Latest thinking by the energy and climate department (DECC) over climate change agreements (CCAs) smacks of blue-sky thinking. It has floated ideas not only to reform but even potentially to scrap the instruments. The government should be careful before reinventing this particular wheel.
Last December, DECC organised a closed workshop including representatives of sectors covered by CCAs to discuss their future. It released a report on the meeting last week.
There is general consensus that CCAs need reform. The voluntary agreements to cut emissions now signed with 52 industry sectors have various shortcomings. These include difficulties with monitoring and benchmarking of progress and an uneasy mixture of absolute and relative targets in different agreements.
In addition, following the development of new instruments such as the EU Emission Trading Scheme and the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), the UK’s climate policy framework has become complex and messy.
The last Labour government went a long way towards addressing the issue. It ran two detailed consultations, the latest in 2009. Shortly before the general election it issued final proposals to standardise and control CCAs more closely.
Then the coalition government came to power with a promise to think again and to radically cut back on UK climate change policy red tape. Half a year on there is now less clarity over how the rules of the game will change. In addition, delivering on its simplification pledge without creating perverse outcomes is a major challenge, as the new government is rapidly discovering.
One option being entertained by DECC is to scrap CCAs altogether. Companies looking for continued relief from the Climate Change Levy (CCL) – the key benefit supplied currently via CCAs – could instead have to enter competitions.
Only larger firms would be likely to do well out of this because they have the resources to mount a serious bid. Even then there would be little certainty for investors.
There might be little environmental benefit either. DECC suggests that only firms that are also at risk of foreign competition and subject to the rules of the Carbon Reduction Commitment would be exempted from the CCL. This could end up being very few firms.
Alternatively, DECC suggests CCAs could be retained, but given broader scope, for example by permitting energy efficiency performance throughout the supply chain to be included. Such an enlargement would increase the demands for accurate emissions data very significantly.
Back in the real world, industry wants to see modest but speedy reforms, preferably along the lines as already proposed by the last government in March 2010.
Companies are particularly worried that with current CCAs ending in March 2013 a decision on new rules is needed now to avoid a damaging gap for energy efficiency investment.
As Hilaire Belloc put it: “Always keep a hold on nurse for fear of something worse”.