Revised rules for CRC: good for cash flow, not so good for renewables
Peta Hodge
7th October 2009
Revised rules for the Carbon Reduction Commitment (CRC) – under which many large UK businesses will have to buy annual carbon allowances to cover their carbon emissions – mean that companies will not now be expected to find two years’ payments in 2011/12.
The Government had previously announced that, in light of the difficult economic environment, it would defer the first year’s payment (relating to 2010/11) – which meant organisations would have had to find the cash to pay two years’ allowances in one go in 2011/12.
Business representatives had expressed considerable concern about the impact this would have on organisations’ cash flow.
In a press release issued today, however, the Department of Energy and Climate Change (DECC) said that, following extensive consultation with businesses and trade bodies, it had made a number of improvements to the scheme.
It said: “To smooth the introduction of the scheme and to help ease the upfront costs, organisations will only have to report emissions in the first year (2010/11). In subsequent years organisations will have to buy allowances corresponding to their emissions from energy use, and then surrender them by the end of the year.”
The change has been welcomed by the manufacturers’ association, EEF. Its head of environment policy, Gareth Stace said: “Businesses have been very concerned about the impact the CRC would have on cash flow. Purchasing allowances, compliance, registration and annual fees are all extra costs, additional to any money invested in energy efficiency measures.
“The Government’s decision not to seek auction payment from organisations for the first year will give those firms the leeway to use that money to invest in their businesses.”
The EEF also welcomed another change that will mean companies that take early action to reduce emissions will not be penalised.
Under the original proposals, businesses that had made historical savings could only benefit from this proactive action in the first two years of the scheme – this has now been to extended to three years.
Changes to the treatment of businesses that generate on-site renewable energy by installing their own wind turbines or solar panels have received a mixed reception from the renewables sector.
The Renewable Energy Association welcomed the news that the Government plans to publish separately and alongside the energy efficiency league table, details of renewable energy performance – which should mean that the environmental performance of an organisation that has invested in renewable technology is not misrepresented.
However it warned that the Government has still not gone far enough to incentivise businesses to adopt on-site renewable energy generation.
The problem for the REA is that the Government has not budged on its central position that where a business has a renewable installation for which it claims ROCs or a feed in tariff, it will have to buy emissions allowances to cover the energy produced, even though renewables have zero emissions.
Gaynor Hartnell, the REA’s chief policy officer, said: “As the financial impact of the CRC becomes more significant, companies stand to take a significant financial hit for investing in renewables by having to pay for emissions that they have not in fact emitted.
“Given the hugely challenging renewable energy target we face and the examples of exceptional renewable energy leadership from the commercial sector that need to be built upon, this is an astonishing outcome. Industry deserves a carbon league table in which renewable energy investment by the commercial sector is actively incentivised and duly rewarded.”
Other concerns about the CRC – which the Government claims will save participants around £1 billion a year by 2020 – still remain.
The CBI, which supports the principles behind the CRC, is particularly concerned that many firms covered by the scheme – those with an energy bill of more than £1 million a year from Aril 2010 – are still unaware of how this new legislation will affect them, and that they will be hit with fines of £5,000 for failing to register.
“The Government needs to step up efforts to raise awareness of the legislation, so that firms have time to prepare before next April,” said Dr Neil Bentley, CBI director of business environment.