Key issues for the sector following the Climate Change Act 2008

The carbon reduction commitment (CRC) arises out of the Climate Change Act 2008. It is a carbon emissions reduction scheme for the UK that impacts businesses beyond the heavy industrial energy users already caught by European Union (EU) regulations. It introduces an annual 'cap and trade' system whereby organisations will be required to purchase carbon permits for their anticipated emissions and then later receive rebates plus or minus a bonus or a penalty dependant upon their actual performance against other participants. While the Government is likely to carry out some fine tuning, the main aspects are finalised.

The CRC scheme applies to all UK businesses with at least one half-hourly electricity meter (HHM) and electricity usage for the 2008 calendar year greater than 6,000 MWh, which may broadly equate to a spend of approximately £500,000 or more. It is not specifically aimed at RPs, but those with larger offices or other installations will find they have a HHM. In addition, even small organisations may potentially experience extra charges as larger landlords seek to pass on any costs they incur to tenants. There are a number of key issues to consider which we now explore.

Cost

Full participants must purchase permits from April 2011 at a fixed price of £12/tonne CO2 for their energy use in 2011/12. The anticipated minimum initial cost has been estimated at around £38,000 (with permit prices increasing in later years). Organisations that do not increase their energy efficiency will be penalised and will not receive all of their payment back over the scheme cycle.

Resource

Management time will be needed to complete returns and deal with ongoing compliance. Multi-site RPs could find data collection onerous and responsibilities in respect of leased offices may not always be obvious, although in principal, the registered meter owner is usually responsible.

Cashflow

Permits must be purchased in April each year, and while recycling payments will be made back to organisations, there will be a period where organisations have to fund the gap. Potentially, business plans may need to be revisited and extra financing considered.

Service charges

No historic lease envisaged the CRC. Complexities are likely to arise over dealing with recharges to tenants and leaseholders, although the intention appears to be to exempt purely domestic consumption. Therefore, the position in respect of communal areas and some types of care and support schemes will need some consideration.

Reporting

Many organisations that are not full participants of the scheme are likely to need to prove energy consumption and provide annual evidence packs.

Reputation

A national league table of energy efficient organisations will be published by the Government (with sector specific tables likely to be generated), which may impact upon future business development opportunities.

Upsides

There are, however, some upsides. Reducing energy use should reduce costs and those organisations that do well in the league table will be likely to receive economic and publicity benefits.

Finally, while it is rather bureaucratic, you never know but it might just help reduce climate change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.