UK carbon scheme could be scrapped

Following a scathing attack from leading business group CBI the CRC Energy Efficiency Scheme’s days could be numbered, leaving complicated rules for private equity firms irrelevant, according to legal sources.

Outright opposition to the CRC Energy Efficiency Scheme from influential business group CBI has strengthened the position for removing the scheme and creating an environmental tax.

In anticipation of this possibility discussions on what might replace the CRC have begun between the Treasury and many industry sectors. 

The most obvious answer, according to an SJ Berwin client memo, is to increase the Climate Change Levy (CCL): a tax on fuels used for lighting, heating and power by business consumers, which is paid through their energy bills.

However this alone would not create the reputational incentives to reduce energy consumption found in the CRC. To address this issue the CBI advocated companies more broadly report greenhouse gas emissions on a compulsory basis. 

“If the government went with this then private equity firms wouldn’t have to jump through all the hoops of working out what their organisation is for CRC purposes and submitting all the complex reports,” Angus Evers, partner at law firm SJ Berwin, told PE Manager.

The client memo urges the private equity industry to continue making the case for fairer rules applying to their funds and portfolio companies whatever the outcome. 

Currently private equity firms are at the mercy of “complicated rules to aggregate businesses in a buyout portfolio”. The rules are in fact so complex that the BVCA sought legal opinion to assist members in interpreting them.

The rules state that funds, and their portfolio companies, must be aggregated and are required to complete the schemes reporting and filing obligations despite the fact many of the companies in a portfolio usually have no relationship with each other.  

Earlier this year the UK government announced that the CRC Energy Efficiency Scheme would be scrapped and replaced with a more straightforward environmental tax if major simplifications and administrative cost savings couldn’t be found.