The end of CRC

The final reporting period for the Carbon Reduction Commitment Scheme (CRC) concluded in March this year. Qualifying companies now only have to manage the final elements of the scheme: ensuring they have purchased and surrendered sufficient allowances to finalise Phase 2 reporting.

The CRC scheme ran for eight years, from April 2010 to March 2019. It covered approximately 10% of the UK’s carbon emissions, and raised roughly £790 million annually for the exchequer.

Qualifying businesses

Qualification criteria for CRC Phase 2 was determined as organisations with at least one half-hourly meter using 6,000 megawatt hours or more of qualifying electricity. This was a simpler method of working out relevant organisations and was implemented following Phase 1 feedback that the system was too complex. The seemingly sensible criteria did a good job of identifying significant energy consumers with a test that was simple.

An issue arose however with qualification being considered only in the period April 2012 to March 2013, and then lasting for all subsequent years in the phase. As time went on, there was an increase in companies who qualified, but had subsequently sold off the (usually industrial) sites that made them qualify for the scheme. This left comparatively low energy users stuck in a scheme for which they were no longer suitable. The qualification criteria became less effective over time. We learnt that rolling qualification criteria for schemes helps to avoid this problem and keep qualifying members relevant.

The impact of ‘greening the grid’

The CRC scheme also changed significantly due to the “greening of the grid”. The government’s electricity conversion factors, which denote the amount of carbon dioxide equivalent emissions associated with consuming a fixed amount of electricity, fell approximately 15% year on year over the last three years of the scheme.

This meant that in three years the number of allowances required to cover a fixed amount of electricity, halved. Some members of the scheme were caught out by this, and held a large number of prepaid allowances which were no longer needed due to the drop in conversion factors that was not forecast. This also had a big impact on the total tax revenue generated by CRC, and if the scheme were to continue, we would expect this to be addressed in a review. We learnt that if part of a carbon scheme’s purpose is to raise tax, then there are factors that can unexpectedly influence this.

The future of compliance

Now the CRC scheme is closed, we see a new future opening for carbon compliance. The tax-raising component of CRC has been incorporated into the Climate Change Levy as an increased flat rate across business energy bills in the UK for firms who pay 20% VAT. This is charged per kWh of energy, and so tax revenues are easier to forecast and less likely to change. However, this has shifted the tax burden initially placed on high emitters to being evenly spread across a wider group of energy bills.

The reporting side of CRC has been followed by the new Streamlined Energy and Carbon Reporting (SECR) scheme. This has a larger footprint of approximately 11,000 qualifying firms, and the new qualifying criteria is attached to accounting standards which is both simple and applicable year on year. We welcome the increased attention on emissions that will be generated by the SECR scheme.

Talk to the EIC team

EIC can offer a full review of your organisation to assess your legal obligations and compliance status. We offer ESOS, SECR, Air Conditioning Inspections, Display Energy Certificates and much more, see our full suite of services here. We’ll provide you with a Compliance Report that will summarise our findings, explain the legislation, and outline your next steps.

Our in-house team includes qualified ESOS Lead Assessors and ISO 50001 Lead Auditors, as well as members of the Chartered Institution of Building Service Engineers (CIBSE), the Register of Professional Energy Consultants (RPEC), and the Energy Institute. Call us on 01527 511 757 or contact us here.

Reduce your CRC costs through the secondary market

The cost associated with CRC reporting will be replaced from 1 April 2019 with an increase in the Climate Change Levy (CCL), whilst the reporting element of the scheme is to be replaced with Streamlined Energy and Carbon Reporting (SECR).

Participants are required to order, pay, and surrender allowances each compliance year in order to comply with the CRC scheme. There is no further opportunity to purchase forecast allowances at a lower cost, and July 2019 will be the last time ‘Buy to Comply’ allowances will need to be purchased to meet CRC obligations. One allowance equates to one tonne of CO2 reportable, and allowances purchased in the ‘Buy to Comply’ sale will cost more than those sold in the forecast sale at around £1.10 additional cost per allowance.

Allowances can be purchased in government sales of allowances or, where available, through the secondary market.

 
 

What is the secondary market?

CRC allows the trading of allowances through buying or selling to another CRC account holder on the registry. This does not impact the ‘Buy to Comply’ allowance process and doesn’t have set deadlines for purchasing or selling allowances.

The appetite for trading on the secondary market is dependent on the use by other participants and there is no guarantee that buying and selling of allowances will occur when using the notice board.

 
 

Why use the secondary market?

The decrease in fossil fuel use for electricity generation and increase in renewable electricity production has had a positive impact on the emission factor. This has been a favourable outcome for most CRC participants, reducing their emissions and allowance obligations for electricity in CRC reporting.

Organisations that have utilised the lower cost forecast purchase option for CRC reporting have been caught out by the decrease in electricity emission factors for 2017/18 reporting by over forecasting allowances required. This has left some organisations with surplus allowances.

The cost to comply in the 2018/19 Buy to Comply sale has been set at £18.30 per tonne of CO2 reportable.

Purchasing on the CRC secondary market could save your organisation on average approximately £2.18 per tonne of CO2.

 
 

How can EIC help?

EIC can manage the transfer process for you from start to finish*, whether you have surplus allowances to sell or are looking to buy on the secondary market to reduce the cost of complying for the final year of CRC reporting.

The process is simple and if you would like to find out more our dedicated Carbon team is on hand to guide you. You can contact our team on 01527 511 757 or email info@eic.co.uk.

*EIC will not process payment of allowances on behalf of an organisation. Payments for allowances bought or sold on the secondary market are to be made off system between the participants involved. Any additional administration or transaction fees associated with the transfer will need to be pre agreed between the two organisations.