Experiences and Problems with the climate change levy in the UK from a political point of view

1
Experiences and Problems with the climate change
levy in the UK from a political point of view

• Sue Doughty MP
• Liberal Democrat Shadow Minister for the
  Environment

GREEN BUDGET GERMANY 25 June 2004
2
Background to Climate Change Levy

• Consultation began in early 1998 with a report
  from the Advisory Committee on Business and the
  Environment
• A levy was recommended by Lord Marshalls report,
  Economic Instruments and the Business use of
  Energy (October 1998)
• A Customs and Excise consultation, parliamentary
  debate and Government negotiation with industry
  followed the Chancellors Budget 1999 announcement
  of plans for a levy
• Climate Change Levy (CCL) introduced in April
  2001 through provisions in the Finance Act 2000.
• CCL is part of a package of measure known as the
  Climate Change Programme (CCP) and needs to be
  understood in the context of the full package of
  measures.

3
Climate Change Programme

• Published in November 2000 detailing plans to
  deliver Kyoto targets and domestic climate change
  goals
• Reduce emissions of green house gases by 12.5
  CO2 emissions by 20 by 2010 (1990 levels)
• Main policies and measures
• Climate Change Levy (April 2001)
• Establishment of the Carbon Trust (April 2001)
• Emissions Trading Scheme (April 2002)
• 10 year transport plan (180 billion investment
  in public transport)
• Double UK CHP capacity by 2010
• Renewables Obligation electricity generators
  target of 10 renewable by 2010 and 15 by 2015
• New regulations for energy efficiency of
  buildings
• Home energy efficiency scheme for domestic sector

4
CCL consultation responses outcomes

• Opposed by the Conservative opposition as badly
  thought out, badly targeted, damaging,
  anti-competitive and wrong
• Opposed by industrial sectors likely to be most
  affected
• Supported but with major reservations by Lib Dems
  and environmental NGOs that favoured a carbon tax
• Government agreed to following outcomes
• Levy should target industrial and commercial
  energy use but not domestic energy use
• Levy should be fiscally neutral and with revenues
  recycled to business
• Special provisions should be made for energy
  intensive industries
• Exemptions from the levy should be made for
  electricity generated from renewable sources

5
CCL Climate Change Agreements

• Introduced to assist energy intensive sectors
  (currently 44 sectors, e.g. cement, steel,
  aluminium, ceramics)
• Requires targets for energy efficiency and carbon
  reduction to be met (negotiated with trade
  associations)
• 80 CCL discount for qualifying businesses
• Tax differential for CCAs worth around 300
  million per year
• In its first year CCAs saved 13.5 million tonnes
  CO2 and 88 of CCA businesses met their targets

6
CCL revenue useCCL generates around 1 billion
per year

• Principal routes for recycling CCL revenue
• 0.3 discount for employer National Insurance
  contributions (no focus on energy)
• Carbon Trust received 69 million funding last
  year, 33 million of which is from CCL revenue,
  and runs following programmes
• Action Energy Programme
• Enhanced Capital Allowances (100-140 million pa)
• Low Carbon Innovation Programme
• Emissions Trading Scheme (43 million pa)

7
CCL current criticisms

• Inefficient only targets certain energy users
• Unfair CCL is fiscally neutral only at a
  macrocopic level, so it impacts on some
  businesses more heavily than others
• Too complicated and bureaucratic, e.g. exemption
  certificates for CHP and renewable generation
• Too difficult to measure CCLs effect amid
  plethora of schemes
• CCL is virtually ignored by SMEs
• Not focussed on carbon emissions
• Lack of supporting policy, e.g. planning, direct
  renewables investment
• Does not impact on the general public and change
  their behaviour

8
CCL what does the future hold?

• Extend CCAs to more businesses, or all businesses
• Increase targeting of CCL revenues to
  energy-related schemes
• Increase levy to strengthen fiscal incentive for
  investment in renewables
• Replace CCL with a Carbon Tax (Lib Dem policy)

9
Carbon Tax proposals

• Simpler scheme directly and transparently
  targeting carbon
• Easily harmonises with other EU countries that
  already have a carbon tax or will in the future
• Reaches small businesses that do not qualify for
  Emissions Trading Scheme
• Reaches the domestic sector (but additional
  measures needed to protect against fuel poverty)
• Reaches transport, and should eventually include
  aviation fuel
• Measures to assist carbon intensive industries
  should be time-limited
• Favoured by environmental NGOs and Royal Society