Carbon Reduction Commitment; how will it affect your business

June 29, 2010

On 1st April 2010 the new Carbon Reduction Commitment (Energy Efficiency) Scheme Order (CRC) came into force, affecting businesses and public sector organisations across the whole of the UK.

What is it?

  •  The CRC is a mandatory scheme designed to incentivise energy efficiency in non energy-intensive organisations and promote investment in new technology which will reduce future CO2 emissions.

What’s involved?

  • It requires that qualifying organisations purchase 'allowances' to cover the equivalent amount of CO2 emissions produced by them annually, although each individual business must evaluate the extent to which the CRC applies to them and predict what their annual energy consumption is going to be.
  • With the exception of the first year, the allowances are to be purchased in the year prior to the occurrence of the emissions. If insufficient allowances have been purchased then additional allowances will need to be purchased from the market.

Who will it affect?

  • To qualify for the CRC a business must meet certain criteria in terms of its organisational structure, its responsibility for energy supplies, its electricity metering equipment and the volume of electricity it is supplied with.
  • The CRC will mainly affect businesses with annual electricity bills above £500,000 but other non-qualifying businesses will be required to make information disclosures about their electricity use.
  • The CRC is not specific to a property or to an individual company but to an overall group of companies, meaning that the highest parent company will be required to account for all of its subsidiaries.
  • The CRC applies to foreign companies trading in the UK even if they are not doing so via a UK subsidiary company and they will be required to account for their energy usage in the same way as UK organisations.

How will it affect landlords?

  •  Landlords should note that where they pay for an energy supply which is passed on, in whole or part, to its tenants, they will be responsible for that entire energy supply in terms of the CRC requirements.
  • There is no government regulation as to whether these costs can be covered through the service charge for multi-let premises and so time will tell what becomes market practice.

How will it affect tenants?

  • Tenants who pay for their own direct energy supplies will be responsible for themselves in terms of the CRC.

What happens if you fail to comply?

  • An annual league table will be published showing the ranking of companies' performances in the reduction of emissions. A failure to comply with the CRC may be met with sanctions such as large fines, public ‘naming and shaming’ and also potentially the personal liability of directors.

So what happens next?

  • The CRC will run in phases the first of which (known as the "introductory phase") will run for three years. Each of the subsequent phases will last for seven years.
  • Each year in a phase (known as a "compliance year") will run from 1 April to 31 March. An organisation is caught by the legislation and is required to evaluate its energy consumption in the introductory phase if it ran a business in the UK as of 31 December 2008. If at least one half hourly meter supplied the UK business(es) in 2008 then the CRC Regulations will need to be complied with.
  • The energy supplies which the UK business is responsible for will need to be clearly identified, as the responsible party is usually the one required to report on that energy supply for the purposes of the CRC.
  • Organisations that are required to comply with the CRC will then need to establish whether they need to comply fully or whether they have reporting obligations. This is based on the amount of electricity used through the half hourly meters during 2008 and this is categorised into three parts:

i) Consumption up to 3,000 MWh organisations must register at the CRC online registry and provide information in relation to their half-hourly meters.

ii) Consumption between 3,000 MWh and 6,000 MWh organisations must register at the CRC online registry and provide information in relation to their UK energy consumption.

iii) Consumption over 6,000 MWh organisations must fully comply with the CRC with detailed reporting on carbon emissions. From April 2011 organisations falling into this category will be required to purchase allowances for each tonne of CO2 expected to be emitted for the following year.

Conclusion

The CRC is a complex new scheme affecting many businesses in the UK and is in force now. If you would like further advice and guidance as to whether and to what extent it may impact on your business, please contact the Real Estate team at Fox Williams LLP.


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Rebecca Evans
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Direct dial: +44 (0)20 7614 2677
revans@foxwilliams.com

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