Inside Track

Manufacturers met with HM Treasury this week to again express concerns that allowance revenues from the CRC Energy Efficiency Scheme, projected to be up to £1 billion a year, will be used to support the public finances rather than recycled to CRC participants. We said in the strongest terms that it sent a worrying signal about how the government intends to engage with the private sector going forward.

We called on Treasury to significantly improve engagement in the run up to the forthcoming major consultation on reform of the Climate Change Levy (CCL) and proposals for a carbon tax, which are due to be published mid November.

A key message to Treasury was that any new carbon tax must be seen in the totality of the many costs pressures on business and should not be seen in isolation.

The changes to CRC present government with a choice at a pivotal moment, as if we see a proposal to introduce an ‘upstream’ carbon tax, levied on the electricity generators, regardless of the price of the EU carbon price, then we may end up with triple taxation on the same tonne of carbon. There will be the CCL levied on the end user, the CRC paid by the end user and then the up stream carbon tax, levied on the electricity generator, with full pass through to the end user.

Government now has the chance to get it right and action its rhetoric of certainty, simplicity and transparency in order to accelerate the move to a low carbon economy, by sending the right signal to the market.

If an upstream carbon tax is to be introduced, then surely now is an ideal time to consider rolling up the CRC carbon tax into this new tax, without increasing the financial burden on manufacturers and to virtually scrap the CRC and take a fresh look again at mandatory reporting to sit alongside this broader carbon tax.

Government must stop tinkering around the edges in a piecemeal fashion and look more strategically, as we are in danger of increasing complexity, not reducing it.

I think most business caught by the CRC are still in shock that government will, from 2012, take nearly £1bn from them in what can be seen as a carbon tax.

In the absence of recycling revenues, should government be confident that the performance league table, which provides a publically comparative index of participant’s energy efficiency, is a strong enough driver to affect substantial change within the sector.

I believe that these sort of schemes work much better if there is both a ‘carrot and stick’, rather than just the ‘stick’. This heavy stick approach will do little to engage organisations, but more importantly, as I said last Wednesday, seriously damages the trust between manufacturers and government.

Our members are so dismayed at the announcement that we have today written to Gregory Barker to outline our concerns. The letter, backed by many manufacturing companies and manufacturing Trade Associations, will outline that the decision to push through this change to CRC without consultation seriously calls into question the way in which government intends to work with the private sector, as a trusted partner, to tackle the national deficit. The decision also does nothing to simplify an already complex policy landscape and calls into question the government’s desire to deliver a low carbon economy at least cost to industry.

We will hear further details of proposed changes to CRC in the next month or so and I am sure we are all left wandering whether those proposed changes will be as damaging as this one.

Policy Exchange published a report ‘Greener, Cheaper’ on Tuesday, 27 July. The report highlights that the costs of reducing carbon are too high and more focus must be placed on delivering our global aims, to reduce carbon in the atmosphere, at least cost.

The report argues that it is time for those who take the threat seriously also take the costs seriously. Taking carbon out of the economy will be difficult and expensive, and policies which increase costs for British consumers and British businesses without improving the outcome are extremely unhelpful.

The report echoes many of the points that EEF raised in its report ‘Changing the Climate for Manufacturers’, published 21 June, such as “Current policies are complicated, overlap each other and wasteful”. Policy Exchange also states that “a streamlined carbon tax that will be more effective, more efficient and better for Britain”. The main theme of the EEF report was to call for a carbon tax to replace the Climate Change Levy.  Both organisations commented that the CRC Energy Efficiency Scheme is too complex and must be reformed.

Government is certainly listening to these messages, as Economic Secretary to the Treasury, Justine Greening MP was the key note speaker at the launch event and seem to support the main themes of the report. This echoes the feedback that EEF received from its report, that government saw our publication as saying the right things at the right time.