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Can something emerge from the CRC wreckage?

ImageA new year. Another consultation. But the Display Energy Certificate could also be the saviour of the latest stealth tax to hit industry and commerce?

Don’t groan. The government is now running no less than its fourth round of public consultations into the Carbon Reduction Commitment. But this time maybe, just maybe, we might end up with a scheme that really will achieve what it was originally designed to do: deliver a reduction in participants’ emissions of 11m tonnes by 2022.

In which case, it may just be possible to forget its appalling birth pangs. But only if two previously disparate policies are married together.

A quick reminder of how the scheme originated. Designed to cover approaching 3,000 public and private organisations, it has always been aimed at larger non-intensive energy consumers. Formally called the CRC Energy Efficiency Scheme, it covers supermarket chains, offices, public sector buildings (hospitals, universities et al), plus practically all industrial emissions not included either in the European Emissions Trading Scheme.

The most novel, and elegant, part of the CRC scheme was that those participants who were most effective in energy-saving terms earned what was effectively a triple dividend. The first win is the traditional one: less money needed to buy fuel, because less fuel is consumed. The second is reputational; each year a performance league table is published, and the higher up in the league you are, the better an ecological citizen you are deemed.

And the third? That was supposed to reward financially those which ended highest up the annual list, comparing current emissions with a five-year rolling average.

But that is the dividend that was removed in November.

The CRC had always been designed to be revenue neutral. In each of the three previous CRC consultations, all the money involved – reckoned shortly to reach around £1bn a year – had always been intended to be recycled back to participants. But no more.

Cancelling recycling

With no hint to anybody beforehand, the Chancellor of the Exchequer, George Osborne, announced he was cancelling any recycling of the revenues involved. No money would be returned to participants, however well they did. Instead the CRC has become just another stealth tax. Effectively each participant is to be charged an initial £12 for every tonne of carbon emitted.

The best estimate is that this increases costs for electricity by around 0.08 pence per kilowatt hour (p/kWh). And natural gas by 0.03 p/kWh.

So what is the purpose of this latest consultation exercise? To those charged with running it, it must feel a bit like following the disastrous theatrical first night, a flop launch of a new show, when your star performer has walked out. And trying to ask your sponsors to clear up the pieces. What on earth is the point?

All that can be done is to mutter sheepishly about trying to simplify the CRC system, reduce the administrative burdens. On the face of it, a not very welcome consultation.

And yet, out of this fiasco, could yet come success. For a start, we do still have that performance league table. As currently proposed, it has one big drawback in terms of affecting behaviour. This is because any reputational drivers are concentrated upon the purchaser of energy. But energy efficiency in commercial and services buildings often depends upon two parties. The occupier and the owner- even though in many tenancies both parties are not included.

This has long been a concern for landlords. It is true that some are quietly pleased that turning the CRC into an effective “stealth tax” will enable them to pass on any fiscal responsibilities to the tenant, no questions asked. But others are fully aware that the Coalition Agreement specifies a desire to make Energy Performance Certificates work properly. These express the “asset” or intrinsic energy-saving aspects of a property. And as such have become increasingly fraught in their variability. And given their long shelf life of a decade, potentially rather misleading.

Less contentious are their “cousins”, the Display Energy Certificates (DECs). Based upon actual annual fuel bills, these “operational” measures have become commonplace in public sector buildings. Each year some 34,000 are posted “in a prominent place”, telling visitors to each public buildings how well its energy is managed this year. As opposed to last year.

The recast of the Energy Performance of Buildings directive requires that energy certificates increasingly be displayed in private sector buildings to which the public has access. To date, this policy – and that covering CRCs- have been handled by separate government departments, and have evolved along entirely separate trajectories.

But there may yet be a chink of light. Why not scrap the onerous reporting mechanism originally thought necessary to enable CRC participants to win the recycled money, creating a mechanism unique to the CRC scheme and rendered obsolete by the removal of the entire recycling mechanism?

Instead why not embrace the Display Energy Certificate as the method of demonstrating compliance with the CRC, at any rate in buildings?

That way, the scheme could at last encourage building level engagement; could allow for multi-tenanted lettings; and allow easy aggregation of existing DEC scores across a company’s entire property portfolio. And some good may yet emerge from this latest stealth tax.

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