The carbon tax transition – from CRC plus CCL, to (a higher rate of) CCL only – takes place from April 2019. As ever, there will be winners and losers. Carbon compliance expert, Andy Greenall explains.

How does it affect you?

The government assures us that the transition is intended to be a simplification exercise, rather than a bid for more revenue – it’s supposed to be, broadly speaking, cost-neutral to the government. However, only around 2,500 organisations take part in CRC, while almost all commercial organisations pay some degree of CCL. Crudely speaking, this means that organisations that took part in CRC will be better off once it’s scrapped, while most other companies are likely to be out of pocket to some extent.

A summary of the changes: from 31stof March 2019, CRC (as a tax) ends. From 1st April 2019, the CCL goes up to compensate.

From 1st April 2019 the CCL increases

Although this may lead to a short-term double-payment issue for many CRC participants as they accrue for the final payment in September 2019 , once this is out of the way, CRC participants should make significant savings.

Let’s look at the numbers

In the final year of CRC 2018-19, CRC costs per MWh* are likely to be £5.58 per tonne for electricity and £3.36 for gas. In the same period, CCL main rate costs – those applicable to most organisations – will be £5.83 and £2.03, respectively. That gives a total carbon tax burden in 2018-19 of £11.41/MWh for electricity, and £5.39 for gas.

In 2019-20, though, the confirmed CCL main rates will be £8.47 for electricity, and £3.39 for gas. That means that former CRC participants will see falls in overall carbon tax of 26% on electricity and 37% on gas.

Former CRC participants will see falls in overall carbon tax of 26% on electricity and 37% on gas

To put that into perspective, even the smallest CRC participants should see a reduction of around £18k in the first post-CRC year alone. Organisations that had CRC-eligible consumption of 10,000 MWh each of electricity and gas will save nearly £50k, while very large CRC participants – such as supermarkets and utilities companies – are likely to see savings in the millions.

The downside of this, of course, is that organisations that weren’t in CRC will be paying significantly more carbon tax following the hefty jump in CCL. As CRC was intended for larger energy users, but almost everyone pays CCL, this change has the unhappy side-effect of seeing smaller organisations effectively subsidising larger ones.

* For companies solely using the buy-to-comply (retrospective) sale, i.e. paying for their allowances in the September following the CRC year. The cost will be slightly lower for Forecast sale users. Note that these figures haven’t yet been confirmed.