On Friday, the Committee on Climate Change was supposed to advise the government on how tightly it should cap carbon emissions under the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme when full cap-and-trade is introduced in 2013.
This is a big deal.
The CRC is the first attempt in the world to extend emissions trading beyond the big emitters like power stations, cement and steel that are already covered by the EU emissions trading scheme (EU ETS) to mid-range energy users such as banks, supermarkets, local councils and water companies. If the scheme goes into reverse it will have a chilling effect on progress towards emissions trading everywhere.
Admittedly the amount of carbon potentially reducible is relatively small compared with the EU ETS. Tesco, for instance, emits about 5 million tonnes of CO2 per year worldwide. By comparison, the power firm RWE Group released almost 150MtCO2 last year.
However, this is to miss the point, which is about reach into the broader business community. Only 500 UK facilities and fewer organisations than this are covered by the EU ETS. The CRC will directly affect six times this number of organisations.
The committee’s conclusions are a virtual death warrant for the CRC’s trading element because the coalition government has already signalled that it believes the CRC is too complex. It now has the perfect excuse to slash and burn.
Many companies will applaud the move. Manufacturers’ trade association the EEF recommended scrapping the CRC, while the Confederation of British Industry welcomed the move saying the CRC is “hamstrung by complexity”.
But don’t start clapping just yet. Some of the climate committee’s suggested options for a revised CRC may not be to the business world’s liking. For instance, it said simplifying the scheme by getting rid of the emissions trading phase “strengthens the case” for extending it to smaller companies. This could mean lots more organisations having to buy emissions allowances.
The committee also suggested stopping revenue recycling could be an option. At present, CRC participants get back the money they pay for allowances, plus or minus a penalty or bonus linked to performance at cutting emissions. But getting rid of recycling would effectively turn the CRC into an additional energy tax, something that’s guaranteed to raise corporate hackles.
The committee also recommended that participants should have to buy allowances to cover emissions from generating heat from renewables, to avoid duplication of financial support through the proposed renewable heat incentive. When this line was taken on renewable electricity under the CRC, companies complained it would reduce the incentive to invest in on-site renewables.