UK cements welcomed carbon law reforms

The UK government has reaffirmed its stance that GPs can separate liability between investment funds and portfolio companies under its Carbon Reduction Commitment Energy Efficiency Scheme (CRC).

In March the government’s Department of Energy and Climate Change (DECC) opened a consultation period with the aim to simplify the scheme’s operations and design. The government then responded to the consultation verifying the changes it hopes will deliver a 55 percent reduction in administrative costs for participants.

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. And GPs only have limited rights to disaggregate portfolio companies that would qualify for CRC registration as a standalone entity. 

However from April 2014, subject to Parliamentary approval, firms will be able to disaggregate their portfolio companies regardless of their size. 

Angus Evers, partner at law firm SJ Berwin, explained to PE Manager, why this should be considered a significant boon for the industry: “[GPs] can disaggregate all their majority-owned portfolio companies and not have to worry about data collection, annual reporting, buying allowances for those portfolio companies and how to pass on the cost of the allowances.”

Evers added that another advantage of disaggregation is that “it removes the risks that come with joint and several liability for breaches of the CRC Order, which applies to groups of undertakings registered together”. 

However, Evers is dubious about the government’s claim that this will result in significant administrative savings, as firms and large portfolio companies will still need to register with scheme. 

Other welcome reforms include a reduction in the types of fuels participants report to authorities. Prior proposals listed 29 different fuel types, but this was later reduced to two (electricity and gas for heating). 

Earlier in July the entire format of the scheme was put into doubt following outright opposition from influential business group CBI, which favoured instead the introduction of an environmental tax to reduce carbon emissions. However the scheme will remain in its current form until at least 2016 when it is up for review.