As Budget announcements go, the abolition of the climate reduction commitment (CRC) was far from unexpected.
Successive administrations in the UK and EU have created a complicated jumble of schemes to promote energy efficiency among industry and non-domestic users (these include the EU ETS, the Carbon Price Floor, the Climate Change Levy, the CRC, and Climate Change Agreements). The vast array of acronyms is illustrative of a complicated landscape for energy managers. Far from stimulating an energy-efficiency revolution in our workplaces, the policy quagmire had become an obstacle. The administrative burden was deterring companies from implementing changes that should ultimately benefit the bottom line.
Responding to successive calls from the business community to streamline the policies, the Treasury decided to act. During the Summer Budget last June, chancellor George Osborne announced a review into non-domestic energy efficiency intending to simplify and improve the effectiveness of the regime.
The results of the review were delivered last Wednesday. The removal of the CRC will take place in October 2019, with the loss in Treasury revenue compensated by a raise to the Climate Change Levy (CCL) the same year. The move was widely trailed in the press and is meant to be fiscally neutral, but analysis from Clean Energy News indicates the exchequer is set to net £425 million due to an overlap in policies as the CRC is phased out.
The new approach, whilst some way on the horizon, should go a long way to reducing the compliance burden placed upon many businesses in the UK. When first introduced in April 2010, the CRC did have real impact; pushing energy efficiency and carbon consumption up the corporate agenda. However, as outlined by think tank Policy Exchange in 2011, the complexity of the scheme, particularly when it came to reporting, has been corrosive and slowed the rate of change.
Therefore the Treasury’s decision to replace the CRC with an extension of the CCL should be welcomed – particularly after the scheme also looked under threat. The CCL is unpopular with the manufacturing sector which feels it places British industry at an uncompetitive advantage in the global race. The chancellor has recognised this and Energy Intensive Industries (EIIs) will continue to be exempt.
Whether exempting the most polluting industries from the scheme can be reconciled with our ambitious climate commitments is a moot point – the decision results in Treasury losses which must be recouped elsewhere, effectively adding £5 onto annual household energy bills. But the Conservatives are clearly wary of the political consequences of being seen to be slow to act whilst the UK manufacturing industry enters recession.
So will the new framework deliver a major increase in the uptake of energy efficiency? Once easily understood by managers, many of the measures are mundane and easy to implement but provide almost immediate returns. The savings potential is evident. Carbon Trust estimates that the energy we use in office buildings is responsible for 18 per cent of the UK’s CO2 emissions. As the government prepares to set the 5th Carbon Budget in June, real action on efficiency could tilt the balance towards meeting our climate commitments.
What must accompany the announcements is a proactive communications campaign to really drum home the importance of energy saving measures across both the public and private sector. The current political environment places an emphasis on big, legacy infrastructure projects. Incentive schemes to encourage work-place energy saving often fail to get pulses racing in Whitehall in quite the same way.
The government can be a trail blazer in this regard - taking the lead and showing businesses that the best way to cut bills and carbon emissions is to reduce energy use. The £295 million allocated to invest in measures across schools, hospitals and other local public services represents a good start, but must also be the promise of more.
Even more encouraging is the recognition of energy efficiency as an infrastructure priority in the recently published National Infrastructure Plan. The private sector is key to this new plan. Commercial secretary Lord O’Neill, the chancellor’s right hand man, has urged big business to fund the majority of £483 billion in infrastructure improvements planned to 2021.
One of Osborne’s favourite phrases is “we are the builders”. If a chunk of these reforms and private investment can be effectively delivered into efficiency measures, the UK might well be the energy savers, too.