Carbon Reduction Commitment (CRC) Energy Efficiency Scheme Recent Changes

Further to our briefing on the CRC last year changes to the scheme have already been announced. Further amendments are expected in 2011 following a public dialogue and consultation with participants. The Government’s Spending Review, published on 20 October 2010, stated its intention to simplify the CRC process and reduce the management and administrative burden on businesses, but the changes have led many to now view the CRC as a tax on energy consumption, rather than the energy reduction scheme it was initially presented as.

Major Changes

• The first sale of allowances to cover carbon emissions for 2011-12 has been deferred from April 2011 to 2012 giving businesses an additional year to budget for the purchase of allowances.
• The ‘recycling’ of revenue collected by the CRC back to participants each October in accordance with a published performance league table has been abolished and revenue will now be used to support public finances, including spending on the environment. The revenue is expected to reach £1 billion a year by 2014-2015.
• Due to the planned public consultation on the CRC in general, the Government has proposed to extend the first ‘phase’ of the CRC from 2013 to 2014, giving participants an extra year to get to grips with the requirements of the scheme. It is suggested that the start of the second ‘phase’ will therefore be delayed until April 2013, with this phase scheduled to last for 6 years.

Implications

• It has not been made entirely clear whether the purchase of allowances for 2011-12 now no longer applies at all or whether the sale has merely been postponed with purchases then being made retrospectively in 2012, but initial indications from the Government appear to suggest the latter.
• Businesses are no longer being asked to forecast and pay in advance for their emissions for the coming year, but an announcement from the Government is required to clarify whether purchases for subsequent years will be made retrospectively or whether businesses will need to purchase two years worth of allowances in April 2012.
• Although it was difficult to predict how much each participant would receive back in recycling payments, the abolition has led people to view the purchase of allowances as a form of ‘green tax’ which landlords will now be much more keen, and much more easily able, to pass on to their tenants.
• Both landlords and tenants should be aware of the CRC when agreeing the terms of their new leases, particularly in relation to outgoings and service charge, but also look carefully at whether the wording of existing leases could already allow the CRC payments to be passed on to tenants. If not, landlords may consider including specific lease provisions allowing them to pass on payments, although this will likely be heavily resisted by tenants particularly in relation to energy consumption in particular areas of buildings, such as the common parts.