Cost of Carbon Reduction Compliance to CRC Scheme Increases Following UK Spending Review

London, 21 October 2010 – The cost of compliance with the Carbon Reduction Commitment (CRC) energy efficiency scheme has increased dramatically for the average participant, following the UK Government’s comprehensive spending review announcement yesterday, according to CB Richard Ellis (CBRE).

The Government announced that the revenues from the sale of carbon allowances will now be used to support public finances, rather than recycled back to participants in the scheme. This move is set to incentivise participants to reduce their emissions, which is likely to result in a hike in carbon prices under the scheme. A lack of time to significantly report under the new scheme will develop a risk of inaccurate reporting and penalties for participants.

Whilst the Government explicitly stated that changes to the CRC scheme are designed to simplify it and to reduce the burden on business, the main complexities associated with compliance remain. Groups of companies will still be required to complete the existing carbon footprint annual reports, as well as complete an additional registration for the second phase of the scheme.

Andrew Baker, Sustainable Energy Consultant, Global Corporate Services, CBRE, said: “Participants in the CRC scheme have almost no time to embed the new processes necessary to accurately identify and report carbon emissions under the scheme before their 2010-2011 ‘footprint report’ is due. Regardless of the Government’s changes, those participants that fail to accurately report emissions from across their entire CRC group continue to face significant civil and, in some cases, even criminal penalties for non compliance. The changes have very serious new implications for landlords and corporate occupiers of commercial property - in one day, they have seen their potential liability under the scheme sky rocket.”

According to CBRE, the abolition of recycling the sale of carbon allowances back to participants provides greater price transparency and reduced complexity in forecasting the true cost of carbon. However, it also means that the cost of compliance for the average participant has risen dramatically.

“In an unfortunate double crunch for businesses, the shift to a tax rather than recycling the cost back to participants means the price of carbon under the scheme is also set to significantly increase. Without the recycling mechanism, average performers - for whom the scheme would have previously been largely revenue neutral - are suddenly significantly incentivised to reduce their emissions, the effect of which is likely to be a hike in carbon price under the scheme,” concluded Baker.

Download the CRC report here
Download the CRC report here