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UK Government Hits Big Business with Stealth Carbon Tax

<p>In a surprise -- and quiet -- announcement, the Department of Energy and Climate Change has announced that US$1.5B per year in Carbon Reduction Commitment revenues will no longer be returned to participants.</p>

The government today quietly imposed a £1B-per-year (US$1.58B) carbon tax on around 4,000 of the largest businesses and public sector bodies in the UK as part of its spending review.

The move was not announced as part of chancellor George Osborne's (pictured at left) speech to parliament. Instead, it was left to a statement by the Department of Energy and Climate Change in which it detailed its spending review settlement and confirmed the Carbon Reduction Commitment (CRC) would be reformed so that the Treasury keeps revenue raised through the carbon pricing scheme.

"Revenue raised from the CRC Energy Efficiency Scheme will be used to support the public finances (including spending on the environment), rather than recycled to participants," the statement said.

The spending review document confirmed that the move would raise £1bn by 2014/15 to help tackle the deficit.

Under the CRC, companies and public sector bodies that use over 6,000 MWh of electricity a year have to participate in the scheme and purchase carbon allowances in line with the amount of energy they use each year.

During the initial phase of the scheme carbon allowances will be priced at £13 for each tonne of carbon that the company is calculated to be responsible for.

The government had intended to "recycle" the revenue raised from the sale of allowances to those organisations participating in the scheme. The level of recycled payments would be determined by the organisation's performance in an energy efficiency league table, with the best performers receiving all the money they spent on allowances plus a bonus and the worst performers receiving only some of the money back.

However, the government has now effectively turned the sale of allowances into a carbon tax, forcing all participants to purchase carbon allowances based on how much energy they use.

The move is likely to be welcomed by environmental groups and some green businesses that have long maintained that the CRC would not have a big enough impact on organisations' energy costs to drive significant improvements in energy efficiency.

It is also in line with the coalition's commitment to increase green taxes.

However, it is bound to be fiercely opposed by some business groups who have already argued that the CRC is too costly and burdensome and will now find them faced with a major hike in energy bills.

This article originally appeared on, and is reprinted with permission.

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