Blake Lapthorn's Climate Change team were pleased to welcome Tony Hoskins, The Virtuous Circle Ltd, as its speaker at its latest green breakfast.

1. The CRCEES
– latest
developments
Green Breakfast Presentation
6th April 2011

2. The ongoing saga!
• Where CRC started
• Changes
– with the new Government – CSR October ’10
– with the consultation - November ’10
– with the simplification – February’ 11
• CRC – where next?

3. Its start - background
• 7 phases – 2010 -2043
• April 2010 - First phase and beyond
– Information disclosure or full participation (2008 HHM)
– Measure and comply from April 2010
– March 31st 2011 – report emissions & compile
evidence pack for July 2011 submission
– October 2011 – league table – recycling allowances
– Phase 2 and beyond – cap & trade

4. Its start – the administration
• Evidence pack – covering:
• structural records;
• data collation methods & data collected;
• recording of utility bills, with special events records;
• liaison with utility companies over invoice queries;
• and resolution and CRC allowances transactions
• CRC allowances – forecasting requirements and
procurement
• Nominated individuals - including Director responsible

5. Its start – costs & benefits
• Cash flow - impact reduced to six months
• Allowances – phase 1 fixed price then auction (phase 2
and beyond) - recycling of allowances
• Fines - failure to comply and poor/inadequate recording –
audit by Environment Agency (20% of organisations p.a.)
• Potential benefits – energy efficiency savings
• Reputation – potentially the major issue (costs marginal)

6. Its start
• Intended to be neutral for government revenue generation
• CRC allowance pot is recycled, based on performance
• However, recycling rate increases – from +/-10% for year
1 to +/-50% for year 5 – complex calculations
• Allowances purchased in advance – any deficit required
purchasing via the safety valve or the secondary market –
at market prices, and plus VAT

7. Its start – the performance league table
• Ranking all participants – not by sector – plus 4 questions
• Participants – actual 2,770 participants and 11,475
information declarers – anticipated 5k & 20k in total
• Phase one league table includes early action metric
measures (CT Standard or equivalent and Smart Meters)
– plus absolute metrics plus growth metrics (at the end)
• Subsequent phases – only absolute & growth metrics

8. Changes – October ’10– the facts
• Postponement – first sale of allowances to take place for 2011/2012
• Timing – allowances purchase after year end – for year 1!!!!
• Recycling becomes a tax – revenue from allowance sales will not be
recycled to participants, but “used to support public finances”
• Performance league table – retained as the main reputation driver –
timings, metrics & 4 quesitons remain as previously
• The CRC administrators – recognise concern over CRC complexity
and plan a consultation on simplification

9. Changes – October ’10 – perceived
implications - 1
• The cost of scrapping recycling – a retailer thought for the first few
years they would receive recycling payments – now a £4m cost p.a.
• Postponement – view was organisations could pull back on their
CRC initiatives, including data collation – but the evidence pack and
CRC reporting remain for 2010/11
• In the loop? – Perhaps not - Environment Agency said they were
“working to understand the implications of the changes”
• Early actions – without financial incentives linked to the league table,
the linked benefits of early action metrics disappear

10. Changes – October ’10 – perceived
implications - 2
• Senior management attention – because of tax
generation
• Easier administration & accounting – “no forecasting”
• Investment appraisal for energy saving initiatives – tax
easier to measure
• Landlord & tenants – Could tax be easier to pass on??

11. Changes with the consultation – the facts
• Less change than anticipated!!
• 5 proposed changes consulted upon
– Extend phase 1 and delay phase 2
– Remove the requirement for information disclosures
– Amend the CRC’s landlord provision re Northern
Ireland departments
– Update the division of administrators’ responsibilities
– Correct reference errors and technical fixes
• Changes implemented 1st April 2011

12. Changes with the consultation – the
proposals - all AGREED - 1
• Extend phase 1 and delay phase 2 – to give
further time for government consultation (2011
was phase 2 footprint year).
• Now phase 1 ends in 2014 & phase 2 starts then.
• Footprint years aligned to the first year of each
phase. Phase 2, footprint year is 2013/2014 – the
first annual reporting year – same as for phase 1.

13. Revised phasing
Phase 1 Qualification year
Annual Report
and footprint
report
Annual Report
R S S S
R – registration
between 1st April
Phase 2
& 30th September
R S S S S S
S – surrender of
allowances for
Phase 3 this year
R S S S S S
200 201 2011 201 201 201 201 2016 201 201 201 202 202 202 202
8 0-11 -12 2-13 3-14 4-15 5-16 -17 7-18 8-19 9-20 0-21 1-22 2-23 3-24

14. Changes with the consultation – the
proposals - all AGREED - 2
• Remove the requirement for information
disclosures – “Government considers the primary
value from the information disclosure process to
have been realised in phase 1 registration period”
• Remove requirement for information disclosure
after end of the phase one registration period.
• Some views suggested this diluted impact of
CRC on non participants.

15. Changes with the consultation – the
proposals - all AGREED - 3
• Amend the CRC’s landlord provision re Northern
Ireland departments – Northern Ireland
departments occupy their accommodation with a
single department being considered responsible,
as ‘landlord’.
• Update administrators’ division of responsibilities
– ensure relevant administrators are responsible
for inspection of records.
• Correct reference errors/technical fixes.

16. Changes with the consultation – the
implications
• Mostly administrative
• Information disclosure – sensible administrative
burden reduction but how will compliance be
monitored for those close to the threshold?

17. Changes with the simplification – the
background
• Simplification considered in the light of other
energy policy developments and CRC complexity
• Any changes would be in place before second
phase registration (April 2013).

18. Changes with the simplification – the issue
areas - 1
• Private sector organisational rules
• Review of the CRC supply rules
• Reducing the overlap between schemes (CRC,
CCA, EU ETS)
• Timing of allowances sales from 2012 onwards

19. Changes with the simplification –
discussion areas - 1
• Private sector organisational rules – issues about
highest parent (especially JVs); overseas
parents; group mgt structures; SGUs.
• Options for consideration:
– retain current rules but allow disaggregation;
– bottom up approach for qualification (drop highest
parent rule but possibly reduce qualification criteria);
– group structure based on accounting rules;
– UK top parent to replace overseas top parent;
– review designated changes

20. Changes with the simplification –
discussion areas - 2
• Review of the CRC supply rules –who is
responsible for energy supply?
• Significant options for consideration (of 8 in all):
– Counterpart to energy contract – without meter;
– Exclude other fuels – may change 90% rule
– Emissions responsibility based on consumption rather
than supply (reverses the treatment of landlord)

21. Changes with the simplification –
discussion areas - 3
• Reducing the overlap between schemes (CRC,
CCA, EU ETS) – issues about reporting under
CRC – plus GHG reporting
• Significant options for consideration:
– Exclude EU ETS or CCA participants from CRC;
– Assess qualification on basis of non “CCA” supplies
– Merge CRC with other policies, including GHG
reporting to create mandatory GHG reporting

22. Changes with the simplification –
discussion areas - 4
• Timing of allowances sales from 2012 onwards –
issues about forecasting/planning; potential
double purchase; and legal vires to facilitate
trading market
• Options for consideration:
– Phase 1 – 2012 onwards – to be decided
– Transition – 2 fixed price sales in 2013/2014 or
multiples sales during the year
– Phase 2 – Auction or retain phase 1 with variants

23. Changes with the simplification – a view of
the likely implications
• Better integration of CRC with other policy
initiatives - mandatory GHG reporting?
• Forecasting and planning energy and emissions
regains its emphasis for phase 2
• Auction of allowances likely for phase 2
• Organisational rules simplified – landlord/tenant?
• Fuels covered simplified
• BUT – process will be discussion (March 2011),
consultation on proposals, then legislation

24. Changes with the simplification – some
conclusions
• CRC will not go away – Gov’n commitment to
80% emissions reduction by 2050 & EU changes
• CRC may be simplified, but subsequent phases
will be broadly in line with original intention
• Energy/emissions management is essential for
effective phase 2 management – Manage,
Improve, Monitor is the focus for management
• CRC likely to stay as tax, rather than recycling
• PLUS ÇA CHANGE!

25. Thank you – and questions
thoskins@thevirtuouscircle.co.uk