experiences and problems with the climate change levy in the uk from a political point of view

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

UK from a political point of viewUK from a political point of view

Sue Doughty MPSue Doughty MPLiberal Democrat Shadow Minister for the EnvironmentLiberal Democrat Shadow Minister for the Environment

GREEN BUDGET GERMANY

25 June 2004

Sue Doughty MP, Lib Dem, UKSue Doughty MP, Lib Dem, UK

Background to Climate Change Background to Climate Change LevyLevy

Consultation began in early 1998 with a report from the Consultation began in early 1998 with a report from the Advisory Committee on Business and the EnvironmentAdvisory Committee on Business and the Environment

A levy was recommended by Lord Marshall’s report, A levy was recommended by Lord Marshall’s report, Economic Instruments and the Business use of Energy Economic Instruments and the Business use of Energy (October 1998)(October 1998)

A Customs and Excise consultation, parliamentary A Customs and Excise consultation, parliamentary debate and Government negotiation with industry debate and Government negotiation with industry followed the Chancellors Budget 1999 announcement followed the Chancellors Budget 1999 announcement of plans for a levyof plans for a levy

Climate Change Levy (CCL) introduced in April 2001 Climate Change Levy (CCL) introduced in April 2001 through provisions in the Finance Act 2000.through provisions in the Finance Act 2000.

CCL is part of a package of measure known as the CCL is part of a package of measure known as the Climate Change Programme (CCP) and needs to be Climate Change Programme (CCP) and needs to be understood in the context of the full package of understood in the context of the full package of measures.measures.


Climate Change ProgrammeClimate Change Programme Published in November 2000 detailing plans to deliver Published in November 2000 detailing plans to deliver

Kyoto targets and domestic climate change goalsKyoto targets and domestic climate change goals

Reduce emissions of green house gases by 12.5% Reduce emissions of green house gases by 12.5% COCO22 emissions by 20% by 2010 (1990 levels) emissions by 20% by 2010 (1990 levels)

Main policies and measuresMain policies and measures Climate Change Levy (April 2001)Climate Change Levy (April 2001) Establishment of the Carbon Trust (April 2001)Establishment of the Carbon Trust (April 2001) Emissions Trading Scheme (April 2002)Emissions Trading Scheme (April 2002) 10 year transport plan (£180 billion investment in public 10 year transport plan (£180 billion investment in public

transport)transport) Double UK CHP capacity by 2010Double UK CHP capacity by 2010 Renewables Obligation: electricity generators target of 10% Renewables Obligation: electricity generators target of 10%

renewable by 2010 and 15% by 2015renewable by 2010 and 15% by 2015 New regulations for energy efficiency of buildingsNew regulations for energy efficiency of buildings Home energy efficiency scheme for domestic sectorHome energy efficiency scheme for domestic sector


CCL: consultation responses & outcomesCCL: consultation responses & outcomes Opposed by the Conservative opposition as “badly thought Opposed by the Conservative opposition as “badly thought

out, badly targeted, damaging, anti-competitive and wrong”out, badly targeted, damaging, anti-competitive and wrong”

Opposed by industrial sectors likely to be most affectedOpposed by industrial sectors likely to be most affected

Supported but with major reservations by Lib Dems and Supported but with major reservations by Lib Dems and environmental NGOs that favoured a carbon taxenvironmental NGOs that favoured a carbon tax

Government agreed to following outcomes:Government agreed to following outcomes: Levy should target industrial and commercial energy use but Levy should target industrial and commercial energy use but

not domestic energy usenot domestic energy use

Levy should be fiscally neutral and with revenues recycled to Levy should be fiscally neutral and with revenues recycled to businessbusiness

Special provisions should be made for energy intensive Special provisions should be made for energy intensive industriesindustries

Exemptions from the levy should be made for electricity Exemptions from the levy should be made for electricity generated from renewable sourcesgenerated from renewable sources


CCL: Climate Change AgreementsCCL: Climate Change Agreements

Introduced to assist energy intensive sectors (currently Introduced to assist energy intensive sectors (currently 44 sectors, e.g. cement, steel, aluminium, ceramics)44 sectors, e.g. cement, steel, aluminium, ceramics)

Requires targets for energy efficiency and carbon Requires targets for energy efficiency and carbon reduction to be met (negotiated with trade reduction to be met (negotiated with trade associations)associations)

80% CCL discount for qualifying businesses 80% CCL discount for qualifying businesses Tax differential for CCAs worth around £300 million Tax differential for CCAs worth around £300 million

per yearper year In its first year CCAs saved 13.5 million tonnes COIn its first year CCAs saved 13.5 million tonnes CO22

and 88% of CCA businesses met their targetsand 88% of CCA businesses met their targets


CCL: revenue useCCL: revenue use

CCL generates around £1 billion per yearCCL generates around £1 billion per year

Principal routes for recycling CCL revenue:Principal routes for recycling CCL revenue:

0.3% discount for employer National Insurance 0.3% discount for employer National Insurance contributions (no focus on energy)contributions (no focus on energy)

Carbon Trust received £69 million funding last Carbon Trust received £69 million funding last year, £33 million of which is from CCL revenue, year, £33 million of which is from CCL revenue, and runs following programmes:and runs following programmes: Action Energy ProgrammeAction Energy Programme Enhanced Capital Allowances (£100-140 million pa)Enhanced Capital Allowances (£100-140 million pa) Low Carbon Innovation ProgrammeLow Carbon Innovation Programme

Emissions Trading Scheme (£43 million pa)Emissions Trading Scheme (£43 million pa)


CCL: current criticismsCCL: current criticisms Inefficient: only targets certain energy usersInefficient: only targets certain energy users Unfair: CCL is fiscally neutral only at a macrocopic Unfair: CCL is fiscally neutral only at a macrocopic

level, so it impacts on some businesses more heavily level, so it impacts on some businesses more heavily than others than others

Too complicated and bureaucratic, e.g. exemption Too complicated and bureaucratic, e.g. exemption certificates for CHP and renewable generationcertificates for CHP and renewable generation

Too difficult to measure CCL’s effect amid plethora of Too difficult to measure CCL’s effect amid plethora of schemesschemes

CCL is virtually ignored by SMEsCCL is virtually ignored by SMEs Not focussed on carbon emissionsNot focussed on carbon emissions Lack of supporting policy, e.g. planning, direct Lack of supporting policy, e.g. planning, direct

renewables investmentrenewables investment Does not impact on the general public and change their Does not impact on the general public and change their

behaviourbehaviour


CCL: what does the future CCL: what does the future hold?hold?

Extend CCAs to more businesses, or all Extend CCAs to more businesses, or all businessesbusinesses

Increase targeting of CCL revenues to Increase targeting of CCL revenues to energy-related schemesenergy-related schemes

Increase levy to strengthen fiscal Increase levy to strengthen fiscal incentive for investment in renewablesincentive for investment in renewables

Replace CCL with a Carbon Tax (Lib Replace CCL with a Carbon Tax (Lib Dem policy)Dem policy)


Carbon Tax proposalsCarbon Tax proposals Simpler scheme directly and transparently targeting Simpler scheme directly and transparently targeting

carboncarbon Easily harmonises with other EU countries that already Easily harmonises with other EU countries that already

have a carbon tax or will in the futurehave a carbon tax or will in the future Reaches small businesses that do not qualify for Reaches small businesses that do not qualify for

Emissions Trading SchemeEmissions Trading Scheme Reaches the domestic sector (but additional measures Reaches the domestic sector (but additional measures

needed to protect against fuel poverty)needed to protect against fuel poverty) Reaches transport, and should eventually include Reaches transport, and should eventually include

aviation fuelaviation fuel Measures to assist carbon intensive industries should Measures to assist carbon intensive industries should

be time-limitedbe time-limited Favoured by environmental NGOs and Royal SocietyFavoured by environmental NGOs and Royal Society

experiences and problems with the climate change levy in the uk from a political point of view

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