News | Planning & Environment

Thursday 24th May 2007

Large non-energy intensive UK businesses (including supermarkets, hotel chains and large offices) and public sector organisations are to be subject to a mandatory emissions trading scheme, warns European law firm SJ Berwin LLP.  This is according to one section of The Energy White Paper released on 23 May 2007.  The scheme, which has been re-named the Carbon Reduction Commitment (“CRC”), is expected to see further consultation in June 2007, and it is proposed will be implemented using the enabling powers contained in the draft Climate Change Bill, which is the subject of separate consultation.

Changes from the November consultation- The Government originally proposed that the scheme would cover organisations with electricity consumption over 3,000 MWh per year from mandatory half hourly meters.  This threshold has now been raised and the Energy White Paper states that the CRC will only cover organisations whose mandatory half hourly metered electricity consumption exceeds 6,000 MWh per year - which is roughly equivalent to an annual electricity bill above £500,000.

A broad range of organisations from the private and public sector will potentially be covered by the scheme, including: large retailers and supermarkets, hotel chains, large offices, banks, fitness centre chains, multiplex cinemas, mobile phone network operators, rail transport operators, large commercial laundry services, light industry and manufacturing, hospitals, universities, central government departments and large local authorities. 

A key issue to be resolved is how the scheme defines 'organisation', given that the 6,000 MWh thresholds will apply at an organisational level, rather than simply on the basis of individual sites.

SJ Berwin points out that the key features of the CRC are:

• It will be Mandatory
  
  
• Applies to organisations with annual electricity consumption from mandatory half-hourly meters of over 6,000 MWh (with exemptions for energy use covered by Climate Change Agreements and the EU Emissions Trading Scheme)
  Based on a 'cap and trade' approach - i.e. the total energy use emissions by all the organisations in any one year will be set by Government, and the organisations will be able to buy and sell allowances for those emissions from each other
  
  
• Will start with an introductory phase, where allowances are distributed via a fixed price sale
  
  
• Following the introductory phase, allowances will be issued to the organisations via an auction and auction revenue will be recycled back to organisations.  Revenue recycling will take place by way of an annual payment based on average emissions since the scheme began, coupled with a bonus or penalty depending on an organisation’s performance in a league table.
  
  
• Includes a price link to the EU Emissions Trading Scheme
  
  
• 'Light touch' monitoring and reporting (i.e. organisations will only have to undergo self-certification and audits)
  
  
• Public reporting of emission reductions

The timing for the introduction of the CRC is not yet clear, but it could be as early as January 2010.

Teresa Weeks, Planning and Environment Lawyer at European law firm SJ Berwin LLP comments, “The CRC could have significant commercial implications.  Affected organisations will need to get to grips with emissions trading for the first time.  Although the Government is seeking to minimise the scheme’s administrative burden, the CRC will still have cost and resourcing implications for organisations and non -compliance with the scheme is also likely to attract heavy penalties.”

She added, "Organisations that may be affected by the CRC should engage with Government in the forthcoming public consultation and start assessing the potential impact of the scheme for their business. As part of the consultation process, Defra is planning to hold workshops in London and Manchester during July."

For further information please contact:

Sue Davidson on +44 (0)20 7111 2763, email sue.davidson@sjberwin.com  or Teresa Weeks on +44 (0)20 7111 2624, email teresa.weeks@sjberwin.com  or Karen Roberts on +44 (0)20 7111 2578, email karen.roberts@sjberwin.com      

On 1 June 2005 SJ Berwin LLP, an English limited liability partnership, took over the business of the SJ Berwin general partnership.  SJ Berwin LLP or an affiliated undertaking has an office in Berlin, Brussels, Frankfurt, London, Madrid, Milan, Munich, Paris and Turin.
 

• SJ Berwin LLP was named ‘UK Firm of the Year’ at the 2005 Legal Week Awards on 30 November.  The award recognised SJ Berwin’s five years of international expansion and its involvement in a series of high quality deals.
   
• SJ Berwin's Real Estate Division totals 118 staff  in London of which 23 are partners (3 of which are tax partners) , and over 50 associates, encompassing the disciplines of Commercial Real Estate, Construction, Planning & Environment, Property Litigation, Real Estate Funds and Tax.  There is an increasing emphasis on cross firm activity with related areas of Banking and Corporate.  The division acts for blue chip clients including British Land, Royal Bank of Scotland, the Hilton Group, Brixton plc, AXA, The Crown Estate, Marks & Spencer and Gazeley.  In addition there are  3 dedicated European real estate partners
   
• The Real Estate Team was Legal Business Real Estate Team of the Year 2005.  It was also named "Real Estate Team of the Year" in the Lawyer Magazine Awards 2004, following its advice on the RBS/Canary Wharf transaction, the highest-value property investment transaction in the UK in 2004.
   
• Revenue from Real Estate represents approximately 21% of the firm's total revenue in London.