As a general rule the CRC will apply to any organisation that is a customer of an energy supplier and has a total electricity use in 2008 of at least 6,000MWh (equivalent to an annual bill of £500k upwards). It is thought that around 5,000 organisations will be caught. The electricity use of a UK corporate group of parents and subsidiaries will be aggregated and if the group meets the threshold, it will be required to participate in the CRC. There will also be provision for treating groups within the group separately if they would qualify in their own right. Likely qualifying organisations include large retailers, banks, supermarkets, hotel chains, restaurant chains, telecommunications companies, government departments, large local authorities and universities.
A further 15,000 organisations with half hourly meters that do not hit the 6,000MWh threshold will be obliged to make information disclosures under the scheme and in some cases report their annual energy use. From April 2010, each participant organisation will be required to register and report emissions. From April 2011, each participant will be required to buy and, at the end of each scheme year, cancel the number of "emissions allowances" that corresponds with its total carbon dioxide emissions. From April 2013, Government will limit the total allowances available by placing a "cap" on the number released to the market, which will decrease over time, thus providing the incentive to achieve ongoing emissions reductions. Participants will be able to trade allowances amongst themselves, selling surplus allowances left over as a result of exceeding emission reduction targets, or buying additional allowances if targeted reductions are not met. Those that do not have sufficient allowances at the end of each year will be subject to a stringent penalty regime.
CRC participants will be ranked in a league table according to their success in reducing emissions. Depending on where an organisation is sitting in the table, a bonus or penalty payment will be applied to the participant. Between landlords and tenants, the general rule is that the party who holds the contract with the energy supplier is the person responsible for CRC compliance. Questions therefore arise as to whether and how the parties should share the costs and any benefits of the CRC. This will require analysis of existing leases and drafting to cover the issues in new leases. It is clear that Government expects the property industry to develop good practice in this area. How green will your leases be?
Pinsent Masons is playing a leading part in the industry debate and played a central role in the preparation of the Better Buildings Partnership's Green Lease Toolkit, which offers a pilot approach to both existing and new leases. Once the CRC Regulations are laid later this year, so the industry approach to drafting will develop. We can expect to see significant further developments over the next quarter. The CRC does not just bring in new onerous obligations. The availability of bonuses, the potential to trade surplus allowances at a profit and the reduced energy costs that should result from reducing emissions are all opportunities to use the CRC to improve your bottom line. You should be looking now at:
- how your business can reduce its carbon emissions over the long term;
- how you will allocate responsibility for CRC in your contractual relationships
- what you can do now to make the most of the opportunities available and gain a competitive edge