CBI calls for scrapping of penalties for carbons

System for excessive emissions is now 'discredited' and treated as just a tax

The CBI is calling on the Government to overhaul the penalty system for excessive carbon emissions, branding its handling of the £1bn-a-year carbon reduction scheme as dishonest and "discredited" and demanding that it is scrapped.

The UK's so-called Carbon Reduction Commitment scheme was announced with great fanfare in 2007 and formed the central plank in the Labour government's attempt to clamp down on corporate Co2 emissions.

The scheme was originally intended to persuade Britain's 3,000 biggest carbon emitters, with annual electricity bills of £500,000 upwards, to become more energy efficient by charging them for any emissions generated above a given level.

The proceeds from those penalties, estimated to be about £1bn a year, were to be returned to those companies who had made the biggest strides towards reducing their carbon footprint, providing an incentive for them to become more energy efficient.

However, the CBI and other detractors from the CRC scheme argue that it was in effect killed by the present Government's October 2010 Spending Review. This contained a clause stating that the proceeds from the CRC would no longer be recycled to the greenest companies, but would instead be pocketed by the Government.

John Cridland, the CBI's director general, argued yesterday that the move changed the CRC's status from being an incentive to a tax.

"The Government has snaffled all the receipts, so it's a tax. And if it's a tax, call it a tax. As an incentive scheme, CRC has a huge bureaucracy around it," he said. Mr Cridland said we should scrap the CRC scheme to get rid of the "rigmarole, the regulation, the league tables" surrounding it.

He stressed that the Government should still look to raise about £1bn a year from carbon emissions, but by taxing the companies' energy consumption directly, through an extension of the existing Climate Change Levy. The change should be made in tandem with mandatory carbon reporting, the CBI said.

"The CBI supports the original objective behind the CRC: to secure emissions reductions and promote energy efficiency.... However, removing the recycling element has undermined the scheme."

A spokeswoman for the Department of Energy and Climate Change said: "We have engaged extensively with stakeholders to gather opinion on the CRC. Following on from this, we are looking into how to simplify the scheme and we will publish proposals on this shortly."

The CBI's call to scrap the CRC was part of a broader set of pre-Budget proposals it is announcing today.

These include asking the Government to consider £500m-worth of tax cuts, through measures such as a new capital allowance for various infrastructure projects not already covered by such allowances, making equity raising by small and medium-sized companies tax deductible, and reducing the increase in air passenger duty from its proposed level of 8 per cent to 5 per cent.

Mr Cridland also expressed a degree of optimism about the global economy, saying there "is every prospect that things are beginning to pick up".

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