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A guide to the CRC Energy Scheme: What is it and how does it work?

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09/05/2014

What is the CRC Energy Efficiency Scheme?
The CRC is a mandatory emissions trading scheme administered by the Environment Agency (EA). In operation since 1 April 2010, it applies to large businesses and public sector organisations in the UK. It aims to incentivise both the private and public sectors to increase energy efficiency as part the UK’s wider commitment to reduce emissions at a national and international level.

How does it work?
The rules on participation in the scheme are complex (see ‘Which organisations does the scheme apply to?’ below), however, the basis is the energy consumption of an organisation as a whole, rather than at specific sites. Through various reporting and evidence keeping obligations, participants are required to measure their energy consumption and report on this to the EA before buying sufficient allowances from the EA to cover that consumption. There are significant financial penalties for failing to participate.

The scheme is divided into seven phases and each phase is then divided into Annual Reporting Years (ARY) which run from 1 April to 31 March the following year. Organisations to which the scheme applies must register as a participant as the start of the relevant phase and there will be two fixed price sales of allowances for each ARY. Participants are required to keep an evidence pack including all the information used to determine whether they must participate and all the information used to compile each annual report. The EA will publish information about the participants’ energy efficiency after each ARY.

Which organisations does the scheme apply to?
The scheme applies to non-energy intensive organisations in both the private and public sector, whilst energy intensive activities are covered by the EU Emissions Trading Scheme.

As stated above, the rules as to which companies or organisations must participate are complex. However, taking a simplified view, the process can be broken down into three steps:

  • What is your organisational structure? – Companies which are part of a group will participate in the scheme as a single participant and one primary member will liaise with the EA on behalf of the group, unless a group decides to ‘disaggregate’ any of its subsidiaries. The disaggregated subsidiaries will then participate in the scheme as separate participants. The rules about disaggregation are beyond the scope of this article. The scheme will apply to JVs, PFIs, PPPs and franchises. It should also be noted that a landlord will be liable for its tenants’ emissions if it is responsible for supplying energy directly to its tenants.
  • What electricity supply is your organisation responsible for? – This is a question of whether the supply comes from a third party or whether the supply qualifies as ‘self-supply’. The CRC Order 2013 makes it clear that responsibility falls on those organisations with direct control of the supplies it receives or supplies made at its discretion. Therefore, as noted above, landlords will only be liable to the extent they are responsible for supplying energy to their tenants.
  • Does your organisation meet the Qualification Criteria? – Those organisations which are supplied with over 6,000MWh of qualifying electricity through Settled Half-Hourly Meters (SHHMs) during the qualification year for the relevant phase must participate in the scheme. This figure represents roughly annual electricity bills of around £500,000 or more (dependent on the price paid for electricity). Qualifying electricity is defined under the CRC Order 2013 and will broadly be all electricity supplied through an SHHM for which your organisation is responsible except those supplies which are excluded, for example, supplies to domestic accommodation.

Where can you get help and advice?
This note is only intended to provide an overview of the scheme and Walker Morris can provide you with further advice about your organisation and the scheme. In addition the EA (as administrator for the scheme) has published a number of guidance documents and has also set up a CRC Helpdesk: CRCHelp@environment-agency.gov.uk.

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