Chancellor of the Exchequer, George Osborne, today announced major changes to the CRC Energy Efficiency Scheme (“CRC”) that will make the scheme much more expensive for those organisations required to participate.

In the Comprehensive Spending Review published today, the Government has abandoned the idea of recycling the money raised in the annual sale of carbon allowances to participants based on their environmental performance. Instead, the money raised through the scheme – totalling up to £1 billion a year by 2014/15 – will go to the Exchequer, at least until 2015.

Initially the CRC gained support from businesses because it was not simply a carbon tax. When it was introduced, the recycling payment guaranteed that the money raised would not go into the general Treasury pot but instead incentivise good environmental behaviour.

This element of the scheme has been abandoned and now the CRC is effectively a carbon tax.

As a sweetener, the Government has deferred the first sale of allowances from April 2011 to April 2012. However, it appears that in 2012 CRC participants will be required to purchase allowances to cover emissions in both the previous year (2011-12) and in the current year 2012-13.