Well buried in the spending review announced by the UK Chancellor of the Exchequer yesterday was a policy change that re-shapes the cap-and-trade CRC Energy Efficiency scheme.
The announcement was that the scheme will be ‘simplified to reduce the burden on businesses’, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. More importantly, revenues from allowance sales ‘will be used to support the public finances, including spending on the environment, rather than recycled to participants’.
The recycling of revenues was a key aspect of the legislation. The original plan was for the scheme to be revenue neutral, with the income paid back to the best performing companies, based on a published league table.
The allowance price has been set at £12/tCO2 during the first phase and the government has estimated the revenue based on a price rise to £16/tCO2 during the second phase, planned to begin in 2013-14. On that basis the income to the government from the scheme will be £715m in 2011-12, £730m in 2012-13, £995m in 2013-14 and £1,020m in 2014-2015.
The government does state, though, that ‘ … there are significant areas of uncertainty around the original forecast for CRC revenue’, which seems to be an acknowledgement of the lower number of participants than expected. Registration ended at the end of September and the chart shows registrations to date.
The initial expectations were that 20,000 companies would need to declare their power use and 5,000 would be full participants in the scheme. This was eventually lowered, towards the end of the registration period, to a target of 3,000 participants and this was expected to be achieved through those companies who were still registering at the time of the deadline.
However, none of these seem to have been scheme participants. In fact the number registered for the full scheme has actually fallen, from 2,781 at the end of the registration period, to 2,779 now, according to Environment Agency figures.
By not recycling the revenue to participants, the government has effectively turned the scheme into a carbon tax, although based on the lower number of registrations, it seems likely that the scheme revenue will be a lot less than originally forecast before registration began. And there’s no indication as to how much of the revenue will be spent on environmental projects or what those projects will be.
From the participants point of view there is at least certainty about carbon costs, which will make it easier to plan carbon reduction measures. It’s a shame that the best performers will not be financially rewarded, though – the league table (assuming it will still be published) is now all stick and no carrot.
The scheme has always represented a big opportunity for providers of carbon management solutions. But recent conversations suggest that many companies have simply been buying what’s required to manage CRC commitments, rather than the more ambitious solution that can monitor, manage and target carbon reduction. Unfortunately, this change to the scheme may confirm that trend.