CRC Reform – Energy usage to be reported in financial statements

Authors: Julie Vaughan, Senior Associate, Environment and Carol Shutkever, Partner, Corporate, London

News of what is to become of the CRC (formerly Carbon Reduction Commitment) Scheme post-2019 has finally arrived, in the form of a new Government consultation from the Department of Business, Energy and Industrial Strategy (BEIS) issued on 12th October 2017*:

  • the obligation to buy allowances to cover energy usage will cease and be replaced by an increase in the rate of the Climate Change Levy (CCL) – a longstanding tax on high energy usage;
  • instead of reporting to the Environment Agency, disclosure of energy usage is proposed to form part of a company’s financial statements.

Disclosure in the accounts is designed to bring to the attention of the Board (and other stakeholders such as potential investors) the potential for cost savings through implementation of energy efficiency measures and thereby to contribute to Government policy in the area of climate change and energy security.

In her introductory statement to the consultation document, Energy Minister Claire Perry tags the policy rationale behind this as “what gets measured, gets managed”, noting potential monetary savings of over £2 billion per year for business.

This latest step follows the review of business energy efficiency taxes announced over two years ago in the 2015 summer budget and followed with a consultation between September and November of that year. In its March 2016 response to that consultation, the Government promised to focus in future on a single business energy tax – the existing CCL – and abolish the CRC from the end of the 2018-19 compliance year, reducing the administrative burden, simplifying the tax system, making compliance easier and providing a clearer price signal to drive energy efficiency.

Currently around 5,200 business and public sector organisations are caught by the CRC scheme and have to annually to report their UK energy use and purchase allowances to cover their carbon emissions. Around 10,700 ‘large undertakings’ are also required to perform an energy audit every four years under the Energy Savings Opportunity Scheme (ESOS) and aIl UK quoted companies are additionally required to include details of their greenhouse gas (GHG) emissions in their annual financial statements.

Going forwards, existing CRC participants will no longer be required to purchase allowances to cover emissions for energy supplied from April 2019. They will need to send their final CRC reports to the EA by the end of July 2019 and surrender allowances for emissions from energy supplied in the 2018-19 compliance year by the end of October 2019.

The new proposals essentially extend the mandatory GHG reporting scheme to unquoted companies and to energy usage as well as GHG emissions:

  • small companies under the Companies Act regime are likely to  be exempt;
  • the category of unquoted companies included might be those that qualify under the existing CRC test relating to 6,000 MW half hourly metered electricity use, or those qualifying as large under either the ESOS  or Companies Act criteria;
  • quoted companies will be required to report global energy use from all fuel sources as well as global GHG emissions;
  • unquoted companies will only have to report use of electricity and gas but need additionally to start reporting their UK use of energy in transport (only a combined total figure need be disclosed);
  • an energy intensity metric will need to be included;
  • unquoted companies wilI become obliged to disclose UK emissions;
  • public sector bodies and educational establishments – for whom other energy efficiency incentives are being developed separately will be excluded;
  • failure to comply with the new disclosure will cease to entail potential criminal sanctions, being instead subject to civil enforcement mechanisms.

BEIS is also considering refinements such as electronic reporting of energy and emissions data and is open to receive suggestions of other complimentary incentives to promote enhanced disclosure.

The revised requirements are intended by BEIS to be UK wide but are subject to further discussion with the devolved administrations.

Responses to the BEIS consultation need to be submitted to BEIS by 4th January 2018.

*Click here to read the consultation document: STREAMLINED ENERGY & CARBON REPORTING – Raising awareness, reducing bills, saving Carbon (Department for Business, Energy and Industrial Strategy, BEIS)

For more information please contact:

Julie Vaughan
Julie Vaughan
Senior Associate, Environment, London
Email | Profile
+44 20 7466 2745
Carol Shutkever
Carol Shutkever
Partner, Corporate, London
Email | Profile
+44 20 7466 2013

 

 

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