Further Memorandum by the WWF-UK (CC31A)
1. SUMMARY
1.1 WWF—UK welcomes the opportunity
to submit evidence to the Environment, Transport and Regional
Affairs Select Committee inquiry into the Climate Change Levy.
1.2 WWF welcomes the Government's decision
to introduce a climate change levy on the business use of energy
as a means of reducing the use of fossil fuel sources of energy
and meeting the UK's commitments under the Kyoto Protocol. The
main points of our submission are:
— It is unclear how the revised package
will produce greater emissions savings given that the levy rates
are to be reduced and the level of rebates available increased.
— Whilst welcoming the decision to
exempt renewables and Combined, Heat and Power from the levy it
appears that the incentive to invest in renewables is much reduced
under the new proposals.
— The structure of the negotiations
fall short of best practice with the likelihood that they will
result in a set of weak, badly monitored targets, with little
accountability and only a marginal impact on company behaviour.
— More attention must be given to the
SME sector to ensure that they are aware of the levy, its impact
and the tools available to help them adapt to its implementation.
2. INTRODUCTION
2.1 WWF—UK (the World Wide Fund for
Nature) welcomes the opportunity to submit written evidence to
the Environment, Transport and Regional Affairs Select Committee
inquiry into the Climate Change Levy and commends the committee
for undertaking an inquiry following the Chancellor's announcements
in his Pre-Budget Statement.
2.2 WWF is one of Britain's leading environmental
organisations, working on a wide range of environmental issues
in the UK and around the world. WWF's philosophy is to conserve
nature—wild species and wild places—by promoting the
sustainable use of natural resources to meet the needs of current
and future generations.
2.3 WWF considers climate change one of
the greatest threats to biodiversity. Taking effective action
now to reduce greenhouse gas emissions is our best insurance policy
against dangerous climate change in the future. To that end, fundamental
changes are needed, in the energy sector in particular, to change
unsustainable patterns of production and use.
2.4 WWF welcomes the Government's decision
to introduce a climate change levy on the business use of energy
as a means of reducing the use of fossil fuel sources of energy
and meeting the UK's commitments under the Kyoto Protocol.
2.5 WWF believes believe that the introduction
of the Climate Change Levy will be good for the environment and
good for business. Business and industry have a responsibility
to pay for the pollution they cause and—as Lord Marshall
recommended—taxation is the best way to reduce emissions
across all commercial and industrial sectors.
2.6 Implementation of the Climate Change
Levy can play an important role in modernising the Usa economy
by shifting taxes away from jobs and onto pollution and resources.
Restrictions on greenhouse gas emissions in all industrialised
countries will only grow more stringent in the future. Long run
competitiveness will be improved by changing behaviour now, and
not by investing in another generation of inefficient and outdated
technology. Failure to make appropriate changes in the short run
will raise long term economic and environmental costs.
2.7 This evidence focuses on the announcements
made by the Chancellor of the Exchequer in his Pre-Budget Report
on the 9 November and draws on work carried out by WWF prior to
these statements.
3. THE PRE-BUDGET
REPORT
Environmental Benefits
3.1 WWF welcomes the announcement that the
levy package will save at least 2 million tonnes of carbon—a
greater saving than under the initial CCL proposals. However,
we are sceptical as to how these can be achieved as at the same
time the levy rate has been cut and the rebates available have
been increased. We urge the Government to release details of its
carbon reduction calculations.
Exemption for Renewables and Combined Heat and
Power (CHP)
3.2 WWF welcomes the announcement that "new"
renewables and "good quality" CHP will be exempt from
the levy. There is some confusion as to what is meant by "new"
renewables and "good quality" CHP and WWF urges the
Government to release further details as soon as possible.
3.3 WWF are concerned that as a result of
lowering the levy rate the incentive to invest in renewable supplies
has been reduced. The following tables show the price effect that
exemption from the levy will have on wind energy with a 0.6p/kWh
levy rate (as in the initial proposals) and a 0.43 p/kWh levy
rate (as in the revised proposals):
EFFECT OF THE CLIMATE CHANGE LEVY ON THE
PRICE OF WIND AND FOSSIL FUELLED ELECTRICITY GENERATION WITH A
0.6 P/KWH LEVY RATE
|
| Technology | Pre-levy price (p/kWh)
| Levy(p/kWh) | Post-levy price (p/kWh)
|
|
| Large Scale Wind1 | 2.4-3.10
| 0.0 | 2.4-3.1
|
| Small Scale Wind1 | 3.4-4.60
| 0.0 | 3.4-4.6
|
| CCGT2 | 1.8-2.20
| 0.6 | 2.4-2.8
|
| New coal2 | 2.6-3.25
| 0.6 | 3.2-3.9
|
| Existing coal2 | 1.4-1.95
| 0.6 | 2.0-2.5
|
|
1 Figues from the latest NFFO round (NFFO 5)
2 Figures taken from Government White Paper—Conclusions
of the Review of Energy Sources for Power Generation, DTI 1998
EFFECT OF THE CLIMATE CHANGE LEVY ON THE PRICE OF WIND AND FOSSIL
FUELLED ELECTRICITY GENERATION WITH A 0.43 P/KWH LEVY RATE
|
| Technology | Pre-levy price (p/kWh)
| Levy(p/kWh) | Post-levy price (p/kWh)
|
|
| Large Scale Wind1 | 2.4-3.10
| 0 | 2.40-3.10
|
| Small Scale Wind1 | 3.4-4.60
| 0 | 3.40-4.60
|
| CCGT2 | 1.8-2.20
| 0.43 | 2.23-2.63
|
| New coal2 | 2.6-3.25
| 0.43 | 3.03-3.68
|
| Existing coal2 | 1.4-1.95
| 0.43 | 1.83-2.38
|
|
3.4 The data in the tables indicates that with a 0.6
p/kWh levy rate and renewables exemption the price of large scale
wind generation would come to within that of fossil fuelled generation.
With the reduced levy rate (0.43 p/kWh) and renwables exemption
the price of large wind will still be higher than fossil fuelled
generation. There will hence be little incentive for businesses
to invest in renewables.
Increased support for energy efficiency measures
3.5 WWF welcomes the announcement that more money is
going to be made available for energy efficiency measures through
allowing for a system of 100 per cent first year capital allowances
for energy saving investments, in addition to the £50 million
energy efficiency fund announced in Budget. WWF would like tosee
this support extended beyond the first year (2001-2002) and believes
that a substantial proportion of the fund should be made available
for support to small and medium sized enterprises (SMEs).
Reduction in the overall size of the levy
3.6 WWF believes that lowering the rate of the levy will
dramatically reduce its effectiveness, in particular for firms
which have relatively low energy costs. The reduction in the rate
will hardly compensate for the fall in energy prices expected
from the forthcoming Utilities Bill. The new level may well be
too low to achieve any significant change in SME behaviour and,
as shown above, the lower rate will reduce the incentive to invest
in renewables.
Reduction in the level of National Insurance Contributions
(NICs)
3.7 Whilst accepting that a reduction in NICs rebate
to 0.3 per cent was necessary to ensure that the proposals remain
revenue neutral, this reduction will decrease the job creation
incentives.
Eighty per cent discount for energy intensive sectors entering
into negotiated agreements
3.8 WWF believes that these large discounts must be tied
to strong reduction targets that go beyond the "cost effective"
measures and should include monitoring and reporting mechanisms
that are transparent and tough. Any discounts that ae given should
be phased out overe time. We do not believe that 80 per cent rebates
should be made available to all sectors signing negotiated agreements.
Instead, there should be some graduation depending on the targets
agreed and the energy intensity of the sectors. More detailed
comments on Negotiated Agreements are given below.
4. REVIEW PROCESS
4.1 WWF believes that there should be an independent
and public review of the impact of the Climate Change Levy and
associated policies every three years. Key areas for review would
be:
— The potential for moving to a levy that reflects
carbon intensity of fuels;
— The equivalence of effort across industrial sectors
and all policy instruments;
— The rate of changing investment patterns and technological
innovation;
— The rate of growth of renewable energy;
— The uptake of energy efficient technologies in
the commercial sector.
5. NEGOTIATED AGREEMENTS
5.1 Independent research shows that fears of how the
Climate Change Levy will affect UK competitiveness have been vastly
oversated. Nevertheless, the Government is apparently committed
to giving energy intensive sectors reductions in the levy rate
in return for signing negotiated agreements to cut emissions.
Funding the high rebates (80 per cent) will lower the revenues
available to invest in new jobs, energy efficiency and renewable
energy. If larger firms pay less, then smaller firms must pay
more.
5.2 The structure of the negotiated agreements currently
proposed falls far short of international best practice. The agreements
threaten to result in a weak set of badly monitored targets, with
little accountability and only marginal impact on company behaviour.
Our major competitors in Europe are already more energy efficient
than the UK, and face higher or comparable energy costs. The UK
should be emulating best European practice—such as that
of the Netherlands—not following worst practice like that
in Germany.
5.3 We propose that agreements be designed around the
following points:
— It is currently unclear what improvements in energy
efficiency (and therefore what reduction in emissions) the Government
hopes to achieve from the agreements. The starting point for negotiations
should be how great a carbon reduction needs to be delivered by
the agreements (not how much industry thinks it can or wants to
deliver). This target should be set in the context of the Government's
existing emission reduction commitments and in anticipation of
future targets beyond 2010.
— Agreements should only be signed with individual
companies—not industry associations—and should relate
to specific sites or installations rather than company-wide activities.
While industry associations may be a first port of call for discussions
on the size of reductions in the sector, signing an agreement
with the sector as a whole gives weaker incentives for compliance.
— Companies must go beyond short-term cost-effective
reductions in order to qualify for rebates. Current negotiations
are based on cost-effective investments with a two year payback,
which companies are putting in place already as part of the normal
business cycle. More rigorous targets should be based on moving
industry towards European best-practice efficiency levels over
a ten year period.
— As a condition of the agreement each company should
have to pay for an independent site-by-site of its annual emissions,
to be submitted to government as proof of compliance. Each company
should also have to fund an independent energy audit of its processes
and premises to establish opportunities for energy saving. Full
audits should occur every three years in conjunction with the
review of levy implementation as a whole. However, a progress
report on implementation of identified measures should be required
every year.
6. SMALL AND
MEDIUM SIZED
ENTERPRISES (SMES)
6.1 According to Government figures[3]
there are 3.5 million small businesses in the UK (those with less
than 50 employees). This sector accounts for 99.2 per cent of
all businesses in the UK, more than 40 per cent of the private
sector workforce and around 40 per cent of UK turnover.
6.2 Unless there is adequate support for this sector,
for example in terms of energy efficiency advice, this sector
of UK business could be disadvantaged by the introduction of the
climate change levy. WWF believes that the SME sector is not fully
aware of the climate change levy or its implications and that
there is a need for a specific programme targeting the SME sector.
6.3 WWF welcomes the announcement by the Chancellor in
Budget 99 that some of the £50 million of the levy receipts
will be allocated to give support to smaller businesses. In view
of the size of the sector, and its importance to the overall economy
of the UK, WWF believes that the sums allocated to help this sector
are insufficient. WWF also believes that more targeted help is
required to make SMEs aware of the levy, its implications and
some of the tools available to offset the levy.
6.4 Specifically, WWF would like to see measures taken
to ensure that SMEs are given adequate information about the levy.
This should include:
(i) Explaining that a levy is being introduced, how it
is to be implemented and the implications for business. It should
be made clear what the levy is for ie. To reduce CO2
emissions as part of the UK's overall climate change programme.
The link needs to be made between energy use and CO2
emissions to make businesses aware of the contribution they can
make to the UK's overall climate change targets, whilst saving
money at the same time.
(ii) Increased support and promotion of some of the tools
available to SMEs to enable them to reduce their tax burden through
reducing their energy use. These tools include:
(a) Generic packages such as the "The Better Business
Pack[4]. This is a tool
developed by WWF and the NatWest Group in conjunction with the
SME sector. It contains information and advice on how SMEs can
increase their profits by reducing the environmental impact of
their operations. Real case studies are given outlining results
achieved by businesses who took relatively simple energy efficiency.
(b) More specific tools such as the DETR/DTI funded Environmental
Technology Best Practice Programme and specifically its "Energy
and Environment Helpline." This provides businesses with
sector specific energy efficiency information tailored to their
particular business. They can supply various publications outlining
energy efficiency measures and put businesses in touch with relevant
consultants and local energy efficiency offices and can also provide
free energy audits of premises.
6.5 WWF sees no benefit in setting up another "energy
efficiency" agency and believes that the money raised from
the levy should be used to strengthen existing tools and agencies
such as the Energy Saving Trust.
(i) Explaining that a levy is being introduced, how it
is to be implemented and the implications for business. It should
be made clear what the levy is for ie. To reduce CO2
emissions as part of the UK's overall climate change programme.
The link needs to be made between energy use and CO2
emissions to make businesses aware of the contribution they can
make to the UK's overall climate change targets, whilst saving
money at the same time.
(ii) Increased support and promotion of some of the tools
available to SMEs to enable them to reduce their tax burden through
reducing their energy use. These tools include:
6.6 WWF believes that to ensure SMEs are given an adequate
voice in the discussions about the climate change levy, an inter-departmental
SME task force should be created within Government. This should
include representatives from the DTI, DETR, Treasury and Customs
and Excise, with close contact with the Small Business Association.
The focus should be on utilising existing incentives to offset
the levy burden, tax breaks for efficiency investments and using
information schemes outside energy use to communicate the levy
message. The taskforce should also consider ways to ensure existing
schemes for encouraging SME investment result in energy efficiency
investment, including the £470 million of measures introduced
in Budget 99.
7. CONCLUSION
7.1 WWF welcomes the Governments decision to introduce
a climate change levy on the business use of energy, but is concerned
that the revised proposals are in danger of reducing the environmental
benefit of the levy package.
7.2 WWF are particularly concerned that:
— The reduced levy rate and increased rebates will
not produce the emission savings predicted by the Government.
We urge the Government to make these figures available
— The revised proposals reduce the incentives to
invest in renewables, even though they are exempted from paying
the levy.
— The structure of Negotiated Agreements is such
that they will result in a set of weak targets, with little accountability
and only a marginal impact on company behaviour.
3
DTI (1997) Small and Medium Enterprises (SME) Statistics for the
UK, Statistical Press Release. Back
4
WWF/NatWest (1997) The Better Business Pack, WWF/NatWest Joint
Initiative 1997. Back
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