CRC is still a positive incentive

Even though the CRC was first announced by the Government in the Energy White Paper (May 2007), when the scheme officially came into force on 1 April 2010 many organisations were still unsure about whether or not they would be affected.

Now, only six months on from the CRC going live and just as businesses are beginning to understand the scheme, the coalition Government has made further changes to the requirements as part of the CSR – most notably relating to the purchase of allowances to cover C02 emissions.

It is estimated that around 5,000 organisations will be required to participate fully in CRC which means these businesses must not only record and monitor their carbon emissions, but also purchase allowances from the Government for each tonne of CO2 they emit.

Following the CSR, it is the allowances part of the CRC that is now under the spotlight. Under the original scheme, all revenue raised from selling allowances was supposed to be recycled back to participants based on a league table system.

Originally, the league table position signalled how much revenue each organisation would receive in return. However, following the CSR announcement, all revenue raised from the first sale of allowances (relating to the economic year 2011/12 in 2012) will be retained by the Government rather than recycled back to CRC participants.

The price of allowances has not yet been confirmed following the changes announced in October, but the intent prior to that was to sell allowances at a fixed price of £12 per tonne of C02 through the financial year 2012/13, with a floating market price after that.

What’s the result of this? Well, for starters, support for the scheme seems to have been split in two with many arguing the CRC looks set to become a stealth tax rather than the positive drive for change it was supposed to be. So could this be detrimental to the scheme? Personally, I think not.

Despite the Government’s decision to make the CRC a straight tax on businesses, the scheme still has the potential to encourage companies to improve their energy efficiency usage. For one, the only way organisations can hope to reduce the amount of carbon credits they have to buy annually is to become more energy efficient.

Upgrading heating systems to include higher efficiency condensing boilers or introducing technologies like solar, CHP or biomass is an obvious place to start. Beyond that, businesses are expected to review all areas of operations impacting upon their carbon footprint – from foreign travel to lighting requirements etc.

Whilst upgrades of this kind usually require initial capital expenditure, there are certain grants available to help make the process less painful. The main one that springs to mind is the ECA.

Beyond the ECA there is the prospect of the Renewable Heat Incentive (RHI) to offset the purchase of carbon credits against. The RHI looks set to go ahead from June 2011 and, whilst tariff levels are yet to be confirmed, it is expected that organisations investing in any qualifying renewable technologies will receive financial support in return for their efforts. This has the added benefit of helping to shorten payback periods on any technologies installed specifically to help reduce carbon emissions.

And last, but by no means least, there’s the league table aspect of the CRC. Even though being at the top of the league table is no longer linked to financial incentive/return, the prestige of being ranked higher than competitors will hopefully act as an incentive for organisations to take their environmental credentials seriously. Certainly business customers will be prompted to look at the environmental performance of their suppliers, with standards such as ISO 14001 and the BSI’s Kitemark Energy Reduction Verification Scheme potentially acting as standard qualifying criteria for those wishing to even be considered a supplier.

With all things considered, and putting the tax implications of the updated scheme aside, the CRC still has the potential to be a really positive incentive.

If businesses take action now to become more energy efficient, they will soon see the benefit. In the longer term, this also contributes toward helping the Government to meet its target of an 80% reduction of carbon emissions by 2050, compared to the 1990 baseline.