George Osborne : Stealth Carbon Tax

Carbon Tax.

You knew it was coming in the end.

But you never reckoned a Conservative (if Coalition) Government would do it.

Everybody knew that the Carbon Reduction Commitment was going to reduce some people to tears. Something so labyrinthine was never going to work. But now it appears that this New Labour “challenge” is going to morph into a Carbon Tax.

The basic idea behind the New Labour Carbon Reduction Commitment or CRC was to encourage medium-sized businesses to lower their Carbon Dioxide emissions.

Everybody was to fully disclose their emissions the first year, and then make a report on their emissions in the following years.

At the start, they were told they would be judged on a “league table” of performance. At the start of a measuring period they would pay into a common pot according to their emissions levels, and then if they performed better than other companies in reducing emissions, they would get money back out of the pot.

But George Osborne has just waved the “league table” magically away, it seems. All revenues from the CRC will be considered as public money.

OK, OK, so all firms using more than 6000 megawatthours of power a year would be forced to take part, and maybe large companies do need a negative incentive to seriously consider how to keep their electricity use down – they seem to waste a lot, after all.

But what about those companies and organisations that don’t qualify for the CRC because they are already part of the European Emissions Trading Scheme (EU ETS) ?

Any player that’s large enough to be under the EU ETS scheme gets their Carbon permits for free, and can trade them for cash if they use less than their entitlement.

OK, so in 2013 EU ETS Carbon permits will be under an auction scheme, but between now and then there is a huge disparity in the way that medium- and large-sized companies will be treated.

In ETS ? Free permits until 2013.
In CRC ? Obliged to pay a Carbon Tax.

http://www.reuters.com/article/idUS367283376220101021

“…John Alker, director of policy and communications at the UK Green Business Council, spoke for many across the low carbon economy when he said he was surprised by the decision. “The announcement that government is keeping the money from Carbon Reduction Commitment allowance sales has come out of the blue,” he said. “It may make the scheme simpler but this is something you’ve got to consult with industry on before plunging into.” Speaking to BusinessGreen.com, Climate Minister Greg Barker said the decision had not been taken lightly and had been made as a result of the ” catastrophic” deficit inherited from the labour government. He admitted that the changes would increase costs for businesses, but argued that the structure of the CRC meant that “progressive businesses that act to improve energy efficiency will be able to minimise their exposure”. Harry Manisty, environmental tax specialist at PwC, said businesses would effectively view the change as an additional tax, which may cause carbon price discrepancies with the EU emissions trading scheme…”

My guess is that this ploy is the opening salvo in a game of political ping pong that will ultimately destroy implementation of the CRC.

Already there have been wars and rumours of wars that people won’t play this particular emissions cutting game. For example, the start date of various parts of the scheme have been set back, and there are reports that organisations have over-assessed their Carbon Dioxide emissions now so they can look good later when they “cut” them.

George Osborne has served the first (wrecking) ball. What will the response of business be ?