The grand Scheme of things
The Enhanced Capital Allowance (ECA) Scheme provides a tax incentive for the general business sector to engage in good environmental practice, but does it address the wider issues of environmental impact which affect companies large and small? Jason Rayfield spoke to managing director of Haden Drysys, Paul Farrington, about ways in which the scheme could be improved by looking long term and applying it to the environmental industry as a whole.
There is a scheme in France, which Paul Farrington believes goes much further towards addressing the whole picture. "Our French clients can apply for grants of up to 40 per cent to cover the costs of the equipment, for installing air pollution or indeed any other pollution control equipment. But to qualify for them they have to prove to the ADEME (the organisation that oversees the regulation) that they have really looked at the whole problem and they have installed not only the best technology but also the solution that is the most environmentally friendly.
"As an example, in most regions within France, legislation dictates that
companies must reach an outlet concentration of 50mgC/Nm³ VOC. To get an
ADEME grant you have to install equipment which will achieve a maximum of 20mgC/Nm³
which acts as an additional screw being put on. In the UK's Scheme so far, there
is no incentive to do that - there is no push, which leaves it in danger of
pushing companies towards compliance with UK legislation, with no additional
push to go for the equipment which uses the least power, or has the greatest
impact on emissions."
As a company, Haden Drysys is concerned that the ECA Scheme is only likely to encourage investment in equipment that a company needs for its own business use rather than to meet its environmental targets. The decision to procure pollution abatement equipment will still be driven entirely by legislation or cost incentives from the Climate Change Levy (CCL). According to Farrington, ECA overlooks the selection, design and project management that ultimately determines the long term environmental success of a pollution control project and focuses more on the technology type itself. He states:
"What we are looking to do is to enhance the Enhanced Capital Allowance Scheme. To provide a driving force to push companies into looking much deeper into analysing more and hopefully to go in for more sophisticated equipment, which may cost a little more initially, but will make huge environmental improvements and lead to greater cost savings over time."
A major consequence of the current scheme's limitations according to Paul Farrington, is that it does not require the consumer to consider environmental factors when purchasing equipment within the scheme. For example a company may see the benefit of procuring a technology such as Combined Heat and Power to provide cost-effective heat/power but will not necessarily purchase the system with the least impact upon the environment.
Money is another concern, as Farrington describes: "The current marketplace, particularly manufacturing industry has become increasingly price sensitive," he states, "I would like to see a regime which helps people have a far better understanding of what is available and go for technology that meets all their objectives, not to go for low capital costs alone."
Haden Drysys has proposed an alternative solution to ECA that it feels better achieves the understood objectives of ECA. It suggests calling it Environmental Compliancy Award (ECA) to keep the established connection between tax incentive and environmental issues. This scheme recognises the benefits of providing a solution rather than focusing on a specific technology or product. The proposed scheme would reward companies who officially demonstrate the achievement of compliance or emissions improvement (if previously compliant).
Under an Environmental Compliancy Award a company would record, in a traceable and transparent manner, the costs incurred in analysis of its emissions, procurement of an abatement system and demonstration of compliance. Some form of rebate would be provided but similar benefits could be claimed if the consumer continues to upgrade their system to improve their emissions further or improve energy consumption.
Haden's proposed scheme offers much food for thought in the ongoing debate
about Enhanced Capital Allowances. If the existing Scheme is to work, it needs
a strong focus with clearly defined goals. Also, the points of view of environmental
technology suppliers and manufacturers, as well as the manufacturing industry
that uses the technology, need to be taken into account by those who control
who is to benefit from ECAs.