Experiences and Problems with the climate change levy in the UK from a political point of view Sue Doughty MP Liberal Democrat Shadow Minister for the Environment GREEN BUDGET GERMANY 25 June 2004

Sue Doughty MP, Lib Dem, UK Background to Climate Change Levy  Consultation began in early 1998 with a report from the Advisory Committee on Business and the Environment  A levy was recommended by Lord Marshall’s report, Economic Instruments and the Business use of Energy (October 1998)  A Customs and Excise consultation, parliamentary debate and Government negotiation with industry followed the Chancellors Budget 1999 announcement of plans for a levy  Climate Change Levy (CCL) introduced in April 2001 through provisions in the Finance Act  CCL is part of a package of measure known as the Climate Change Programme (CCP) and needs to be understood in the context of the full package of measures.

Sue Doughty MP, Lib Dem, UK Climate Change Programme  Published in November 2000 detailing plans to deliver Kyoto targets and domestic climate change goals  Reduce emissions of green house gases by 12.5% CO 2 emissions by 20% by 2010 (1990 levels)  Main policies and measures  Climate Change Levy (April 2001)  Establishment of the Carbon Trust (April 2001)  Emissions Trading Scheme (April 2002)  10 year transport plan (£180 billion investment in public transport)  Double UK CHP capacity by 2010  Renewables Obligation: electricity generators target of 10% renewable by 2010 and 15% by 2015  New regulations for energy efficiency of buildings  Home energy efficiency scheme for domestic sector

Sue Doughty MP, Lib Dem, UK CCL: consultation responses & outcomes  Opposed by the Conservative opposition as “badly thought out, badly targeted, damaging, anti-competitive and wrong”  Opposed by industrial sectors likely to be most affected  Supported but with major reservations by Lib Dems and environmental NGOs that favoured a carbon tax  Government agreed to following outcomes:  Levy should target industrial and commercial energy use but not domestic energy use  Levy should be fiscally neutral and with revenues recycled to business  Special provisions should be made for energy intensive industries  Exemptions from the levy should be made for electricity generated from renewable sources

Sue Doughty MP, Lib Dem, UK CCL: Climate Change Agreements  Introduced to assist energy intensive sectors (currently 44 sectors, e.g. cement, steel, aluminium, ceramics)  Requires targets for energy efficiency and carbon reduction to be met (negotiated with trade associations)  80% CCL discount for qualifying businesses  Tax differential for CCAs worth around £300 million per year  In its first year CCAs saved 13.5 million tonnes CO 2 and 88% of CCA businesses met their targets

Sue Doughty MP, Lib Dem, UK CCL: revenue use CCL generates around £1 billion per year Principal routes for recycling CCL revenue:  0.3% discount for employer National Insurance contributions (no focus on energy)  Carbon Trust received £69 million funding last year, £33 million of which is from CCL revenue, and runs following programmes:  Action Energy Programme  Enhanced Capital Allowances (£ million pa)  Low Carbon Innovation Programme  Emissions Trading Scheme (£43 million pa)

Sue Doughty MP, Lib Dem, UK CCL: current criticisms  Inefficient: only targets certain energy users  Unfair: CCL is fiscally neutral only at a macrocopic level, so it impacts on some businesses more heavily than others  Too complicated and bureaucratic, e.g. exemption certificates for CHP and renewable generation  Too difficult to measure CCL’s effect amid plethora of schemes  CCL is virtually ignored by SMEs  Not focussed on carbon emissions  Lack of supporting policy, e.g. planning, direct renewables investment  Does not impact on the general public and change their behaviour

Sue Doughty MP, Lib Dem, UK CCL: what does the future hold?  Extend CCAs to more businesses, or all businesses  Increase targeting of CCL revenues to energy-related schemes  Increase levy to strengthen fiscal incentive for investment in renewables  Replace CCL with a Carbon Tax (Lib Dem policy)

Sue Doughty MP, Lib Dem, UK Carbon Tax proposals  Simpler scheme directly and transparently targeting carbon  Easily harmonises with other EU countries that already have a carbon tax or will in the future  Reaches small businesses that do not qualify for Emissions Trading Scheme  Reaches the domestic sector (but additional measures needed to protect against fuel poverty)  Reaches transport, and should eventually include aviation fuel  Measures to assist carbon intensive industries should be time-limited  Favoured by environmental NGOs and Royal Society