The Climate Change Levy
In the Budget on 9 March 1999, the Chancellor announced the introduction of a ‘Climate Change Levy’ on the industrial and commercial use of energy from April 2001. The emission of CO2 (the main contributor to climate change) is a prime example of an ‘environmental indicator’, and as such is part of the Government’s Sustainable Development policy.
The levy plays a major role in achieving the UK’s targets for reducing industrial CO2 emissions.
From April 2001, the levy has been charged on electricity, gas, lpg and coal. The following shows the new rates which took effect from 1st April 2008 and the rates proposed for 2009 which were included in the Finance Act 2008.
- Electricity 0.456 p/kWh up from 0.441 p/kWh (1st April 2009 0.470 p/kWh)
- Gas 0.159 p/kWh up from 0.154 p/kWh (1st April 2009 0.164 p/kWh)
- LPG 1.018 p/kg up from 0.985 p/kg (1st April 2009 1.050 p/kg)
- Coal 1.242 p/kg up from 1.201 p/kg (1st April 2009 1.281 p/kg)
These rates have been index linked since 31 March 2007.
The levy is paid by all business, industry, commerce, local Government and academia. It appears as a separate item on bills from energy suppliers, VAT is added on afterwards. Renewable sources of electricity and ‘good quality’ combined heat and power (CHP) plant are exempted from the levy. Other exemptions are electricity from CHP supplied to the national grid and from mine methane gas.
DEFRA has signed ‘negotiated agreements’, where companies receive an 80% discount in their levy payments, in return for meeting energy efficiency targets.
Hypothecation (Recycling Funds)
The Government has undertaken that any tax on energy use will be ‘revenue neutral’ overall, across the economy as a whole. The £1bn raised by the levy is used to reduce employers’ NI contributions by 0.3%.
Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001 (SI2001/7)
Covers HM Customs and Excise requirements for companies to be registered with them, or to inform them (via the energy supplier) of any exemptions.
Climate Change Agreements (Eligible facilities) Regulations 2001 (SI 2000/662) as amended by SI2006/60, SI 2006/1848 and SI 2006/1931
These regulations provide that a facility is eligible for inclusion in Negotiated Agreements only where it is likely that at least 90% of the energy is supplied to the facility will be used within an energy intensive (i.e. IPPC Part A(1) or A (2) installation).
The 2006 regulations extended the numbers of eligible facilities.
Climate Change Levy (General) Regulations 2001 (SI 2001/838) as amended by SI 2003/604 and SI 2007/2903
These regulations make arrangements for the administrative procedures for payment of the levy and record keeping. They set administration procedures for notifying exemptions and receiving lower rates. The 2003 regulations introduce further administrative requirements for newer exemptions, including Combined Heat and Power. In the 2003 Budget, the Government announced it will introduce further enhanced capital allowances for automatic metering and monitoring equipment. Further technologies have been added to the existing boiler, compressed air and refrigeration categories.