A bill setting updated deadlines for participation in the UK's CRC Energy Efficiency Scheme is expected to become law in the coming months, according to various legal experts tracking the bill's movement through the UK legislative procedure.
Private equity firms with operations in the UK must evaluate their electricity consumption from 1 April 2012 to 31 March 2013 to determine if they must participate in “Phase 2” of the scheme. Firms that consume at least 6,000 MWh, or about £500,000 in annual electricity costs, will need to buy carbon emission allowances as part of Phase 2 of the scheme. Those that do will need to register with the online CRC registry by 31 January 2014, with Phase 2 officially beginning later that April.
Compliance with the three year old carbon scheme has long been a source of concern for private equity firms in particular. Currently the scheme requires firms to aggregate all majority owned portfolio companies into one group when registering with the scheme, meaning liability and compliance risks would be shared amongst the entities grouped together.
However it is expected that firms will be able to disaggregate every entity within their group, with the exception of the TopCo, according to sources. If so, it would provide firms the option of disaggregating all of their portfolio companies on an individual basis, meaning those parties would participate with the scheme independently, said Angus Evers, environmental partner at SJ Berwin.
Entities that wish to disaggregate will need to register with the scheme separately by 30 April 2014
Firms that do report under the scheme independently from portfolio companies should however consider a few factors. A number of smaller portfolio companies may not be well equipped to deal with the administrative burden of CRC compliance, warn legal experts.
“They may not have the in house expertise to deal with the monitoring and reporting,” said one UK-based lawyer. “And if you disaggregate your entire portfolio that means many sets of registration fees and subsistence fees every year.”
Another factor for firms to bear in mind when disaggregating is that the consent of both parties is required. In other words, portfolio companies must agree to be disaggregated. Evers warns that management may push back in some cases.
For firms currently participating in the scheme, the UK government has also provided some quick wins. Firstly the government has reduced information gathering burdens for participating entities by decreasing the number of fuels that need to be reported on from 29 to two (electricity consumption and the use of gas for heating).
The government has also extended the deadline for firms to surrender their fuel allowances from 31 July to 31 October, leaving firms a three month time gap from the time they file their annual carbon emissions reports to the time they surrender allowances.