Carbon commitment "administrative nightmare"

Recent government attempts to tackle the UK’s carbon footprint is falling foul of business leaders who claim it is far too complex to implement and little more than a stealth tax dressed up as environmental legislation.

The controversial carbon reduction commitment (CRC) scheme was first developed four years ago as a way of tackling a certain type of organisation - those that emit a relatively high level of carbon but are outside energy-intensive industries. More than 3,000 entities, ranging from hospitals and universities to retail giants and accountancy firms, are caught by the rules.

Originally labelled the “simple carbon-trading scheme” by legislators, the CRC came under a huge amount of criticism for its complexity, forcing the government into a rethink. But while amendments made public during George Osborne’s comprehensive spending review in October did go some way to unpick the complexity, buried in the detail was the intention to turn the scheme from one that was revenue neutral to one that is expected to raise billions of pounds for the Treasury and be put towards the huge mountain of public debt.

Small fortune

“When it became a tax, I just thought it was outrageous, to be honest,” says Shaun Wills, finance director of retail fashion chain Fat Face, and soon to be chief operating officer of Habitat. Because Fat Face is part of a wider private-equity group, the reporting requirements Wills faces are also hugely complex.

“We’ve now ended up with something that’s an administrative nightmare and will cost a fortune,” the FD says. “Because we’re part of a private-equity group, the onus lies on the private-equity house to report collectively. It’s hard work and it’s probably going to cost us a small fortune.”

But, the bad news doesn’t stop there. Because the legislation has now effectively been turned into a revenue-raising levy, more than 3,000 UK organisations will be paying for their carbon usage twice.

“The challenge we have at the moment is that the CRC has turned into a levy on energy usage that we pay retrospectively,” argues Ben Wielgus, lead CRC advisor in the carbon advisory group of KPMG. “We already have one of those - it’s called the climate change levy.”

Wielgus says that 4,000 UK organisations are caught by the CRC, ranging from more than 1,000 public-sector groups such as hospitals and universities to property-heavy private-sector companies - banks, high-street retailers and firms of accountants and lawyers.

Penalties’ threat

Any non-energy-intensive UK organisation with an annual electricity bill of around £500,000 or more is likely to be caught by the CRC, and finance directors must get on top of their obligations before the first annual report of carbon emissions is due in July next year. The annual report must be based on a specific set of measurement rules and itself must be accurate to within 5 percent thresholds, if further penalties are to be avoided.

At its heart, the CRC uses the threat of a small financial penalty combined with a large reputational one to force organisations into reducing their carbon footprint. Originally, high-emitting organisations would pay more than low emitters with the best performers receiving credits from poor performers. Poor performers would be named and shamed.

And while many, including Fat Face’s Wills, were expecting the rules to be abolished due to their cost and complexity, KPMG’s Wielgus is adamant that this will not happen - at most, they might evolve or be merged with other bits of carbon reduction legislation.

“The requirements are unlikely to go away, but there is considerable uncertainty over what they might look like in their final form,” says Wielgus. As such, companies have no choice but to prepare.