Environment Agency sets out CRC simplifications as Phase 2 qualification year ends

The regulator's overview note (5-page / 304KB PDF) summarises the changes to the scheme which will take effect later this year, following Government simplifications. It also indicates that the draft statutory instrument to implement these simplifications, which was laid before Parliament last month, should come into force on 13 May 2013.

Environmental law expert Linda Fletcher of Pinsent Masons, the law firm behind Out-Law.com, said that the note would provide useful clarification to participants in the scheme, particularly those who had recently qualified for its second phase.

"The EA's overview note on the simplification of the CRC scheme is welcomed as it brings together in one user-friendly summary document the key changes and confirms key dates as to registering, buying and surrendering allowances after all the to-ing and fro-ing and long wait for announcements as to what the Government was going to do with the scheme," she said.

"It will be useful for existing participants and for those organisations that may now be caught by Phase 2 of the scheme, with the qualification year for that phase having just ended on 31 March 2013," she said.

The CRC is a mandatory scheme aimed at improving energy efficiency and cutting CO2 emissions by large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS). CRC participants must measure and report emissions, produced from their usage of electricity and heat, and purchase allowances to cover these emissions. Over 2,000 organisations are required to take part in the scheme.

The Government set out 46 simplifications to the scheme at the end of last year, following criticism from businesses which found the scheme costly to comply with and administratively complex. The majority of these changes will take effect at the start of the scheme's second phase in 2014, but some will be brought into force more quickly. The 'performance league table' associated with the scheme is set to disappear on 1 June 2013, while the number of reportable fuels will be reduced from 29 to two. Organisations due to report on their emissions this year will only have to do so for emissions as a result of electricity, and as a result of gas when used for heating purposes.

Whether an organisation qualifies for the second phase of the scheme will depend on its energy use in the year ending 31 March 2013. According to the EA's guidance note, organisations that meet the qualifying criteria will need to register for Phase 2 by 31 January 2014, two months before the second phase begins. Under the previous rules, the registration deadline was six months before the start of a phase.

Once the simplifications are approved, participants will be given more time to comply with their CRC obligations. From this year, the surrender date for allowances will be pushed back from July to the end of October, while the payment period will be moved to the first three weeks of September. There will be only one allowance allocation period, running from the start of September to mid-October, according to the note. In its note, the EA said that the "cluster of deadlines for obtaining and surrendering allowances" under the scheme had "created difficulties for some participants" under the previous regime.

The draft order which will give effect to the changes was laid before Parliament and the devolved administrations on 4 March 2013. It is subject to the affirmative resolution procedure, which means that it will need the approval of both Houses of Parliament before it can be published in its final form in England. Separate arrangements will apply in Scotland, Wales and Northern Ireland.

"The draft order has some minor errors, particularly concerning when the scheme is applied to overseas entities who have to participate as they hold UK real estate," environmental law expert Linda Fletcher said. "These have been brought to the attention of the Department of Energy and Climate Change, and will hopefully be remedied before the draft order comes into force."