Both exemptions are compromised
by the Levy discount for CCA participants
88. The effectiveness of the Levy exemptions has
been further compromised by the way in which they interact with
the Climate Change Agreements. Given that CCA participants already
receive an 80% discount on the Levy in return for committing to
meet their Agreement targets, the incentive provided by the exemptions
from the Levy is for them significantly reduced. Graham Meeks
of CHPA believed this had
[
] been hugely significant. You go from
£4.30 to 0.2 [
] of that, so 80p if you like becomes
the value of that incentive. As I said, in the Government's own
modelling they have seen the impact of that discount and, therefore,
largely discounted the impact of the Climate Change Levy.[127]
89. This is especially unfortunate, given that CCA
participants tend by their very nature to have large electricity
bills, and thus might otherwise be more attracted by the Levy
exemptions than other firms. It is worst for CHP, since this situation
will tend not just to affect market pull from consumers of CHP
electricity, but market push for providers of it. That is, where
industrial firms use gas in CHP plant and sell surplus electricity
to other users, they will benefit from the Levy exemption on the
input fuel; but this benefit will be largely negated, since industrial
sectors will also tend to be covered by a Climate Change Agreement,
and thus already benefit from an 80% reduction on this input fuel.
90. It seems clear that the exemptions from paying
the Levy on electricity from renewables and combined heat and
power plants have had very limited effects on the construction
of new renewables and CHP generation. Where the exemptions have
had an effect in helping to increase business demand for supply
contracts offering electricity generated by renewable sources,
this can face the same problems widely reported as facing private
consumers who switch to 'green tariffs' for their household supplies:
power companies may simply brand as 'green electricity' a certain
amount of their supply contracts, up to the proportion of their
overall output already generated by renewable sources, without
this necessarily having any real effects on the building of new
renewable sources. (They should, of course, be increasing
this construction as a result of another instrument, the Renewables
Obligation; but this does not necessarily justify charging higher
prices for a 'green' brand of supply contracts.)
91. What effects the Levy exemptions do have are
reduced almost entirely in respect of companies covered by Climate
Change Agreements, since they already benefit from an 80% reduction
in the Levy in any case; this affects CHP particularly badly.
We recommend the Government re-examines ways in which to increase
the incentives to install CHP plant, or buy CHP electricity from
outside sources, available for industrial firms within CCAs.
112