Government responds to 2015 consultation on business energy efficiency taxes, including CRC and CCL | Practical Law

Government responds to 2015 consultation on business energy efficiency taxes, including CRC and CCL | Practical Law

As part of the 2016 Budget, on 16 March 2016, the government published its response to its 2015 consultation on Business Energy Efficiency taxes, including the CRC Energy Efficiency scheme (CRC) and the climate change levy (CCL).

Government responds to 2015 consultation on business energy efficiency taxes, including CRC and CCL

by Practical Law Environment
Published on 16 Mar 2016 • UK
As part of the 2016 Budget, on 16 March 2016, the government published its response to its 2015 consultation on Business Energy Efficiency taxes, including the CRC Energy Efficiency scheme (CRC) and the climate change levy (CCL).
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On 16 March 2016, as part of the 2016 Budget, the government announced the "biggest business energy tax reforms since the taxes were introduced". It also published its response to its 2015 consultation on business energy efficiency taxes, which confirms that it will:
  • Abolish the CRC Energy Efficiency Scheme (CRC) from the end of the 2018-19 compliance year. Businesses will be required to surrender allowances for the final time in October 2019.
  • Increase the main rates of climate change levy (CCL) from April 2019 in order to recover the revenue lost from abolishing the CRC.
The government will consult later in 2016 on a simplified business energy and carbon reporting framework for introduction by April 2019.

Background: business energy efficiency tax consultation

In September 2015, HM Treasury and the Department of Energy and Climate Change (DECC) published a consultation on reforming the business energy efficiency tax landscape (including the CRC Energy Efficiency scheme (CRC) and the climate change levy (CCL)), following an earlier announcement in the July 2015 Budget.
For more information on the:

Government announces abolition of CRC and responds to consultation

On 16 March 2016, as part of the 2016 Budget, the government announced the "biggest business energy tax reforms since the taxes were introduced" (see Legal update, 2016 Budget: key environmental announcements). It announced that it will:
(Budget Report, paragraphs 1.190, 2.170 and 2.172.)
Also on 16 March 2016, DECC published the government response to its 2015 consultation on reforming business energy efficiency tax.
As well as the closure of the CRC, the response confirms that the:
  • CCL rates for different fuel types will be rebalanced. This will reflect recent data on the fuel mix used in electricity generation, moving to a ratio of 2.5:1 (electricity:gas) from April 2019, compared to the current 2.9:1 ratio. This will more strongly incentivise reductions in use of gas, in support of the UK’s climate change targets. In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 (electricity:gas) by 2025. This gives businesses time to plan ahead to improve their energy efficiency and adopt new technologies that reduce their gas consumption.
  • Most energy intensive industry (EII) sectors will remain protected from the impacts of the CCL on their international competitiveness by receiving a discount on the main rates of CCL in exchange for agreeing to energy efficiency targets. The government will increase the CCL discount available to Climate Change Agreement (CCA) participants from April 2019 to ensure they pay no more than an RPI increase. The government will keep existing CCA scheme eligibility criteria in place until at least 2023. For more information on EIIs, see Practice note, Carbon leakage and support for energy intensive industry (EII).
  • Respondents supported a new reporting scheme requiring both the private and public sectors to report at board or senior level.

Next steps

The government says that it recognises business concerns about time to adapt to changes. It will therefore not implement tax changes until 2019, giving businesses a three-year lead-time to make energy efficiency savings before the increase in CCL rates comes into effect.
The government will:
  • Consult later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019. It hopes that this will reduce the administrative burdens of overlapping systems while improving the incentive for organisations to save energy and reduce carbon emissions. The consultation will propose mandatory annual reporting for the organisations within its scope, with board or senior level sign-off and some public disclosure of data. The consultation will cover issues such as the range and size of organisations to be covered and will make proposals about the amount and type of information to be collected and disclosed, data collection timetables and how information is reported.
  • Explore integration of the existing compliance and reporting requirements of climate change agreements (CCAs) under the CCL, the EU Emissions Trading Scheme (EU ETS), and Energy Savings Opportunity Scheme (ESOS) with any new reporting framework, to further minimise administrative burdens.
  • Protect the smallest or lowest energy-consuming businesses by exploring de minimis arrangements for the new reporting framework.
  • Work with the devolved administrations on closure details for the reporting element of the CRC.

Comment

The further consultation may give a real opportunity for stakeholders to shape the detail of the new reporting regime.

Source

HM Treasury: Reforming the business energy efficiency tax landscape: response to the consultation (March 2016) and HM Treasury: Budget 2016 (16 March 2016).