CO2 reduction scheme a 'bureaucratic burden'

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ePolitix.com speaks to Steve Freeman of the Confederation of Paper Industries about the government's Carbon Reduction Commitment scheme.

What is the Carbon Reduction Commitment?

Steve Freeman: The government has the idea that there is a group of medium intensity energy users that aren't doing enough to increase their energy efficiency. They include organisations such as hotel chains, supermarkets, schools and local authorities, as well as industrial users such as a number of Confederation of Paper Industries (CPI) members.

The government has come up with what is, in theory, a simple concept. You record the energy use in these organisations, and financially reward or penalise them for lower or higher energy usage in future years, with the reward or penalty being set by ranking performance against others in the scheme.

Depending on how an organisation does in its first year, this sets the performance point for ranking in the future. Finances to incentivise the scheme are raised by making organisations pre purchase allowances to cover their expected emissions at the start of each scheme year.

The scheme, as a whole is designed to be revenue neutral to the government. All the money collected by the government through the sale of allowances is returned to the scheme participants - though you may get back more or less than you pay in – your refund depends on your position in the performance league table.

By trying to rank the estimated 5,000 scheme participants you are comparing organisations such as a food retailer with a local authority with a cardboard box maker. There is no meaningful comparison between them and yet they are being forced into a league table.

The complicated nature of the scheme is becoming a real issue. What started out as a simple idea has become very complicated very quickly – the draft user guide runs to 84 pages. When a member asks for advice, it's not normally a quick answer!

The other issue is the impact on cash flow. Industry at the moment is having a difficult time and many organisations are asking for help with cash flow. Yet here is a new government scheme, designed with all the best intentions, taking money from cash reserves through the requirement to purchase the emissions allowances in advance of the scheme year.

The organisation gets some or all of the money back later in the year, but there is still several month delay, which impacts on cash flow. This is a very strange concept with the economic environment we have at the moment.

Do businesses already focus on energy efficiency?

The paper industry is an intensive user of energy and has already strongly invested in green energy and energy efficiency. Because the league tables for the Carbon Reduction Commitment (CRC) will rank organisations from April 2010 to March 2011, a company that has already invested in energy efficiency will be at a worst starting point than an organisation that has never looked at these issues.

The government is almost penalising companies that have been energy efficient in the past, such as the paper industry. We don't need a scheme like this, we are already focused on energy efficiency. For us this scheme will not help drive efficiency further – in fact it risks taking up free income that could otherwise be invested.

How will the Carbon Reduction Commitment affect members of the Confederation of Paper Industries?

Some of our members will have to write cheques, in some cases for hundreds of thousands of pounds, to the government. This will be given back months later with a penalty or bonus depending on the position in the league table.

There will be a cash flow problem for industry and commerce generally – it would make more sense to create a scheme that isn't designed conceptually to hit cash flow. This focus on cash flow is deliberate as this will impact will focus people's eyes on energy efficiency. Yet the paper industry is already focused on energy efficiency!

Thankfully paper mill members of CPI are intensive energy users, and so won't have to take part in the scheme, because they already take part in a climate change agreement with stringent energy efficiency targets. However the bureaucracy of CRC means that the entire energy use in these organisations will need to be assessed for the first time, simply to be able to register for an exemption from CRC. This will be a bureaucratic burden for absolutely no environmental gain.

Is the paper industry prepared for the introduction of the government scheme, or is there still work to be done?

There is still a lot of work to be done. I guess it is inevitable that, until a scheme is about to start, people won't focus on it. The attention of most organisations is on the day-to-running of their business. For a scheme that is a few months away from starting, people's knowledge is about where you would expect it to be.

There will have to be a big ramping up of knowledge within organisations, but that is where trade associations help members. CPI members will be provided with the advice that they need, as we get the information ourselves.

A further issue is that the scheme starts in April 2010 and we don't have all the detailed information yet. Our members know the general concept of the scheme but can't finish their preparation because the scheme rules aren't finished yet.

At this late stage in the legislative process is there anything that can be done to make the scheme easier or more efficient?

Our view remains that most paper companies do not need the scheme at all. We have suggested the start of the scheme be delayed by a year to allow the economy to become more stable and the scheme rules to be more widely understood.

Credit should be given to DECC and the government as they are listening to companies and attempting to make changes to the legislation to make it more efficient and to run as well as it can. The consultation process has been very good, but the problem remains that conceptually the scheme is designed to hit cash flow.

The Confederation of Paper Industries argues that we don't need it; we already focus on energy efficiency. The price of fuel bills is enough to focus attention on energy efficiency!

What are your views on emissions trading?

There is agreement that there is a real issue with climate change and we have to do something about it. There is little doubt that emissions trading is the most cost effective way of internalising the cost of carbon, so we do support the concept of emissions trading.

The problem is if businesses within the European Union are put at a competitive disadvantage against businesses outside the European Union. When a paper company closes production in the UK, it doesn't make any difference to emissions if the production simply moves abroad.

We have real concerns that the UK government's determination to lead the way in global emissions reduction will be at the cost of UK manufacturing and jobs. The government is keen to see a manufacturing led recovery with less dependency on services and the financial sector. However costs associated with emissions schemes such as CRC are additional costs on UK industry not necessarily shared by competitors.

When these costs are added to higher fuel bills also caused by green policies there is a real risk to UK manufacturing. Simply transferring manufacturing and associated emissions to other countries is a sleight of hand through which the government can report lower UK emissions, while in fact these emissions have simply been shifted elsewhere.