UK: In Counsel - The New CRC Energy Efficiency Scheme Order 2013

The CRC Energy Efficiency Scheme Order 2013  (the 2013 Order) will soon replace in its entirety the 2010 Order for the operation of the now much criticised CRC Energy Efficiency Scheme (the CRC Scheme). When the coalition government announced changes to the CRC Scheme as part of the Spending Review 2010 we were the first to note that the heart had been ripped out of the trading scheme and that it had become little more than a tax to which disproportionate and cumbersome costs to business were attached.   The 2013 Order will put in place a slightly simplified, but still conceptually confused scheme.

The CRC Scheme lost its way

Back in 2010 we suggested that the objectives of the CRC Scheme would best be retained by a combination of mandatory greenhouse gas reporting, the replacement of the need to purchase CRC Scheme carbon allowances with a hypothecated carbon tax (through an extension of the climate change levy) and greater obligations to display energy information in buildings.

Where matters ended up

It is not all bad news.  The changes to narrative reporting for quoted companies coming into effect on 1 October 2013 include a new obligation for those companies to report on a mandatory basis on greenhouse gas emissions.

HM Treasury has also put in place a carbon price floor at an initial price of £16 per tonne with the intention of creating a more stable investment environment for energy projects and encouraging the delivery of low carbon energy infrastructure.  The method through which the carbon floor price operates is complex as it involves a combination of climate change levy with a new mechanism, the carbon price support as a tax on fossil fuels used in the generation of electricity.  HM Treasury expects the carbon price floor to rise steadily to end the decade at £30 per tonne and then more than double by 2030.  It is unfortunate that one of the reasons why the UK Government has come to a conclusion that a carbon price floor is necessary has been the continued instability of the EU- Emissions Trading Scheme (EU-ETS), largely as a result of over-allocation of allowances and an economic slowdown contributing to a crash in the value of allowances.

What participants still need to do in relation to the CRC Scheme

The CRC Scheme remains in place until 2042 and participants must continue to comply with all of the information compliance requirements.  One of the objectives of the scheme was to elevate carbon as an issue on board agenda, but this has been damaged by the benefits from the scheme for participants being removed, whilst retaining the obligations.

More good news is that the CRC Scheme going forward will only capture use of electricity and gas.  A lot of time was spent by participants capturing data in respect of a much broader range of fuels (originally there were 28 fuels plus electricity), but it has been accepted that gas as a fuel for heating purposes and consumed electricity capture the vast majority of all emissions intended to be captured and it would be disproportionate to require compliance in respect of that broader range of fuels.  So, there is no longer any need to take CRC Scheme account of kerosene, diesel or scrap tyres burned by your business as a fuel (although, remember that data on greenhouse gas emissions made by quoted companies must be reported from 1 October 2013).

Disaggregation

When the CRC Scheme was being developed we strongly made the point to the team at the Department of Energy & Climate Change (DECC) that participants should be able to participate in the scheme using whatever size of corporate entity they wished to use, provided all relevant emissions were covered by the scheme.  DECC has now, finally, agreed to this change.

Conclusions

There has been some significant simplification to the CRC Scheme and a better definition of its scope, but other aspects remain confusing, even baffling (such as the descriptions of the phases).  DECC believes that the cost of compliance will be reduced by over half, but in stating this DECC has conveniently forgotten the major raid on participants when HM Treasury decided that the costs of allowances would be seized as a tax rather than recycled to participants.   We consider that the CRC Scheme still represents a disproportionate burden on business which, as a result of Government originally failing to listen to business and then embarking on a series of major U-turns, has damaged the reputation of good carbon governance.

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