George Osborne's spending review has revealed that revenue generated from green legislation will now go to the public purse and not recycled back into the scheme.

PwC climate change partners agree changes to environmental legislation could create a green tax and increase compliance costs for businesses.

The government announced estimated revenues of 1bn generated from the legislation, Carbon Reduction Commitment (CRC), will be put towards supporting public finances, including spending on environment, rather than recycled into the scheme as previously announced.

On the basis that it looks like CRC revenues will be taken from the scheme by the government, the CRC will operate effectively as a tax on companies taking part, said Harry Manisty, environmental tax specialist at PwC.

Henry Le Fleming, carbon policy specialist at PwC, said the scheme was originally designed to be "revenue neutral" where all money invested was recycled into the scheme.

He believes the changes could "substantially increase compliance costs" for business.

The CRC requires companies that generally spend 500,000 annually on energy bills to forecast its future carbon emissions for each financial year and then pay for these up front. Companies are then entered into a league table which reveals their emissions levels and their progress. They can then receive a rebate on the CRC rate they pay, depending on where they are ranked and how much they have reduced their emissions.

Manistry said the government had hoped to make changes to existing environmental schemes such as the Climate Change Levy (CCL). When businesses pay energy bills a certain amount of the revenue is put towards the CCL, effectively a tax on energy. The government hopes to change the CCL so that it relates to the carbon content on fuels.

However, Manistry said the government may now face pressure to abandon these plans to avoid double taxation of carbon for CRC participants.

According to spending review documents the scheme is expected to raise 3.46bn over the next four fiscal years.