The government’s plan to simplify the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is starting to take shape. In January, the energy and climate department (DECC) published a series of discussion papers.
However, these still allow for a wide range of outcomes, many of which involve huge levels of complexity. On the surface then, there is still not much clarity on offer.
Making a heroic attempt to cut through the complexity, the Sunday Telegraph recently headlined an article: CRC “may be scrapped”. The piece was widely copied on the web.
It is true that DECC does float some radical options for change. For example, it mulls the idea of merging the CRC with the climate change levy.
But at ENDS we think that the most likely outcome is going to be a rather more modest change that streamlines the CRC without radically changing its intent or impacts.
In the ENDS Report we have been following the review closely and reporting on its implications for business and public bodies. We think there are three front runners in the field of options. In a nutshell, they focus on making the CRC’s entry criteria and data requirements simpler.
The first most likely reform is around the qualification criteria for organisations to enter the CRC.
Currently, there are two criteria, both 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 reading meters (AMRs) – and dynamic supply.
DECC says it adopted this approach to strike a balance between verifiable information (ownership of settled meters) and setting an appropriate qualification threshold based on accurate data.
But it admits 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 this could subsequently trigger forced entry into the CRC.
It is now proposing to simplify the rules by limiting the second criterion to settled meters. The change should reduce bureaucracy and uncertainty over entry to the CRC. It is not intended to cut the number of organisations that participate – DECC would probably cut the threshold of 6,000MWh annual consumption for organisations to be brought into the scheme.
The second change that ENDS believes will most likely happen is a simplification of the CRC’s energy supply rules. These govern how organisations must calculate what emissions they are responsible for.
Currently, responsibility falls on the party that pays for a metered energy supply. Feedback has shown that determining who pays is difficult in organisations with complex contractual relationships. DECC also says some supply arrangements may not meet the definition and would not be regulated under the CRC.
DECC suggests responsibility for a supply could more simply fall on the party supplied with energy through a contract. The payment and metering requirements could be jettisoned.
Our third forecast is that the government will remove the so-called residual percentage or 90% emissions rule, making the calculation of emissions easier.
Currently, participants must submit a footprint report at the start of each phase of the CRC. These reports must account for at least 90% of emissions.
If an organisation’s energy supplies, including any regulated through the EU emissions trading scheme (EU ETS) or climate change agreements (CCAs), do not add up to 90% of total emissions then organisations must also count emissions from residual sources, such as the burning of liquid fuels, until 90% is achieved.
The rule was meant to focus attention on the largest sources of emissions and avoid forcing organisations to account for minor emission sources. But in practice, DECC admits, it has been a source of “significant confusion”.
The likely change now is to drop any need to report on residual fuel use and instead require participants to report annually on 100% of their electricity and gas supplies that are outside the EU ETS or CCA.
Again, the change is unlikely to significantly change the CRC’s reach. It will, however, reduce an important overlap with the EU ETS and CCAs.
There is of course a lot more meat to chew over in DECC’s discussion papers. There is a notable lack of discussion of ideas to fundamentally reform the emissions trading element of the CRC.
This is surprising since the apparent complexities of carbon trading seem to make it a prime target for simplification. Nevertheless, the likelihood for now seems to be that this element of the scheme will be maintained.
Another area where DECC seems to have struggled is over the rules that govern how complex companies are regulated.
At the heart of the problem is the way the CRC captures entire corporate groups when one of its subsidiaries is caught. But proposals to decentralise regulation could increase the number of participants and hence the cost of the CRC. It could also end up catching smaller companies.