United Kingdom – new Carbon Tax impact on Corporates

A few months ago one of our customers told us that they were facing a significant carbon tax for their United Kingdom based operations.  With a newly implemented UK carbon taxation policy they expected to pay @ $750k for their 60+ facilities located throughout the UK.  I decided it was well worth a quick trip to learn more and now after a few days of meetings here in London, I understand a bit more about this program.

It is called the CRC (Carbon Reduction Committment) and it’s goal is to extend the EU cap and trade scheme to the next tier of UK polluters, below the utilities and other large emitters (metals, cement, etc).   This will likely affect 5000 new organizations, including corporates, and it kicks off in April 2010.  Under the current program, your performance in reducing emissions gets ranked in what are called “league” tables.  These rankings impact your next year’s tax calculation.  The fund recycles the contributions to the payors, with better performers getting 110% of their initial tax payment returned and the lower performers getting 90% back.  In the following years the percentage for winners goes up (say to 120%) and the losers goes down (say 80%).

The cap works because the UK government will successively rachet down the number of available credits at auction.  It is complex, to say the least, and it has already kicked off a new consulting industry for many UK based environmental consulting shops – if you want to buy a report on this for @ $1k just check this out 🙂

Like any new carbon tax program there is stll a lot of debate about how these initial rules have been written.   One example I heard from James Murray at the BusinessGreen.com:  Under the CRC’s current form, British Telecom, who has been planning to build a significant wind farm and use it’s clean electricity for their operations, would NOT be given any credit against their CRC tax calculation.  The thinking being that as they had already received UK federal tax incentives on this project they would be “double dipping.”