The green tax goes off-colour

Hidden away in a single paragraph of text on page 62 of last month’s spending review came the news that the Government was making big changes to its CRC Energy Efficiency scheme - originally known as the Carbon Reduction Commitment. And the words in that single paragraph have enormous implications for business’s efforts to reduce carbon emissions.

Put very simply, under original plans the CRC was to be a revenue neutral trade scheme. Businesses would buy and trade allowances based on their predicted carbon emissions, and in return that money would be recycled back in the form of financial rewards - or penalties - based on their carbon reduction success - or lack of (see box below).

But the very small print in the Government’s spending review (see box, facing page) came as a very large shock. It states that the payments would no longer be recycled and are now to be retained by the Government. Moreover, the figure is no small sum. As the Government has admitted itself, by 2014/15 it will total more than £1bn.

Tax on business

Land Securities environmental director Dave Farebrother says: “We were surprised by the timing having been assured by this Government and the previous that the first stage of CRC was set in stone and nothing would change it.”

The British Retail Consortium has reacted with fury to the announcement, calling it an appalling new tax on business. BRC director of business and regulation Tom Ironside says “there has been a strong adverse reaction” from retailers to the news because under original plans it would have been a virtuous circle. Now they will no longer reap any benefits. He adds: “It’s frustrating that this is an area where retail is performing well and now the incentive has been taken away.”

And it is one that will cost millions for some of the UK’s largest retailers. Boots group head of CSR Richard Ellis admits that the health and beauty retailer is now facing a £2m to £3m bill for CRC payments. For more space- and energy-hungry retailers such as the grocers, the costs could be tenfold those which Boots is facing.

A bolt from the blue

Like the BRC, Ellis says he is “disappointed” in the backtracking - particularly as there was no prior consultation or formal announcement. “It’s been disappointing as to the way it’s been

handled because the CRC has been

in development for over four years with the Department for Energy and Climate Change (DECC) and was an attempt to work collaboratively and in partnership with the government to come up with something that would hopefully work.”

Marks & Spencer also feels the amendments should have been discussed: “We are very disappointed not to have been consulted and by the manner in which the changes were announced,” says a spokesman.

And British Property Federation assistant director Patrick Brown says the changes to the revenue

recycling plans came “like a bolt from out of the blue”. “It was a massive shock,” he says.

Most also feel the decision was rushed. “Our understanding was that it wasn’t a long time in the development and was a relatively last minute decision,” says Brown. “Many of our members - because of the differences of landlord and tenant divide - had resigned themselves to losing out somewhat through recycling payments but to take away 100% straightaway has drawn startled looks and significant attention.”

Ironside says the changes are unfair on those businesses that had already invested time, money and effort in preparing for the CRC. “It’s the fact there was already a clear understanding of how the scheme would operate and retailers were already making business decisions based on that,” he says.

No more incentives

But for the bigger retailers whose CSR policies mean they are committed to carbon reduction, the changes will not affect their behaviour, despite the financial hit. M&S’s spokesman says: “The new look CRC will not change our policies or our determination to create a more sustainable M&S.”

The same is true at Tesco, says a spokesman: “Tesco is committed to becoming a zero carbon business by 2050 but we do not think that the decision to retain the revenue from the CRC will incentivise carbon reductions and fear that it will have a negative impact.”

And this is the greatest worry - that smaller retailers no longer have an incentive to do their bit. “The recycling of payments was an incentive because the good would be rewarded and the bad would be punished,” says Ellis.

Although the Government stated that some of the money will be used for environmental purposes it has not said how much, meaning that in essence the money is just going straight to the Treasury to help fund the deficit. As Ellis says: “If the Government just retains the money then there is less money to go round for energy efficiency”.

Brown says that the Government’s Green Deal Finance announcement that could be rolled out to businesses could be encouraging - this is a pay-as-you-save initiative for the domestic sector that could be extended to businesses. However, details are sparse.

A consultation on further changes to the CRC Energy Efficiency Scheme will be launched at some point this month with its results available early next year. A DECC spokeswoman says this will “open up discussions on the ways we can simplify the scheme”. However, she admits that the cancellation of

revenue recycling is a definite change that will not be open to discussion and she defends DECC’s move: “Every department has to play its part in reducing the deficit”.

Taxing times

But as well as removing the financial incentive for change, the simplification of the scheme means it will drop down the agenda at senior level. Ellis says: “With CRC we had something that was engaging the boardrooms because the marketing people were saying: ‘Where are we likely to be in the league tables?’ and the finance people were looking at the money that could be earned back.”

He adds: “We had engagement across the retail sector and my fear is that we get an attitude where it’s just seen as a tax rather than getting companies to think about carbon as an issue.”

Farebrother agrees: “This now appears to look like a straight tax and there is little evidence that taxes change behaviour and so we remain in support of a trading mechanism”.

Ellis believes the implications of the changes could be huge: “Of the 5,000 businesses that CRC was going to cover, probably a third were already doing things like us, a third had it sort of on the agenda and had started doing something, and there were another third who will now just completely ignore it and think of it just as paying another tax.”