CRC Change Could Hurt Businesses

The government CRC scheme has changed to a green tax. That may be a sensible move in the long run, says Peter Judge, but the lack of warning could serioulsy hurt some organisations

Last week, the sustainable technology industry got a shock. We’d been preparing for a government energy efficiency scheme for years… and suddenly it changed.

The CRC Energy Efficiency Scheme (previously the Carbon Reduction Commitment) was confusing. There’s no doubt about that. It was conceived to be “revenue neutral”. Companies above a certain size would buy into it, paying according to the amount of energy they used, and would then get a certain amount of money back, according to how effectively they applied measures to reduce their energy use.

So no money would go to the treasury, and organisations would have a greater incentive to reduce their energy use.

Companies had until the end of September to register – and it appeared that a large number did not do this, risking fines in the process. Maybe the scheme was simply too complex – and the lack of registrations led to calls for the government to extend the deadline.

What happened was far more radical. During the spending review on Wednesday, the news trickled out that the CRC had been completely changed. Revenue was no longer going to be recycled – it was all going straight to the Department for Energy and Climate Change (DECC).

The CRC had, in other words gone from being revenue neutral, to being a tax on energy use. A “stealth tax”,maybe – or as DECC insiders prefer to call it, a “green tax”.

Whichever you call it, it is certainly still an incentive to use less energy. Companies in the field sent the usual blizzard of “commentary” on the announcement. Anyone providing energy management technology welcomed it, and companies using a lot of electricity criticised it.

On the positive side, DECC had to implement major cuts. Raiding the CRC fund enabled it to maintain funding for environmental products, such as the carbon capture scheme – which is working on technology to scrub CO2 from power station emissions – and off shore wind generation.

Those are both fields which would founder without strong government help. They are essential for the transition to lowe emisisons – but they are not yet a profit-making proposition. Transition to the low-carbon economy will be costly, and without investment at this stage,this country could get left behind. By 2014, the CRC money should give the government £1 billion a year to spend.

The new CRC is much simpler, and will cost less to administer. No need for DECC to produce complex league tables, and no need for organisations to search for inventive ways to massage their figures to push them up those league tables. There’s no more “gaming” the system, because there will be less system to game.

It’s also, for many green campaigners, what they wanted in the first place. Usage taxes are already applied to petrol and diesel, in the hopes they will reduce usage, and alcohol and cigarette duty are also supposed to have that effect. If CRC becomes a “sin tax” then maybe that gets the message across better about using less energy.

But the big negative is the way the announcement was handled. Since the spending review started this must have been a possibility, but no hint was given. This means that last week, overnight, a lot of companies suddenly found a hole in their profits for 2011 and afterwards.

One consultant I spoke to said the message arrived during a conference call with a large client. “You could hear the shock,” said the consultant. He’d been expecting to put £10 million in the scheme, and get 90 percent back. Now that £10 million is all going to go to the Government.”

Companies with small profits might be pushed into banruptcy by the sudden change, I was told.

Is the Green Investment Bank safe?

This sort of kneejerk response might be necessary in the deficit crisis, but the sustainability community was hurt by it, and Lord Taylor of Holbeach, a Whip in the House of Lords, got a rough time at an event run by the Aldersgate Group, the day after the cuts were announced. “In the long run, simplicity has many advantages,” he told a crowded reception at the House of Lords last Thursday.

The community also wants to know the government will give sufficient thought to the next big decision for the sustainability industry. The government reiterated its support for the Green Investment Bank, a measure originally proposed by Alistair Darling in his last budget.

But the sustainability industry wants to know the details. “We need to know it can raise green bonds,” said Peter Young, the chair of the Aldersgate Group. The bank needs at least £3 billion and must raise that either through the government taking risks, or through recycling money from the sale of other assets, he said.

Other speakers pointed out that the Green Investment Bank won’t even get its  £1 billion until 2013.

The decision over CRC might turn out to be the right one. But the haste with which it was made is causing the sustainability industry concern that there may be other hasty decisions on the way… and they might be the wrong ones.