APPENDIX 3: DRAFT CRC ENERGY EFFICIENCY
SCHEME ORDER 2013: ADDITIONAL INFORMATION
Information from the Department for Energy and Climate
Change
Q1: The Explanatory Memorandum to the Order says:
"The main climate change policy instruments affecting large
private and public sector organisations are the Climate Change
Levy (CCL), CCAs and the EU ETS...The CRC Scheme has been designed
to avoid overlap with these instruments and the simplified scheme
clarifies this further by simplifying the process to avoid double
regulation." Could you provide more information, for the
Committee, on the working of these other policy instruments, and
the way in which the CRC Energy Efficiency Scheme will work in
parallel without overlap?
A1: The main climate change policy instruments affecting
large private and public sector organisations are the Climate
Change Levy (CCL), CCAs and the EU ETS.
The CCL is a tax on the taxable supply of specified
energy products for use as fuels for lighting, heating and power
by business consumers. CCAs are voluntary instruments allowing
certain sectors a reduction on their CCL where agreed emission
reduction targets are met. 51 sectors are covered by Climate Change
Agreements. The EU ETS is a site-based trading scheme designed
to drive emission reductions from upstream energy intensive facilities.
The UK has 1,100 EU ETS participants, which account for around
50% of the UK's carbon emissions.
The CRC was designed to target emissions from large
non-energy intensive public and private sector organisations which
are not regulated under either the EU ETS or CCAs. Organisations
covered by the CRC are responsible for around 10% of the UK's
emissions. As the CCAs and EU ETS apply only to facilities and
installations where regulated activities are carried out (and
to "Directly Associated Activities"), and not necessarily
to the entire site or organisation, there are organisations which
are subject to more than one regulatory instrument.
While the CRC scheme was designed to avoid double
regulation, in practice it was recognised that the processes put
in place to ensure this introduced significant complexity for
organisations. Under current CRC rules, organisations are required
to report their CCA and EU ETS emissions in their CRC footprint
report, which proved administratively burdensome for participants.
They must also consider electricity supplies to their CCA facilities
and EU ETS installations when assessing whether they qualify for
CRC participation.
CRC simplification reduces overlap between the policies,
by removing from the scope of the scheme all energy supplies to
CCA facilities and EU ETS installations, as defined in the CRC
Order. In the simplified scheme, organisations will no longer
have any CRC obligations in respect of energy supplied to CCA
facilities or EU installations: they will neither need to report
on, nor surrender CRC allowances in respect of, electricity supplied
to EU ETS or CCA facilities. Electricity supplies to CCA facilities
and EU ETS installations will no longer need to be considered
when assessing CRC qualification, which will allow for the removal
of the three exemptions currently available for CCA participants,
which have been recognised as introducing significant complexity.
Q2: The Impact Assessment contains the following:
"There is a reduction in benefits of £183m through a
loss of energy savings brought about by removing CCA and EU ETS
overlaps with the CRC and by reducing the number of fuels which
participants are required to report on. Air quality benefits fall
by £3m and changes to emissions savings result in a fall
in benefits of £41m." Given these apparently large reductions
in benefits from the changes being made, can you set out more
clearly why the Government consider that there is a continuing
case for the CRC Energy Efficiency Scheme?
A2: While removal of CCA and EU ETS overlaps and
reducing the number of fuels covered will lead to a reduction
in benefits, this is offset by a significant reduction in administrative
and capital costs as a result of simplification (estimated to
be £285m). Overall, the net benefit of CRC simplification
is estimated to be £77m. In addition, the revenue generated
from the sale of allowances within the CRC Scheme will continue
to support the Government's commitment to address the UK's deficit.
14 March 2013
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