Government removes company cash incentives in energy efficiency scheme

Money raised through the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) will now go to the Government, rather than to those firms who cut their bills the most, as originally planned.

The changes will remove carbon recycling payments, where well-performing companies would receive the proceeds from carbon allowances purchased under the CRC.

This revenue, estimated to amount to £1bn per year from 2014-15, will now be channelled into "supporting the public finances" according to the spending review document – which will include spending on the environment.

The business group CBI has branded the revised scheme "untenable", and is calling on the Government to turn CRC back into an incentive-based scheme or scrap it altogether.

The CRC is a mandatory scheme aimed at improving energy efficiency and cutting CO₂ emissions in large public and private sector organisations not currently covered by the European Emissions Trading Scheme. Together, these organisations are responsible for around 10% of the UK's greenhouse gas emissions.

Organisations caught by the CRC have to measure and report their emissions, which are mostly the result of gas and electricity use, and then pay £12 per tonne of CO₂ they produce.

The scheme features an annual Performance League Table, ranking participants on their energy efficiency performance.

Before the Government's announcement in the Spending Review, CRC participants were to receive bonus or penalty payments according to performance in this league table. Going forward, reputational drivers will still apply.

The spending review also confirmed that the first sale of carbon allowances under the CRC will be postponed until 2012. Although recycling payments have been abolished, good performers may still be able to dispose of surplus allowances on the secondary market.

The cost of compliance for the average participant will rise dramatically, with businesses which expected to be paid recycling payments having to reassess the cost of the scheme.

Leading UK business group CBI wants the Government to restore the scheme to its previous structure, providing incentives for emissions reduction rather than acting as a tax.

"We now have a carbon reduction scheme that doesn't encourage companies to reduce carbon emissions, and actually adds to the cost of doing business," Rhian Kelly, Director for Business Environment, said in a CBI statement on the CRC.

"Without a proper incentive the scheme lacks credibility and has lost businesses' trust."