CRC Energy Efficiency Scheme

The CRC Energy Efficiency Scheme, with some modifications from its original version, came into force on 1 April 2014. It is a mandatory emissions trading scheme which requires large businesses and public sector organisations to audit, report, and provide payment for the amount of carbon used under the guise of reducing carbon emissions. The stated purpose is to aid the reduction of UK greenhouse gas emission from 1990 levels by 80% by 2050.

Participation is based on energy consumption. The problem, particularly for companies who operate a brand rather than an owner−operator model, is that the burden falls on the identifiable company rather than to specific sites or occupiers (this is a simplified summary, exceptionsapply).

Companies such as hotels, large retailers, PE Funds, franchises, and large offices where electricity bills exceed £500k are targeted for compliance with this regulation (in summary, again exceptions apply). One of the many complications with the CRC is that it applies to the brand or franchisor rather than the building owner or operator. This is further compounded with the problem of how the CRC is worded which refers to it not as a tax or a fee, despite the very clear purpose of applying a Government tariff on businesses. The odd wording around the CRC can and has caused problems for many who did not anticipate this type of tax, nor include it in the indemnities clauses within their franchise/management agreements.

As a result, many brands (or parent companies) have struggled to push the cost back to the operator who is responsible for the carbon emissions on a premise. There is a caveat whereby landlords will be liable for a tenants’ energy consumption if they are responsible for the supply of energy, however this tends not to be included within modern commercial leases where the tenant is occupying the majority or all of a premise.

The CRC requires the company to submit a retrospective yearend summary of the previous year’s use and to pay £16 per tonne of CO2 used in 2014 and 2015. Documentation must be maintained on how the yearend summary was calculated.

Failure to comply either with registration, yearend reporting, or to pay the fee, comes with a hefty penalty and in extreme cases can amount to a criminal offense.

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