Big business attacks plan to cut carbon emissions

The Sunday Times
May 3, 2009
Tricia Holly-Davis

NEXT YEAR Tesco will be forced to pay £40m to the government to comply with a new – and little known – regulation designed to reduce carbon emissions through energy efficiency.
The supermarket is just one of 5,000 firms that will be subject to the government’s Carbon Reduction Commitment (CRC), which takes effect from April 2010.
The scheme was announced in a 2007 energy white paper and is intended to reward companies that cut their greenhouse gas emissions and penalise those that don’t. It has infuriated business leaders, who say the proposals are unfair and badly thought out.
Any company that consumes more than 6,000 megawatt hours of electricity will be caught by the CRC. There are an estimated 5,000 such firms in the UK.
Firms must buy energy allowances from the government at a rate of £12 per tonne of carbon dioxide. The government will reimburse companies after six months, plus or minus a percentage of the initial amount paid, based on their energy performance. Firms that fail to comply or exceed their allowances will be subject to a series of penalties.
The £40m Tesco will pay is based on its own estimate that its emissions under the scheme will be 1.7m tonnes of carbon dioxide in each of the first two years (April 2010 and 2011) at £12 a tonne.
The amount represents about half of Tesco’s annual spending on energy-efficiency programmes in the UK, meaning it will have less money to make environmental improvements.
“Asking businesses for a £40m upfront payment and locking it up for six months doesn’t make sense and will mean there is less money for green investment,” said David North of Tesco.
Amisha Patel of EEF, a lobby group for manufacturing businesses, said: “The CRC will have a significant impact on cashflow.” It estimates a typical firm would pay £130,000 a year under the scheme. “It is unreasonable for government to keep this revenue for six months. If we are in the same economic situation we are in now when the CRC goes into effect, this could make or break a company,” said Patel.
The structure of the CRC could also discourage companies from buying and producing renewable energy, according to Jon Williams of the consultancy Price Waterhouse Coopers.
Many companies generate their own renewable energy and receive renewable obligation certificates. But the CRC stipulates that if a company then sells those certificates to utilities, the renewable energy it produced doesn’t count.
“The CRC makes no allowances for companies that have already switched to green energy or are generating their own renewable energy, so many firms will find that the carbon reduction they have already achieved is irrelevant,” said Williams.
After businesses buy their allowances, they will be eligible for a refund plus a bonus of up to 10% in the first year of the scheme, depending on how they score on the government’s league tables. The league tables, compiled by the Environment Agency, are based on three criteria: a change in absolute emissions; emissions compared with turnover; and the “early action metric”, which is based on whether companies have installed an energy meter and received energy-management certification from the Carbon Trust, a government-funded agency.
Critics say that the Carbon Trust certification will add yet another layer of costs for business.
The CRC also raises a host of administrative concerns for foreign companies with British operations, as well as companies that are majority owned by private-equity firms, because, under the proposed law, emissions-reporting responsibility falls to the parent company. There is a further issue for landlords, who generally have little control over how much energy their tenants consume, but who could be deemed responsible for their buildings’ emissions under the CRC.
The government argues that the scheme will encourage businesses to be even more efficient and says that the estimated £1.2 billion it will collect from businesses will cut 1.3m tonnes of carbon dioxide by 2013.
Emma Wild of the CBI said it was urging businesses to log their objections before the government’s final consultation period on the CRC closes on June 4. “Business needs to make its voice heard and the government needs to listen,” she said.
PENALTIES FOR FAILING TO COMPLY
Failure to register Penalty: £5,000 plus £500 a day
Failure to disclose information Penalty: £1,000
Failure to provide an annual report Penalty: £5,000 plus 5p per tonne of carbon dioxide a day for 40 days, and then doubled
Incorrect reporting Penalty: £40 per tonne of carbon dioxide for emissions incorrectly reported
Failure to keep adequate records Penalty: £5 per tonne of carbon dioxide