Date 3 December 2010
What is the CRC?
The Carbon Reduction Commitment Energy Scheme (CRC) is a mandatory carbon trading scheme, to which the British Government has committed, with the intention of reducing UK carbon emissions by 80% by 2050. The scheme affects up to 25,000 organisations and aims to improve energy efficiency by raising awareness and bringing about change in behaviour by addressing CO2 emissions. However it is likely to add at least 10% at the outset to the energy bills of businesses required to participate in the CRC and it has been estimated that this could rise to 30% within 5 years.
Who does it apply to?
This scheme applies to organisations with at least one settled half hourly meter with electricity bills in 2008 (the ‘‘control year’’) which were greater than £500,000 a year. These organisations will have to buy carbon allowances equivalent to that of their energy use and the organisations which do not fall into this category but had a 2008 bill of over £250,000 must make an information disclosure to the Environment Agency of their usage.
Sole traders/individuals are classified as ‘‘small emitters’’ and are therefore excluded from the obligations of the scheme, however, non participating businesses need to be aware that they could potentially still be impacted by the CRC.
Where a company occupying a building may not by itself qualify as a participant, it could potentially qualify if it is part of a group and collectively they fulfil the qualification requirement as to energy usage.
In respect of let premises, responsibility for complying with the CRC obligations depends upon who pays the energy bills. In a lease of a whole building the tenant is likely to be supplied direct and could be potentially liable under the CRC scheme as a result. However, in a multi-let building or premises where the landlord provides services and reclaims the costs from the tenant, the landlord will be the responsible party. This could lead to a situation where tenants individually who would not qualify potentially funding larger energy bills as a result of their landlord, on their own or as part of a group, being required to participate in the scheme. This will no doubt be a common situation when letting premises from large institutional landlords, property companies, pension schemes and the like.
Recent changes to the scheme?
It was originally envisaged that the money raised by sale of these allowances were to be recycled back to the participants and there was to be a bonus scheme for the best performing participants based on a league table to the affect that the worst performers would pay a significantly higher overall charge for their energy usage than those businesses performing well in the league table. Recent changes arising from the government’s comprehensive spending review however, mean that the proceeds of such sales will now be retained by the exchequer. The date of the first sale of allowances have also moved from April 2011 to April 2012. This could result in property owners and occupiers having to buy allowances for their 2011-2 and 2012-3 emissions in the same year.
Impact of the newly amended CRC?
Recent changes to the CRC mean what would have been an inconvenience to participants with no real financial loss, will now be an added cost with no incentive to improve environmental performance. The cost will be £12 for every tonne of CO2 being emitted.
However, it’s not all bad news, especially for Landlords. It seems that the new changes have made it potentially easier for the costs under the CRC to be classified as taxes and so they can be more easily recoverable from tenants under, for example, the tenant’s covenant to pay taxes in existing leases which are unlikely to specifically provide for a tenant to be liable for CRC costs.
CRC is still surrounded by uncertainty and this is unlikely to change in the near future especially with postponement of the first registration by a year. This uncertainty is likely to lead to confusion when it comes to compliance with the legislation but the scheme is mandatory and failure to comply will lead to enforcement action. Likely participants in the scheme, and tenants renting from such participant landlords need to start planning now if they have not done so already for the impact of this additional cost and administrative burden.
If you would like more information or advice relating to a specific matter, please do not hesitate to contact Gary Dunger on 01727 798020 or by email at gary.dunger@salaw.com or any member of the Real Estate team.
© SA LAW 2010
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