Costs of CRC scheme to rocket
More analysis today of the higher cost of the CRC Efficiency Scheme, as mentioned in Wednesday’s Spending Review. CBRE says the average participant in the scheme will now see a dramatic increase in costs, as the revenues from the sale of carbon allowances will now be used to support public finances rather than being recycled back to those taking part in the scheme. “This move is set to incentivise participants to reduce their emissions, which is likely to result in a hike in carbon prices under the scheme,” CBRE notes.
CBRE says participants have almost no time to embed the new processes needed to accurately identify and report carbon emissions under the scheme before their 2010-11 “footprint report” is due, thereby running the risk of inaccurate reporting – and penalties. Andrew Barker, sustainable energy consultant at CBRE, notes that these fines could be significant, and some participants might even face criminal penalties for failure to comply. “The changes have very serious new implications for landlords and corporate occupiers of commercial property – in one day, they have seen their potential liability under the scheme sky-rocket,” Barker adds.
“Whilst the government explicitly stated that changes to the CRC scheme are designed to simplify it and to reduce the burden on business, the main complexities associated with compliance remain. Groups of companies will still be required to complete the existing carbon footprint annual reports, as well as complete an additional registration for the second phase of the scheme,” CBRE points out.
“In an unfortunate double crunch for businesses, the shift to a tax rather than recycling the cost back to participants means the price of carbon under the scheme is also set to significantly increase. Without the recycling mechanism, average performers – for whom the scheme would have previously been largely revenue-neutral – are suddenly significantly incentivised to reduce their emissions, the effect of which is likely to be a hike in carbon price under the scheme,” concluded Baker.
The British Property Federation has already said it will be seeking clarification from the government in this change to the scheme. Jones Lang LaSalle has commented that the scheme’s contribution to the public coffers would be more than £1bn by 2014, “so clearly it was too tempting for the treasury to let go”. Alex Edds, associate director in Jones Lang LaSalle’s Energy and Sustainability team, would like to see this money “ring-fenced for use solely on energy efficiency initiatives, maybe linked in with the newly created Green Investment Bank.”
Edds points out that companies that have already taken measures to reduce their carbon footprint will be less exposed to the increased costs they now face. He also calculates that landlords may now find it more straightforward simply to allocate CRC costs to tenants, which he says could be viewed as a benefit of the changes.
