The CRCEES – latest developments

Green Breakfast Presentation6th April 2011

The ongoing saga!

• Where CRC started

• Changes – with the new Government – CSR October ’10– with the consultation - November ’10– with the simplification – February’ 11

• CRC – where next?

Its start - background• 7 phases – 2010 -2043• April 2010 - First phase and beyond

– Information disclosure or full participation (2008 HHM)

– Measure and comply from April 2010

– March 31st 2011 – report emissions & compile

evidence pack for July 2011 submission

– October 2011 – league table – recycling allowances

– Phase 2 and beyond – cap & trade

Its start – the administration• Evidence pack – covering:

• structural records; • data collation methods & data collected; • recording of utility bills, with special events records; • liaison with utility companies over invoice queries;• and resolution and CRC allowances transactions

• CRC allowances – forecasting requirements and procurement

• Nominated individuals - including Director responsible

Its start – costs & benefits • Cash flow - impact reduced to six months

• Allowances – phase 1 fixed price then auction (phase 2 and beyond) - recycling of allowances

• Fines - failure to comply and poor/inadequate recording – audit by Environment Agency (20% of organisations p.a.)

• Potential benefits – energy efficiency savings

• Reputation – potentially the major issue (costs marginal)

Its start

• Intended to be neutral for government revenue generation

• CRC allowance pot is recycled, based on performance

• However, recycling rate increases – from +/-10% for year 1 to +/-50% for year 5 – complex calculations

• Allowances purchased in advance – any deficit required purchasing via the safety valve or the secondary market – at market prices, and plus VAT

Its start – the performance league table

• Ranking all participants – not by sector – plus 4 questions

• Participants – actual 2,770 participants and 11,475 information declarers – anticipated 5k & 20k in total

• Phase one league table includes early action metric measures (CT Standard or equivalent and Smart Meters) – plus absolute metrics plus growth metrics (at the end)

• Subsequent phases – only absolute & growth metrics

Changes – October ’10– the facts

• Postponement – first sale of allowances to take place for 2011/2012

• Timing – allowances purchase after year end – for year 1!!!!

• Recycling becomes a tax – revenue from allowance sales will not be recycled to participants, but “used to support public finances”

• Performance league table – retained as the main reputation driver – timings, metrics & 4 quesitons remain as previously

• The CRC administrators – recognise concern over CRC complexity and plan a consultation on simplification

Changes – October ’10 – perceived implications - 1• The cost of scrapping recycling – a retailer thought for the first few

years they would receive recycling payments – now a £4m cost p.a.

• Postponement – view was organisations could pull back on their CRC initiatives, including data collation – but the evidence pack and CRC reporting remain for 2010/11

• In the loop? – Perhaps not - Environment Agency said they were “working to understand the implications of the changes”

• Early actions – without financial incentives linked to the league table, the linked benefits of early action metrics disappear

Changes – October ’10 – perceived implications - 2

• Senior management attention – because of tax generation

• Easier administration & accounting – “no forecasting”

• Investment appraisal for energy saving initiatives – tax easier to measure

• Landlord & tenants – Could tax be easier to pass on??

Changes with the consultation – the facts

• Less change than anticipated!! • 5 proposed changes consulted upon

– Extend phase 1 and delay phase 2– Remove the requirement for information disclosures– Amend the CRC’s landlord provision re Northern

Ireland departments– Update the division of administrators’ responsibilities– Correct reference errors and technical fixes • Changes implemented 1st April 2011

Changes with the consultation – the proposals - all AGREED - 1• Extend phase 1 and delay phase 2 – to give

further time for government consultation (2011 was phase 2 footprint year).

• Now phase 1 ends in 2014 & phase 2 starts then.

• Footprint years aligned to the first year of each phase. Phase 2, footprint year is 2013/2014 – the first annual reporting year – same as for phase 1.

Revised phasingPhase 1

Phase 2

Phase 3

Qualification year

201 0-11

2011 -12

201 2-13

201 3-14

201 4-15

2016 -17

201 7-18

201 8-19

201 9-20

202 0-21

202 1-22

202 2-23

202 3-24

201 5-16

200 8

Annual Report and footprint report

R

R

R

R – registration between 1st April & 30th September

S

S S S

S SS S

S

S – surrender of allowances for this year

SSS

S

Annual Report

Changes with the consultation – the proposals - all AGREED - 2• Remove the requirement for information

disclosures – “Government considers the primary value from the information disclosure process to have been realised in phase 1 registration period”

• Remove requirement for information disclosure after end of the phase one registration period.

• Some views suggested this diluted impact of CRC on non participants.

Changes with the consultation – the proposals - all AGREED - 3• Amend the CRC’s landlord provision re Northern

Ireland departments – Northern Ireland departments occupy their accommodation with a single department being considered responsible, as ‘landlord’.

• Update administrators’ division of responsibilities – ensure relevant administrators are responsible for inspection of records.

• Correct reference errors/technical fixes.

Changes with the consultation – the implications• Mostly administrative

• Information disclosure – sensible administrative burden reduction but how will compliance be monitored for those close to the threshold?

Changes with the simplification – the background• Simplification considered in the light of other

energy policy developments and CRC complexity

• Any changes would be in place before second phase registration (April 2013).

Changes with the simplification – the issue areas - 1• Private sector organisational rules

• Review of the CRC supply rules

• Reducing the overlap between schemes (CRC, CCA, EU ETS)

• Timing of allowances sales from 2012 onwards

Changes with the simplification – discussion areas - 1• Private sector organisational rules – issues about

highest parent (especially JVs); overseas parents; group mgt structures; SGUs.

• Options for consideration:– retain current rules but allow disaggregation; – bottom up approach for qualification (drop highest

parent rule but possibly reduce qualification criteria); – group structure based on accounting rules; – UK top parent to replace overseas top parent; – review designated changes

Changes with the simplification – discussion areas - 2• Review of the CRC supply rules –who is

responsible for energy supply?

• Significant options for consideration (of 8 in all):– Counterpart to energy contract – without meter; – Exclude other fuels – may change 90% rule– Emissions responsibility based on consumption rather

than supply (reverses the treatment of landlord)

Changes with the simplification – discussion areas - 3• Reducing the overlap between schemes (CRC,

CCA, EU ETS) – issues about reporting under CRC – plus GHG reporting

• Significant options for consideration:– Exclude EU ETS or CCA participants from CRC; – Assess qualification on basis of non “CCA” supplies– Merge CRC with other policies, including GHG

reporting to create mandatory GHG reporting

Changes with the simplification – discussion areas - 4• Timing of allowances sales from 2012 onwards –

issues about forecasting/planning; potential double purchase; and legal vires to facilitate trading market

• Options for consideration:– Phase 1 – 2012 onwards – to be decided– Transition – 2 fixed price sales in 2013/2014 or

multiples sales during the year– Phase 2 – Auction or retain phase 1 with variants

Changes with the simplification – a view of the likely implications• Better integration of CRC with other policy

initiatives - mandatory GHG reporting?• Forecasting and planning energy and emissions

regains its emphasis for phase 2• Auction of allowances likely for phase 2• Organisational rules simplified – landlord/tenant?• Fuels covered simplified• BUT – process will be discussion (March 2011),

consultation on proposals, then legislation

Changes with the simplification – some conclusions• CRC will not go away – Gov’n commitment to

80% emissions reduction by 2050 & EU changes• CRC may be simplified, but subsequent phases

will be broadly in line with original intention• Energy/emissions management is essential for

effective phase 2 management – Manage, Improve, Monitor is the focus for management

• CRC likely to stay as tax, rather than recycling• PLUS ÇA CHANGE!

Thank you – and questions

thoskins@thevirtuouscircle.co.uk