In its response to the Department of Energy and Climate Change’s consultation on simplifying the CRC, the CBI claimed the removal of revenue recycling from the scheme has rendered it ineffective, and said it should be scrapped as soon as possible in favour of mandatory carbon reporting and a new, more simplified tax.
Rhian Kelly, CBI director for business environment policy (pictured left), said the CRC has become an overcomplicated revenue-raising instrument, which is simply being written off as a cost of doing business in the UK.
“The CRC has become a tax that pretends to be green and does nothing to strengthen the business case to invest in energy efficiency,” said Kelly.
“We urge the government to recognise that this policy is past the point of no return – it should be scrapped, and its reporting elements replaced with mandatory carbon reporting,” she added.
The revenue recycling element of CRC rewarded companies for increasing their energy efficiency with payments dependent on their proportion of CRC emissions and on the improvement made each year, recorded in a performance league table.
The CBI’s report said the league table no longer serves any purpose as a reputational driver to business for three reasons: no allowance is made for business expansion and job creation; it fails to recognise past action taken on energy efficiency; and it compares companies across different sectors in the same way, which is not truly informative.
Helen Devenney, of Deloitte, said the CRC has little relevance to companies in energy intensive sectors because they are mostly already covered by the EU Emissions Trading Scheme and Climate Change Agreements, but believes it does provide some incentive to those in other sectors, particularly since it provides a system to measure and compare emissions.
“CRC provides some incentive for energy efficiency but a straightforward tax would probably do the same job,” said Devenney.
“However, we must be careful when comparing solutions because we don’t know what a new tax would look like. We already have the climate change levy (CCL) taxing energy usage and we would not want to end up with a system that overlaps in any way,” she added.
Energy companies are already required to make decisions as to when to charge CCL to customers and it could lead to even greater complexity if that system is modified further.
Devenney also said that while the EU Emissions Trading Scheme will target energy intensive industries, the European Commission is encouraging member states to use taxes rather than alternative schemes like CRC, to encourage energy efficiency in other sectors.
The CBI’s report also claims removing revenue recycling has weakened the business case for capital investment in energy efficient solutions, which is putting the UK at a competitive disadvantage in attracting foreign investment in some sectors.
It said a leading ICT company is reluctant to open datacentres in the UK because the potential recompense from revenue recycling no longer exists and datacentres are ineligible for climate change agreements, which entitle some energy-intensive businesses to discounts from the CCL.
One alternative to CRC for encouraging energy efficiency, which is advocated by the CBI, is the introduction of mandatory carbon reporting under the Climate Change Act.
“This policy would be more acceptable to businesses and more effective in driving energy efficiency,” the report said.
“It allows businesses to give a truer picture of their emissions and report in a way that reflects the realities of their individual sectors and businesses and, unlike with the CRC performance league table, businesses don’t feel they will be put in a position that does not reflect how seriously they take energy efficiency.”
Dustin Benton, a senior policy adviser with the Green Alliance, said the CRC started out as a logical, if complicated, policy to use reputational and financial drivers to reward energy efficiency but now that revenue recycling has been removed, there is a case for reform.
“Mandatory carbon reporting is only a partial replacement – without a policy to make financing efficiency investments easier, it’s unlikely that businesses will feel able to invest,” said Benton.
“Our proposal is to bring forward an efficiency feed-in tariff in the energy bill, which will provide a financing mechanism and incentivise energy service companies to help businesses save energy,” he added.