Simplifying the CRC Energy Efficiency Scheme: Update
19 July 2011
Despite the cost effective savings that are available to large non-energy intensive organisations, their emissions have remained more or less constant for the last twenty years. The Carbon Trust concluded, after analysing abatement potential within the sector, that a 35% CO2 reduction by 2020 from 2005 levels from buildings can be achieved with a net benefit to the UK of at least £4bn.
The case for simplification:
5. However since the CRC scheme began in 2010, a number of aspects of the policy have been criticised by stakeholders. In particular representations have argued;
• The rules of the scheme are too complex, difficult to understand and costly for participants to administer;
• Aspects of the scheme overlap with other climate change/energy efficiency policies (e.g. EUETS, CCAs and greenhouse gas reporting);
• The scheme forces organisations to participate in ways which do not accommodate their natural business/energy management structures and processes.
Consequently Government committed to simplify the CRC scheme. In the 2010 Annual Energy Statement (AES) to Parliament, DECC committed to “keep the CRC under review and look at the future of Climate Change Agreements in order to ensure that we deliver significant improvements in energy efficiency with minimal complexity and policy overlap.” We did this because we wanted to ensure that the policies were fit for the future, and that any regulations we retained were less burdensome for business, and more practicable.
Simplifying the CRC – progress to date
In November 2010, following up on the AES statement on the CRC scheme, the Government published an initial simplification proposal to amend the legislation underpinning the scheme. The proposal focused on extending the introductory phase which provides participants with an additional year’s experience managing compliance and performance within the introductory phase and provided a window to consider further simplifications
In January 2011, Government published a set of discussion papers, as part of an informal dialogue with participants, which suggested a number of more significant changes and simplifications to the scheme for the second phase of the CRC: The objective was to revisit the scheme to take into account the following context:
· The effectiveness of the CRC framework for driving energy efficiency in large private and public sector organisations, in light of wider policy developments in other areas such as the implementation of a carbon price floor, Electricity Market Reform, implementation of a Green Deal for business and the review of the Climate Change Agreements, and company reporting of greenhouse gas emissions.
• The perceived complexity of the CRC scheme and hence the administrative burden on:
- Those organisations that are subject to the scheme
- The administrators of the scheme (Environment Agency, the Scottish Environment Protection Agency and the Northern Ireland Environment Agency)
• Optimising the projected energy savings attributable to the CRC scheme.
Simplifying the CRC – preliminary conclusions and proposals
Government will implement a simplified organisation-based CRC from phase two onwards (April 2013) which will retain the elements of reporting on energy use against a number of criteria; purchasing allowances to cover emissions and the publishing of participants results. To facilitate this, in early 2012 we will publish draft legislative proposals for formal public consultation which will amend the existing CRC.
The key elements that are intended to be included in the formal Government proposals in early 2012 are summarised below:
• Provide greater business certainty by introducing two fixed price sales a year (one forecast and one retrospective), rather than auctions of allowances in a capped system, in the second phase.
• Allow for greater flexibility for organisations to participate in ‘natural business units’;
• Reduce the administrative burden (in particular by reducing the number of the fuels reported from 29 to 4; using only electricity measured by settled half hourly meters (HHMs) for qualification purposes; ending the requirement for footprint reports; and other practical measures such as requirements on maintaining records);
• Reduce scheme complexity (by removing the complex residual percentage rule (‘90% rule’) and CCA exemption rules, but aiming to achieve broadly the same outcomes)
• Reducing overlap with other schemes (so that businesses covered entirely by CCAs do not need to register; no longer requiring EU ETS installations to purchase allowances for electricity supplies).
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