Updated: Government carbon rules threaten BT wind farm plans

BT is rethinking plans for its own £250m wind farm due to concerns that the government's labyrinthine subsidy scheme would prevent the resulting power counting towards BT's reduction in carbon emissions.

Speaking to BusinessGreen.com, its chief sustainability officer Dr Chris Tuppen confirmed reports that the board was looking again at the viability of the scheme, which is capable of providing a quarter of the company's power.

The company says the rules governing the imminent Carbon Reduction Commitment (CRC) cap-and-trade scheme means it won't be able use the renewable energy from the project to reduce its reported carbon emissions.

Under the rules of the CRC, any company that accesses the government's renewables incentive schemes and has Renewable Obligation Certificates (ROCs) issued for the energy it produces cannot then count the same energy towards a reduction in carbon emissions. Instead, it has to assume the energy from renewable sources has the same carbon footprint as the grid average.

Tuppen said that the ruling seriously undermined the financial viability of BT's proposed wind farm, which would have represented the UK's largest renewables project not to be funded by an energy company.

"Without the [ROC] subsidy the business case does not stack up at all, but with the subsidy we can't count the carbon," he said. "Therefore it substantially increases the risk attached to the project. It by no means helps the situation and does threaten the project."

If BT does proceed it will seek ROCs to be issued against it, which it will then be able to sell on to energy companies. This will provide it with a revenue stream to help cover its costs. But this would mean that the company would not be able to count the energy in its carbon reporting and would instead have to attach a "fictitious carbon emission" to the energy from the wind farm.

Tuppen said that this would make the project more unattractive over time as the government tightens the carbon caps imposed under the CRC and introduces new carbon reporting rules. "Carbon reporting guidelines are going to be published in October and there is a provision in the Climate Change Bill to make those mandatory from 2012," he said, adding that under the current rules, BT's reported carbon footprint would appear far higher than it should given at least a quarter of its energy would come from its own wind farm. "

BT says it would like to see the rules changed to allow it to simultaneously claim ROCs from the new project and also cut its carbon emissions, or alternatively see a second subsidy scheme which is free from the regulations.

Its calls echo those from the Renewable Energy Association, which has also urged the government to scrap those parts of the CRC's reporting rules that effectively create a disincentive for firms to invest in building their own renewable energy capacity.

Several other large UK firms are also concerned about the rules, arguing that they will not only undermine the case for investing directly in renewable energy technologies, but also make purchasing renewable energy through green tariffs less attractive.

Late last year, Asda, B&Q, Dalkia and the Co-operative Group joined with BT in writing to Defra. They said their planned investments in green energy could be compromised by being forced to count the energy as having the same carbon emissions as the rest of the grid when reporting their emissions.

However, a spokeswoman for the government said that it was very unlikely that it would change the regulations, adding that the rules were in place to stop " double accounting".

The government maintains that ROCs are not a direct subsidy and that if they are sold to energy producers they are effectively used to count towards their renewable energy targets. It argues that if the same energy was then used again to count towards a reduction in another company's carbon emissions, it would effectively being used twice and would create an inaccurate picture of the UK's renewable energy capacity.

"The Government is working closely with business to resolve some of these issues," explained a spokesman at the Department of Energy and Climate Change. "However it is important for the integrity of the Renewable Obligation scheme that emissions are properly accounted for."