UK carbon trading Premium

The quick fix to tricky government policy: just change the name and put it off for a year. About 5,000 British businesses – mainly retailers and services companies not already covered under the European Union’s emissions trading scheme – will no longer have to fork out more than £600m for carbon allowances next year. Instead, the requirement to buy and trade carbon allowances will start in 2011. And to reflect this procrastination, it has been rebadged again; the carbon reduction commitment will now be known as the CRC energy efficiency scheme.

To be fair, the UK scheme is a world first in terms of its scope and teething problems are inevitable. Still, the delay and additional rule changes announced last week,will frustrate many companies, particularly when penalties for non-compliance include prison time.

The government says the scheme’s delay and changes will “smooth” its introduction. Less than 10 weeks away from December’s climate meeting in Copenhagen, it appears the cost of the recession has trumped the benefit of the scheme.

Delays aside, the rule changes include relief for investors such as private equity houses, which can delegate responsibility to some portfolio companies. A further simplified structure may also be drawn up before the scheme officially becomes law.

Known unknowns remain though. Property owners such as Land Securities need further clarity on the split in responsibilities between landlords and tenants. The scheme also offers refunds based on improvements in the ratio of revenues to emissions. But how a company’s revenue might be adjusted for non-operating items such as revaluations remains a mystery. And still no incentive exists to encourage the purchase of clean energy.

This week, businesses will begin to receive official information packs. The Carbon Trust fears many are ill prepared, but luckily, they now have some breathing space.

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