New legislation aims to lower the carbon footprint of larger firms.
From April 2010, any organisation that consumed more than 6,000 mega watt hours (MWH) of electricity during 2008 (an annual spend of approximately £500,000) will be legally obliged to participate in the Carbon Reduction Commitment (CRC).
A UK holding company will need to consider the electricity use of all its subsidiaries to assess whether the group as a whole is within the scheme.
The CRC is intended to encourage energy efficiency and increase awareness of the cost of climate change. Some organisations estimate that they will see an increase in energy costs of around 10% from April 2011, when credits must first be acquired.
Participants will have to buy carbon allowances each year (presently at a rate of £12 per tonne) to cover their emissions.
At the end of each scheme year, actual emissions will have to be reported and sufficient allowances surrendered to cover the CO2 output. If emissions increase, further allowances will need to be acquired. Participants will be rewarded for reduced emissions and early action.
The Government is writing to entities it believes are in the scheme but the obligation is on the organisations concerned to register, or they will be fined.
Likely issues for property companies include:
- negative cashflow
- the lack of any relevant provisions in existing leases
- the need for apportionment of costs
- joint action by landlords and tenants.
By way of example, if a landlord is a participant in the CRC and the energy contract is in the landlord's name, it will have to account for the emissions even though the energy has been used by its tenants. The ability of the landlord to pass the additional cost onto individual tenants would need to be addressed.
In addition to the financial costs, there will also be significant data capture, record keeping and other compliance costs for property companies. Organisations using more than 3,000 MWH per annum will be obliged to keep records of consumption.
The British Property Federation has published a guide for landlords and tenants explaining the CRC at http://www.bpf.org.uk/pdf/21401/CRC%20Guide%20A4.pdf
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