The Carbon Reduction Commitment Energy Efficiency (CRC) scheme is untenable in its current form, says the CBI.
In a new policy document the CBI has said the CRC should be scrapped if the government fails to restore the revenue-recycling element it surprisingly withdrew last year.
Under the CRC, participants have to purchase allowances to emit CO2 at £12 a tonne. Originally, participating organisations could expect to receive back at least some of that expenditure depending on their performance in reducing emissions.
But, in October 2010, DECC announced that revenues from the scheme, which had only started the previous April, would no longer be recycled to participants, effectively turning it into a carbon tax.
The aim of the CRC is to encourage businesses to reduce emissions by improving their energy efficiency, but the CBI warns that it is now questionable whether the scheme can deliver this outcome.
“We now have a carbon-reduction scheme that doesn’t encourage companies to reduce carbon emissions, and actually adds to the cost of doing business,” says Rhian Kelly, the CBI’s new director of business environment.
The CBI argues that businesses will only take action to improve energy efficiency if the government reinstates the revenue-recycling incentive. “Without a proper incentive the scheme lacks credibility and has lost businesses’ trust,” says Kelly.
The CBI believes that scrapping the CRC is the only viable option if the government fails to bring back the original incentive.
However, energy minister Greg Barker recently told a DECC-hosted workshop on the CRC – part of the department’s ongoing work to identify ways to simplify the scheme – that not recycling revenue creates a clearer and stronger carbon price signal on which businesses can make investment decisions.
He said the decision to not go ahead with the revenue-recycling element of the CRC, just seven months after the scheme was established, was a difficult one, but was taken to support the public finances.
Barker also claimed that the CRC is more than a tax, as it combines a number of drivers, including the reputational element in the performance league table which will be published each year.
“Some companies may not feel the reputational aspects are important but you can be sure that a supplier, customer, investor will be interested in it,” he said.
Meanwhile, a report from off-setting organisation Carbon Retirement suggests that the CRC will not reduce emissions. According to the report, even if the CRC is successful in encouraging investment in energy efficiency and reducing UK energy production, net global emissions will not decrease as a result.
This, says the report, is because energy production is covered by the EU emissions trading scheme (ETS), which has already set the volume of allowances available, so any allowances not purchased by UK energy companies will instead be purchased by other sectors.
Carbon Retirement wants the government to remove from the scheme each year the number of allowances equivalent to the volume of emissions reductions achieved by CRC participants.
This will have no impact on CRC participants except for ensuring that their efficiencies genuinely translate into net emission reductions, says Carbon Retirement.
It also says that linking the CRC to the ETS, by permitting CRC participants to buy EU allowances, would help prevent the loss of the potential 90 million tonnes of greenhouse-gas savings expected through the CRC by 2020.