Carbon Reduction Commitment Energy Efficiency Scheme – changes to the disaggregation rules

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The CRC Energy Efficiency Scheme Order 2013 recently came into force with the intention of simplifying the Carbon Reduction Commitment Energy Efficiency Scheme (CRC). Among the changes is one that is particularly likely to be of interest to the private equity community, namely a relaxation of the rules regarding the participation of private sector groups of undertakings in the next phase of CRC, which begins in April 2014.

The Order made a number of changes simplifying CRC, most of which are beyond the scope of this article. For private equity, the key change to the scheme is the introduction of a new ability for participants to disaggregate portfolio groups to allow them to participate in the scheme in their own right.

Groups of undertakings will continue to be treated as a single entity to determine whether they meet the qualification criteria. This usually results in private equity funds being grouped with their portfolio companies for CRC purposes. However, under the new regime, any subsidiary (or group of subsidiaries) will be able to apply for disaggregation. The existing requirement for a minimum threshold will cease to apply.

It will also be possible to disaggregate even though the remainder of the group will fall below the qualification criteria as a result, although the remainder of the group will still be required to participate in the scheme for the rest of the relevant phase.

Walker Morris comment
The relaxation of the scheme rules is welcome. The only downside would seem to take the form of increased registration and (annual) subsistence fees being paid across the group. The benefits are that portfolio groups will now be responsible for their own compliance with the scheme and entities in the remaining group will no longer be jointly and severally liable for compliance by the disaggregated entities.