In a letter to the Chancellor, the CBI said the current plans to tax the energy used by business are not a cost effective way to help the UK meet the international energy reduction target made in Kyoto in 1997.
The letter is part of the increasing debate over the expected effects of the Levy on UK industry. In July, the Select Committee on Trade and Industry expressed concern that the Levy could “damage sectors of the British economy already struggling to maintain their profitability.” The Treasury is expected to announce which industries will receive exemptions or rebates from the Levy in a pre-budget statement due to be made by
Gordon Brown on November 9. (See related story )
The six changes which the CBI is arguing for are:
- Flexibility over the level of revenue raised by the tax. The Government estimates that the tax will generate enough revenue to fund a 0.5 per cent cut in employers’ National Insurance Contributions (NICs). The CBI proposes there should be greater scope for energy tax rebates (see below), which would leave less money for cutting NICs but would better protect the competitiveness of the most affected sectors and give greater environmental benefits.
- Extension of eligibility to negotiate energy efficiency or carbon reduction agreements. The Government plans to limit such agreements (which would impose a lower rate of tax on a sector in return for improved energy efficiency) to sites covered by the Integrated Pollution Prevention Control (IPPC) Directive will cause distortions and leave significant parts of the economy exposed to the full rate of the tax.
- Greater reduced rates for energy intensive users than those proposed. The Government has suggested that the levy could be reduced by 50 per cent for sectors who enter into negotiated agreements. This, says the CBI, would still leave sectors of the UK economy at a competitive disadvantage to rivals from other countries where businesses receive more favourable treatment under energy taxes – for example Germany. The CBI argues that the tax needs to be reduced by a much greater amount – up to 90-95 per cent depending on the sector.
- Review of the amount of revenue being channelled into promoting energy efficiency. The Government plans to recycle £50 million of the tax revenue into promoting energy efficiency – for example among non-intensive energy users who account for 60 per cent of business emissions, and for renewable energy, low carbon technologies. The CBI believes this is too low and more of the tax should be used to encourage energy efficiency.
- Resolution of key technical issues. The CBI says there needs to be clarity on: exemption of renewable energy sources from the tax; positive incentives for take-up of combined heat and power (CHP); exemption of some industrial processes from the tax; and on the need for energy bills to identify the tax separately.
- Greater recognition of the role of emissions trading. The CBI say emissions trading could be a flexible way for businesses to cut carbon emissions cost-effectively. Firms taking part in an effective trading scheme (and not already part of a negotiated agreement) should receive favourable incentives to trade and negotiated agreements need to be compatible with future trading.
Peter Agar, CBI Deputy Director-General, said: “It is not just heavy industry that will lose out under the current tax proposals – a wide range of firms of all sizes in sectors as diverse as retailing, food production, and farming will also be hit hard. Besides being potentially damaging to business, the tax itself is poorly designed to cut carbon emissions – the very thing it is supposed to do. In his pre-Budget report the Chancellor must agree to improve the tax proposals if he is to protect UK competitiveness and at the same time meet green goals cost-effectively.
“The proposed changes are unimaginative and parochial,” Mark Johnston, an energy campaigner at Friends of the Earth told edie. “All of the countries affected by the Kyoto Protocol will inevitably have to introduce similar measures. The CBI could best defend their own interests by working to ensure that other countries go down the same path as our own at the same time. ”
The Climate Change Levy is due to be introduced in 2001. It will form part of the Government’s attempts to meet its Kyoto target for CO² emission reduction. Under the Kyoto Protocol the UK has a legally-binding target to reduce national emissions of six greenhouse gases by 12.5% for the period 2008-2012. The cut will contribute to the EU’s overall emission reduction target of 8%. In addition, the UK has a domestic aim to cut emissions of CO2 by 20% by 2010 (see related story ).