CBI response to CRC consultation

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schemes to cut emissions would have done so anyway, as would 87% of those that have taken ‘physicalinterventions’, and 80% of those that have identified areas to improve efficiency. 2The CRC’s ineffectiveness comes about because neither the reporting element nor the financial element ofthe scheme are achieving their objectives.The scheme’s reporting element was originally designed to support revenue recycling through the CRCperformance league table. Now that revenue recycling is gone, it has no purpose. It is not an effectivereputational driver, because it does not allow fair or like-for-like comparisons – for example:The metrics make no allowance for true efficiency because no contextualisation is made for activitysuch as adding sites and creating jobs. Expansion is simply treated as increased energy use whichcauses companies to fall down the league table.The metrics planned to judge companies from year 2 of the scheme would fail to recognise thosewho have taken action on emissions in the past. For example, for many businesses efficienciesalready achieved would mean that at best they would prove to be average performers against theabsolute metric in future league tables.The table compares companies from various different sectors with no contextualisation, which isnot truly informative.These factors make it difficult for observers to accurately judge how well CRC participants are doing onenergy efficiency. This may account for the muted response from media and industry to the first leaguetable’s publication last autumn. We believe that a reporting mechanism that gives an incomplete picture ofwhat companies are doing and does not get widespread attention cannot succeed in providing reputationalpressure to change business behaviour.The scheme’s financial element in most cases also no longer has a positive effect on energy efficiency dueto the removal of revenue recycling. In most companies, removing revenue recycling has weakened thebusiness case for capital investment in energy efficiency solutions, which in the most part can no longercompete with more profitable uses of capital such as growth projects (for example, opening new shops).This leaves energy efficiency proposals with no funding or restricted to accessing smaller pots of capitaldedicated to environmental and/or social outcomes. Prior to the removal of revenue recycling, discussionof action on energy efficiency was increasingly reaching the board table of companies which had notpreviously considered it, both because business cases were more compelling and because the schemeoffered strategic decisions worthy of boardroom consideration. Now such board level discussions occurrarely and are chiefly focused on paying the CRC bill.As well as undermining the effectiveness of the scheme in encouraging energy efficiency, in some veryspecific cases the financial driver has become economically counterproductive by creating a carbon leakagerisk. For those sectors which use a lot of energy and are at risk of international competition, but are noteligible for Climate Change Agreements (such as datacentres), the loss of revenue recycling is deterringbusiness investment in the UK and consequently threatening economic growth. For example the CBI hasheard from a leading ICT company that the CRC is dissuading them from opening datacentres in the UK.Because of its ineffectiveness as an energy efficiency scheme, the CBI believes that the CRC should bescrapped completely as soon as possible.2 “What next for the Carbon Reduction Commitment May 2012: An analysis of perceptions towards the CRC and itsimpacts” Business Green white paper p 82 | P a g e
For purely fiscal reasons, a time-limited tax is unavoidableThe Office for Budget Responsibility estimates that by 2016-17 the CRC will be raising £1.1 billion a year. 3The Government has made clear that the revenue collected through the CRC is instrumental to repairingthe public finances, and that if this revenue were lost other taxes would have to be introduced, or existingtax rates raised, to compensate. Any such option would necessarily involve some redistribution of the taxburden, affecting businesses which are not currently part of the CRC.For these purely fiscal reasons, the CBI believes that the Government should, simultaneously with scrappingthe current CRC scheme, introduce the simplest possible method for collecting the same amount ofrevenue from the same businesses currently eligible to pay the CRC.The mindset with which this tax is designed should not be to start from the existing CRC and modify it.Rather, it should be to strive for the simplest approach that would be designed if starting from scratch. Thisis likely to involve:Retaining the current eligibility criteria based on electricity bill size and participation in otherpolicies.Removing all allowance purchase and trading mechanisms and using simple taxation methods tocollect the revenue.Using the simplest possible method to calculate the payment companies are eligible for, based onsimple energy use statistics.Removing all public reporting mechanisms.Primary legislation may be required to set up this new approach.As soon as the public finances allow, this tax should be given a high priority for removal. For this reason, thelegislation creating it should include a sunset clause so that once the fiscal situation allows the tax isremoved. We suggest this clause may need to be set for three to five years’ time from the present.A more strategic approach to business energy efficiency is needed, starting with mandatory carbonreportingScrapping the CRC would remove an ineffective policy instrument that is presenting a barrier to businessenergy efficiency. However, an effective policy framework will still be needed to encourage and supportbusiness energy efficiency. Indeed, there are a number of barriers to energy efficiency being realised inbusinesses, including upfront cost, payback period, awareness of opportunities, and hassle factor, that willstill need to be overcome. The relative size and nature of these barriers differs from business to business,and markedly so between different sectors and sizes of business. For example, making improvements to abuilding requires a different level of investment and has a different payback time to altering the way inwhich a process industry company does business.To design an effective business energy efficiency policy framework, a strategic assessment should beundertaken of the barriers and potential policy solutions, designed from the point of view of driving energyefficiency rather than generating revenue. This should lead to a proposal or set of proposals which can bedesigned and taken forward in consultation with industry.Designing and implementing this framework will, inevitably, take some time, but this is not a reason todelay the abolition of the CRC. In fact, more effective policies cannot be developed until the CRC is gonebecause its existence is acting as a barrier: the government, and stakeholders, do not want to discuss newideas because of the risk of adding further policy complexity should the CRC not be removed.3 http://budgetresponsibility.independent.gov.uk/wordpress/docs/Fiscal-Supplementary-Tables-AS11.xls3 | P a g e
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CBI response to CRC consultation

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