Transcript Experiences and Problems with the climate change levy in the UK

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
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 Marshall’s 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.
Sue Doughty MP, Lib Dem, UK
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
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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
Sue Doughty MP, Lib Dem, UK
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
Sue Doughty MP, Lib Dem, UK
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
Sue Doughty MP, Lib Dem, UK
CCL: revenue use
CCL 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)
Sue Doughty MP, Lib Dem, UK
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 CCL’s 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
Sue Doughty MP, Lib Dem, UK
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)
Sue Doughty MP, Lib Dem, UK
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
Sue Doughty MP, Lib Dem, UK