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New U.K. Carbon Tax a Double-Edged Sword

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View David Lawlor's blog posts
22 October 2010, 4:15 PM
Department of Energy and Climate Change Alters Rules After Implementation

Elementary school children are notorious for calling out new rules during games of handball on the playground. “No waterfalls!” “I call no handsies!”

The United Kingdom’s new Carbon Reduction Commitment Energy Efficiency Scheme seems to be employing similar logic as it proclaims: “No paybacks!”

The U.K.'s Department of Energy and Climate Change (DECC) designed the cap-and-trade scheme that requires large non-energy-intensive organizations (read: power plants get a pass) to reduce carbon emissions 80 percent by 2050, compared to 1990 levels. This is estimated to cut about 1.2 million tons of carbon per year. The original plan was to have the nation’s top commercial energy consumers pay into a fund that would later distribute the money back to the companies, with the most energy-efficient businesses receiving larger payments as a reward for reducing emissions.

But, this week, the DECC changed its mind and altered the system.

Now, rather than having an estimated £1 billion recycled back to the businesses that made the initial payments, the money will go to the Treasury’s general fund. Not surprisingly, U.K. business and industry leaders are calling foul and decrying the new “stealth tax.”

While it’s laudable that the Brits have taken the initiative to design such a carbon cap-and-trade system, the plan’s mid-game rule changes could prove harmful for subsequent attempts to pass similar legislation in the United States.

American politicians ready to shoot down any type of cap-and-trade system (see West Virginia Governor Joe Manchin) almost certainly will rail against the new U.K. scheme and pronounce it simply another tax on business. Unfortunately, the underlying logic and reasoning prompting the DECC’s cap-and-trade scheme will likely be lost in the shuffle, making the job of selling the American public on cap-and-trade that much harder.

Looks like we’ve got our work cut out for us.

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