For CRC watchers, it's time to take stock

A couple of days after the Spending Review, and for those who’ve been watching and commenting on the complexity of the Carbon Reduction Scheme (CRC) over the last years, it’s time to assess where we are.

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.

It appears for the time being at least, that the league table aspect will stay but, as this blog from Chloregy suggests, that means the scheme is all stick and no carrot.

Two of the comments I heard yesterday were that although the government has at a stroke simplified the scheme, it’s approach has been unimaginative, almost a back of the envelope calculation to see how it could fund all of its environmental initiatives. And as it’s now essentially a carbon tax, why not simply call it that? Carbon Reduction Commitment Energy Efficiency Scheme – to give it its full title – now sounds a bit redundant.

There are also still some potential benefits that are likely to result from the CRC, including demand for remote working technologies may also grow (which transfer the carbon burden to homes instead of businesses, thereby taking it out of CRC).   The CRC is undoubtedly driving an unprecedented focus on energy and this is likely to generate increased demand for a whole range of ICT enabled services and low carbon technologies such as building management systems and advanced meters. This whole area is of interest to companies such as Cambium, who have become advanced in their thinking on the opportunities available.

At the same time, organisations such as Intellect, which produced an extensive policy response to DECC, remain concerned that the league table has created a risk of reputational damage for companies. Its comments say:

“The league table element has created a high degree of uncertainty for businesses.  Consultees to the original DECC proposals (not just those from our sector) were overwhelmingly against the creation of a league table but their advice was ignored. The league table creates something that is extremely worrying for large, customer facing businesses – the risk of reputational damage.  This would not be a problem were the league table to provide a realistic reflection of performance, but it does not.  Because it does not compare like for like and does not reflect carbon productivity, it will inevitably be misleading.

It continues:

“The league table will not reflect whether a company has achieved emissions reductions through outsourcing a carbon intensive activity or by making it more efficient.  Moreover it does not compare emissions reductions by industry (like for like).  The league table, despite the early action metric, does too little to reward companies who have already implemented energy efficiency measures.  Companies who have already minimised emissions may find it harder to deliver ongoing savings than late starters, so they may find it more difficult to maintain their place in the league table particularly in later phases. The league table also does little to differentiate by performance because a company with consistently high revenue and low carbon emissions may achieve a similar ranking to a company with consistently low revenue and high carbon emissions.  Despite the complexity of the legislation, the league table is an over-simplified way of differentiating performance.  Observers are unlikely to understand the detail behind the simple ranking numbers and may make uninformed judgements.”

In summary, Intellect says, if the CRC were better designed, we could expect to see the following:

a)     A cap and trade operating properly, where carbon is reduced at least possible cost by those best placed to do so

b)     Organisations that are the most energy efficient and have the highest carbon productivity sitting, deservedly, at the top of the league table

c)     Businesses competing on energy efficiency instead of league table tactics

d)     Carbon liability attached to those who create the demand

e)     Significant net reductions in emissions being generated by a tightening cap

It will be interesting to see what new thinking emerges on CRC a.k.a the Carbon Tax, over the coming weeks.