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| Date:
29 March 2011 |
| Carbon - a taxing matter |
| Categories for this story: UK Policy, Energy Efficiency, Feature |
 This year’s Budget contained several measures affecting the way carbonreduction is incentivised in the tax system. One potentially far-reaching announcement was the establishment of a ‘floor price’ for carbon emissions – this will be a levy on electricity produced from fossil fuels and will start in 2013 at £16 per tonne. The Chancellor envisages that this will rise to £30 per tonne by 2020.
Raising the cost, reducing demand
The hope is that this will raise the cost of fossil-fuel generation sufficiently to encourage large-scale investment in low carbon forms of electricity production. While this will benefit renewables, the main target is the huge investment needed to build the new fleet of nuclear power stations planned for the UK. The Government has ruled out direct subsidies, so some other means had to be found to make the sums ‘add up’ for the generators. Fixing a floor price below which the carbon price cannot fall (in effect, if prices on the market drop below the floor price, generators will have to pay the remainder as a tax) provides a stability to forward planning. Prices can of course rise above this level but recent experience suggests that this is unlikely in the near future. Some critics have pointed out that this stability is not permanent as there is no reason why the Government cannot change the floor price in the future. And indeed Paul Golby, chief executive of electricity generator E.ON UK indicated that the move will not necessarily have the desired effect. He was quoted in the Sunday Telegraph as saying: “I’m not a great supporter of a carbon floor price. The money doesn’t always go to the purpose it was originally intended for.” EDF on the other hand has lobbied hard for a floor price to be introduced.
Main incentives
At smaller scale, the main incentive will be seen in higher energy prices for consumers. Indeed consultancy WSP Environment and Energy was quoted as saying that it will add about £80 to average household bills over a year. This will make the return on micro-generation and energy efficiency more attractive. While Feed-in-Tariffs, notwithstanding the current fast-track review, have created a great deal of interest among consumers, payback periods are currently still relatively long.
Introduction of tax relief
The Government intends to introduce tax relief for combined heat and power (CHP) and carbon capture and storage (CCS), and remove an existing exemption in the climate change levy for electricity CHP plants supply indirectly to an energy consumer. CCS will no longer be funded through a special levy though – but by general taxation. CCS will be necessary if the UK’s coal industry is to have any future in a low carbon economy. The Climate Change Levy, which many people expected would be scrapped by the Government as it is widely seen as ineffective in encouraging energy efficiency, will instead rise in line with RPI. It does provide an incentive for heavy industry to participate in sectoral Climate Change Agreements (CCAs) where business agrees carbon-reduction targets on an industrywide basis in return for discounts on CCL. The Government seems convinced of their efficacy as their lifetime is to be extended to 2023 and the discount rate on CCL is to be increased from 65% to 80%.
Green Deal
While the Chancellor referred to the flagship Green Deal energy efficiency scheme, there was no more detail on the financial aspects of it, nor any further incentives to encourage uptake.
http://cdn.hm-treasury.gov.uk/ 2011budget_complete.pdf
http://cdn.hm-treasury.gov.uk/ 2011budget_taxation_overview.pdf
http://www.hm-treasury.gov.uk/tax_index. htm |
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