A taxing subject

Landfill Tax Credits, Climate Change Levy and Emissions Trading Scheme. All of the above could have a major impact on your business, and all of the above have been affected by the latest Budget, revealed on April 17 2002. Jason Rayfield examines the small print which will raise big issues for industry and the environment

Under the Landfill Tax Credit Scheme (LTCS), registered landfill site operators

can claim credit of up to 20 per cent of their landfill tax liability for the

year to environmental bodies (EBs) approved by ENTRUST, the private sector regulator

of the LTCS. They can claim a tax credit worth 90 per cent of that contribution.

The aim of the scheme is to encourage more sustainable waste management practices,

including recycling and to deliver lasting environmental and community benefits.

Summing up the problem, EIC director, Merlin Hyman, said: “The Landfill

Tax Credit Scheme has failed to play a central role in transforming waste management

practices. Urgent reform is therefore now essential to provide greater direction

and focus, particularly in funding to support sustainable waste and resource


Fast forward to the Budget, and witness the power of positive lobbying, as

Financial Secretary to the Treasury, Paul Boateng, and Environment Minister,

Michael Meacher launched a consultation on possible changes to the LTCS. The

consultation paper seeks views on the priorities for funding as well as potential

funding mechanisms for the scheme. Paul Boateng summed up:

“Consulting on the Landfill Tax Credit Scheme allows us to benefit from

the views and experiences of the waste industry, environmental groups, local

people and other interested stakeholders. We are seeking views on what the priorities

for funding should be from the revenue currently going through the scheme. These

could include sustainable waste management, local community projects or other

wider government objectives. We also want opinions on the best way of delivering

these objectives.”

The Climate Change Levy (CCL), a tax on the business use of energy introduced

in April 2001, was set up to encourage business to improve energy-efficiency

and reduce emissions of carbon dioxide, the principal greenhouse gas.

Again, the scheme has been the subject of much debate since its inception,

with one notable objection coming from manufacturer, Linpac, who invited the

afore-mentioned Paul Boateng to visit its plastics and corrugated fibreboard

packaging operations at Featherstone, West Yorkshire. The aim was to allow Mr

Boateng to learn at first hand about the damage being done to the manufacturing

sector by the CCL, which according to Linpac was adversely affecting the competitiveness

of British industry.

Package of measures

The ability for industry to be more competitive has been given a boost in the

Budget, which contains a package of measures associated with the CCL. These

include exemptions for new forms of renewable energy, 80 per cent discounts

for eligible energy-intensive sectors that have signed up to negotiated agreements

to increase energy-efficiency and reduce emissions, and support to help businesses

use energy more efficiently.

The rates of the CCL have been frozen, and in addition to the existing exemption

for renewable forms of energy, the government is exempting two further sources

of energy generation from the CCL in view of their environmental benefits. The

exemptions will cover electricity from combined heat and power (CHP) plants

sold via licensed electricity suppliers and electricity from coal mine methane

(CMM) sold via licensed electricity suppliers.

The government launched the world’s first economy-wide greenhouse gas emissions

trading scheme in April 2002. This new initiative allows participants to meet

emission reduction targets at lowest cost, by reducing their own emissions or,

if it is cheaper, by buying emissions allowances from other participants who

have found it worthwhile to beat their targets.

According to the Budget, ‘The first stage of the UK emissions trading scheme,

which is now underway, is a ‘cap and trade’ scheme. This means that an overall

emissions reduction target is set covering a group of organisations, all of

whom agree to individual targets and receive a corresponding amount of allowances.

Provided the overall target is met, individual company emissions are unimportant.

Participants in the scheme can therefore achieve their targets in a flexible

way by choosing to meet their target by reducing their own emissions; reduce

their emissions below their target and sell or bank the excess allowances; or

let their emissions remain above their target and buy allowances from other


The Budget continues: ‘Emissions trading in the UK will develop further this

year when organisations will be able to generate emissions allowances through

specific emission reduction projects, and sell these allowances to participants

in the trading scheme. Companies in CCL negotiated agreements will be able to

trade allowances in order to meet their emissions reductions targets at the

end of this year.’

This year’s Budget continues the theme of environmental enhancement, with some

changes being made to the charges which have caused the most headaches for British

industry, but it seems that companies are still suffering as a result of taxation

which stifles their ability to be competitive, both in the UK and in Europe.

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