Carbon Reduction Commitment and Budget 2016

The Carbon Reduction Commitment (CRC) is to be abolished, the Chancellor of The Exchequer George Osborne, confirmed in the Budget yesterday.

Carbon Reduction Commitment to be scrapped

The CRC, a mandatory scheme to drive up energy efficiency in large public and private sector organisations, is to be closed in 2018-19. It will be replaced by an increase in the Climate Change Levy (CCL), a tax on energy used by business. The move is part of a wider effort by the Treasury to simplify the energy tax regime. The abolishment of the CRC follows complaints by businesses that it’s a “stealth tax” and overburdensome and bureaucratic.

Announcing the move yesterday during his Budget Speech, Osborne said: “Many retailers have complained bitterly to me about the complexity of the Carbon Reduction Commitment – it’s not a commitment, it’s a tax. So I can tell the House, we’re not going to reform it. Instead, I’ve decided to abolish it altogether.”

Increase in Climate Change Levy

The CCL will increase from 2019. In the official Budget document, the replacement of the CRC by the CCL is described as “revenue-neutral”. However, carbon-free renewable energy will be hit by the increase because the Chancellor controversially removed the CCL exemption for clean energy generation in last year’s summer Budget.

The CRC was launched in 2010. It requires participants to buy allowances to cover emissions produced from their usage of electricity and heat. The decision to scrap the CRC follows a number of reviews of the schemes and attempts to reform it by the Government.

In September 2015, the Treasury launched a consultation to reform the business energy efficiency tax landscape, the scope of which not only covered the CCL and the CRC, but also the Climate Change Agreements, mandatory greenhouse gas (GHG) reporting, the Energy Saving Opportunity Scheme (ESOS), Enhanced Capital Allowances (ECAs), and the Electricity Demand Reduction (EDR) pilot.

Other carbon and sustainability-related announcements in the Budget:

• £730m dedicated to next wave of Contracts for Difference auctions in this parliament which will support up to 4GW of offshore wind and other renewables

• “At least £50m” for innovation in energy storage, demand-side response and other smart technologies over the next five years

  • An additional £700m to flood defences, spread out evenly to 2020-21

  • New tax on sugary drinks. The tax will add the equivalent of about 18-24p per litre, and will raise £520m for school sports.

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