Osbourne’s budget makes business energy tax simpler, but will they be more effective?
In a November 2015 blog we predicted that the Carbon Reduction Commitment (CRC) would be scrapped and the revenue switched to an enlarged Climate Change Levy Scheme (CCL).
With the chancellor’s March budget this prediction came true. The CRC will now be abolished from the end of the compliance year 2018-19. This will end a high-profile scheme originally introduced in April 2010 with some lofty, and laudable ambitions.
In its original form, the CRC had a number of elements to it:
- A performance league table for participants – This provided the basis for peer comparison and an instrument to incentivise improvements based on organisational reputation. Positioning on the league table in the first two years was heavily dependent on whether the organisation had taken forward Early Action Metrics. One required participants to install automated meters across their organisation. Another to be covered by a Carbon Trust standard or equivalent. This was an area where the early scheme was quite effective in providing organisations with the backbone for future performance improvements in emissions reduction.
- “Revenue recycling” – This provided strong financial encouragement to be positioned as high up the league table as possible. For those that managed this there was the benefit of lower scheme payments against those organisations in a lower position who received no or little recycled revenue. However only 6 months into the scheme (and prior to submission of the first footprint report), it was announced that there would be no “revenue recycling”. This led to participants and commentators viewing the scheme as little more than a carbon tax. By July 2013 the league table was entirely abolished. Nothing was left of the scheme but emissions forecasting, reporting and payment.
So it was no surprise that the key reasons cited for scrapping the “bureaucratic and burdensome” scheme were due to its complexity and the admission that it had become a tax rather than a commitment. Worryingly, for a scheme established to significantly reduce UK carbon emissions, the Chancellor also criticized the CRC as being “ineffectual”. Now in its place the CCL will be enlarged to maintain the same level of tax income for the Treasury. The CCL is a direct charge on the bill with differing rates applied for electricity and gas. It should come as no surprise that from 2019 CCL rates will increase. Additionally the rates will also be reflecting the different intensity of carbon emissions so that in 2019 the ratio will be 2.5:1 between electricity and gas (currently 2.9:1). This is bad news for organisations that consume lots of gas. The intention is apparently to move the electricity to gas ratio to 1:1 by 2025 in order to deliver greater carbon savings.
So my view is that the overall outcome delivers;
- Greater simplicity through a single scheme
- Improved flexibility to deal with changes to carbon intensity
But on the flip-side of the coin:
- An admission of failure to deliver significant carbon emission reductions for a scheme that will be 9 years old by the time it is scrapped
- Greater taxes to come for those that have been switching from electricity to gas
- Apart from reductions in operating cost, no more positive incentives to encourage improved energy performance
- No more relief through taxation benefits for higher energy performers
There is little doubt this was a necessary change but it remains to be seen if the alternative can be demonstrated to be effective in reducing the UK’s energy use and carbon emissions.
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