Government advisory committee warns of "unnecessarily complex" second phase to CRC scheme

The government’s advisory committee on climate change has called for the CRC energy efficiency scheme to be redesigned before its second phase in a bid to make it less complex.

The committee also warned that the current scheme – as currently structured – was at risk of transferring funds from public to private sector organisations.

The CRC scheme requires large public and private sector organisations to buy allowances to cover emissions produced from their usage of electricity and heat. It is intended to incentivise organisations to improve their energy efficiency.

The committee’s report suggested that the scheme could lead to a 30% reduction in emissions by 2017 (compared to 2008).

However, it also warned of potential problems with the plan to set a cap from 2013 with a fixed number of allowances made available through an auctioning system.

“[Our] analysis suggests that the scheme is already complex, and would become more so if a cap and auction were to be introduced, with no apparent benefits,” the committee said.

The committee, which is chaired by former CBI chief Lord Adair Turner, recommended:

• The sale of an unlimited number of allowances at fixed price should be extended from phase one to phase two, rather than implementing the cap and auctioning scheme
• Separate league tables and revenue recycling should be established for the public and private sectors. Public sector financial budgets should be set to allow upfront investments in energy efficiency improvements. “This will allow for the fairer treatment of the two sectors, as the current scheme is at risk of transferring funds from public to private sector organisations”
• Participants should have to purchase CRC allowances to cover renewable energy generation, including heat. “This is a departure from the current scheme whereby companies could receive double incentives for use of renewable energy”.

The committee has also put forward plans for a “more fundamental” redesign of the scheme, which it said the government should consider in the event of a strengthened carbon price. This would include a review of the regulatory system.

David Kennedy, chief executive of the Committee on Climate Change, said: “The CRC scheme has the potential to make an important contribution towards meeting carbon budgets. However, current proposals risk making the scheme unnecessarily complex. We are therefore proposing that government modifies its design to make participation in the scheme easier to for companies and public sector organisations.”