It is widely agreed by most scientists that carbon dioxide released by the combustion of fossil fuels may be influencing the global climate. The majority of scientists who have studied the issue see it as a real and significant threat to the stability of weather patterns around the world.
Many governments, including the UK government, have taken this issue seriously and are attempting to change their nations’ use of fossil fuels to reduce emissions. A range of measures, mainly fiscal, have been adopted. We shall consider these in turn.
Climate Change Bill
EEF has historically commented that the UK climate change policy is piecemeal and short term and does not provide a long term investment framework in which to make informed decisions.
Generally, the introduction of this Bill was welcomed as a counter to this issue and sets out UK emissions reduction targets to 2050. The targets are based on the economy as a whole and will be set three at a time, with each period covering a five year span. However, the two main targets will be the 2020 and 2050 targets set out in the draft Bill as 26-32% and 60% respectively.
A powerful ‘Committee on Climate Change’ has been set up, in a shadow form, to act as an advisory body to government. It will become the Committee proper once the Bill receives Royal Assent. Its task is to recommend the level of all targets, based on the climate science and to propose which policies will deliver greatest results.
Currently the UK is some way from meeting the 2020 targets, given that this is only 11 years away.
Review of climate change instruments
A policy review is underway to ensure that there are no unnecessary duplications, inconsistencies or conflicts between key instruments such as EU ETS, CCAs and the CRC. An important issue is the long-term future of the Climate Change Agreements (CCA). The Energy Bill confirms a commitment to CCAs until March 2013.
The Climate Change Levy
The Climate Change Levy (CCL) is part of the UK government’s overall Climate Change Programme, aimed at helping the UK to meet its targets for reducing greenhouse gas emissions. It is a tax on the use of energy in industry, commerce and the public sector. Some of the money raised is used to provide support for energy efficiency schemes and renewable sources of energy, for example the CCL is a key part of the funding for the Carbon Trust.
From April 2001, the Climate Change Levy has been charged on electricity, gas, lpg and coal. The following shows the new rates (in bold) 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)
The basic design of the levy follows the recommendations made in Lord Marshall’s report Economic Instruments and the Business Use of Energy, published in October 1998.
On the introduction of the levy, the government offset the cost to industry by making cuts in employers’ National Insurance Contributions (NICs; originally by 0.3 per cent). This measure was similar to the cut in NICs made when the Landfill Tax was introduced.
The levy does not apply to fuels used by the domestic or transport sector, fuels used for the production of other forms of energy (e.g. electricity generation) or for non-energypurposes. The levy does not apply to energy used by registered charities for non-business uses or energy used by very small firms, i.e. those using a de minimis (e.g. domestic) amount of energy.
The levy does not apply to oils, which are already subject to excise duty.
There are also several exemptions. These include:
- electricity generated from new renewable energy (e.g. solar and wind power);
- fuel used by good quality combined heat and power schemes (‘Good Quality CHP’,
- certified via the CHP Quality Assurance Programme CHPQA);
- fuels used as a feedstock; and
- electricity used in electrolysis processes, for example, the chlor-alkali process, or primary aluminium smelting.
The levy is added to bills before VAT and, although there is no legal requirement for it to be shown, it is likely to appear as a separate item on energy bills.
Companies can take advantage of money collected as part of the CCL via the Carbon Trust. Schemes are aimed at promoting energy efficiency and stimulating the take-up of renewable sources of energy, e.g. solar and wind power. And they offer interest-free energy efficiency loans to businesses which are a cost effective way to replace or upgrade existing equipment with a more energy efficient version.
Capital allowances of up to 100 per cent for the introduction of new energy-efficient systems (e.g. heating systems, variable motor drives for production lines, etc.) have also been made available.
The levy is intended to promote energy efficiency, encourage employment opportunities and stimulate investment in new technologies.
For further information, see the Carbon Trust website and Defra’s website.
Climate Change Agreements
Climate Change Agreements (CCAs) allow energy intensive business users to receive an 80 per cent discount from the Climate Change Levy, in return for meeting energy efficiency or carbon saving targets.