Press release

CARBON REDUCTION COMMITMENT GUIDE LAUNCHED

Date

12th June 2009

Description

The BPF has launched a guide on the carbon reduction commitment (CRC), a mandatory cap and trade scheme that could have significant costs for firms or public sector who fail to control their carbon emissions.

PLEASE DOWNLOAD THE PDF PRESS RELEASE FOR A SELECTION OF REACTION FROM PROPERTY FIRMS, ENERGY FIRMS AND TRADE BODIES. Contact the BPF press office on 020 7828 0111

The government backed-guide has been produced by numerous bodies and is also supported by the country’s leading energy firms npower and Centrica.

Ministers have said that the scheme will be ‘revenue neutral’, meaning all funds will be recycled between the scheme’s participants depending on how they perform. But despite the fact that the scheme starts next April across the UK, research shows that the vast majority of firms are unprepared while many don’t know about it at all.

Firms consuming more than 6,000 megawatt hours of electricity in 2008 (around £500,000) will have to pay out an estimated £1.4bn1 for the allowances when they go on sale at the end of the scheme’s first year in 2011. Although this will impact on cash flow, because the funds are recycled this won’t be a net cost. The price of carbon will initially be fixed at £12 per tonne, but after three years the cap on emissions is applied with the the price likely to increase significantly.

Over 54 per cent of companies do not know if they are affected by the CRC scheme, while 50 per cent of firms do not currently measure their carbon emissions.2

The ‘polluter pays’ principle of CRC works by making the energy user purchase allowances for the energy they consume. Everyone in the scheme is entered into a league table. At the start of the scheme those who perform well and use less energy than when the scheme started will rank at the top of the league table and will be awarded a payment that is calculated by reference to a 10 per cent bonus, while those who perform badly will rank at the bottom of the table and will receive a payment that is calculated by reference to a 10 per cent penalty.

Those percentages will change over time and those who do badly could eventually end up with a 50 per cent penalty.

The major problem faced by property owners is that unlike other companies they often pay the bills on behalf of their tenants and then bill them back through service charges. But shopping centre owners such as Westfield or Grosvenor, who own Liverpool One, have no legal right to walk into a retail tenant and demand they turn the lights off, meaning they could be out of pocket if shops waste energy.

Joan Ruddock, Energy and Climate Change Minister said:

“The CRC is set to save businesses £1 billion on fuel bills by 2020, certainly welcome news in these difficult financial times, and those who save the most energy will be rewarded financially. It is vital we act now to fight climate change and vital that businesses play a role in cutting carbon emissions. I welcome the property sector’s involvement with the development of CRC and commend this very helpful guide, addressing the needs of both landlords and tenants. This, along with DECC’s own User Guide, will help companies to begin preparing for the introduction of the carbon reduction commitment in 2010.”

The guide which will be launched at Eversheds’ London office has been published by the British Property Federation (BPF) in conjunction with the British Retail Consortium, BCSC, British Council for Offices, the UK Green Building Council, Royal Institution of Chartered Surveyors and the Investment Property Forum. It explains what the CRC is and what firms must do to comply with the regulations and reduce emissions. It sets out:

• Key steps for landlords and tenants to consider
• Advice on how costs should be apportioned between landlords and tenants
• What should happen when a building is bought or sold to/from a party outside the scheme
• How landlords can use the CRC recycling payments to make their whole porfolios more energy efficient, for everyone's benefit

Hermes, which runs the BT pension fund, has undertaken a modelling exercise3 across its directly managed 103 properties. It found that during the first three-year period of CRC – where the price of carbon is fixed – it may be cheaper for the landlord to simply write-off the cost of carbon allowances rather than incur the administrative and legal costs of engaging with tenants, in effect taking away any incentive for tenants to reduce carbon. Although this situation is likely to change in year four when the price of carbon is no longer capped, it does mean that the scheme could fail to reduce as much CO2 emissions as it would with the benefit of tenant engagement. The government might then fail to achieve its ambitious carbon reduction targets by 2020.

Liz Peace, chief executive, BPF, said:

“CRC puts the fight against global warming on balance sheets by hitting firms where it hurts – in their finance directors’ cheque books. The property industry is fully behind moves to cut emissions, but the scheme has not been properly thought through. Large areas of uncertainty remain over how you apply the CRC around existing leases. Landlords have no legal remit to influence how tenants use energy. This guide will help, but Government needs to show a lot more flexibility if the aims of the CRC are to be realised.”

Downloadable documents

Press Release with full array of quotes - 89kB.

hERMES MODELLING RESEARCH pOWERPOINT - 103kB.

CRC Guide - 877kB.

DLA Piper research - 1MB.