Coalition government announced that CRC scheme will no longer return revenue to participants, but will encourage them to improve their energy efficiency.
The UK government quietly imposed a £1bn-a-year carbon tax on around 4,000 of the largest businesses and public sector bodies in the UK as part of its spending review. The move was not announced by the chancellor, George Osborne, but made public on a statement by the Department of Energy and Climate Change (DECC) yesterday.
The statement detailed the government’s spending review settlement and confirmed the CRC Energy Efficiency Scheme would be reformed, so that the Treasury keeps revenue raised through it.
With the new spending review the government expects to raise around £3.5bn over the next four fiscal years from the CRC scheme, so that it will effectively act as a carbon tax mechanism.
Under the CRC scheme companies and public sector bodies that use over 6,000MWh of electricity a year have to participate in the CRC scheme and purchase carbon allowances in line with the amount of energy they use each year.
The price of carbon allowances during the initial phase will be at £13 for each tone of carbon that the company is calculated to be responsible for.
The CRC scheme forces all participants to purchase carbon allowances based on how much energy they use.
Initially, the government had intended to 'recycle' the revenue raised from the sale of carbon allowances to those organisations participating in the CRC scheme.
The organisation’s performance, compiled in an energy efficiency league table, would have determined the level of recycled payments, with the best performers receiving all the money they spent on allowances plus a bonus and the worst performers receiving only some of the money back.
However, the government has now effectively turned the sale of carbon allowances into a carbon tax that goes in line the coalition's commitment to increase green taxes, and forces all participants to purchase carbon allowances based on how much energy they use.
The spending review published yesterday is likely to be welcomed by environmental groups and some green businesses that have maintained that the CRC scheme would not have a big enough impact on organisations' energy costs to drive significant improvements in energy efficiency.
However, it is bound to be fiercely opposed by some business groups who have already argued that the CRC scheme will face them with a major climb in energy bills.
The investment management group Climate Change Capital, signalled that the change could unlock large quantities of green building investment, and he added,
'There are going to be winners and losers, but it's a double whammy for the environment – encouraging industry to improve the energy efficiency of buildings and getting those that don't to fund it.'