The manufacturing body EEF has called for the removal of outdated environmental taxes in favour of incentives to reduce carbon emissions. Ahead of the government’s consultation on business energy efficiency taxes, due to be published this autumn, EEF has released a new report entitled “The Low-Carbon Economy – Moving from Stick to Carrot”.
In the summer budget, the UK Chancellor George Osborne announced that “the government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. The review will consider the Climate Change Levy (CCL) and Carbon Reduction Commitment (CRC) energy efficiency scheme and their interaction with other business energy efficiency policies and regulations.” The announcement was welcomed by the EEF but added to regulatory uncertainty at a time when renewable subsidies were being significantly cut.
The report from EEF is intended to be an agenda of reforms they would like to see in the government’s review. It criticises negative incentives that affect the international competitiveness of UK firms and questions the meaningfulness of UK greenhouse gas statistics that don’t include emissions associated with imports.
Included in EEF’s proposals is an end to the CRC, with the associated revenue to be recovered through CCL adjustments instead. Notably, the report calls for the continuation of Climate Change Agreements (CCAs) and the existing CCL discount, for those that have committed to a CCA, to continue. CCAs are voluntary agreements in which UK industrial sites commit to reduce energy use and emissions. In return, operators receive a discount to their CCL. EEF’s analysis shows that CCAs are more effective for industry than the CRC, and less complex.
Also on EEF’s agenda is the removal of Carbon Price Support, a tax levied on fossil fuels used in electricity generation. The tax was designed as a top-up to the price of EU ETS allowances if they are too low to encourage investment in low-carbon solutions.
Energy-intensive industry, which is responsible for approximately two-thirds of industrial emissions, faces high levels of energy and carbon-related taxes, which impacts their ability to invest in emission reducing technologies. EEF would like to see “carrots” put in place, such as the introduction of a new voluntary energy efficient investment tax discount. The report cites carbon capture and storage as being the best route to industrial emissions reductions, although costs are currently prohibitive and further research and development is required. If investment in this area was encouraged, it would build a low-carbon technology industry for the UK.
While EEF has set out its preferred agenda for the manufacturing industry, the government will need to consider how existing carbon schemes affects both industrial and commercial companies. In July, the Department of Energy and Climate Change published findings of an evaluation of the CRC. This showed that the scheme’s introduction had raised the profile of energy efficiency at board level and that, in some companies, CRC had encouraged energy efficiency measures because of the cost of allowances and improved data collection. However, energy costs were seen as the biggest driver to change. Most respondents called for coherence and consistency between government policies on carbon schemes and greenhouse gas reporting.
The idea of simplifying the CRC further to act solely as a tax has long been discussed. However, this could lose the benefits that are brought as the result of mandatory data collection and consumption forecasting. The government will need to take crucial decisions when streamlining the existing patchwork of carbon schemes. The consultation is due to be published this autumn.
Written By- Nikki Wilson
