CRC Initial Phase (Phase 2)—issues in finance transactions
CRC Initial Phase (Phase 2)—issues in finance transactions

The following Environment guidance note provides comprehensive and up to date legal information covering:

  • CRC Initial Phase (Phase 2)—issues in finance transactions
  • Brexit impact
  • How could the CRC Scheme affect lenders?
  • What do lenders need to know about the CRC Scheme?
  • How does the CRC Scheme work?
  • What are the penalties for non-compliance?
  • Can the lender be directly liable under the CRC Scheme?
  • What due diligence should lenders undertake?

The CRC Energy Efficiency Scheme (CRC Scheme) is a mandatory emissions trading scheme in the UK that aims to cut carbon dioxide emissions and improve energy efficiency in large non-energy-intensive public and private sector organisations. It is important to note that although energy-intensive public and private sector organisations fall outside of the CRC Scheme, separate schemes apply, for example for:

  1. emissions from industrial processes (such as power plants), which would be relevant to project finance transactions, could be covered by Climate Change Agreements or the EU Emissions Trading Scheme—see Practice Notes: Climate change agreements (CCA),EU Emissions trading system—outline and When is a greenhouse gas permit required?

  2. emissions from certain aviation activities, which would be relevant to aviation finance transactions, are regulated by the EU Emissions Trading Scheme—see Practice Notes: EU emissions trading system and aviation—affected parties and flights and EU emissions trading system and aviation—obligations, enforcement and practical considerations

Organisations that qualify for the CRC Scheme have to purchase allowances for every tonne of carbon dioxide they emit and there are financial penalties (both civil and criminal) for those organisations that fail to comply.

Lenders could be affected by the CRC Scheme if their organisation qualifies in its own right or through their involvement with borrowers. They, therefore, need to understand how the CRC Scheme works, so that they are fully appraised