Government to scrap 'burdensome and bureaucratic' carbon reduction commitment

Out-Law News | 23 Mar 2016 | 4:57 pm | 2 min. read

The Carbon Reduction Commitment (CRC) energy efficiency and emissions reporting scheme will be scrapped from 2019, the chancellor has confirmed.

The announcement follows a review of business energy efficiency taxes and a lack of support for the "burdensome and bureaucratic" scheme, according to the government's response to a consultation exercise. It will be replaced by "fiscally neutral" increases to the climate change levy (CCL) and a simplified reporting framework, the government said.

The CRC requires large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS) to measure and report on their emissions, and enables them to purchase carbon allowances to cover these emissions. It has been frequently criticised by participating organisations, who have found the scheme costly to comply with and administratively complex.

The government intends to abolish the scheme at the end of the 2018/19 reporting period, in order to give businesses time to adapt to the changes and make energy efficiency savings before the increase in CCL rates takes effect in April 2019. Organisations will report under the CRC for the last time by the end of July 2019, it said.

In its consultation response, the government said that the reforms would "reduce administrative costs and improve incentives to invest in energy efficiency".

"Helping the UK decarbonise cost-effectively is vital for the government's action on climate change," it said in its response. "These reforms help to deliver these objectives whilst ensuring that the smallest businesses and most energy intensive firms remain protected."

The UK's current programme of energy efficiency taxes on businesses and public sector bodies has been developed over the past 15 years and consists of a number of overlapping taxes and reporting requirements, both mandatory and voluntary. The overall effect is that some businesses are required to report on their emissions and energy consumption multiple times, while different businesses can experience significant tax rate variations across different sites, activities and fuels.

Replacing the CRC with a "rebalanced" CCL would simplify the business energy tax landscape in line with the responses to the consultation, the government said. Rates will increase in order to recover the revenue lost from abolishing the CRC, and would be modified for different fuel types to reflect falling oil prices and "more strongly incentivise reductions in use of gas, in support of the UK's climate change targets", the government said.

The 2016 Budget document includes up to £730 million for renewable energy contracts for difference (CfDs) this parliament, with details of the first £290m auction due to be announced in the autumn. The funding allocation will be used to support up to 4GW of offshore wind and other less established renewables. The document also commits to implementing the recommendations of the National Infrastructure Commission (NIC) on smart power, and allocates "at least £50m for innovation in energy storage, demand-side response and other smart technologies over the next five years".