The Carbon Reduction Commitment Energy Efficiency Scheme has been transformed from a recycled payments scheme to a carbon tax, creating considerable uncertainty, says Armin Mayer.
The UK Government's recent decision to transform its Carbon Reduction Commitment Energy Efficiency Scheme (CRC) from a recycled payments scheme to a carbon tax has created uncertainty and confusion in the business community, casting doubts about the viability of the scheme.
The Government, which transformed the scheme due to budgetary constraints, insists that the CRC remains viable and offers organisations the opportunity to decrease costs while gaining competitive advantage in the marketplace.
This article examines both sides of the debate, highlighting some of the ongoing changes to the CRC while offering reflections from individuals inside Johnson Controls who are following the issue closely.
The CRC was launched in April 2010 as a Government-backed mechanism designed to improve the energy efficiency of large public and private sector organisations in the UK, which are responsible for around 10 per cent of the UK's CO2
The CRC functions as follows: organisations that use more than 6,000 MWh of electricity per year must measure and report their carbon emissions on an annual basis. Organisations are then required to purchase allowances from the Government to cover their emissions from the previous year.
Emissions reports due soon
The first emissions reports are due in July 2011, with allowance purchasing commencing in 2012. Organisations are also ranked annually according to performance in a publicly available listing.
Initially, the revenues raised from the sale of allowances were to be 'recycled', in other words, redistributed back to participating organisations as a means to support improvements in energy efficiency in order to cut emissions. Organisations that improved their energy efficiency significantly would be reimbursed for their spending on emissions allowances. Best performers could receive all the money back plus a bonus, while the worst performers would recover only some of their money.
However, following changes made to the scheme in October as part of its spending review, the UK Government will no longer recycle payments. Rather, revenues will now be kept and added to the Government's overall budget.
How exactly the revenues will be used by the Government with respect to energy efficiency and emissions reductions remains unclear, as does the projected price of emissions allowances. Discussions are still ongoing within the Coalition, with changes happening on a 'fortnightly basis', according to Keith Irwin of Johnson Controls Energy Solutions.
Whatever the outcome, many businesses fear 'the whole purpose of the CRC is gone', says Mr Irwin, reflecting the sentiment of many UK businesses that now struggle to distinguish the CRC from any other form of taxation on energy use or emissions. There is a growing sense that the Government's recent changes spell the end, rather than 'part two' of the CRC.
The UK Carbon Trust, which administers the CRC, argues that the scheme remains valid and should motivate organisations despite the changes. Investing in energy efficiency lowers operational costs, reduces the amount of CRC allowances that must be purchased while strengthening participating organisations' reputation, according to the Carbon Trust.
In addition, the changes to the CRC are not entirely unexpected given the growing restrictions on budgetary spending in the UK. 'People were expecting this scheme to become a tax in the future, but just not so soon. In this sense, the Coalition Government's decision didn't totally surprise businesses', says Robin Bilton of Johnson Controls Global Workplace Solutions.
Discussions about the future shape of the CRC are being watched closely, since the scheme is central to the UK's strategy for improving energy efficiency and reducing carbon emissions in those organisations not covered by the EU Emissions Trading Scheme, which applies to large industrial emitters of greenhouse gases.
Designed to encourage organisations to develop energy management strategies and infrastructure in order to save energy, it was seen by many inside and beyond the UK as a potentially exemplary mechanism for driving down emissions of climate changing gases in a cost effective way. The CRC offers a structured mechanism around which organisations could discuss and plan better energy management.
Building facility or operations managers, for example, could potentially leverage the CRC to prioritise and discuss building efficiency strategies with senior and/or finance managers.
It remains to be seen whether the CRC will continue to perform as initially intended.
By November, over half of the targeted 5,000 organisations had already signed up to participate in the CRC. The prospect of receiving funds back from the Government was clearly considered an incentive for many organisations. In the absence of funds recycling there are concerns about a lack of motivation for investments and actions.
It is too early to make any final judgments. We will continue to monitor changes to the CRC and its development, as this is a potential pilot case for other countries that are struggling to reduce CO2
emissions while growing their economies.
Institute of Building Eficiency
The Institute for Building Efficiency (IBE) is a new initiative of Johnson Controls providing information and analysis of technologies, policies and practices for efficient, high performance buildings and smart energy systems around the world. The IBE is said to leverage Johnson Controls' 125 years of global experience, 'providing energy efficient solutions for buildings to support and complement the efforts of NGOs, international organisations, national, regional and local policy makers, industry associations and beyond'.
• For further information, visit: www.instituteBE.com