CRC - Energy Efficiency Scheme or is it Taxation?

It's all in the melting pot again for the CRC Energy Efficiency Scheme

The Original Scheme

In April 2010 we published an article about the CRC Energy Efficiency Scheme introduced by the Government to encourage larger users of energy to improve their efficiency.
(see our earlier article).

Very briefly, the idea of the scheme is to sell allowances to around 4,000 of the UK's largest energy users (i.e. those that use more than 6,000MWh of electricity each year). The energy savings of these organisations would then be monitored and, at the end of each year, entered into a Performance League Table, showing how successful each had been in reducing carbon dioxide emissions.

When first conceived, the scheme was not intended to be a revenue earner for the Government. In fact the overall scheme was intended to be cost neutral, with all the money being returned to the participating organisations in proportion to how high they appeared in the League Table.

Consequently, as well as benefitting from reduced energy bills, those who made the greatest savings would also receive a greater share in the recycled cash.

Obviously, both these factors were important considerations when organisations were budgeting for carbon cutting initiatives.

Recent Changes to the Scheme

Since the recent Government Spending Review, however, the picture has changed dramatically – not by anything in George Osborne's speech to Parliament but in the fine detail of the report, which includes the following statement:

"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."

This announcement contains three key statements:

The first sale of allowances will take place in 2012 instead of 2011. Originally each organisation needed to forecast its energy usage for the following year and purchase allowances up-front. The Government now appears to have adopted a simpler approach whereby organisations can purchase allowances after the event, based on actual energy usage.
Revenues from the sale of allowances will no longer be returned to participants but will be retained by the Government. This amounts to a carbon tax on larger energy users in the order of £1 billion pounds a year.
This is not necessarily the end of changes since further decisions about allowance sales are anticipated in the Budget process. Obviously we can only speculate as to what these decisions may be but an obvious consideration is the actual unit cost of the allowances.

These changes can have major implications for investment plans into carbon reduction projects and they also introduce a measure of uncertainty as to what future changes may mean for cost-benefit calculations.

There are other questions raised that organisations need to ponder, for example:

The initial sale of allowances has been delayed to 2012, effectively making them retrospective but does this mean that sales for future years will also be retrospective or is this delay only in place while the scheme gets off the ground?
What will happen to the Performance League Tables now that one of their primary functions no longer applies?
Might there be changes in the criteria for which organisations are to be participants in the scheme?

Advice and Guidance

The Government claims to have simplified the scheme but energy calculations for larger organisations can be complex and there continues to be uncertainly as to how this affects those organisations that are members of larger groups, which is why we continue to offer our Carbon Reduction Commitment Health Check.

If you need any help or advice regarding energy efficiency, then please don't hesitate to contact Andrew Nicholson who heads up our Environment Business Unit. (see contact details).

If you need help in getting started or with any other aspect of the CRC Energy Efficiency Scheme, then please get in touch with us. We can carry much of the load for you and help you gain most benefit from the scheme. (See http://www.edp-uk.com/envrionmental-services---energy-management.htm)

To discuss your requirements, without any obligation on your part, please gives us a call on 01744 766000 or complete the Enquiry Form on our website.

In addition to our regular newsletters, you can also keep up with the latest information from EDP by visiting our blog at http://edp-uk.blogspot.com/