"It's not easy being green" according to Kermit the Frog and also UK businesses, which have to navigate their way around two sets of carbon tax programmes and three sets of carbon reporting requirements. Hopefully it should get easier, as the Treasury is consulting on simplifying the business energy efficiency landscape, to help organisations focus on making energy savings.
Is it relevant to me?
It is relevant to any business that is currently subject to any of the CRC, CCL, mandatory greenhouse gas reporting or ESOS regimes – which is most businesses (except the very smallest) and the public sector.
The Chancellor announced in the Summer Budget that there would be a consultation on reforming the business energy efficiency tax landscape in the Autumn, and over the Summer the Government has reviewed evidence on how the existing schemes operate, looked at lessons learned from overseas schemes, and sought initial views from a range of businesses, academics and others to help inform the consultation, which was published on 28 September 2015.
The current regime
A quick (and very simplified) reminder of the current requirements on businesses, which illustrates why they can find it difficult to carry out energy efficiency measures.
The Climate Change Levy (CCL) is a tax on energy supplies to businesses and public sector organisations. It adds around 15% to energy bills so aims to encourage businesses to use less energy. Energy-intensive businesses including chemicals, food and drink, foundries, paper and steel can enter a Climate Change Agreement (CCA) with the Environment Agency to get a discount on the CCL in exchange for agreeing to energy efficiency targets.
The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is a mandatory emissions trading scheme under which large energy users and the public sector have to monitor and report on their energy usage and buy allowances for every tonne of carbon dioxide that they emit.
Mandatory greenhouse gas reporting was introduced in 2013 and requires all UK quoted companies to report on their greenhouse gas emissions as part of their annual Directors' Report.
The Energy Savings Opportunity Scheme (ESOS) requires large undertakings (and others in the same group of companies) to calculate their total energy consumption and audit it every four years, although they do not have to act on their audit findings. This is just coming into force; the first reports are due in December 2015. ESOS does not apply to the public sector.
The Government is seeking to move away from the current system of overlapping policies towards a system where a single business or organisation faces one tax and one reporting scheme. They propose a single tax by abolishing the CRC and moving the revenue raising element into a single business energy consumption tax based on the CCL. They also propose a single reporting framework, incorporating the most effective elements from a range of reporting schemes and designed through the prism of the ESOS.
Finally the consultation asks which sectors the CCA scheme (or any new similar scheme) should focus on, such as industries needing protection from competitive disadvantage, and what options for incentivising energy efficiency there might be, such as tax relief like CCAs, funding awarded on a competitive basis like the EDR pilot, supplier obligations like the ECO and feed-in tariffs. There is, however, a sting in the tail: the Treasury makes it clear that any such incentives would need to be funded through increases in tax.
The consultation closes on 9 November 2015 and the Government is likely to publish its formal response in the 2016 Budget. There may be more detailed consultations on policy design and implementation in the meantime.
Having had a few months to prepare this consultation, following its announcement in the July Summer Budget, it is disappointing that the proposals are very high level at this stage, which will not give industry any much-needed certainty, nor help improve energy efficiency in the meantime. On the plus side, it is an opportunity for businesses to have a real say in shaping energy efficiency policy so that it best suits them, so it is worth responding to the consultation with your views as they are likely to be taken into account in this case.
Partner, Tax & Structuring
Principal Knowledge Lawyer, Projects & Infrastructure LeedsView profile