Details have emerged on what may replace the unpopular CRC Energy Efficiency Scheme (CRC).
Under the CRC, companies that consume significant amounts of electricity have a duty to report on their energy consumption through purchase of allowances, with related revenue going to the government.
In 2016, following sustained criticism of the complexity of the scheme, government announced that the CRC was to be abolished, effective 2019, with the revenue-earning element shifted to an increase in rates of the Climate Change Levy. However, there had, until now, been no announcements on replacement of the reporting element of CRC.
This period of silence had led some to speculate that, with other competing priorities, government had lost interest in this side of the CRC, and even that, given limited capacity to legislate, the CRC would be retained entirely. However, on October 12 the Department for Business, Energy, and Industrial Strategy (BEIS) announced a consultation on streamlined energy and carbon reporting that appears to fill in this missing piece of the CRC puzzle.
The proposals put forward by BEIS seem in line with other related policies such as the Energy Saving Opportunities Scheme (ESOS) and existing mandatory greenhouse gas reporting requirements, which apply to UK quoted companies. Effectively, if these proposals are realised, qualifying companies will be required to include discrete reporting on energy and carbon emissions within the annual reports filed with Companies House.
The key questions addressed by the consultation concern the category of companies that are to be required to report and the scope of the reporting.
The obligation to report
The consultation proposes setting the qualifying threshold either by reference to company size or to energy usage.
Size can be measured in a number of ways, and the consultation considers alternatives of the criteria set out in the Companies Act (at least two of the following: more than 250 employees; annual turnover of more than £36 million; and annual balance sheet of more than £18 million) and similar, but distinct criteria used to assess ESOS participation.
Alternatively, the consultation envisages the threshold for participation being set by reference to energy usage. BEIS propose a threshold of 6GWh per year, which is equivalent to the current threshold requiring participation in the CRC (though the precise figure is open to consultation).
Beyond unquoted companies there is an open question as to whether Limited Liability Partnerships (LLPs) should be required to participate. The consultation does not propose extending reporting requirements to the public sector. Public sector organisations are currently subject to the CRC (if they satisfy threshold requirements).
The scope of the report
Under these proposals, qualifying companies would be required to report on energy use (which is covered by the CRC) and emissions (which are not).
Reporting on energy use would include energy consumed in the form of electricity and gas (as is the case with the CRC) but also energy used in transport – defined as road, rail, air, and shipping. As the consultation acknowledges, this goes beyond the current scope of the CRC.
Mandatory emissions reporting would cover both direct emissions (emissions from activities owned or controlled by the business – e.g. boilers and furnaces – and also, notably, emissions from vehicles) and indirect emissions: i.e. emissions associated with electricity, heat, steam, and cooling processes that are employed by the business.
There is scope to include voluntary reporting on “other” forms of indirect emissions, occurring as a consequence of the company’s action but out of its control – e.g. business travel or waste disposal that is not by means owned or controlled by the business. This could be attractive to companies that wish to emphasise their sustainability credentials.
Finally, it is proposed that qualifying companies also report on an “intensity metric”. They would be required to choose a metric or ratio which measures emissions in relation to a quantifiable factor that reflects the nature of the business (e.g. tonnes of CO2 per staff member, or in relation to turnover).
Future developments
The consultation looks beyond immediate implementation of the new reporting regime.
There is a direct request for suggested proposals of "complementary policies" of regulation and/or incentive. It is difficult to place much weight on this aspect of the consultation, as it is largely devoid of detail, but one specific suggestion is that the reporting scheme might be developed to use a central electronic portal, rather than the medium of the Annual Report.
Lack of detail does make it hard to draw conclusions from this part of the consultation, but it does potentially suggest that Government views this as a scheme to be developed and refined over time and as more than just a quick fix (or alternatively, and less generously, that the new reporting scheme is likely to be introduced in an incomplete state, with details to be worked out at a later stage).
Next steps
This is an interesting proposal, which reinforces the probability that CRC will be abolished and is suggestive that government is being more ambitious than might be expected given competing demands for legislative attention (for example, given the proposed expansion of the reporting remit beyond what is currently covered by the CRC).
Whatever the outcome of the consultation, if its basic proposal is enacted this will mean an expansion in the numbers of companies required to include emissions and energy consumption in their annual reports as well as the need for any company of significant size to have careful regard to its obligations: as with ESOS there is likely to be an implementation timetable, and penalties for those who fail to comply.
Companies that have current obligations under the CRC or that might qualify for a new scheme by virtue of size or energy usage should monitor developments and consider inputting to the consultation.
The consultation closes 4 January 2018.
For information on the CRC or other environmental reporting regimes please contact Michael Barlow or your usual Burges Salmon contact.