Business sector gets knives out for the CRC

The government should kill off the Carbon Reduction Commitment rather than simplify it, say industry lobby groups. Offset provider Carbon Retirement says the CRC will fail to achieve any real cuts in emissions.

Businesses are calling for the Carbon Reduction Commitment (CRC) energy efficiency scheme to be scrapped in their submissions to a recent government consultation.

Earlier this year the energy and climate department (DECC) published a series of discussion papers on reforming the CRC. Most of the options focused on ways to keep the regime intact while simplifying its rules and requirements (ENDS Report 433, pp 47-49).

But trade associations including the manufacturers’ organisation EEF and the British Retail Consortium (BRC), which represent many of the 2,800 organisations falling under the CRC, doubt the regime can be saved.

The fatal flaw is that the CRC has become a tax, the trade bodies argue. The government removed its revenue recycling mechanism in last autumn’s spending review (ENDS Report 429, p 7). DECC’s simplification proposals do not alter this.

Scrap the CRC

In its budget submission, the CBI called on the Treasury to restore revenue recycling, if affordable. If not, the CRC should be replaced with a simplified mechanism to encourage energy efficiency.

The EEF says its members face a “confusing patchwork of overlapping schemes” including the CRC, the EU emissions trading scheme (EU ETS) and the climate change levy (CCL), which “impose unnecessarily high compliance costs”.

It says the government should take a more coordinated approach to climate and energy policy. It argues DECC should scrap the CRC and replace it with mandatory carbon reporting, which the environment department (DEFRA) is considering (ENDS Report 431, p 11).

The EEF says mandatory reporting would be fairer than the CRC league table because companies could provide a fuller explanation of performance.

The BRC says it can “no longer support the CRC in its current form and calls on the government to abandon the scheme.”

It says that, without revenue recycling, the CRC acts as a very inefficient way to gather a tax due to the administrative burdens of registering as a participant, reporting emissions and buying allowances.

It recommends extending the CCL to replace the CRC. Revenue would be collected more simply through participants’ energy bills. The BRC says this would be a “powerful mechanism” to drive energy efficiency. It also supports the introduction of mandatory carbon reporting to replace the CRC league table.

However, for most companies energy is a small proportion of their overall costs and a tax might make little impact.

The UK Environmental Law Association, which  supports the merger of the CRC with the CCL, says a solution could be to offer discounts on the CCL to participants who achieve verified emissions cuts – the same approach as for climate change agreements.

Some trade bodies identify which of DECC’s options they would prefer if the government decides to retain the CRC.

For instance, the BRC says it favours simplifying the regime’s organisational rules by making the parent company that consolidates accounts for the group responsible for the CRC.

The BRC agrees with the option of creating more flexibility for organisations by allowing subsidiaries of groups to participate independently in the CRC.

On supply rules, the BRC says it favours the option of removing liquid fuels such as heating oil from the CRC. It warns that most other options may not create more simplicity. It opposes assigning responsibility for emissions on the basis of use rather than supply. This would move the CRC obligation from landlords to tenants, who are less able to improve building energy efficiency.

The BRC recommends DECC should stick with retrospective fixed price sales of allowances each year as the simplest approach.

The British Property Federation, which represents property owners, recommends withdrawing the CRC and increasing the cost of the CCL to compensate.

It says extending display energy certificates to commercial buildings would be a good way for the property sector to report performance.

It disagrees with the BRC that responsibility could shift from energy supply to use. It says landlords often have no control over their tenants’ use of energy. It also opposes removing liquid fuels from the CRC as this could encourage their use.

But it supports the option of giving organisations flexibility to disaggregate their property portfolios so separate undertakings may participate in the CRC. It also supports retrospective allowance purchases.

Cancel allowances

Offset provider Carbon Retirement warns that the CRC will fail to reduce carbon emissions, unless the government retires allowances from the EU ETS.

Emissions from power generation and other energy-intensive sectors are regulated under the EU ETS. Companies must buy emissions allowances.

The CRC applies to other big energy users such as retailers and councils. It also requires participants to buy allowances to cover their emissions.

The problem is that if the CRC reduces UK energy use, electricity production will decline and free up EU ETS allowances for other companies to use.

This means the CRC could have a much reduced environmental benefit. Carbon Retirement calculates that 90 million tonnes of carbon that should be saved from reduced electricity use under the CRC between 2011 and 2020 will be released by other industrial sectors.

Carbon Retirement says the government should retire sufficient EU ETS allowances to match the emissions cuts achieved by the CRC, so they cannot be used by other sectors.

Either the government could retire the allowances from its national allocation under the EU ETS, or it could require CRC participants to buy and retire EU ETS allowances rather than CRC allowances.

If the government retires freely allocated EU ETS allowances there would be no cost to the public purse. But if the government retires allowances that it was due to auction it would cost about £28m in 2011/12.

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