CRC: Government 'carbon-jacking' will backfire

London – As the dust settles following the Coalition Government’s decision to hijack the Carbon Reduction Commitment Energy Efficiency scheme – turning it into a carbon tax to help service the national debt – it is becoming clear that this is good environmental policy gone bad.

Despite some flaws, the CRC scheme had at least recognised that some companies inherently generate much more ’greenhouse’ gases than others, due to the nature of the production process involved, as well as the age, condition and location of the plant and its infrastructure.

As originally planned, CRC was, therefore, designed to incentivise organisations to set about reducing their energy consumption whether starting from an advantaged or disadvantaged base.

This has all gone out the window, with the government now diverting the £1bn a year of funding generated the scheme’s carbon allowances to the public purse, instead of using it to reward performance improvements.

Chancellor George Osborne’s thinking seems to be that a tax of at least £12/tonne on carbon emissions will drive companies to replace ’gas-guzzling’ processes and equipment such as drives, motors, pumps etc with new energy-efficient alternatives.

The reality is that many companies, especially those that currently pay the highest energy bills, will end up with less – money and incentive – to invest in maintaining their UK operations.

The main incentive for them then will be to leave many markets to overseas producers unburdened by such green taxes: and once these plants and associated jobs and skills are gone, they’re gone for good.

As, Ian Hetherington director general of British Metals Recycling Association said: “This unexpected direct tax on small- and medium-sized businesses in manufacturing is ill thought through and cuts across the government’s stated objective of driving growth through manufacturing and green industries.

“It will have serious impact on the businesses at the forefront of developing new processes and technologies, which are required to achieve the government’s zero waste objectives.”

Meanwhile, the Government has yet to flesh out its carbon tax proposals, which were sneaked in as a small aside in the Comprehensive Spending Review, which read:

“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.”

Among other impacts, the statement is set to create uncertainty and delay around decisions to invest in energy-saving equipment – worsening an already dire investment climate for industry.

As James Ramsay, head of CRC at consultancy Carbon Clear, notes: “It is unclear as to whether the cost of permits is affected, however the final sentence ’further decisions on allowance sales are a matter for the budget process’ could indicate that the price of carbon will be set differently to the £12/tonne previously proposed.”

And while he believes that the changes will accelerate the take up of energy and carbon reduction measures, Ramsay warned: “The CRC is now a tax and will be enormously more expensive for businesses and public sector organisations.

“Whilst existing participants will welcome simplification of the scheme, these changes leave the door open for government
to expand it to other organisations not currently captured.”