Further Memorandum by the Environment
Agency (CCO9A)
SUMMARY
The Agency supports the Climate Change levy
The Agency would encourage the government to
look to recycling some of the revenues into specific projects
that address the issue of adapting to the impacts of climate change,
in particular the increasing stresses on flood defences and pressure
on the water environment.
The Agency strongly encourages the Government
to plan now to use the negotiated agreements and, in future years,
trading, as an opportunity to gain information about the opportunities
and the costs of improving energy efficiency, and to develop policy
in the light of it.
We would strongly encourage the use of the levy
to support education and information programmes about climate
change.
In addition the Agency has a series of more
detailed recommendations, which are described later in this paper.
1.0 BACKGROUND
In its previous evidence to the Committee on
climate change policy, the Agency made clear its support of economic
instruments alongside regulation and education as one of the three
elements of policy. Therefore we are fully supportive of the climate
change levy. The levy underlines the importance of climate change
as an issue, and it shows how the fiscal system can work with
regulation to tackle environmental problems.
We accept that the levy will create both individual
winners and losers, whilst being fiscally neutral overall. This
is inevitable when any significant issue such as climate change
has to be addressed. The levy is a necessary additional signal
to industry of the need to become more energy efficient. Not all
businesses in the UK have risen to the challenge of increasing
energy efficiency, when one compares them to foreign counterparts
and there remains considerable scope to implement cost-effective
measures to do this.
Moreover, the Government's programme of measures
which accompany the levy substantially reduce the impact on business.
These include the hypothecation of revenues to promote the development
of renewables, the proposed capital allowances, and the 80 per
cent discount on the levy for firms that have negotiated agreements
with the Government to increase energy efficiency.
The Agency is becoming more actively involved
in the negotiations with industry on energy efficiency. It is
crucial that the push for energy efficiency runs hand in hand
with the Agency's role in addressing the full range of industrial
pollution.
The Agency is also encouraged to see greater
coherence in the elements of climate change policy:
— regulation, which provides the baseline
measures;
— the levy, which gives an incentive
to increase energy efficiency to all businesses, large or small,
energy-intensive or not;
— the negotiated agreements which not
only enable some sectors to pay reduced levy, but also compels
them to address energy efficiency in a way that can be co-ordinated
and monitored directly; and
— trading, which allows particularly
the more energy intensive sector to reduce carbon emissions more
efficiently.
It is important that this clarity is maintained.
As indicated in our previous evidence on this subject we believe
that this combination of regulation and economic instruments must
be supplemented by a programme of education and information about
climate change.
2.0 DEVELOPING
THE LEVY
The Agency would make the following proposals
for developing the levy in particular.
The use of levy revenues could be extended.
The levy directly addresses the causes of climate change. However
it is clear that climate change is already having an impact on
the UK. Therefore more work needs to be done to adapt and to mitigate
the impacts. This affects the Agency most directly in its dealings
with flooding and water resources. Therefore the Agency would
encourage the government to look to recycling some of the revenues
into specific projects that address these issues, particularly
towards flood defence and pressure on the water environment.
The compliance of firms with negotiated agreements
(and in time their compliance with the trading regime) clearly
needs to be monitored. The Agency will be working with the DETR
on developing these schemes. The Agency also believes that this
monitoring is not simply a policing operation, but can be used
to gain information about the opportunities, and the costs, of
improving energy efficiency. This information can then be used
to develop policy in future, and if necessary, to tighten (or
even loosen, should that be necessary) targets when the agreements
and, in future years, trading, as an opportunity to gain such
information and to develop policy in the light of it.
The levy is clearly not a short term policy
fix. However it would give business greater certainty if the government
were to make more clear the longer-term policy direction at an
early stage. This would reduce the impact of future changes on
business. The Agency would recommend the following:
— early announcement of any future
increases in levy, as the level of the levy today is unlikely
to be close to the full costs of climate change on the UK;
— a shift of the levy from energy to
carbon, giving a greater incentive to tackle climate change directly;
and
— greater use of levy revenues in the
longer term to support alternatives, as well as addressing mitigation
and adaptation.
The Agency also believes that the levy can contribute
to the process of providing information and supporting education
about climate change:
— The negotiations with industry are
already helping inform some of the less advanced sectors about
the opportunities available to them, and a major element of many
of their agreements will be a commitment to explore more fully
those opportunities.
— We have already referred to the prospects
of the information from the agreements and trading being used
to develop policy, but the information can also be used to report
on costs of compliance, innovative methods of reducing energy
use, etc, as a means of encouraging other businesses to do likewise.
— We would also encourage Customs and
Excise to use their relationship with levy payers to add to the
process, just as water and energy companies frequently enclose
water and energy saving advice in their bills.
Ultimately the Agency hopes that the Government
will be able to extend financial incentives for energy efficiency
to all sectors of the economy. The Agency accepts the Government's
reluctance to extend energy taxes to the domestic sector while
there are so many people who have difficulty in meeting basic
energy needs. Clearly measures are in place to address this. Revenues
from the levy itself could also contribute to these measures,
for example if future increases in the levy were channelled to
the domestic sector to improve the energy efficiency of homes,
for example.
3.0 CONCLUSIONS
The levy is a potentially powerful, long-term
element of climate change policy. The short-term difficulties
that firms may have in meeting it are to be expected, and are
being dealt with proactively through the use of negotiated agreements
and discounts. We have described positive ways in which more can
be achieved from the levy, both immediately and in the longer
term.
18 November 1999
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