Mixed messages on CRC simplification

Organisations regulated under the Carbon Reduction Commitment oppose cap and trade, but consensus on other issues proves harder to reach

Cap and trade is widely unpopular with organisations regulated under the Carbon Reduction Commitment (CRC) energy efficiency scheme, according to a government report published on Monday. But consensus on other issues seems much more elusive.

The report stems from a conference held to discuss ways of reforming the scheme on 3 March. More than 200 CRC-regulated organisations attended the over-subscribed event to discuss reform options proposed by the energy and climate department (DECC) (ENDS Report, February 2011).

The conference was introduced by climate change minister Greg Barker. He said the CRC had already helped put energy efficiency on the boardroom agenda. There are many examples of improvements such as organisations that had fitted automatic meter readers (AMRs) which paid for themselves in three months, he said.

Nevertheless, he noted the scheme was too complex and must be simplified. Several large trade associations including the British Retail Consortium have called on DECC to replace the CRC and its performance league table with the climate change levy and mandatory carbon reporting (ENDS Report, March 2011).

Mr Barker said it is important that a simplified CRC takes account of changes to the wider regulatory landscape including the possibility of mandatory carbon reporting.

The conference saw a wide range of comments on the many simplification options. For instance, at present there are two CRC qualification criteria based on electricity metering. First, an organisation must have one or more meters settled on the half-hourly market. Second, it must use a total of 6,000 megawatt-hours of electricity per year through half-hourly meters including settled meters, non-settled meters (such as automatic meter readers) and dynamic supply.

DECC says the complexity of restricting the first criterion to settled meters and extending the second to other types of meters has caused confusion. It also acts as a disincentive to fit AMRs since they could bring an organisation into the CRC.

DECC suggested restricting the qualification rule to settled half-hourly meters. The report says the majority of delegates agreed with the proposal.

The conference also gave a clear message on reforming the design of the CRC’s emissions trading phase.

At present, auctioning of allowances under a cap and trade scheme is due to start in 2014/15. But delegates showed a clear preference to move away from cap and trade, which is considered to be too complex.

Feedback was mixed on DECC’s proposals to change the rules for the way companies work out how the CRC applies to corporate structures.

Currently, for a firm that is a subsidiary of a parent firm, qualification for the CRC brings in the entire group to the highest UK level. Parent groups can register some large subsidiaries separately.

Some participants complain that the rules cause problems for foreign-owned groups which have to nominate a UK subsidiary to manage the CRC. Complex corporate structures such as joint ventures have also struggled with the rules.

DECC proposed a variety of simplification options each of which won support from delegates. Some said there would be winners and losers whichever was chosen. Retaining the current rules with extra flexibility for subsidiaries to directly participate in the CRC seemed most popular.

Feedback was also mixed on DECC’s proposal to simplify energy supply rules by assigning responsibility to the counterparty to the energy contract and jettisoning additional requirements on payment and metering.

DECC said it intends to publish a consultation on proposals to reform the CRC before the end of the 2011.