APPENDIX 3
Memorandum from the Electricity Association
INTRODUCTION
1. The Electricity Association is the trade
association which represents the major electricity supply, distribution,
transmission and generation companies in the UK. The Electricity
Association welcomes the opportunity of submitting its reactions
to the House of Commons, Environmental Audit Committee on the
contribution of Budget 2000 to environmental protection and sustainable
development. Our comments relate to the proposals for the aggregates
tax and the climate change levy.
2. The Electricity Association considers
that any environmental taxation, such as the aggregates tax and
the climate change levy, must be equitably applied, should be
fiscally neutral and should not impair industrial competitiveness.
We are pleased that the Chancellor expresses the same views in
his Budget 2000.
AGGREGATES TAX
3. The Electricity Assoiciation considers
that any aggregates tax should be well designed to meet its prime
objective, ie the improvement of the environment. However, there
are some uses of aggregates that are consistent with this principle
and should therefore be exempt from the tax.
EXEMPTIONS
4. The Budget announcement states that there
will be a range of reliefs/exemptions for rocks and industrial
minerals "used in certain agricultural and industrial processes".
The electricity industry uses crushed limestone not as an aggregate,
but as a chemical feedstock for flue gas desulphurisation (FGD)
systems. The Government policy on environmental taxation states
that ". . . what governments tax, sends clear signals about
the economic activities that they believe should be encouraged
or discouraged. . . ". If this industrial process (FGD) is
not granted exemption from the aggregates tax, it would become
a tax on the use of FGD, which is in itself a major environmental
benefit.
5. The Government's energy policy strongly
supports the use of FGD and the running of plant equipped with
FGD systems. An exemption is therefore consistent with other aspects
of Government environmental policies and an exemption from the
aggregates tax for crushed limestone for FGD systems is suggested
on these grounds. If the exemption is difficult to arrange at
the quarry a simple method of tax rebate to power station operators
could be instituted. Since no other material is suitable for this
use, any tax imposition would be a tax on the electricity consumer
and act as a deterrent to the use of coal for electricity generation.
6. Coal fired power stations produce ash
in two forms. One of these is known as furnace bottom ash (FBA)
and the other as pulverised fuel ash (PFA). Both of these materials
are successfully sold for re-use as aggregates. These materials
do not arise at quarries and can easily be distinguished from
quarry products. It is evident that their reuse in construction
is environmentally preferential than their disposal to landfill.
For these reasons such materials should clearly be excluded from
the scope of the tax as "secondary aggregates". It may
well be intended that these items are included in the definition
of secondary aggregates, however, the Electricity Association
would be grateful for clarification of this point.
7. The Electricity Association is also concerned
at the increase in costs of road reinstatement following excavation
for laying or repairing buried electricity cables. The codes of
practice for reinstatement produced under the New Roads and Streetworks
Act require the work to be carried out with agreed aggregate,
which commonly means virgin material. The imposition of the Aggregates
Tax will thus not reduce the demand for virgin aggregates for
this use and become merely a tax on the electricity consumer.
Exemption from the tax is therefore requested for aggregates used
for this purpose until such time as the codes of practice are
revised to allow use of recycled aggregate and they become commonly
available. Such exemption could be achieved by allowing tax rebates
to approved utilities for materials so used. This would not entail
excessive costs.
CLIMATE CHANGE
LEVY
8. The electricity industry has accomplished
significant CO2 emmissions reductions since the Rio Protocol was
ratified and we note that other sectors are now expected to contribute
to the overall climate change programme in order to meet both
the Kyoto commitments and the UK's domestic target. The Electricity
Association supports measures to reduce CO2 emissions, however,
we consider the proposed climate change levy to be an inefficient
mechanism to achieve significant reductions, unless substantial
increases are made in the recycling of revenues into the energy
efficiency fund. We are disappointed, therefore, that the fund
remains at £50 million.
9. We are also disappointed that the proposed
support to the horticultural industry is to be taken out of the
£50 million energy efficiency fund. We consider that the
fund should be invested in energy efficiency implementation measures,
primarily in the small end of the SME sector, not to provide support
to major energy users who have already been given financial incentives
by way of levy reductions.
10. We are pleased to note that the Chancellor
anticipates that the support for enhanced capital allowances will
increase to £140 million in its second year of operation.
We do not consider enhanced capital allowances to be a recycling
of levy revenues, as ultimately it will be revenue neutral to
the Treasury. Enhanced capital allowances do improve the cash
flow for companies in the short term, however after the first
year their tax liabilities will increase.
11. We are pleased that the list of technologies
to be eligible for enhanced capital allowance has been increased
to eight categories from the original five, however, we are disappointed
that building thermal insulation, when additional to mandatory
requirements, is not included in the list of qualifying technologies.
12. The Electricity Association considers
that rather than reducing the levy on LPG it would be more appropriate
to introduce the levy on kerosene, in addition to any existing
excise. The CO2 emissions of burning either fuel are broadly similar
and both are significantly worse than gas.
EMISSIONS TRADING
13. Under the Government's proposed climate
change programme to deliver the UK's Kyoto target, the electricity
industry is forecast to deliver half of the total UK emission
reductions. We welcome the Budget's support for emissions trading
which should provide opportunities for additional reductions from
business.
IMPACT OF
THE LEVY
ON THE
ELECTRICITY INDUSTRY
14. Under the proposals for implementing
the levy the costs of incorporating the necessary changes into
energy suppliers' billing systems to accommodate the climate change
levy will amount to around £45 million. We would expect the
Energy Regulator to take these additional costs into consideration
in any supply price restraint mechanism.
March 2000
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