Isra-Mart srl: United Kingdom: CRC Energy Efficiency Scheme - Still There, But Changing!

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Changes announced

Following the coalition Government's Spending Review 2010 ("SR2010") last October, certain timing changes have been implemented to the CRC Energy Efficiency Scheme. In addition, the Department for Energy and Climate Change have issued various discussion papers with a view to gathering opinions as to how the Scheme might be simplified.

Accordingly, our briefing note of June 2010 ("CRC Energy Efficiency Scheme – Early Action Required!") needs to be read in the light of these developments, which are briefly outlined below.

Meanwhile, compliance obligations continue, not least the obligation on participants to submit an annual report for 2010/11 by 29th July 2011. Failure to do so will result in fines and other penalties.
Background

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 Government estimated that the first phase of CRC would apply to around 5,000 organisations who were responsible for electricity supplies of 6,000 MWh during 2008 (this equates to an annual electricity bill of approximately £500,000 or more).

It was envisaged that an additional 20,000 organisations would also be affected by the scheme. These organisations would not have to participate as such, but would have to provide information about themselves and their energy use. To date however the number of organisations that have registered or have otherwise indicated that they are affected is less than the Government's original estimate.

Nevertheless, the type of organisations affected by CRC are far-reaching and include: large retailers, hotel chains, joint ventures, private finance initiatives and private equity funds, utility companies, NHS Trusts and hospitals, schools and universities and central government departments and local authorities.

If you qualify for the CRC, you must have registered your organisation between 1 April and 30 September 2010 (again, see our briefing note of June 2010 "CRC Energy Efficiency Scheme – Early Action Required!" for more information).
SR2010 changes

As part of the coalition Government's public spending plans announced in October 2010, it was announced that:

* The first sale of allowances (to be purchased by organisations based on an estimate of their C02 emissions during the relevant compliance year) will be delayed from 2011 to 2012.
* Revenues raised from sale of allowances will not be recycled back to participants. It was to be a feature of the CRC as originally structured that allowances would be recycled such that participants would have a bonus or penalty applied to them at the end of the year depending on whether or not they have improved their energy efficiency. The decision now is that revenues raised from the sale of allowances will be used to support the public finances.

Further amendments & consultation

Following the SR2010 and subsequent consultation, timing adjustments have been made to the CRC in order to push back some of the early CRC deadlines and thereby give the Government more time to consider with interested organisations how the CRC can be simplified. The Department for Energy and Climate Change has also received feedback from those organisations, although the extent of further potential changes and simplification is not yet clear.

Specifically however, an Amendment Order came into effect on 1st April 2011 which:

* introduces an extension of the introductory phase by one year to end on 31 March 2014 (rather than 31 March 2013). The CRC is divided into seven phases with the introductory phase originally being a 3-year period and subsequent phases covering 7-year periods; and
* removes the requirement for organisations which are not required to register as participants to make information disclosures. The justification for this from the Government is that information disclosures made in the introductory phase have achieved the purpose of ensuring that all those who should register for the CRC have already done so and that the initial collection of data would allow the Government to review the qualification threshold of 600,000 MWh. It is thought that further information disclosures would not significantly improve the data.

In the spring of 2011 the Government also issued a series of discussion documents identifying certain priority areas for simplification, including:

* the CRC organisational rules and specifically the determination of group structures and compliance obligations between group entities;
* aligning the scope of both qualification criteria to focus on settled half hourly meters only;
* the overlap between schemes, for example between the CRC and the EU Emissions Trading System; and
* the timing and frequency of allowances sales in the CRC. Having already committed in SR2010 to delay the first sale of allowances until after the end of the 2011/12 compliance year, the Government has invited comment on how to simplify allowances sales in the introductory and subsequent phases.

Compliance and penalties

Notwithstanding the uncertainty generated by the Government's review process and its desire to simplify the CRC, it is made clear that all participants should continue to comply with the existing scheme, in full, as set out in the current legislation. The CRC remains a mandatory scheme, and the Environment Agency and other administrators continue to provide support to participants with their CRC compliance. Organisations who fail to comply may be subject to enforcement action and civil penalties.

Most recently, the Environment Agency published guidance on civil penalties under the CRC for failure to submit an annual report for the period 2010/11. To avoid an immediate fine of £5,000 and an additional £500 daily fine, which doubles to a total fine of £40,000 after 40 days, participants must submit an annual report by 29th July 2011. Amongst other consequences, the participant's failure will be publicised and the participant moved to the bottom of the league table.