17 November 2010- Today Secretary of State for Energy and Climate Change, Chris Huhne published a consultation on the CRC Energy Efficiency Scheme (CRC) changes announced in October by Chancellor of the Exchequer George Osborne. These changes to the scheme were set to cost around £1 billion a year for businesses.
Michael Hutchinson, partner in the Environment group at Mayer Brown said: “The Government is under some pressure to simplify the scheme which, since the Spending Review, looks more like a tax than a traditional cap-and-trade scheme. The purpose of the latest consultation is to introduce interim measures to the scheme to allow a time for more broad-ranging changes to be introduced.
"Broadly, this is good news for businesses as it means that they will no longer have to prepare this year for Phase II of the scheme. They will, however, shortly have to submit their footprint and reports returns (next year) for the on-going Phase I of the scheme. These are the reports which demonstrate that each participant has accounted for 90% of its total emissions and also what its annual “CRC emissions” are for the first year (respectively).
"The consultation closes on 17 December 2010. A further consultation on more detailed changes to the scheme will follow, and we can expect more announcements in the next Budget."
The CRC is a mandatory trading scheme for large non-energy intensive companies in the UK. Set up on a "cap and trade" basis, and effecting businesses with annual electricity consumption of £500,000 or more per year. Qualifying businesses will be required to purchase and surrender carbon credits for their annual direct and indirect carbon emissions. The scheme is not sectorally-based, so covers any kind of business not already covered by the EU's trading scheme, including banks, retail, large office-based businesses and industrials.
There are three proposed changes to the scheme:
Phase II to be delayed to 2014
Phase I of the scheme started in April 2010 and was due to last for three years. Phase II was due to start in April 2013 and the intention was that there would be a cap on the number of allowances to be sold and the fixed price annual sale would be replaced by a sealed-bid auction. This has been widely criticised as being highly complex.
It is proposed to delay the start of Phase II to April 2014. Phase I will be extended until then, so allowances will continue to be sold until April 2014 at a fixed price. This would remove (or at least postpone) the complications associated with an auction, although (perhaps ominously) the consultation paper leaves open the option for the Government to increase the fixed price in future Budgets.
Qualification year for Phase II delayed to 2013
Currently, the qualification year for Phase II is April 2010 to March 2011. It is proposed to move this back a year, to April 2012 to March 2013.
No requirement to disclose information if not a participant
Currently there is a requirement on those organisations (about 15,000 groups) which fall below the qualification threshold (of about £500,000 electricity use a year) to make information disclosures where they receive supplies from half-hourly meters.
It is proposed that this requirement should be abolished. This would represent a significant administrative saving for a large number of businesses.
In addition to the above, the consultation proposes clarification of the treatment of participants with climate change agreements and other minor changes.
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