- The Government’s decision to remove the exemption effectively turns the climate change levy into an energy tax. It is totally surprising for renewable electricity to be paying a carbon tax; surely it is taxing clean power as if it were a fossil fuel?
- The Government ought to be encouraging businesses to cut carbon emissions by choosing renewable power. Instead it’s giving further support to the continued use of fossil fuels. The Government has missed an opportunity to demonstrate its commitment to tackling climate change ahead of the Paris summit which is just months away.
- This policy will have a negative impact on the UK’s renewable sector. The removal of the Climate Change Levy(CCL) exemption will reduce the level of support for renewable projects. CCL is paid by business and public sector customers but can be offset by a Levy Exempt Certificate (LEC) earned by renewable energy projects. This will prevent non - UK renewable projects earning LEC revenue from selling their renewable energy in the UK. It will also impact existing UK renewable energy generators reducing their revenues today (5% for an onshore wind project); although the value of this revenue stream was expected to reduce over time as the market becomes over-supplied with LECs.
- This change will increase the costs for businesses that are supplied with electricity from renewable sources but will leave electricity from fossil fuel sources untouched.
- some observers see this as a necessary reduction in expensive subsidies: the Chancellor said the removal of the exemption will earn the Treasury £450 million in 2015/16, rising to £910 million in 2020/21. But others complain that the move sets back the UK’s journey to becoming a low-carbon economy, especially as the government has been supportive of fracking and has lowered taxes on North Sea oil and gas. Mr Osborne did not mention a review of the £7.6bn Levy Control Framework (LCF) which is meant to provide clean energy subsidies through to 2020/21. The Government's own analysis suggested that the money pot had already been used up and is at risk of exceeding its budget.
- The ‘Counting the cost’ report, issued recently, estimates that DECC could have spent the entire LCF budget and actually record an overspend of £1 billion by 2020, a figure which would require urgent action. Based on industry projections of continuing spend under the Renewables Obligation and small-scale Feed in Tariff, the conclusion is that there might not be any money left to spend in any of the future Contract for Differences (CfD) delivery years as a result of overspend against DECC’s original forecasts, the report states.However tight cash limits on the LCF, it means that higher CFD prices can only translate into a further reduction of new renewable power projects.
Some industry commentators have stated that this is far from a green proposal and they have concerns over the Government’s commitment to the green economy. The Chancellor’s clear statement that the government will not extend the Coalition government’s commitment to increasing the proportion of revenue from environmental taxes to this Parliament is a considered a backwards step."
Energy and Water Special Knowledge Group – Chartered Institute of Procurement & Supply
Bruce Toper (Chair)Martin RawlingsDanielle GoodrickSteve JonesGlenn CollinsDavid KwiatekClaire Gibney