Trucost Blog

At one stroke the UK Government has both simplified the Carbon Reduction Commitment, now known as the CRC Energy Efficiency Scheme, and given it teeth.

An expected £1 billion a year from the sale of carbon allowances (by 2014-15) will no longer be returned to companies according to their ranking in a carbon performance league table. The change to the emissions trading scheme, announced in this week's spending review, will significantly increase returns to companies implementing energy efficiency measures. Firms that use less energy will need fewer permits and avoid higher carbon costs.

Almost 3,000 companies registered for the scheme must measure carbon emissions from their energy consumption and purchase permits at a cost of £12 per tonne to cover them. Companies will now carry the full cost of their permits, which will be very material in some cases. The Treasury estimates that companies with electricity bills of £1 million per annum will have to pay an additional £76,000, rising to £114,000 in 2014, to purchase the required emissions permits. Companies will be given more time to reduce their energy use before they have to pay for carbon emitted in 2011-12. The first sale of allowances will now take place in April 2012, instead of at the start of the first trading period in 2011.

Strengthening the policy to price carbon is likely to greatly help the Government meet its target to cut emissions by 34% by 2020. It is also consistent with the broader policy objective of shifting the burden of taxation from ‘goods' to ‘bads'.

The changes to the CRC could also affect the environmental consultancy market. In particular, it could jeopardise a significant revenue source for the Carbon Trust. Previously, companies that applied for accreditation under the Carbon Trust's Carbon Efficiency Standard were to be given preference when the CRC revenues were recycled. The fact that the revenues will no longer be returned at all will reduce the incentive for companies to meet the standard; they will now have all the financial incentive they need to improve energy and carbon efficiency.

The Carbon Trust's funding from Government is also under some doubt. The Government has made it clear that the Carbon Trust is not a quango in the conventional sense, being a not-for-dividend company limited by government guarantee. Nevertheless, historically the Carbon Trust has been the beneficiary of significant funding from Government departments including DECC (Energy and Climate Change). Although DECC's budgets have been maintained, it is unclear whether it will be in a position to make such significant grants to the Carbon Trust in future.