CRC Scheme - Has it got your attention?

The government introduced the CRC Energy Efficiency Scheme, a mandatory emissions trading scheme,  in April 2010.

What is the CRC Scheme?

The CRC Scheme is a cap and trade scheme designed to produce savings in carbon emissions in large, non-energy intensive organisations in the private and public sectors. Participation is based solely on the amount of energy consumed and therefore a wide variety of organisations will be required to participate. 

Does my organisation need to take part?

With few exceptions, public bodies are required to participate, whether or not their energy consumption reaches the threshold.

Briefly, any business or organisation which has at least one half-hourly meter settled on the half-hourly electricity market and which consumed electricity exceeding 6,000 MWh in the year ended 31 December 2008 must register for the Scheme.  Potential participants should have received notification from the Environment Agency (which will be the body tasked with enforcement in England and Wales) that they qualify to join the CRC Scheme. Even if a letter has not been received, it is essential that an organisation ascertains whether it should participate.

When do I register?

If an organisation qualifies to join the CRC Scheme then it must register online between 1 April and 30 September 2010.   There is an online guide to registration on the Environment Agency website.  Once in the scheme the participant has to buy sufficient allowances to cover each tonne of carbon dioxide that it emits from all forms of energy use (not just electricity).  Certain types of energy use are not included in the scheme, including supply for transport purposes.

The Scheme runs in phases: the first phase of the Scheme which ends in 2013 is different from subsequent phases. For this first year, 2010/2011, participants will not be required to purchase allowances but will be required to report their energy use.  In the following two years participants will be required to purchase allowances but the price will be capped at £12 per tonne and there will be no limit on the number of allowances that a participant may purchase.  In subsequent phases, the number of allowances will be capped and the cost will not be. 

Banking of allowances will be allowed within the first phase so that allowances not used in the year 2011/2012 can be used in the year 2012/2013.  It will not be possible, however, to carry over any of those allowances into the next phase as this would undermine the government cap on the number of allowances in future phases. Therefore, participants should use this initial recording year wisely to ascertain the likely number of allowances they will need. In future phases it will be possible to purchase allowances and to retain any surplus allowances at the end of a compliance period for future use. 

What are the penalties?

The penalties for failing to comply with the requirements of the Scheme are substantial.  This is because there will be a "light touch" in terms of administering the Scheme relying upon the participants supplying information.  For example, failure to register for the Scheme results in a fine of up to £5,000 with an additional sum of £500 per working day (up to a maximum of eighty days) for so long as the participant remains in breach.  Many of the offences are civil ones but there are also criminal offences and penalties for failures to comply, including the potential for an individual at a body corporate to be imprisoned. In addition, the Environment Agency has a right of entry onto premises.

What is the Performance League table?

The success of participants (or not) in reducing emissions will be made public in a performance league table. The Scheme is intended to be revenue neutral to the Treasury and successful participants will receive a recycling payment; a credit to reflect the percentage reduction in emissions on the previous year. In addition the government hopes that the publication of the results and recycling payments will encourage participants to seek reductions in emissions rather than pay to pollute.

What next?

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.