CARBON REDUCTION - 23.11.2010

Carbon reduction commitment tax bomb

The Carbon Reduction Commitment (CRC) scheme has fallen foul of the government’s spending review and is now considered purely as a tax on carbon emissions. What’s changed and how will it affect participants?

What’s happened?

As we reported previously, the CRC energy efficiency scheme came into effect on April 1 2010 (yr.4, iss.11, pg.7 see The next step). However, since we last mentioned it, it’s become one of the many victims of the government’s austerity drive. It’s still going ahead, but rather than it remaining as a cap-and-trade mechanism with funds generated by the buying and selling of allowances redistributed to the best performing companies, it has been turned into a tax, with all monies generated by the system going to the Treasury.

What does that mean?

The scheme was designed so that, in the later phases, participating companies (about 3,000 firms that consumed more than 6,000 megawatt-hours per year of half-hourly metered electricity during 2008) would buy allowances for the amount of energy they used. If they were to go over these allowances (i.e. used more energy), they would need to buy more. Companies that reduced their energy the most would have reaped the financial reward of needing to buy fewer allowances or selling any excess to other companies. All of the payments would have been recycled in the system and it would have paid for itself. But all that has now changed.

What is the impact?

This is good news for the Treasury. By 2014 it estimates that the scheme will generate tax revenues of around £1 billion a year. But the companies taking part are furious, claiming this is nothing but a “stealth tax” on their energy use - something that wasn’t ever discussed during the lengthy consultation period.

It will now be impossible for the best performing companies to make money out of the scheme (although you could argue that reducing your energy to avoid the tax will save you money regardless). The whole point of it was to get finance managers to sit up and take notice of the cost of energy to the business; now, it’s not as important.

What hasn’t changed?

There will still be a league table published every year showing who has reduced their energy use the most, so companies will still want to do as well as possible to boost their reputation, especially among contemporaries in their sector.

Tip. The government says it will consult again on the scheme, but given the hefty tax revenues the change will generate, don’t expect too many changes from what’s in place now.

Small businesses watch out

Now that the Treasury has got its hands on a tax stream, you can expect a push to increase the number of companies that fall into the CRC.

Note. The Environment Agency (which manages the CRC) is currently looking at businesses it feels should have signed up. This is a clear indication that the scheme is a money spinner for the government, and those who avoid it will be sought out.

For a previous article on the CRC, visit http://environment.indicator.co.uk (EN 05.06.05).

When the scheme was launched, those who performed best, i.e. saved the most energy, could expect financial rewards. This is no longer the case - the Treasury will get the money instead. Although this only applies to big energy users, you should expect it to be rolled out to smaller businesses soon.

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