CRC allowances sting in UK Spending Review
22 Oct 2010
M&C Energy Group has issued the following advice on how changes to the CRC scheme, announced with the Government’s Spending Review, will effect your organisation:
Dumferline, UK – Following on from George Osbourne’s announcements and the publication of the Governments Spending Review, revenue raised from the CRC Energy Efficiency Scheme will no longer be recycled back to participants.
A short statement from the Spending Review outlined that from April 2012 revenues will be collected and used to support the public finances (including spending on the environment), rather than recycled to participants.
This will have considerable implications for large businesses and organisations caught by the CRC who will no longer receive a proportion of money back.
Allowances will now be able to be purchased for 2011-12 emissions in 2012 rather than 2011 with justification being that the CRC will be “simplified to reduce the burden on businesses”.
Arguably the burden on businesses is exactly the same form a day to day management perspective and more significant from a financial perspective.
From what has been released there is a little more breathing space to buy allowances but this may be followed by a sharper intake of breath as the new costs for most organisations will be much higher to bear given that revenue will not be recycled and a ’stealth tax’ has been introduced.
What does this mean?
So far nothing has been mentioned relating to any further changes so the process that we need to go through will remain the same for now with the exception of the delay in allowance purchases.
We are preparing for further potential changes outside of what has been announced and will keep you informed and updated as information comes to light, in particular there was specific mention that yesterdays announcement was pending further decisions relating to the sale of allowances.
Currently the justification behind this is that the CRC will be “simplified to reduce the burden on businesses” and helps re-pay the financial deficit.
According to BBC Radio 4, an anonymous source stated “well we’ve got to get the money from somewhere”.
Our view is that currently the burden on businesses is exactly the same form a day-to-day management perspective and more significant from a financial perspective and this is very much being seen as a “stealth tax” on business.
What this means in practice is that there is no requirement to buy allowances in April 2011, so no budgetary provision needs to be made for this spend.
Based on current information you will have to allow for spend in 2012, based on your 2011-2012 allowances.
This changes the forecasting process as you will know (broadly) what your emissions were for the year 2011-12 by April 2012 and can purchase the correct quantity accordingly, however the budgetary forecast will still need to be applied in the same way.
This will simplify accounting for allowances as you will not have the recycling payment to factor in, and the revenue from the sale of allowances will be retained for public spending, with no particular clarity about how the money will be utilised.
The assumption for now is that the league table will be retained, without any financial implications directly relating to the CRC scheme, the only costs that will need to be factored in are indirect and associated to your reputation.
Early Action Metric cost justifications will weaken specifically for Carbon Trust Standard or equivalent justifications. For AMR there will maybe be a lack of urgency but there will still be a case based on maximizing the value in your AMR data to make sure that you are getting the return on the investment and reduce exposure to the CRC tax.
Removal of CRC-related bonuses may, of course, change the way that organisations view the CRC and how you wish to act.
We will, of course, be supporting and notifying you of future changes as they unfold as well as detailing the potential impacts that this will have over the coming weeks and months.
(M&C Energy Group is inviting anyone seeking further information regarding the CRC changes to contact it on 0845 2593154)
