CRC Energy Efficiency Scheme: Are You Registered?

If any of your portfolio companies has operations in the UK, there is a good chance that you should be registering with the UK Environment Agency – in some cases by the end of June.

The key issue for private equity firms is that organisations are required to participate in the CRC on a group-wide basis, so if one portfolio company meets the basic qualification criteria, the private equity fund and all other portfolio companies held by it will be jointly responsible for CRC compliance.

Depending on your fund structure, the Environment Agency may even treat all funds managed by the same private equity firm and their respective portfolio companies as a single CRC group.  As the topco is primarily responsible for CRC registration, this puts the private equity firm in the driving seat.

In or out?

Qualification for the initial phase of the CRC is assessed by reference to the calendar year 2008.  Your CRC group will consist of all those entities that were under common ownership on 31 December 2008 (whether UK or non-UK, and whether or not you still own them).

If any of those entities was supplied with electricity through a UK half hourly meter at any time during 2008, your group will have CRC compliance obligations.

• If total UK half hourly electricity consumption for the group for 2008 was over 6,000MWh, the group will be required to participate fully in the CRC.

• If total UK electricity consumption for 2008 was less than 6,000 MWh, the group will be required to make an information disclosure to the Environment Agency, but will not participate fully in the scheme.

• If no entity within the group was supplied with electricity through a half hourly meter during 2008, you are outside the scope of the CRC.

Disaggregation

The starting point for registration is that each CRC group should register as a single CRC participant, but special rules allow you to divide the group into two or more separate CRC participants if each sub-group independently meets the qualifying criteria.  This is known as ‘disaggregation’.

Getting registered

The CRC online registry is open now, and registrations (or information disclosures) must be made by 30 September 2010.  However, if you want to take advantage of the rules on disaggregation, you must register by 30 June 2010.

What happens after registration?

If you are required to register as a full CRC participant, you must monitor and report your group energy consumption from April 2010 to March 2011 (the ‘footprint year’).  This sets your baseline emissions.

You are then required to buy CRC allowances at the beginning of each scheme year in units representing the right to emit one tonne of CO2.  Initially, an unlimited number of allowances will be sold at a fixed price of £12 each (this will cost in the region of £40,000 if you are just over the 6,000MWh threshold).  Later on, a fixed and reducing number of allowances will be sold by auction, so that energy inefficiency becomes increasingly expensive.

At the end of the year, you report your actual energy usage to the Environment Agency, and must surrender a number of allowances equal to your CO2 emissions for cancellation.  You can trade allowances with other CRC participants throughout the year to ensure that the number of allowances held at the end of the year is equal to the amount of CO2 actually emitted.

The Environment Agency will produce a performance league table in October each year, showing how successful (or unsuccessful) organisations have been at reducing their emissions.  The money raised by the sale of allowances is then ‘recycled’ to participants, with the amount paid to each participant being determined by league table position.

What if I don’t register?

An organisation that fails to register as a CRC participant may be subject to a financial penalty of up to £45,000, and may also be publicly ‘named and shamed’ by the Environment Agency.  If the Environment Agency serves an enforcement notice, non-compliance is a criminal offence for which the directors of the company in question may be prosecuted personally.

So, what do I do now?

If you have not yet started thinking about CRC compliance, the first step is to find out whether any portfolio companies – or any entities with your own structure – were supplied with electricity through a UK half hourly meter during 2008.  If so, you need to determine your CRC group and start collecting 2008 electricity consumption data.  For firms who want to disaggregate, the registration deadline is very tight, so the sooner this exercise is underway, the better.

Stephanie Biggs is a partner in the private funds group at Kirkland & Ellis International.