Before the election, the then shadow chancellor George Osborne used to give speeches about how Labour had given green taxes – fundamentally a good thing – a bad name.
Now, in the heat and rush of the comprehensive spending review, that is exactly what he has done with his last-minute raid on the CRC Energy Efficiency Scheme (see our coverage).
This was by far the most striking and concrete environment/carbon element of last week’s Comprehensive Spending Review, which left low carbon business largely in the dark. The green investment bank, the renewable heat incentive, investment in carbon capture and storage are all still to play for.
But as for the CRC, now we know. Instead of being recycled back to CRC participants in line with energy saving merit, all the money raised by allowance sales will now go to the Treasury – and not necessarily be spent on cutting carbon.
The last-minute change grabs an extra £1bn a year for the exchequer, transforming a complex, revenue-neutral incentive scheme into a complex new carbon tax. No one saw it coming.
At a time of growing moans from business and think tanks about the plethora of overlapping financial instruments targeting energy and emissions, the changed CRC scheme is now just one more. It muddies the water for the forthcoming reform of energy markets and the climate change levy.
Industry and commerce’s anger at the lack of consultation and the imposition of a new tax in difficult economic times is justified and understandable. And the Osborne raid is even harsher for a public sector facing drastic spending cuts.
The one positive is that the rejigged CRC should cut more carbon.
Because however cross bosses might be, the business case for saving energy is now much stronger for CRC participants. And provided the government sticks with its plan for a CRC league table based on participants’ energy saving performance, the reputational driver remains just as strong.
There had been some fretting about whether the CRC scheme gave participants a perverse incentive to delay energy saving investments in order to improve their position in the league table, boosting their reputation and gaining more cashback from the recycling of allowance payments.
The counter-argument was that there was far more money to be gained by getting on with saving energy now. And now that argument has just got much, much stronger.
Now DECC needs to get on with issuing what will hopefully be its final, final consultation on the troubled and changeable CRC scheme.
Robert Rabinowitz said November 1, 2010 at 1:30 pm
This development is bad government and will not be good for the environment for several reasons. Green taxes, e.g. Climate Change Levy, Air Passenger Duty, have a bad track record of reducing emissions. A 5-8% increase in energy bills caused by increased CRC costs is not enough to drive serious change. The removal of recycling has a much more profound negative effect in reducing incentives for landlords and tenants to collaborate with each other to reduce emissions, which was one of the main reasons why the scheme was set up. With revenue recycling it was hard for landlords to pass CRC costs on to tenants so they needed to offer the tenants something in return. As a tax with a predictable cost, this becomes easy and so we will revert to the situation where landlords no longer have to engage with tenants. Finally, this development will increase skepticism from investors about environmental policy since the dependence of such policy, and hence the returns on investment, are at the whims of politicians and can be withdrawn at anytime, even after legislation has come into effect.
DECC is chasing its own tail on CRC simplification | Carbon & energy efficiency | ENDS Report Blogs said November 24, 2010 at 4:39 pm
[...] But surely its complexity is an inevitable result of trying to create a sophisticated mechanism to encourage energy efficiency among a variety of organisations without putting an undue cost burden on them. At least, that was the idea until last month’s spending review when the Treasury ripped the guts out of it by turning it into a carbon tax. [...]
CRC: Dead man walking? | Carbon & energy efficiency | ENDS Report Blogs said April 6, 2011 at 11:52 am
[...] fatal blow was struck in October when the Treasury turned the CRC into a tax by removing its revenue recycling mechanism. DECC’s simplification proposals do not seek to alter [...]