Spending Review: CRC Scheme

Included in the Government Spending Review was the following entry regarding the CRC scheme:

"2.108 The CRC Energy Efficiency scheme will be simplified to reduce the burden on businesses, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. Revenues from allowance sales totalling £1 billion a year by 2014-15 will be used to support the public finances, including spending on the environment, rather than recycled to participants. Further decisions on allowance sales are a matter for the Budget process."

This brief entry means that the “recycling” payments, that were going to be payable to those participants who were near the top of energy reduction league tables, will now not be received. The CRC scheme will therefore be a cost to all those organisations required to participate regardless of how well they perform. Details are yet to follow and in particular as to whether the scheme will at some point go back to including recycling payments. However the change could mean that the payments to be made under CRC become akin to a tax - and so would be covered by the typical commercial lease tenant’s covenant to meet the taxes relating to the let premises.

We have yet to see many typical commercial leases making any sort of provision for CRC costs given that the issue is highly contentious between landlords and tenants. As the previously planned recycling payments meant that the money generated by the scheme was not going to be kept by the Government, CRC costs did not fall easily into the definition of a tax. Nor, as CRC costs are payable by reference to the amount of energy used by an organisation rather than at a particular building, do CRC costs fall easily into the definition of an outgoing. With this change outlined in the Spending Review the issues for both landlords and tenants will have to be considered again.

It is perhaps very fortunate that the first year of payments due under the scheme has been put back a year so that we all have extra time to review and consider how best to proceed. The operation of CRC is fiendishly complicated - if the promise of simplifying the scheme is fulfilled, that can only be to the good.