LGA slams carbon tax plan

22 Oct 10
Councils have condemned changes to the Carbon Reduction Commitment energy efficiency scheme announced in last week's Comprehensive Spending Review, which could land them with tax bills of up to £1m a year

By David Williams

25 October 2010

Councils have condemned changes to the Carbon Reduction Commitment energy efficiency scheme announced in last week’s Comprehensive Spending Review, which could land them with tax bills of up to £1m a year.

The CRC system, which involves public sector bodies and large businesses, is to be redesigned so that the cost to participants of buying carbon allowances will go straight to the Treasury, generating £1bn a year. Previously the scheme was revenue neutral and the cash would have been redistributed among participants, with penalties and rewards depending on performance in cutting emissions.

According to estimates from the Local Government Information Unit, the change could cost unitary authorities £1m a year, and a metropolitan council £600,000 in 2012 – and the sums will go up annually.

Treasury forecasts show that the measure is expected to bring in £715m in the first year, when CRC participants will be charged £12 for every tonne of CO2 they emit. In 2013/14, the allowances will rise to £16 per tonne, bringing in £1.02bn.

According to the CSR document, revenues generated by the carbon scheme will be used ‘to support the public finances, including spending on the environment’. It is not yet clear whether the total number of allowances available in a year will be capped.

Russell Reefer, environment policy consultant at the Local Government Association, told Public Finance the move was a ‘disturbing U-turn’ that would make it harder for councils to invest in carbon-cutting measures.

He added that it would take money away from local authorities, at a time when Whitehall grants are projected to fall by 26% over four years.

‘The government is expecting £1bn a year to be used to support the public finances, but a significant proportion will actually come from the public sector,’ Reefer pointed out.

He added that the changes would give a greater incentive to reduce energy consumption, and welcomed pledges from the Department for Energy and Climate Change to simplify the system and remove unnecessary bureaucracy.

Ian Mulheirn, director of the Social Market Foundation, said the changes had reduced uncertainty in the cost of emissions – but had also removed the potential for high-fliers to make money.

‘The incentives to reduce carbon are heavily blunted by this. There’s less carrot, but there’s no more stick for emitting carbon. If you go from being the best to the worst performer, the loss you’d be facing is now much less than the loss you’d have been facing under the old system.’

Mulheirn added that we are now in a ‘distortionary’ situation where the 10% of the UK’s carbon emissions covered by the scheme are being taxed, while the other 90% are not (heavy industry comes under the European Union’s carbon trading scheme). The Decc is set to begin a consultation on the changes next month, with the new arrangements in place by early 2011.

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