With the Paris agreement committing the UK to improve and report on carbon emission targets every five years, it is no surprise the government has its eye on new ways to penalise energy inefficiency. Thus, in 2015, the Treasury reviewed the CRC Energy Efficiency Scheme (CRC), Climate Change Agreements (CCAs) and the Climate Change Levy (CCL) to ensure fair, more effective and understandable energy efficiency requirements. Some of the proposed changes have been announced with the 2016 Budget, with a consultation on a new energy reporting scheme due this summer.
Unfortunately manufacturing, as an energy intensive industry, energy targets and taxation can be confusing and costly. Thus, EEF’s HSCE briefings across the UK starting in May aim to provide clarity on this and other health, safety and environment related legislative issues.
Here is what we know about the changes to energy efficiency taxation:
- DECC will introduce a new reporting mechanism - at present it looks like the new scheme will use the same qualification criteria ESOS (i.e. all ‘large’ companies) and require participants to report on their energy consumption once a year – precisely what DECC mean by ‘reporting’ and ‘energy consumption’ at this point is still undecided!
- CCAs are to remain unchanged for all sectors until 2023, but there will be a review of the targets and buy-out fees
- CCL rates will increase to recover the revenue that would have come from the CRC (however, there are rebates available (see below)
- The Treasury will amend the current ‘imbalance’ between CCL charged on electricity and that charged on gas, gradually increasing the rate charged on gas per kWh until it matches that on electricity by 2025.
Protection of energy intensive industry
As hoped, the review took into account the concerns of energy intensive industry and the difficulty of reducing energy use for many in the sector. Thus, the steel sector and other eligible sectors carrying our mineralogical and metallurgical processes receive a complete exemption from the CCL whilst other sectors participating in CCAs will continue to receive discounts. Importantly these discounts for CCA participants will increase with the CCL rates in 2019/20 to ensure participants see no absolute increases in energy taxation.
EEF’s policy analysis
EEF has a dedicated Policy team which campaigns to the government on behalf of manufacturers as well as provides information and interpretation on policy issues as they relate to manufacturing. Senior Energy and Environment Policy Adviser Richard Warren provided his response to the latest energy taxation changes:
“Manufacturers will be enormously pleased to finally see the back of the CRC energy efficiency scheme, a vastly overcomplicated tax that has had a negligible effect on energy efficiency improvements in industry. We would have liked to see the government go further, however, and relinquish the revenue stream attached to this scheme, but do at least welcome the government’s clear commitment to make changes to the Climate Change Levy in a genuinely revenue neutral manner.
“Continuation of the Climate Change Agreements for all sectors is extremely welcome. The scheme strikes the correct balance between penalty and reward, working with the grain of business to drive investments in energy efficiency. Just as importantly, the scheme is an essential element of the package of measures protecting our most energy intensive industry from uncompetitive energy prices. Government is to be congratulated on listening to the concerns of industry and refraining from unhelpful reform.”
How manufacturers can prepare now
While some details of upcoming changes to energy taxation are still up in the air, manufacturers would be wise to take a strategic, long-term view when planning for energy reduction. Here are a few ways for manufacturers to proactively manage their energy use and minimise taxation and penalties:
- Think energy security. Ensure you’re locked into a favourable price with the right fuel mix with a strong energy and carbon strategy. This can include everything from invoice validation and cost recovery to volume volatility and on-site energy generation.
- Consider certification. ISO50001 is the accepted global standard for effectively proving long-term energy management and achieving your company efficiency goals. This standard helps proactively uncover energy supply and environmental risks and helps ensure compliance with legislation.
- Bring in an expert. Have an energy efficiency consultant review your policies, energy use and record keeping to ensure you’re compliant (and can prove it) with all current and upcoming requirements.
- Many manufacturers have unnecessarily high energy use due to a lack of understanding of how and when they use energy. An effective metering system can capture quick and longer term fixes to high energy costs. From improperly managed heating systems to machinery switched on when it isn’t in use, the right information can uncover the root of the problem and correct it. Companies can save significant amounts on their energy bills simply by better understanding where and why waste occurs.
Energy taxation is complex and challenging for manufacturers. However, with a firm understanding of the requirements and a strategy to plan for future improvements, the issue can be met head on.