Josephine Howe
Partner | Legal
Jersey
Partner
Jersey
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The Carbon Reduction Commitment Energy Efficiency Scheme (“CRC Scheme”) is a new mandatory climate change and energy saving Scheme aimed at improving energy efficiency and cutting carbon dioxide (CO²) emissions in the UK. It was introduced on 1 April 2010 and is administered by the UK’s Environment Agency.
With effect from April 2011, qualifying organisations will be required to purchase “allowances” from the UK Government equal to their annual emissions, at an initial cost of £12 per tonne of CO² they produce.
During the introductory phase of the CRC Scheme there will be no limit on the number of allowances issued. From March 2013, however, allowances will be capped and sold by way of auction, thus creating a financial incentive for organisations to invest in ways to reduce the number of allowances they need to buy.
All proceeds from the CRC Scheme will be “recycled” back to participants. League tables will be published with participants ranked according to how their emissions have reduced. These rankings will determine the value of the “recycling payment” made, with participants who have improved their energy efficiency being given a bonus element and participants ranked lower on the league table suffering a penalty.
Organisations will qualify for full participation in the CRC Scheme and must register with the Environment Agency by 30 September 2010, if they, together with members of their group:
Once registered they will need to monitor and record their emissions and purchase allowances annually.
The extent to which an organisation must participate depends on its energy consumption during the relevant “qualifying period”. The relevant “qualifying period” during the Introductory Phase is 2008.
Organisations that consumed less than 6,000 MWh in 2008 (approximately £500,000 per annum) must make an information disclosure to the Environment Agency.
It is estimated that initially around 5,000 organisations will qualify for full participation, including supermarkets, hotels, water companies, banks, local authorities and all central Government Departments. Qualifying organisations will have to comply fully with the CRC Scheme or face financial and other penalties. A further 15,000 will have to make an information disclosure.
Organisations are required to participate in the CRC Scheme on a group wide basis. Only UK energy consumption is counted for the purposes of the Scheme but all members of the group, including non UK members are jointly and severally liable for compliance. The highest parent entity within a structure has additional administrative responsibilities under the CRC Scheme. Where such entity is an offshore entity and has no UK subsidiaries in its group, it will need to appoint a compliance account holder with a principal place of activity in the UK to represent it in the CRC Scheme.
Membership of a group is determined for the purpose of the CRC Scheme by applying the same tests used for determining an accounting group, as set out in the Companies Act 2006.
There is particular interest at present surrounding the impact of the CRC Scheme on trusts where the trustees hold UK property directly. This interest stems from the way in which the CRC Energy Efficiency Scheme Order 2010 (“Order”) requires organisations to aggregate their energy use for the purposes of the CRC Scheme and determines whether an entity is part of a group by reference to provisions in the UK Companies Act 2006. This appears to have unintended consequences for trustees.
Where a trustee holds UK real estate indirectly by way of shares in a company, it is recognised that the trustee is acting in a fiduciary capacity and the order provides for the energy consumption of the Trust to be aggregated with that of other undertakings within the beneficiaries’ group. Individuals are outside the scope of the CRC Scheme so, consequently, where the beneficiaries of the trust are individuals, the shareholdings are treated as owned by such individuals and any qualifying electricity supplied to the undertaking will not need to be aggregated with that consumed by the beneficiaries. Where the beneficiaries of the trust are undertakings then the shareholdings will be treated as owned by such undertakings in proportion to their rights under the trust instrument. Where any beneficiary is beneficially entitled to more than 50% of the voting shares in the undertaking held in the trust (or otherwise qualifies as a parent undertaking of that undertaking pursuant to Companies Act 2006) then any qualifying electricity supplied to each such undertaking must be aggregated with that consumed by the relevant beneficiary and its wider group.
By contrast, where UK real estate is held directly by a trustee on trust for several different clients, the current guidance on the order is that the energy consumption for all such properties must be aggregated at the level of the trustee for the purpose of determining whether the trustee is required to participate in the CRC Scheme.
In the context of professional trust companies, this could result in:
The CRC Scheme was introduced on 1 April 2010 and qualifying organisations must register by 30 September 2010.
The introductory phase of the CRC Scheme lasts for 3 years with participating organisations being required to purchase credits from April 2011 based on their energy consumption during 2008.
If an eligible organisation fails to register by 30 September 2010, it may be subject to a maximum fine of £45,000, comprising:
Reputational damage must be also considered as non-compliance will be published.
If you administer entities with significant interests in the UK you should take the following steps in advance of 30 September 2010:
Josephine Howe
Partner | Legal
Jersey
Partner
Jersey
James Campbell
Partner | Legal
Jersey
Partner
Jersey
Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.
This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.
Regulatory information can be found under Legal Notice
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