the installation of any gas, electricity and water services;
  • CRC will no longer apply to facilities with climate change agreements and EU ETS installations;
  • there will be increased flexibility to disaggregate as the disaggregation provisions are extended to allow any undertaking within a group to disaggregate for separate participation whether or not the remainder of the group exceeds the qualification threshold;
  • the concept of an “SGU” will be replaced by the concept of Participant Equivalents, which will cover large single undertakings only;
  • during phase 1 allowance sales will remain retrospective.  However, as we move to phase 2 we will see the introduction of two fixed price sales – one forecast sale at the start of the year and one buy to comply sale after the end of the reporting year.  It is intended that the sale price at the first sale will be lower than at the second to encourage participants to forecast their consumption; and
  • banking allowances between years of a phase will continue to be permitted however, not between different phases.

A small number of the changes will take effect from 1 June 2013 and will therefore apply to the 2012/2013 and 2013/2014 years of the current phase:

  • the number of fuels  participants are required to report will be reduced from 29 to 2 (electricity and gas – but gas only when used for heating purposes);
  • an organisation wide 2 % de minimis threshold is introduced for gas (for heating purposes), as a consequence of these changes the so called 90% rule will be removed;
  • Electricity Generating Credits will be removed from the scheme, and input fuels for CHP plants will be treated as out of scope;the Performance League Table is abolished. However, the participants’ aggregated energy use and emissions data will continue to be published; and
  • the CRC allowance surrender date is extended to October.

What does this mean for you?

Many retailers have struggled to come to terms with some of the technical complexities of the scheme.  The uncertainty surrounding the future of the scheme has not helped.

Many retailers will welcome the simplification of the CRC Scheme. In particular the reduction in the number of fuels and the corresponding reduction in the administrative burden should make life easier for participants. Retailers will also no doubt welcome the greater certainty regarding the qualification threshold for phase 2. However, the often criticised Landlord and Tenant Rule remains.

For budgetary purposes we also now know that the allowance price remains unchanged at £12 per tonne for 2013/14, raising to £16 per tonne in 2014/15 and that it will rise in line with RPI from 2015/16.

Future of the CRC

The CRC Scheme is here to stay (albeit in a simplified form) for now but beyond 2016 its future looks less certain as the Government has stated that it will review its effectiveness in 2016. Interestingly the Chancellor did confirm that the tax element of the CRC is a high priority for removal when the public finances allow. We are assuming this means the government will reconsider the possibility of handing money back to participants.  However, it appears unlikely public finances will allow any such change ahead of the CRC review itself in 2016.

Those affected should look out for the new Order (before June 2013) and revised guidance.