Streamlining The CRC Energy Efficiency Scheme

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As part of its ongoing programme to reduce the regulatory burden faced by businesses, the Government last week published details of the changes it intends to make to simplify the CRC Energy Efficiency Scheme ("CRC").
UK Environment
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Originally published July 7, 2011

Keywords: CRC energy efficiency scheme, emissions trading scheme, carbon credits, energy consumption

As part of its ongoing programme to reduce the regulatory burden faced by businesses, the Government last week published details of the changes it intends to make to simplify the CRC Energy Efficiency Scheme ("CRC").

The CRC is a mandatory emissions trading scheme for large non-energy intensive organisations in the private and public sectors. Broadly, it requires businesses (or Groups) to purchase allowances (or carbon credits) to cover their indirect carbon emissions (i.e. their energy consumption). The scheme covers a wide variety of sectors, including industry, retail and office-based businesses. Following its launch in April 2010, serious concerns were raised by businesses about the scheme's overly complex and bureaucratic provisions. There have been calls for the CRC to be scrapped. However, the Government has confirmed that it continues to support the principles underpinning the scheme and will not be replacing it with a conventional carbon tax.

Some of the key changes which are likely to be welcomed by participating businesses include:

  • Simplifying the rules on organisational structures so that large groups can disaggregate entities within their group in a way that better reflects their "natural business units".
  • Reducing overlap with other carbon reduction schemes by excluding sites already covered by Climate Change Agreements or the EU Emissions Trading Scheme.
  • Moving to fixed price allowance sales from the start of Phase 2 in 2014. This aims to remove the need for businesses to come up with auctioning strategies and give price certainty to help investment decisions.
  • Simplifying the qualification process so that only electricity measured by settled half hourly meters will count towards qualification (although this may result in the current threshold levels being revisited).
  • Removing the so-called 90% rule which effectively required participants to monitor all their minor fuels at all their sites, as well as reducing the number of fuels covered by the CRC from 29 to 4.

Importantly, the Government continues to support the use of reputational drivers to encourage energy efficiency and has confirmed that it will be retaining the league tables of results, with the first such table to be published in October. Other features of the CRC including the treatment of renewable energy and the treatment of energy supplies where there are landlord and tenant relationships will also remain unchanged. The latter will be a disappointment to many.

The Government is inviting interested parties to comment on the proposed changes by 2 September 2011. A formal consultation on draft legislation to amend the CRC will then be published early in 2012, with a view to the revised scheme coming into force in April 2013.

A similar review of Climate Change Agreements is also under way, with publication of the Government's proposals expected imminently.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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