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Tuesday, 27 March 2012

CRC Energy Efficiency Scheme: Rust Never Sleeps - Government Launches Consultation

The Department of Energy and Climate Change (DECC) today announced a consultation on its proposals to reform the CRC Energy Efficiency Scheme (CRC).

The consultation document runs to 92 pages and contains a lot of detail.

Will the outcome be as radical as the chancellor implied in his budget speech last week (see CRC – Is it Destined for the Scrap Heap?)?

Climate change minister, Greg Barker, issued a ministerial statement yesterday – “Simplifying the CRC Energy Efficiency Scheme” – in advance of today’s consultation in which he states the government’s new proposals will radically reduce the administrative costs to participants by reducing the complexity of the scheme, and reducing the overlap with other climate legislation.

Headline proposals are:

·         Reduce the number of fuels covered by CRC from 29 to 4, with those 4 fuels accounting for 96% of total CRC emissions.

·         Reduce the number of reports participants are required to submit and the length of time they need to keep records.

·         Allow companies to participate in natural business units, by allowing more flexibility to disaggregate undertakings.

·         Introduce ways of reviewing and redesigning the performance league table over time in order to maximise its effect on reputation.

The stated aim is to have amended legislation in place by April 2013.

There’s no repetition in the consultation of the chancellor’s budget promise that if major savings cannot be found, the government would bring forward proposals this autumn to replace the revenues with an alternative environmental tax.

The difficulties that arise when attempting to allocate CRC costs in a landlord and tenant context have been discussed many times on this blog.

The consultation document does not offer any solution.

The document says the government does not propose to revisit fundamentally the CRC’s landlord-tenant approach because no clear consensus has emerged between stakeholdersas to the party which should be responsible under CRC.

The government suggests that the current approach, which places the CRC obligation on the party with responsibility for the energy contract, is most aligned with the party most able to influence energy consumption (normally the landlords) rather than the party responsible for using most of the energy (generally the tenants/licensees).

This position, the government argues, reflects research by the Carbon Trust on the split incentives associated with landlord/tenant relationships, and is an appropriate balance given the scheme’s focus on incentivising cost-effective energy efficiency measures.

The consultation document goes on to say that the government acknowledges the current levels of uncertainty as to the appropriate way of treating CRC costs in landlord/tenant lease and licence arrangements.

As such Government would encourage trade and industry bodies to develop their own guidance and approach on this issue.

That has not been forthcoming so far, unless you count the fact that most leases just ignore CRC altogether.

The only specific question in the consultation regarding landlords and tenants concerns the rarer situation of ground lease arrangements, where it is proposed to transfer CRC responsibility from landlord to tenant where there is a lease of 40 years plus and the tenant agrees to construct (and where necessary remove) buildings and install any gas, electricity and water services.

The consultation document has been drafted generally on the basis that CRC is here to stay, but is evolving.

There appears to have been a change of emphasis between the drafting of this consultation and the chancellor delivering his budget speech.

Time will tell whether this is the beginning of the end for CRC, as implied by the chancellor’s comments, or not.

Will CRC eventually be replaced by an alternative environmental tax?

The consultation ends on 18 June 2012.

Photo by Luton Anderson via Flickr

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