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The CRC is dead: long live Streamlined Energy and Carbon Reporting

On Wednesday 18 July, The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 was laid before Parliament.  This Order will come into force on 1 October this year and will abolish the CRC when its current Phase ends.  This means that, from 1 April 2019 onwards, there will be no further obligation to monitor gas and electricity supplies under the CRC. The final CRC allowances must be purchased and then surrendered by the last working day of October 2019.

Few, if any, in the property industry will mourn the passing of the CRC.

However, we now need to gear ourselves up for Streamlined Energy & Carbon Reporting instead!  Also on 18 July, the government published its response to the consultation it launched in October 2017 on what could replace the CRC.  Government has already legislated to increase the Climate Change Levy in 2019, so that the abolition of the CRC is fiscally neutral to the Treasury.

The consultation response shows a clear policy intention to replace the reporting aspects of the CRC with a new mandatory reporting regime that broadly follows the existing reporting regime under the Energy Savings Opportunity Scheme (ESOS). However it will be implemented through the existing mechanism of directors’ reports within annual company accounts rather than requiring additional filings with Companies House (or other regulator).  This follows the recommendations of, in particular, The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures, that climate-related disclosures should be part of mainstream financial filings.

This means that the reporting obligation will normally fall upon the highest UK company in a corporate group (as that is usually the entity that submits group accounts) and that non-UK companies will be exempt from reporting.
The proposal is that all quoted UK companies and all “large” unquoted UK companies and LLPs will be required to report their energy consumption and greenhouse gas emissions.  The proposed thresholds for triggering the reporting obligation are:

– 250+ employees; or

– an annual turnover greater than £36m and annual balance sheet total greater than £18m.

The consultation response suggests this will catch about 11,900 companies, 230 LLPs, and up to 50 unregistered companies who will need to include SECR information in their directors’ reports.  However, there will be an exemption for “very low energy users”, which the government suggests will be entities that use 40,000 kWh or less in a 12 month period.  There will also be an exemption for entities who cannot practically report.  This all aligns, broadly, with ESOS and mandatory greenhouse gas reporting.

SECR information must include a section on energy efficiency action taken in the financial year.  There will be no compulsory disclosure of ESOS recommendations and how they have been acted upon, although reporters can of course comment on this if they wish to do so.

It will be interesting to see how the property industry responds to these proposals and how the government develops and fleshes them out in legislation.  As the new reporting regime will need to come into effect in 2019, expect to see draft legislation published soon to give effect to the outcome of the consultation.  More on that when we have seen it!