CRC U-turn is unfair

28 October 2010

Changes to the CRC scheme announced in the Comprehensive Spending Review sends the scheme's benefits as tax direct to the Treasury, making managing energy use and carbon emissions even more necessary.

The sudden change in the way the CRC scheme is to operate announced by the Chancellor in his Comprehensive Spending Review statement last week has been greated with criticism and exasperation. The scheme which has consumed much effort, time, money and not a little paper in preparation for meeting the strict deadlines was dismissed in a single paragraph in the CSR statement as follows.
'The CRC Energy Efficiency Scheme will be simplified to reduce the burden on businesses, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. Revenues from allowance sales totalling £1 billion a year by 2014-15 will be used to support the public finances, including spending on the environment, rather than recycled to participants. Further decisions on allowance sales are a matter for the Budget process.'
A flurry of emails arrived in PFM’s office reflecting the despair and frustration, and the need to continue energy management measures to save on energy bills. Here is a selection.
The CRC now stands for ‘Corporate Restraining Charge’ claims Chris Smith, sales and marketing director on365, specialists in the planning, installing, management and optimisation of physical IT infrastructure and utility services. It has called for a review of the proposed restructuring of the Carbon Reduction Commitment (CRC). When the CRC was initially introduced, it was positioned to the market as an initiative to ensure greener data centre operation and to significantly reduce UK carbon emissions. Originally, from April 2011 results would be published in the CRC league table and these would influence the organisations’ future energy costs and financial reimbursements or fines which would be determined by performance.
The restructured CRC means that the scheme has now become a stealth carbon tax due to government’s decision to direct CRC funds back to the Treasury, instead of being redistributed, as originally planned, to the top performing businesses. It is estimated that revenues from allowance sales totalling £1bn p.a. by 2014-15 will be used to support public finances rather than going back to scheme participants. However, under the restructuring the burden on businesses will, in the first instance, be slightly reduced by the fact that the first allowance sales for 2011-12 emissions will be pushed to 2012 instead of 2011, giving businesses a deferral of cash flow.
Smith comments that: “I think that CRC now reads ‘Corporate Restraining Charge’. In effect this is now a tax and not an incentive to reduce carbon emissions. Corporate environmental responsibility is now measured in pounds sterling with the carrot to encourage businesses to participate being replaced by a stick.”
Power Efficiency, the energy procurement and carbon strategy consultancy, branded the changes as “an unfair U-turn that has turned the scheme into a green tax and removed benefits many businesses will have invested in at a time of hardship.”
John Field, Director of Carbon Management at Power Efficiency stated; “The changes to the CRC Scheme represent an un-signalled U-turn on existing regulations. Companies have invested in actions with enhanced cash benefits that have now disappeared overnight. Examples are accreditation for the Carbon Trust Standard, typically costing £15,000, and installing Automatic Meter Reading which both provided enhanced rates of return under the CRC Scheme. While these actions remain positive and cost effective, it is unfair to companies that the enhanced benefit under the CRC regulations has been lost. The CRC Scheme has become a green tax at 5-10 percent on companies’ annual energy costs. This will increase the pressure on companies to manage their energy use and carbon emissions downwards. Companies’ budgeting is also affected: instead of planning for a six-month cash-flow, it is now an annual payment.”
Field continued, “For landlords the allowances costs must now be chargeable to tenants and it is essential that the administration of this is properly planned and incorporated with energy costs into service charge mechanisms.”
Jack Jenkins, senior consultant, hurleypalmerflatt commented "The CSR has fundamentally changed the impact of the Carbon Reduction Commitment. It is now much closer in operation to a tax – raising around £1bn a year for public finances – and many firms who have invested in early action measures will be out of pocket. Powerful features of the schemes design that would have amplified the financial reward for investment in energy efficiency and assisted in incentivising board level engagement have been thoroughly undermined. The business community is up in arms over the changes and may be starting to lose confidence in the Government’s ability to provide a stable environment for low carbon investment in the built environment.”
Emerson Network Power’s Chloride Business Technical Support Manager Rob Tanzer explained, “The CRC Energy Efficiency Scheme was originally a self-supporting ‘carrot and stick’ scheme - but the carrot’s been taken away. What remains is a one-dimensional tax on inefficiency. That, in combination with rising energy costs, means that UK data centres and high tech industry still have a huge incentive to cut energy costs by investing in increased efficiency. Enhanced Capital Allowances permit investment in energy efficient equipment to be offset against tax – so business needs to make smarter use of the incentives that remain.”
The BSI is urging UK businesses that have obligations under the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme to focus on the potential for savings of around 30 percent in their energy use; significant savings for any business in the current financial climate. Despite changes to the scheme, which alter the primary incentives, taking a systematic approach to energy reduction can help businesses achieve longer term benefits.
Rob Wallis, BSI Managing Director, EMEA Region comments: “These changes do not materially diminish the scope for substantial financial gain and energy management saves businesses a significant amount of money. It remains firmly in the interest of UK plc to engage fully with the CRC scheme on a financial as well as environmental level, especially in what we are told will be more challenging times. “
Brian Rickerby, director of energy consutlancy energyTEAM has calculated that from “April 2012, participants with an average £1m gas and electricity bill can now expect to pay approximately £75,000 per year, without a recycling payment. Payments will rise each year, with a payment of approximately £110,000 by 2015, per £1 million energy spend. The removal of the recycling payment significantly increases the need for all participants to reduce energy consumption, in order to avoid paying a very high price for every tonne of CO2 emissions."