The United Kingdom's CRC Energy Efficiency Scheme is a UK-only mandatory "cap and trade" emissions trading scheme for large non-energy-intensive organizations in the private and public sectors. Introduced by the CRC Energy Efficiency Scheme Order 2010 (SI2010/768), the CRC came into operation on April 1, 2010, despite concerns among those affected that its complexities would be disproportionately difficult to administer. On March 27, 2012, the UK's Department of Energy and Climate Change ("DECC") published a consultation paper seeking responses to proposals to simplify the country's CRC Energy Efficiency Scheme with a view to delivering a "leaner" and "refocused CRC" so as to reduce the administrative and regulatory burden on participants.

The CRC requires organizations to measure and report on their energy consumption, and to purchase carbon allowances based on that consumption. The scheme is divided into several phases and is presently in the introductory phase. In light of "teething problems" being experienced in the introductory phase, the consultation seeks responses by June 18, 2012, with a view to changes implemented by legislation coming into force on April 1, 2013 (i.e., before the second phase of the CRC commences).

Proposals include:

  • Providing greater business certainty by introducing two fixed-price allowance sales per year (one forecast and one retrospective), rather than auctions of allowances in a capped system. Accordingly, the "cap and trade" aspect of the CRC would be lost.
  • Making rules on organizational structures more flexible so that organizations can participate in "natural business units." This is opposed to current rules, which require participation of a group under the highest parent undertaking and where only significant undertakings may be disaggregated to participate separately.
  • Reducing the reporting burden by (i) reducing the number of fuels reported from 29 to 4, (ii) using only electricity measured by settled half-hourly meters for qualification purposes, (iii) ending the requirement for carbon footprint reports, and (iv) other practical measures, such as reduced recordkeeping requirements.
  • Reducing complexity by removing the residual percentage rule, known as the "90% Rule," and the Climate Change Agreement ("CCA") exemption rules.
  • Reducing overlap with other schemes by no longer requiring organizations covered by CCAs to register for the CRC and by no longer requiring EU Emission Trading Scheme installations to buy allowances for electricity supplies.

It seems, at this time, that the CRC is here to stay. In particular, the controversial landlord and tenant rule, by which landlords are responsible for supplies of energy to their tenants (save in certain circumstances) will remain. The UK government is still of the view that landlords are better placed to implement the most cost-effective energy efficiency measures, rather than tenants. That said, the government has indicated that unless significant cuts in administrative burdens can be achieved from the ongoing review, it will bring forward proposals in autumn 2012 to replace the CRC with an alternative environmental tax.

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