The CRC Energy Efficiency Scheme is a mandatory cap and trading scheme due to come into force on 1 April (see EG A new look for carbon initiative and A lack of direction). It will affect large public sector and private sector organisations that use more than 6,000MWh of electricity settled on half-hourly meters in 2008.
Participants in the scheme will need to buy and surrender carbon allowances in relation to their energy usage. The initial price of allowances has been fixed by the government at £12 per tonne. However, with effect from 2013, allowances will be sold by auction. In addition, the number of allowances will be capped; the government expects this to push prices up and encourage buyers to use less energy.
The CRC Energy Efficiency Scheme Order 2010, which will bring the scheme into force, was laid before parliament on the 19 January for approval by affirmative resolution. It is accompanied by a helpful user guide that explains the complex provisions set out in the Order.
The guide contains a wealth of detail. It explains how the government plans to operate the scheme, and how performance will be assessed, compared and publicised. It also explains how allowances will be “recycled” back to participants, although the Order does not contain any provisions dealing with this aspect of the scheme. It appears, therefore, that recycling payments will operate on the basis of extra-statutory guidance published by the government, and not on the basis of any legislative provision.
The Order has been substantially revised following responses to a consultation. However, despite attempts to persuade the government to allow landlords to transfer responsibility for CRC to tenants, the Order provides that landlords who are CRC participants will be responsible for energy consumed in tenanted buildings (as well as in buildings that they occupy) where they procure energy for their tenants’ use. The government has explained that this is because it believes that landlords can influence energy consumption by tenants. In addition, it prefers an administratively simple approach.
The government has added a provision to the Order requiring tenants to cooperate with landlords, but this will not enable landlords to pass CRC costs to tenants. The government has indicated that parties to leases must discuss and agree this for themselves. It suggests that landlords and tenants should agree terms in new leases, and has indicated that its approach should not be regarded as preventing landlords from passing CRC costs and benefits to tenants where existing leases allow them to do so. It has left the courts to decide whether business leases, which are being renewed under the Landlord and Tenant Act 1954, can be updated to cater for the scheme.
The British Property Federation has launched a consultation to explore whether a cross-industry consensus can be reached on how CRC costs should be apportioned between landlords and tenants. The consultation closes on 5 February.
Allyson Colby is a property law consultant
