Chancellor George Osborne’s Autumn statement has confirmed that the CRC Energy Efficiency Scheme will not be scrapped, but will be retained in a revised form.  CRC was not mentioned in the Chancellor’s speech but is detailed in the Autumn Statement document itself which states:

“The Government will simplify the Carbon Reduction Commitment (CRC) energy efficiency scheme from 2013, providing very significant administrative savings for businesses in the scheme. The CRC’s Performance League Table will be abolished, to simplify the scheme further.  A full review of the effectiveness of the CRC will be held in 2016 and the tax will be a high priority for removal when the public finances allow”

Various consultations have been held since the Chancellor initially announced in October 2010 that the revenue recycling element of the scheme would be removed.  These have looked at ways of streamlining and simplifying the scheme, particularly around qualification criteria, number of fuels, group participation and allowance sales.  But the Chancellor announced in the March 2012 budget that the CRC “is cumbersome, bureaucratic and imposes unnecessary cost on business. So we will seek major savings in the administrative cost of the Commitment for business. If those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.”  Based on today’s statement, the Chancellor seems to have satisfied himself that the changes proposed can deliver those administrative costs savings, with the additional step of removing the performance league table, at least for the time being.

A review is promised for 2016 which will consider “whether the CRC remains the appropriate policy to meet industrial energy efficiency and carbon reduction objectives, and will consider alternative approaches that could achieve the same objectives.” As mentioned above the “tax” element of the scheme (presumably a reference to the cost of purchasing allowances) is a high priority for removal. 

The Statement also confirms that the forecast allowance price will remain at £12 per tonne in 2013-14 and £16 per tonne in 2014-15 (increasing after that in line with RPI).

Further details of the final proposals for the revised CRC scheme can expected from DECC in the near future.  The expected revised CRC is fundamentally different to the original scheme, designed to be an emissions cap and trading scheme with a limit on the number of allowances and market forces influencing allowances pricing, together with recycling of the allowance revenue back to participants.  The revised scheme may well be simpler, but without the revenue recycling, many participants view it as another tax (and Treasury are even referring to it as a tax). It is interesting to hear that this element of the CRC in particular will be reviewed in 2016.  With the proposed bi-annual fixed price sales and absence of any cap on allowances, providing predictability over the supply and pricing of allowances, it does seem questionable whether the scheme will deliver the intended behaviour changes and cuts in CO2 emissions, rather than being treated as another cost for emitters.