On 16 March 2016, as part of his Budget Statement, George Osbourne announced the abolition of the CRC Energy Efficiency Scheme to take effect from the end of the 2018/19 compliance year.
This was no rabbit out of the Chancellor’s hat, however, as the Government’s intentions had been made fairly clear last year in its consultation in the autumn of 2015 on reforming energy efficiency taxes and reporting.
On the same day the Treasury published its formal response to that consultation, which sets out further detail on the timetable for abolition of the CRC Scheme and outlines the Government’s plans for consequential changes to the Climate Change Levy (CCL ), which will constitute the single business energy tax. The Government’s spin, which suggested that it was relieving businesses of a costly and bureaucratic burden, rather than skirted round the fact that the CRC Energy Efficiency Scheme was not originally intended as a tax at all, but as an emissions trading scheme. It was intended to apply the principles of emissions trading to less energy intensive businesses and the public sector, with a “light regulatory touch”.
It was the Coalition Government’s September spending review of 2010 which turned the CRC Scheme into a tax by abolishing the revenue – recycling based on league table performance which was intended to make the scheme “revenue neutral”, so that instead the proceeds of the sale of allowances could be diverted to the Treasury. The truth, however, is that no emissions trading scheme can be entirely simple, which is why the European Union Emissions Trading System (EU ETS ) focuses largely on energy intensive industrial sectors, which are already subject to comprehensive environmental regulation. Because of the broad scope of the CRC Scheme, which covers both public and the less energy-intensive parts of the private sectors; because it is based on “organisations”, rather than companies or other corporate bodies to discourage avoidance; and also because it makes special provision to cover franchising operations and tenanted properties to broaden the scheme’s scope still further, the rules have become particularly complicated.
Given that the scheme has not been effectively functioning as an emissions trading scheme, there seems to be much to be said for the present decision to abolish the scheme, but retain CCL . In principle, the fact that CCL has a broader tax base should mean that the burden of making good the loss to the Treasury of the revenue stream from the CRC Scheme will be distributed more evenly.
Not all of the hard graft will have been wasted. The CRC Scheme does appear to have had noticeable effects in reducing energy consumption by affected organisations. However, this may have been due less to the actual operation of the scheme, as to the fact that the need for preparation for compliance showed considerable scope for energy savings.
The Government’s response to the consultation indicates that as a result of the closure of the scheme no allowances will need to be purchased in respect of energy supplied from April 2019 onwards. Final reports under the scheme will be due to be made by the end of July 2019, and surrender of allowances in respect of energy supplied in the 2018/19 compliance year will be due by 31 October 2019.
There will be an increase in rates from CCL to compensate for the lost revenue from the CRC Scheme. The rates will also be changed from April 2019 onwards and over the period to 2025, in order to encourage reductions in gas consumption.
In order to protect energy intensive sectors the CCL discount for parties to Climate Change Arrangements will be increased to ensure that they effectively pay no more than RPI increases in CCL . Furthermore existing eligibility criteria for Climate Change Agreements will be maintained at least until 2023. The review of targets for parties to Climate Change Agreements will recommence later this year.
The response also announced that the Government will consult later this year on a simplified energy and carbon reporting framework.