Last year in the Annual Energy Statement my Rt Hon Friend, the Secretary of State, announced that we would consider the future of the Climate Change Agreements and review the CRC Energy Efficiency Scheme. We did this because we wanted to ensure that the policies we had inherited from the previous Administration were fit for the future, and that any regulations we retained were less burdensome for business, and more practicable.
Today we will set out our initial conclusions following a helpful dialogue with business, the public sector and regulators. As part of this, we have considered radical options including the possibility of scrapping either or both of the schemes to simplify the landscape. We have concluded that in order to achieve our objectives whilst at the same time minimising burdens on business, we will retain and simplify both the CRC and CCAs, with a particular emphasis on ensuring the overlaps are removed and the schemes are each streamlined.
The first reporting year of the CRC is now over, and many organisations are, for the first time, identifying and recording their entire energy use. Over this period we have seen the importance of the CRC for stimulating the market for new low-carbon goods and service industries - including in energy measurement, in voltage optimisers and in low-energy lighting. I expect this to continue.
Today my Department, together with the Devolved Administrations, publishes a vision for the way ahead in simplifying the CRC scheme. This document sets out the main simplifications that we would like to propose for formal consultation early next year. These proposals will provide greater business certainty by continuing the fixed price sales into the second phase (rather than auctions of allowances in a capped system), as recommended by the Committee on Climate Change and requested by stakeholders.
Our proposals will provide business with greater flexibility by allowing organisations to participate as natural business units. They will also reduce the administrative burden; for example by reducing the number of the fuels which are subject to the scheme from 29 to 4. We will also reduce the complexity of the scheme by removing the 90% rule and CCA exemption rules, whilst achieving broadly the same outcomes and remove any overlap between schemes at registration. In particular, businesses covered entirely by CCAs will not need to register and we will no longer require EU ETS installations to purchase allowances for electricity supplies.
Some have suggested that we should replace the CRC with a conventional tax. After considering this, and other policy alternatives suggested by stakeholders, we have decided to retain the CRC, in a simplified form. We believe that the tailored combination of reputational, financial and standardised energy measurement and monitoring drivers remain the most effective way to tackle the barriers to the uptake of energy efficiency. We have ample evidence that price alone does not ensure non-energy intensive organisations implement cost-effective energy efficiency measures that are available to them. Therefore, we consider the simplified CRC - alongside the Green Deal - is the best way to achieve greater energy efficiency and contribute to meeting our carbon budgets in the relevant sectors.
These proposed changes provide the basis for a simplified CRC and certainty for the future. We will review CRC and its fit with other policy measures in 2017.
Following the Budget announcement to increase CCA participants’ tax relief and extend the scheme until 2023, and as part of the considerations to streamline and simplify the policy landscape, we have also considered options for the future of CCAs.
We will shortly publish a consultation on revisions to the scheme to reduce its administrative burden on participants. We are exploring moving the future administration of the scheme to the Environment Agency, to exploit the synergies with the EU Emissions Trading System and the CRC Energy Efficiency Scheme, already administered by the Agency. This will give industry a one-stop shop for energy efficiency regulation. Target negotiation will remain a matter for Government and the sectors.
Finally, we have looked at the interplay between the EU Emissions Trading System and UK regulation, in particular how the UK can best implement the provisions in the Directive that allow for small emitters to opt out. My officials are continuing to discuss options with the European Commission and are developing proposals on the “equivalent measures” as required by the Directive. These discussions have not yet concluded. I am grateful for the assistance my Department has received from the UK Emissions Trading Group in making the case to Brussels for proportionate implementation of the Directive.
In order to ensure our CRC proposals maximise the simplification opportunities, and take account of all the lessons learned in the first full reporting cycle, DECC and the Devolved Administrations will continue the informal dialogue with participants throughout this autumn. My Department and the Devolved Administrations will welcome comments on our proposed way forward published today. We will then formally consult on legislative proposals early next year.