UK CRC Energy Scheme Becomes A ‘Stealth Tax’

The coalition government has been accused of imposing a ‘stealth tax’, following an announcement in the Spending Review that the Treasury will keep revenues raised through its Carbon Reduction Commitment (CRC).

The CRC Energy Efficiency Scheme is a cap and trade scheme, started in April 2010, which forces large organisations to monitor their emissions and purchase allowances for each tonne of CO2 produced by the energy they use. The more CO2 an organisation is responsible for, the more allowances it has to purchase, so there is a direct incentive for these organisations to reduce their emissions.

Under the original terms of the CRC agreement it was stated that funds raised from the purchase of CO2 allowances would be pumped back into the system, rewarding those firms that cut their bills the most. This was known as ‘revenue recycling’.

However, according to the Comprehensive Spending Review published yesterday, the government now expects to raise £1 billion a year from the scheme by 2014-15 – money which will be used to support the public finances rather than recycled to participants.

Tackling the deficit

Speaking to BusinessGreen, Climate Minister Greg Barker said the decision had been made as a result of the “catastrophic” deficit inherited from the last Labour government. He admitted that the changes would increase costs for businesses, but added that “progressive businesses that act to improve energy efficiency will be able to minimise their exposure”.

“Businesses that have just signed up to the flagship Carbon Reduction Commitment energy efficiency scheme will be very let down by the government’s unexpected announcement that it will remove the cash-back incentive,” said Richard Lambert, director general of the CBI. “A scheme that was meant to change behaviour by encouraging energy efficiency has now become another stealth tax.”

Although the deadline for registration under the Carbon Reduction Commitment has now passed, only 65 percent of businesses expected to do so had signed up by that time. According to Kanat Emiroglu, managing director of British Gas Business, this was down to poor understanding of the scheme and an overly complex registration process.

“The CRC scheme represents a huge opportunity – if we can get its implementation right,” Emiroglu said. “The upside could be enormous – equivalent to 4.4 million tonnes annual CO2 savings per year by 2020 – saving businesses £1bn in energy every year.”

The Environment Agency is advising any organisation that qualifies for the scheme but has not yet registered to visit the CRC Registry page on its site. “The CRC is a mandatory scheme and organisations required to do so must comply,” it says. Organisations failing to register could face fines.

Green news in the budget cuts

While news of the amendments to CRC did not make it into Chancellor George Osborne’s speech yesterday, he did announce £1 billion in funding for a Green Investment Bank, as part of efforts to make the UK a leader in the low-carbon economy. The government has also pledged £1 billion for a carbon capture and demonstration project and £200 million to support offshore wind technology.

News of the Green Investment Bank was welcomed by Andrew Raingold, deputy director of the Aldersgate Group, who said the institution could “significantly reduce the massive financing gaps for green technologies over the next decade, stimulating growth and jobs”.