UK’s Carbon Reduction Commitment regime winds down

The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 entered into force on 1 October 2018, abolishing the UK’s Carbon Reduction Commitment (CRC) regime.

Key dates are as follows:

• The scheme will close at the end of the 2018/19 compliance year (31 March 2019), which marks the end of Phase II of the Scheme.
• No one will need to register for Phase III (which had been due by December 2018).
• Existing participants in Phase II will continue to be required to report their emissions at the end of the 2018/19 compliance year.
• Allowances for this year must be surrendered by the last working day of October 2019.

SECR 

The Government’s intention is for CRC to be replaced by the reporting obligations in The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, which are due to come into force on 1 April 2019. The reporting changes will apply to all financial years of relevant companies which begin on or after 1 April 2019. Accordingly, reporting is not required until the end of that year (so, April 2020 at the earliest).

These create an obligation on the following companies to participate in Streamlined Energy and Carbon Reporting (SECR):

• All quoted companies
• All large UK incorporated unquoted companies and LLPs, using the Companies Act 2006 definition of “large” (companies fulfilling at least 2 of the following conditions in the financial year: (i) at least 250 employees; (ii) annual turnover greater than £36m; and (iii) an annual balance sheet total greater than £18m).

There are a range of exceptions and qualifications:

• UK portfolio subsidiaries above the “large” threshold will not be required to report if they are covered by a parent’s group report.
• Reporting is required on a group basis where a UK parent company or LLP prepares consolidated group accounts (subject to certain qualifications).
• Companies not registered in the UK are not obliged to file annual reports at Companies House, so are not required to report on SECR.
• Where a parent company is not registered in the UK but has portfolio companies which are, the portfolio companies only need to participate in their own right if they themselves are over the thresholds above.
• Companies using less than 40,000 kWh of energy a year are exempt.

The report itself is required to provide detail on carbon emissions from energy use from electricity, gas and transport (depending on the type of company), along with a narrative description of action the company or group has taken on energy efficiency in the relevant financial year.

The scheme is still in draft, and it is expected that detailed guidance will be issued after the legislation is finalised later this year, which will hopefully make the application of the grouping tests to funds/portfolios a little more clear.

ESOS

A briefing on how ESOS works is available here. In short, there is a rebuttable presumption that all UK group companies with a common parent (even if the parent is foreign) will participate together – but it is possible to participate separately if entities within the group choose to file notices to this effect.

ESOS reports are only required every 4 years, and the next reporting deadline is not until 5 December 2019 (for entities which qualify as at 31 December 2018).

SECR will apply in addition to ESOS, which was introduced in 2015, and implements a wider EU requirement.