Nevin Sood says the loss of the CRC performance league table from here on in leaves the scheme all stick and no carrot

If it began life as a carrot, it didn’t take long for the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) to morph into a stick. Last week, and after months of delay, the second CRC performance league table was published. Hereafter the performance ranking – one of the few genuine incentives the scheme provided – will be scrapped as part of wider reform, much to the chagrin of numerous critics.

When it first came into force in April 2010, the CRC was revenue neutral to the Treasury. In a nutshell, it is a mandatory emissions trading scheme for energy-intensive businesses in both the public and private sector. It applies to those that consumed more than 6GWh of electricity in 2008. Participants must purchase carbon allowances each year to cover their carbon emissions, at a cost of £12 a tonne. The scheme is administered by the Environment Agency, which has the power to issue significant penalties for non-compliance.

The scheme’s earning potential was not ignored for long. In October that year, a Comprehensive Spending Review effectively turned it into a carbon tax.

The costs imposed by the scheme, and the desire to be seen to be “doing their bit”, quickly drove home to company boards the importance of successfully monitoring, managing and disclosing carbon emissions. But the time and cost firms spent on complying with the scheme was substantial, and money that could have been used to reduce energy consumption, cut carbon emissions and reduce costs soon ended up being diverted to pay for energy data collection and the allowances themselves.

This proved particularly controversial at a time when budgets for corporate environmental programmes were being squeezed. The scheme soon fell out of favour, with even the chancellor describing it as “cumbersome and bureaucratic”.

After a number of consultations by the Department of Energy and Climate Change (Decc), a series of changes were proposed in 2012’s Autumn Statement. They included:

· abolition of the performance league table – though the Environment Agency will continue to publish participants’ overall energy use and emissions data;

· the number of fuels covered under the scheme has been slashed from 25 to two: electricity and gas. The aim is to reduce administration costs, though the change could create perverse incentives for fuel switching.

· exemption for schools – the government has withdrawn all state-funded schools in England from CRC participation and implemented alternative measures to encourage them to obtain energy, cost and emissions savings;

· the date for the surrender of allowances was extended by one month, to the end of October.

While welcome, these reforms are clearly more about tinkering than transformation. The CRC may have been simplified, but this is still a case of it walking like a duck and quacking like a duck. It remains a carbon tax in all but name.

Unsurprisingly, the government is in no hurry to carry out a more radical overhaul. It has postponed any more decisions about the CRC’s future until 2016 and the scheme remains a welcome source of revenue for the Treasury. It has raised £700 million to date and is forecast to raise a further £3.5 billion by 2016.

It is also still unclear whether the reformed CRC will genuinely reward energy efficiency by recycling payments to those who meet emissions targets.

Yet scrapping the scheme entirely would create as many problems as it solves. The lost impetus to carbon reduction could be partly mitigated by mandatory carbon reporting, but this would apply only to listed companies, and would lack the persuasive power of the publicly available performance league table.

Realistically, the chances of it being scrapped are slim. The government is understandably reluctant to jettison a flagship green policy that has also provided a steady revenue stream for the Exchequer. The latest reforms may sugar the pill, but the CRC’s detractors are unlikely to be satisfied – and the clamour for change will get louder.

Nevin Sood is a director at Turner & Townsend

This article first appeared in Utility Week’s print edition of 8th March 2013.

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