Budget 2012: Goodbye To the CRC Green Tax?

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Peter Judge

George Osborne may be right to call the CRC cumbersome, but he needs to create something to take its place, says Peter Judge

In the last few years, the main tech news story in the annual budget has been the question, how much will the Chancellor do for broadband? As usual, this year’s answer seems to be – for those who see Internet access as this country’s best hope for the future at least – not enough.

But alongside Osborne’s re-announcement of super-connected tech cities (with the list filled out by a few more names), the Budget included a big hint of a major change that will affect large parts of the IT industry. In amongst the tax-cuts and the changed thresholds, George Osborne dropped a big hint that he could do away with the controversial CRC green tax.

End of the green line?

“The Carbon Reduction Commitment is cumbersome, bureaucratic and imposes unnecessary costs on business,” Osborne said.

That’s a pretty unambiguous statement. Anything that gets damned that way by a Chancellor is probably not long for this world.

The CRC began life as the Carbon Reduction Commitment, a revenue-neutral measure proposed by the Labour government. All big firms were going to have to buy credits in the scheme, and the money they put in would be redistributed to all the scheme’s members – according to how well they were doing in reducing their emissions, on a league table.

It wasn’t a tax. It was a complex game in which rewards were supposed to flow to those who were greenest. And as major electricity users, data centre owners would be caught up in it. The CRC would force them to start a new set of paperwork – carbon accounting.

When the Conservative-led coalition came into power, it faced a dilemma. At a gut level, the party is against taxes as a way to change behaviour, and dislikes any curb on the freedom of business to basically, do what it wants.

And yet, in straitened times, the Government needs money, so it altered the CRC, eliminating the “recycling” element which would have sent money back to the greenest businesses. Money put into the scheme would now go directly to the government’s coffers.

In other words, something really strange had happened. This is a tax-cutting party; although it had promised to lead “the greenest government ever”, no one expected it to push any sort of green agenda which would hurt its friends in the boardrooms. Despite all this, in 2010, the government found itself changing the CRC into something of which eco-warriors would be proud, but which would give any true-blue Tory palpitations: a green “stealth” tax.

Since then, the Government has been quivering over the prospect of actually introducing such a thing. In November 2010, the full force of it was delayed until 2012. In July 2011, after calls from industry to scrap the CRC tax, it was further simplified. The last vestige of the revenue-recycling element was a half-hearted efficiency league table.

How much would it cost? The scheme has been changing so fast, it is hard to tell. But it applies to large-ish organisations, who use maybe 3000MWh of electricity, and the cost was at one stage reckoned to be £38,000 per year, so that works out at about a penny a kWH, or maybe a ten percent hike in energy costs.

Industry is saying it can’t afford that – though as the Energy Secretary must know, the country cannot afford to provide the continued unlimited amounts of energy that industry wants.

Osborne’s statement makes it pretty clear he is going to dump the CRC, although some other form of carbon tax will still be there.

“We will seek major savings in the administrative cost of the Commitment for business,” he said. “If those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.”

Blogger David Bicknell has it right when he commented: “That sounds like a softening up for the end of CRC to me.”

If it is the end, the Chancellor will have to come up with something that makes clean technologies and efficiency a credible thing to invest in.

“The Chancellor’s emphasis on reducing the bureaucracy associated with the CRC Energy Efficiency Scheme is critical but reform must not be at the expense of investments in energy savings,” commented Andrew Raingold, Executive Director of the Aldersgate Group. “A more effective regulatory regime would help ensure that businesses reduce both their energy use and bottom line costs.”

Cutting carbon is not just a cost – there is a whole green economy which the country could be moving to, Raingold pointed out. Damning the CRC is not the same as creating a credible alternative.

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