CRC charts a new course

Simpler to understand and operate — Jacquelyn Fox.

The CRC Energy Efficiency Scheme is set to continue, but should be much simpler to understand and operate — as Jacquelyn Fox explains

The Department of Energy & Climate Change (DECC) recently published its proposals to simplify the Climate Reduction Commitment (CRC) Energy Efficiency Scheme. Following discussions with businesses, industry, other scheme participants and regulators the scheme was criticised for its complexity and, as a result, the Government committed itself to simplifying the CRC EES and published a number of discussion papers earlier this year. DECC has now published the proposals for a simplified scheme, which are intended to be applied from the start of Phase 2 (2013) onwards. (There is a link to the full proposal below)

On 1 July DECC issued a Participant Update summarising the proposals for the CRC Scheme participants. All participants should have received a copy of this update by email from the Environment Agency, which is administering the scheme.

Although the scheme is under general review and aspects may change, the Environment Agency reminded participants that they are obliged to continue to comply with the current rules of the scheme.

The changes are only proposals at this stage; they are subject to a national consultation by DECC early next year (2012). Under the new proposals, businesses will see the rules regarding the scheme streamlined to reduce red tape and increase flexibility. Most of the amendments will probably be welcomed by participants. Greg Barker, the Climate Change Minister, said: ‘Businesses have made clear to me their serious concerns about the overly complex and bureaucratic CRC scheme.’

Some of the key aspects of the ‘simplified’ scheme are summarised below.

Landlord-tenant rules: Despite numerous calls from stakeholders, DECC has decided against changes made to rules dictating the landlord and tenant relationship under the scheme. Landlords retain responsibility for supplies of energy to their tenants. Where the tenant owns a structure built on land owned by the landlord, the Government is still considering an alternative approach. Proposals from CIBSE, the UK Green Building Council and others to use Display Energy Certificates to simplify reporting have not been included in the proposals.

Move to fixed-price allowance sales: A major simplification proposed from 2014 is to continue with fixed-price allowance sales. This should avoid the complexity of allowance auctions and caps that had been previously planned. This removes the need for businesses to come up with auctioning strategies, which should provide price certainty to help investment decisions. It is unclear whether there will still be room for a secondary market and how this market would evolve. The proposed two sales of allowances per year (one forecast and one retrospective) could, however, introduce the possibility of a (voluntary) one-off double-hit payment.

Reduce the number of fuels covered by the scheme: Under the current scheme businesses have to report on the emissions from 29 different fuels. However because about 95% of emissions captured under the CRC come from electricity and gas, businesses would need to report on just four — including kerosene and diesel for heating. Removing the 90% (‘de minimis’) reporting rule will simplify the scheme registration, allowing groups to report as more natural business units. This could significantly reduce the administration burden without compromising the emissions coverage of the scheme.

Making the qualification process easier: The Government also wants to simplify the qualification process by reducing the qualifying steps from two to one. Currently businesses first need to prove they have a qualifying electric meter and then declare that they use a certain amount of electricity. Under the new proposals, this will be done in a single step whereby participants are only required to prove they use a certain amount of electricity from the qualifying meter.

Simplifying organisational rules: Previously, participation was based on the highest parent company. This caused problems to many business structures, particularly private-equity and other investment funds, as it did not reflect the natural structure or processes of these organisations. Under the simplified scheme, although qualification would be maintained at the highest parent company, organisations will be permitted to participate as ‘natural business units’. What will be considered as a natural business unit is not defined in the proposals.

Removing overlaps between the CRC Scheme and other emissions control schemes: Any organisations or sites covered by a Climate Change Agreement (CCAs) or the EU Emissions Trading Scheme will automatically be automatically exempt of the CRC.

Following this review, the Government intends to publish draft legislative proposals early in 2012 for formal public consultation.

Full details of the proposed changes can be found in the DECC paper ‘Simplifying the CRC Energy Efficiency Scheme: next steps’. [see link to the DECC web site below]

This paper sets out the proposed changes to the scheme. Those wishing to comment informally on the changes had until 2 September 2011. The formal consultation period for the draft legislation will be between February and April 2012. It is intended that the changes to the CRC Energy Efficiency Scheme will be implemented in April 2013.

Jacquelyn Fox is head of sustainability with CIBSE

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