LONDON, United Kingdom — Businesses are coming to terms with the full implications of government plans to keep revenue raised by the Carbon Reduction Commitment (CRC) scheme, rather than recycle it to participants in the scheme.

The government now expects to raise around £3.5B (US$5.5B) over the next four fiscal years from the scheme in a move that means the CRC will effectively act as a carbon tax mechanism.

John Alker, director of policy and communications at the UK Green Business Council, spoke for many across the low carbon economy when he said he was surprised by the decision.

"The announcement that government is keeping the money from Carbon Reduction Commitment allowance sales has come out of the blue," he said. "It may make the scheme simpler but this is something you've got to consult with industry on before plunging into."

Speaking to BusinessGreen.com, Climate Minister Greg Barker said the decision had not been taken lightly and had been made as a result of the " catastrophic" deficit inherited from the labour government.

He admitted that the changes would increase costs for businesses, but argued that the structure of the CRC meant that "progressive businesses that act to improve energy efficiency will be able to minimise their exposure".

Harry Manisty, environmental tax specialist at PwC, said businesses would effectively view the change as an additional tax, which may cause carbon price discrepancies with the EU emissions trading scheme.

"Discrepancies between [the CRC] price of carbon and the price paid for carbon emissions covered by the EU Emissions Trading Scheme are likely to emerge, undermining the search for a consistent carbon price signal throughout the UK economy," he warned.

Henry Le Fleming, carbon policy specialist at PwC, added that the scheme would undoubtedly drive up costs for registered companies, but would also be simpler to administer and would more effectively convey the message that businesses had to get serious about energy efficiency.

"The positive aspect of this change is that it provides a strong and clear incentive for companies covered by the scheme to invest in energy efficiency," he said.

His comments were echoed by investment management group Climate Change Capital, which signalled that the change could unlock large quantities of green building investment.

"40 per cent of emissions come from the built environment. This is a bold move by the government to rein this in and put the emphasis on businesses," said Daniel Cremin, marketing communications manager at Climate Change Capital. "There are going to be winners and losers, but it's a double whammy for the environment – encouraging industry to improve the energy efficiency of buildings and getting those that don't to fund it."