Government presses ahead with proposals to simplify CRC despite the possibility of a new "environmental tax"

Energy Secretary Ed Davey said that the plans, which will reduce the reporting requirements placed on business cutting administrative costs by almost two thirds and remove the operation of detailed metrics from the Performance League Table.

The Government “does not propose to fundamentally revisit the CRC’s landlord-tenant approach.” Under the proposals companies will be able to participate in the scheme on a more flexible basis and the rules on participation will be simplified.

Davey reiterated the support of the Department of Energy and Climate Change (DECC) for the scheme despite  the Chancellor George Osborne warning that the "cumbersome and bureaucratic" scheme could be replaced with a new environmental tax if the Government could not find significant administrative savings in last week's Budget Statement.

"We have listened to businesses' concerns about the CRC and have set out proposals to radically cut down on 'red tape' to save businesses money," Davey said. "The benefits of the scheme are clear though. It will deliver substantial carbon savings helping us to meet carbon budgets, and it encourages businesses to take action to improve their energy efficiency."

The CRC is a mandatory scheme aimed at improving energy efficiency and cutting CO2 emissions in large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS). CRC participants must measure and report on their emissions, and purchase allowances to cover their emissions.

The DECC said that it plans to bring the changes into effect from April 2013, when the second phase of the scheme is due to begin, if the Government decides to retain the CRC.

Corporate law expert Roger Fink of Pinsent Masons, the law firm behind Out-Law.com, said that the firm had been making representations to DECC on the complexity of the scheme for some time. "Simplification is long overdue - the Government first announced its plans to do so some 18 months ago," he said. "Whilst most businesses are in favour of reducing energy emissions, CRC is an overly complex scheme which has caused businesses to incur considerable management time and costs."

The proposed simplification measures mean that participants will only need to report on their use of electricity and gas, as well as kerosene and diesel where these are used for heating, rather than the 29 fuels covered by the CRC at present. Companies covered by the EU ETS or a Climate Change Agreement will no longer need to purchase CRC allowances.

The Government also intends to replace auctioning of carbon allowances with two annual fixed-price allowance sales. The first will be a cheaper forecast or 'forward' sale at the beginning of the year and the second a retrospective sale of more expensive allowances at the end of each year.

In addition, the detailed metrics in the annual Performance League Table, which was last published in November 2011, will be removed from the legislation and replaced with guidance.

Property law expert Siobhan Cross of Pinsent Masons said that although any simplification measures were to be welcomed the consultation had not addressed "the principle concern of the property industry – namely the complications of making landlords responsible for the energy consumption of their tenants".

"Making tenants of 'building leases' responsible for  the CRC  reporting requirements rather than landlords, but otherwise leaving  landlords responsible for CRC  on energy consumption where they are counterparty to the energy supply agreement,  is of particular interest to the property sector," said Cross.

"Whilst it is frustrating to be considering a further lengthy consultation document against the background of possible wholesale replacement of the scheme we are all, Government included, in uncharted territory when it comes to climate change," Cross added. "It is to be hoped that trial, and perhaps some error, will achieve the required reduction in carbon emissions in the timescale required, and that those committed to this will respond to the consultation in the hope that the scheme - if it is to continue - is as effective and workable as it can be."

Environmental law expert Linda Fletcher, also of Pinsent Masons, said that although the consultation itself was expected its 12-week duration seemed "too long" given the Budget announcement. The Chancellor said that proposals for an "alternative environmental tax" to replace the scheme could be published this autumn if major administrative savings were not found.

"In addition, it had been widely expected that the first sale of allowances would take place during June and July this year," she said.

The Government has announced that it will miss its deadline for making a decision on whether companies should be forced to report their greenhouse gas emissions. The Climate Change Act gave the Government a deadline of 6 April 2012 either to propose a regulation on mandatory emissions reporting for companies or to explain to Parliament why no such regulation had been made.

In a statement (6-page / 148KB PDF), the Department for the Environment, Food and Rural Affairs (Defra) said that it aimed to make a decision "within the next few months" after it had taken the time to consider over 2,000 written submissions to its consultation on the costs and benefits of a mandatory as opposed to a voluntary scheme.