Carbon Emissions Reduction changes again

This policy was proposed over 5 years ago to tackle emissions that were outside other carbon regulations like the EU Emissions Trading Scheme. The Comprehensive Spending Review (CSR) in October 2010 imposed more changes on this policy. Change fatigue is a danger for organisations that qualify before any carbon allowance have even been sold.

The announcement in the CSR was very brief. The Government plans to consult further on the proposed changes.

What do the changes mean for participating organisations?

The most significant primary change is the removal of the recycling payment. This means that the financial impact is negative for all organisations in the scheme, and it will not be possible to make money from the scheme. The next most significant change is the delay in the payment for allowances, moving this payment to the end of the compliance year.

It is likely that the change in payment for allowances will mean that the second phase will no longer include an auction for allowances.

When will participants need to buy allowances?

Firstly despite the delay in payment for allowances, these are still to be brought for the period 1st April 2011 to 31 March 2012. This means that from April next year organisation will need to accrue the cost of allowances.

The timing of the sale of allowances has not been announced, but we would expect that it will take place between March and June 2011.

How much will the scheme cost now?

It is much simpler to calculate the cost of the scheme as the allowance purchase is a cost. The price for allowances have not been set yet, but using the Treasury revenue forecasts as a guide, the cost of allowances would add just over 11% to energy bills for a typical company in 2014/15.

What are the wider implications of this change?

The final regulations remain subject to change in a consultation to be held in late 2010. We have drawn the following conclusions from changes announced so far:

  • The coalition Government is willing to take strong measures to regulate carbon emissions either with a fragile economy.
  • Along with measures such as the Renewable Heat Incentive will change the economics of energy efficiency programmes and renewable energy.
  • Organisations need to examine how they can meet the government’s reduction policies - namely a 34% reduction in emissions by 2020.