Property Newsletter – April 2010
CRC Scheme - How should organisations prepare?
What are the issues facing companies that are participants in the Scheme?
Participants need to consider:
Gathering data
This may seem straightforward, but in fact participants with diverse property portfolios will find it hard to gather the information regarding their consumption of energy. This is particularly relevant for public bodies. Participants with properties that are let will also have to put systems in place for collecting this information.
Company organisation
The CRC Scheme is organised by reference to the structure of participating organisations and not on a building by building basis. Therefore, participants who are part of a group need to consider how they are going to require subsidiaries to take part in the reporting requirements and ensure that the parent company is not put in breach of its obligations by a failure within parts of the organisation to report and monitor energy use. Participants can also consider whether "significant group undertakings" (those which could be participants in their own right) should indeed do so as this is an option that can be taken under the Scheme.
Let properties
The government legislation does not deal with the issue of the CRC Scheme between landlords and tenants. Where the landlord is a participant and is responsible to the supplier for the cost of supply to the premises (although that cost is past onto the tenants) it must include that energy consumption in its report under the Scheme.
Where there are tenants in properties or parts of properties, landlords need to consider how they will encourage their tenants to be energy-efficient and how they can pass on the cost of purchasing CRC allowances for carbon dioxide emissions from those buildings.
Existing leases will not deal with the inception of the CRC Scheme. In terms of future lettings, participant landlords need to consider carefully how they want to involve their tenants in the CRC Scheme. If a landlord wants to pass on the cost of purchasing CRC allowances it is unlikely that a tenant will agree unless it can share in the recycling payments that a landlord may receive by virtue of its favourable position in the CRC performance league table.
Cash flow
Participants need to consider the cash flow issues of having to buy allowances in addition to the cost of energy supply. Allowances will be able to be purchased in the future through the government scheme or on the free market, and participants need to consider where they will get best value for money. If a participant is not sure how many allowances it will need, will it be better to hold off or to buy and hold excess allowances? Participants will, of course, also be able to sell excess allowances, which may become a valuable commodity.
So has the CRC Scheme got your attention?
What can participants do in preparation for signing up to the Scheme this year and during this recording phase? Participants need to be considering:
- Assignment of staff to the running of the CRC Scheme. The government expects senior people at board level to be responsible for compliance with the CRC Scheme. Apart from the cost of purchasing allowances, the government intends that the good (or bad) standing of a participant in the performance league table will be a strong driver to reduce emissions and thus expect involvement in the Scheme to be addressed at a high level. In addition, companies will need members of staff to collate data.
- Participants need to consider what agreements they will put in place with other companies within their groups and, where possible, with tenants or managing agents to drive down energy use, and to ensure that all relevant parties are doing their bit in energy reduction and Scheme compliance.
- Participants also need to be able to produce year on year reductions in carbon dioxide emissions. This is a significant undertaking. Many participants will not have the necessary expertise in-house and will have to seek the advice of consultants to produce plans that can be implemented across portfolios of property.
Participants may have breathed a sigh of relief when the government decided, after the last consultation, that 2010 would be a reporting year only. This is not, however, a year for participants to sit back. To achieve a good place in the performance league table participants should make full use of this year and put the people and systems in place to ensure compliance in the future.
CRC is a complicated scheme. Our environmental team contains experts in CRC who have been advising and reviewing the Scheme since its inception. If you have any queries about the CRC, please speak to Mark Howard, Head of Environmental Law at Michelmores, on 01392 688688 or email him at mark.howard@michelmores.com.
