The Gutting of the Carbon Reduction Commitment

The publicity on the Chancellor’s Autumn statement went to the decision to cap benefit rises, and thereby claw in a huge saving for Treasury. A little less publicity went to the introduction in the statement of the ‘gas’ strategy – a proposal to consider a long term future dominated by gas fired power supply – arguably making better use of a potential secure supply of gas in the future, but unarguably busting open any possibility of meeting the UK’s carbon emission targets if it goes ahead.

Less publicity still arose from the Chancellors decision in the statement to ‘simplify’ the Carbon Reduction Commitment; but it is a decision that I think underpins a wider view that Treasury now takes towards all things low carbon.  The original Carbon Reduction Commitment, introduced in April 2010, was supposed to be an instrument that prompted carbon saving in those sections of the economy not affected by Climate Change Levy or carbon trading: good carbon reduction performance would be rewarded by transfer of levies from those who were performing poorly, and a league table of performance would oversee the whole process, whilst at the same time provide a reputational record for public consumption.  Because of the redistribution of levies from poor to good performers, it would be revenue neutral.

It has been apparent from the off that the Chancellor doesn’t like the Carbon Reduction Commitment, except in one aspect, which he demonstrated with his first bite at the legs of the scheme in the 2010 spending review. The good news was that CRC was to be retained. The bad news was that its proceeds would no longer be circulated – income from the levies relating to the scheme would instead go straight to Treasury – netting a handy £1 billion per annum in the process.  But at least we could still see who was doing well and who was not with the league table – and there was and is certainly evidence that this did to some extent drive good energy performance among participants.

Well, now we have the further ‘simplification’ – the League Table is to be abolished, but the flat fee arrangement whereby all CRC participating firms are required to pay  a ‘forecast allowance price’ of £12 per tonne of CO2 rising to £16 per tonne in 2014-15 to the Treasury continues.  And in a very telling passage in the statement, Treasury has indicated that it would like to remove the’ tax’ as well, but will only get round to that ‘when public finances allow’.

The stealthy but complete evisceration of the CRC is, I think a minor scandal, especially since its whole purpose and design has now been removed except for the ‘pay up’ bit of it, which was never supposed to be a revenue raiser in the first place. And even in its changed circumstances, during the consultation, bodies such as the Environmental Industries Commission came up with some very viable ways in which at least an element of circulation could be restored to the scheme, such as using CRC arrangements to provide clearer carbon signals to industry; and introducing incentives for energy efficiency.

It’s more than just a shame that this has happened. It seems to sit alongside other Treasury actions which run directly counter to overall official aims of supporting moves towards a low carbon economy, and building certainty in investment climate in the process.  But it still produces a good wedge of cash for the Chancellor’s accounts, so perhaps that’s what matters most.

This article was first published in this month’s Environmentalist.

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2 thoughts on “The Gutting of the Carbon Reduction Commitment

  1. I think most governments are looking at saving money and pushing green energy issues on the back burner as in these times of austerity measures its hard to justify pumping money into green energy when people are loosing their jobs and gas is the much cheaper option. However saying that I’m a strong believer that green energy is the better cost in the long run, they need to look long term not short term

  2. David Devon obviously has not read your piece. There was never any government expenditure involved with the Carbon Reduction Commitment, so his comment about being “hard to justify pumping money” into it is clearly nonsense. What has happened is that a rather elegant scheme, designed to reward more energy efficient companies at the expense of the gas guzzlers, has instead become yet another stealth tax. A nice little earner for the Chancellor raising around £850m a year from British businesses.But as you say, with even the performance league tables abolished, of increasingly limited relevance ecologically.

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