Major Changes to Carbon Reduction Commitment Energy Efficiency Scheme (CRC) ‘Recycling’ Payments

On Wednesday October 20th 2010, The Department of Energy and Climate Change (DECC) announced their spending review, which the Chancellor did not mention during his Spending Review in the House of Commons later in the day.

In a statement released by the DECC, it was announced that £1billion a year would be raised to support public services through the CRC Energy Efficiency Scheme by keeping the recycling payments.

The actual statement reads:

“Revenue Raised from the Carbon Reduction Commitment (CRC) energy Efficiency Scheme will be used to support public finances (including spending on the environment), rather than recycled to participants”
Department of Energy and Climate Change: HMT Spending Review Press Release

Companies and public sector organisations who consume over 6,000 MWh of electricity a year are required to participate in the CRC by purchasing carbon allowances to cover the carbon emissions they generate.

The cost of Carbon under the CRC is £12 for the initial phase. Eventually this price will be uncapped, the market will then determine the price, as less allowances become available.

The original scope of the scheme was to reward organisations who performed the best in an Energy Efficiency League Table. The revenue from the carbon allowances was to be recycled back to participants, with a bonus to those at the top and a penalty for those at the bottom of the table.

This decision is a major change of policy concerning the CRC, it has now been turned into a ‘carbon tax.’ The “recycling” payments have been removed and all funds will transfer to the government. This is in line with the coalition Government’s commitment to increase green taxes.

All emissions from “core sources” are still covered. For instance, this equates to an additional 8% on the price per kWh that organisations will be spending on electricity.  Therefore, organisations using solely electricity and participating at the minimum requirement of 6,000 MWh will be paying approximately £39,000 into the carbon allowances fund.  None of this fund will be paid back in the form of “recycling” payments.

To allow a cash flow breathing space there will be no purchase of allowances next year. The revenue generated from the purchase of allowances in 2012 will go straight to the Government.

It is unclear, at this stage, whether the early action measures will have any affect on an organisations position in the league table. This is now solely a reflection of a companies approach to its Corporate Social Responsibility as the reward element has been removed.

With no “recycling” carbon allowances fund it is imperative that organisations affected by the CRC use this additional year to start implementing energy initiatives that will reduce their tax burden.

For further information, please contact:

Andy Sparrow, Norland Managed Services, on 0207 871 9100 or 07904 908 225 or andy.sparrow@norlandmanagedservices.co.uk