The CRC Energy Efficiency Scheme is a new UK-wide mandatory emissions trading scheme, which applies to large businesses and public sector organisations. The scheme, which was introduced by the CRC Energy Efficiency Scheme Order 2010 (SI 2010/768), came into operation on 1 April 2010.
The CRC Energy Efficiency Scheme (CRC) is a new UK-wide mandatory emissions trading scheme, which applies to large businesses and public sector organisations. The scheme, which was introduced by the CRC Energy Efficiency Scheme Order 2010 (SI 2010/768) (the Order), came into operation on 1 April 2010.
The CRC used to be known as the "Carbon Reduction Commitment" (for background, see feature article “Carbon Reduction Commitment: are you ready? (www.practicallaw.com/8-386-0583)”).
If an organisation has any half hourly electricity meters settled on the half hourly market and was supplied with 6,000 MWh or more of electricity through those meters (the qualification criteria) during the qualification year for the relevant phase of the CRC (the 2008 calendar year for Phase 1), it will have to register as a participant in the CRC.
The government estimates that around 5,000 private and public sector organisations will have to participate in the CRC, primarily those whose annual electricity bills are approximately £500,000 and over. The CRC is also likely to affect another 20,000 organisations, which will not have to participate but may still have to provide the regulator with information about their energy use (an information disclosure).
The types of organisations that will be covered by the CRC include large offices, large retailers (such as shopping centres and supermarkets), hotel chains, franchises, private equity funds, hospitals, schools and local authorities.
The CRC is divided into several phases, which overlap with each other. Phase 1 runs from 1 April 2010 to 31 March 2013. Subsequent phases will run for seven years, with Phase 2 starting on 1 April 2011. Organisations that meet the qualification criteria must register as participants by 30 September 2010.
Participants will have to collate data about their energy use, report on the CO2 emissions relating to that energy use, and buy enough allowances each year to cover the amount they emitted. During Phase 1, the government will sell an unlimited number of allowances at a fixed price of £12/tCO2. From Phase 2 onwards, the government will auction a limited number of allowances with no maximum price.
At the end of each trading period, the government will publish a league table ranking each participant based on how much it emitted. Revenue from the sale of allowances will be recycled back to participants based on their rankings in the league table.
Failure to comply with the requirements of the CRC is subject primarily to civil fines, with criminal penalties for a more limited number of breaches.
As the price of allowances will be capped in Phase 1, some organisations are more concerned about the potential damage to their reputation and brand due to league table rankings than the actual cost of compliance with the CRC in Phase 1. However, the cost and bureaucracy of training staff and setting up the necessary internal systems to collate and report on energy data across an entire group should not be underestimated. Organisations may also have to instruct external advisers, including lawyers and energy consultants, to help them decide if they are covered by the CRC and how to comply with it (see box “Practical steps”).
The CRC applies to the following:
Groups. Groups of companies and other types of undertakings, based on the definitions of "parent undertaking" and "subsidiary undertaking" in the Companies Act 2006, are covered by the CRC. It also applies to joint ventures, private finance initiatives, public private partnerships and franchises.
The group will need to register as a single participant, unless it is able to "disaggregate" any of its large subsidiaries (known as significant group undertakings (SGUs)). Disaggregated SGUs will participate in the CRC as separate undertakings and so will be responsible for reporting on their own emissions and buying their own allowances. Although the deadline for registering as a participant is 30 September 2010, the deadline for applying to disaggregate an SGU is 30 June 2010.
The highest parent undertaking will, by default, be the one that has to comply with the CRC on behalf of the group and liaise with the regulator, unless it appoints another member of the group to do this.
If the highest parent undertaking is based outside the UK, but any of the members of its group are responsible for energy supplies in the UK (for example, through a UK-based subsidiary), the group may be covered by the CRC and the overseas parent will have to nominate one of its UK members to act on behalf of the whole group.
Landlords and tenants. Landlords will be liable for their tenants’ emissions if they are responsible for supplying energy to their tenants (as is often the case in multi-let buildings). The terms of a lease may, or may not, enable landlords to recoup these costs from their tenants. The British Property Federation is consulting on how these costs should be apportioned between landlords and tenants but so far there is no industry-wide consensus.
Public sector. Some public sector organisations (such as central government departments) have to participate in the CRC regardless of whether they meet the relevant qualification criteria. Other public sector organisations (such as local authorities) will have to participate in the CRC only if they meet the qualification criteria.
Sara Feijao, PLCEnvironment.
The Order is available at www.opsi.gov.uk/si/si2010/uksi_20100768_en_1.
An organisation needs to do the following to decide if it is covered by the CRC Energy Efficiency Scheme (CRC):
Assess whether it is required to register as a participant in the CRC or make an information disclosure. To do this, it first needs to establish what the organisational structure is for the purposes of the CRC. What matters is how the group was structured as at the end of 2008. This can be more complicated than it might seem at first sight, particularly for complex corporate structures, private equity funds, private finance initiatives and franchises.
Decide what energy supplies the group is responsible for and whether the group meets the qualification criteria for the CRC.
If covered by the scheme, register as a participant by 30 September 2010. If the organisation wants to disaggregate any significant group undertakings, it will need to register by 30 June 2010.