Proposed reforms to the business-energy-efficiency tax landscape

What is the legislative review all about?

Since last summer various government departments have been consulting with industry about reforms to the current energy efficiency taxes. The government is considering these reforms in order to achieve the following:

  • Consistency with fiscal consolidation plans (long-hand for ‘reducing the deficit’).
  • Simplify compliance and reduce administrative costs.
  • Protect energy-intensive businesses at risk of carbon leakage. (In plain language: continued subsidies for Energy-Intensive-Industry)
  • Support enhanced productivity through improved incentives for energy efficiency and carbon reduction.

The initial view from their consultations concluded that: The current energy-efficiency tax landscape is holding back investment due to being too complex. And that current policies makes compliance too complex, burdensome and costly.

The Proposal part 1 – Changes to Carbon Taxation:

The proposal is to move to one single, simplified tax scheme by abolishing the CRC Energy Efficiency Scheme and moving the revenue raising element into a single business energy consumption tax based on the Climate Change Levy (CCL).

What this means: 

  • It will likely incorporate the ‘best’ parts of the current schemes into one single scheme.
  • This new system will aim to be tax revenue neutral – overall no more or less revenue to the government from carbon taxes.
  • Expect businesses to see an overall reduction in compliance administration costs.
  • This proposed new CCL-type system would likely be linked to an expanded version of the Energy Saving Opportunity Scheme (ESOS).
  • Current CCL billing rates for electricity and gas may increase to compensate for the loss of CRC revenue. Particularly those for gas, to reflect the lowering carbon intensity of grid electricity.
  • Any changes will not put energy intensive industries at a competitive disadvantage. Current exemptions in place are likely to remain.
  • Climate change agreements (CCA) are also under review and could be expanded to cover more industries and incorporate elements of ESOS.


The Proposal part 2 – Incentives for Carbon and Energy Reduction:

The government is considering new incentives for energy efficiency and carbon reduction that are simple for businesses to understand, easy to access and easy to comply with.

What this means:

  • Any new scheme must encourage uptake by those who would otherwise not take action.
  • New incentives would need to be funded through increases in tax.
  • Tax neutral incentives through a revised CCL scheme would likely involve higher initial CCL fees that offer the chance to claim some back if it is invested in energy and carbon reduction projects.


How will this impact you?

  • Changes to the methods of carbon tax calculation will invariably result in some businesses paying more and some paying less than they do currently. We believe organisations that are currently participants of the CRC will see a small net reduction in their overall carbon taxes.
  • Large gas users are likely to see an increase in net carbon taxes due to the re-balancing of its carbon intensity versus electricity.
  • Overall all industry should see a reduction in their current carbon tax administration costs from the simplification and unification of the current schemes.
  • The budget decision will likely be in March 2016 with implementation from mid-2017 at the earliest.
  • This decision could have far-reaching impacts to your carbon tax, reporting and administrative resource costs and ultimately should help get more carbon and energy reducing projects implemented in your organisation.


What can you do now?

This consultation closes on 9 NOVEMBER 2015 and your inputs on how to improve the current business energy efficiency tax schemes and proposals can be submitted via the Citizenspace form or email, or if you prefer the old fashioned way you can send responses to: Khalid Aly, Energy & Transport Tax, 1 Yellow, 1 Horse Guards Road, HM Treasury, SW1A 2HQ

Full details of this consultation document can be found here.


To discuss your own organisation’s energy and carbon efficiency, or to better understand this complex piece of legislation, please contact Matt or Mitchel directly.

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