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Should the CRC Energy Efficiency Scheme become a tax on carbon?

25 February 2011

As part of its commitment to reduce UK carbon emissions the previous UK government announced the CRC Energy Efficiency Scheme – a cap and trade scheme whereby permits had to be purchased by companies based on the level of carbon produced. The money raised from the sale of carbon permits was going to be recycled to the scheme participants based on how effective they were at reducing their carbon emissions.

The current coalition government wants to simplify the CRC Energy Efficiency Scheme by scrapping the recycling of payments. Critics have said that this would simply be adding an additional tax burden on business. However, a study published yesterday by the European Commission shows that taxation of carbon can be a very effective driver of innovation.

Taxation is definitely not a popular option for firms, however it is something the government should consider, especially during the current budget difficulties.

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