AS2012: Chancellor confuses profession with CRC changes

by Rachael Singh

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05 Dec 2012

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A coal power plant with a cooling tower

CHANGES TO government energy tax have left many in the profession confused as to the government's intentions and scratching their heads at the figures.

It was previously reported that the chancellor would either revise or scrap the Carbon Reduction Scheme (CRC), an energy-related tax on all companies that pay more than £500,000 on their energy bills.

However, in the Autumn Statement George Osborne failed to mention anything about the CRC and changes were only revealed in the Statement papers.

Confusion then ensued as the papers show the scheme will reduce by £25m in the next three fiscal years, although no explanation of this reduction has been given.

Ernst & Young partner in energy and environmental practice Ben Warren could offer no explanation and added that he had hoped the Statement would provide clarity to a historically unclear process, something it failed to do.

This sentiment was echoed by environmental consultancy to the FTSE 100 and large public sector bodies Verco.

"It isn't clear why revenues from the scheme would go down," said Verco principal consultant Paul Stepan.

He added that the consultancy would now speak to trade bodies and government and hope to get clarity soon.

However, he outlined that in the fiscal years 2016/17 and 2017/18 revenues from the scheme would increase to £30m and £65m, respectively, due to a 33% increase on the carbon price.

Carbon dioxide will remain at £12 per tonne for now but will increase to £16 per tonne from 2014/15 and from 2015/16 onwards will increase in line with RPI.

The CRC forces companies to pay for and report on their carbon emissions related to energy use. These companies are ranked in a league table of how much they have reduced their energy by – although the scheme is only applicable to about 5,000 of the largest organisations in the country.

However, the chancellor has now decided to abolish the league table which last year saw KPMG rank highest of the Big Four.

Ernst & Young's Warren said he hadn't anticipated the government would abolish the scheme and added that it was a "great shame ... it is one of the key themes that brings the CRC onto the agenda of the CEO".

He also said that although policy simplification should be welcomed, what the chancellor has done in the Autumn Statement has left the market more confused and has not been particularly helpful.

Stepan also warned that the latest announcement could see many CFOs and companies struggle to make long-term investment in environmental management systems or energy efficiency standards, for fear the CRC will be made redundant in the years to come.

"The overall net effect due to the confusion could see a stall on investment decisions," he said.

However, Warren disagrees and believes companies are interested in the savings environmental changes to a business can make.

"To be honest, most conscious companies are focused on their environmental policies – not because of the environmental benefits but because it provides some form of cost benefit," he said.

According to the Autumn Statement papers, the government will simplify the CRC in 2013 with the Department for Energy and Climate Change to publish details of these simplifications, although no timeframe has been given.

It also added that a review will look at the "effectiveness" of the CRC in 2016 and the tax element of the CRC will be a priority for removal "when the public finances allow".

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