REFORMING THE BUSINESS ENERGY EFFICIENCY TAX LANDSCAPE BRIEFING

Transcription

1 REFORMING THE BUSINESS ENERGY EFFICIENCY TAX LANDSCAPE BRIEFING CARBON ENERGY REPORTING SOFTWARE Carbon Footprints Environment Compliance Buildings Process Transport Renewables Web Reports Validation Measurement Monitoring Documentation Surveys Helpdesk/Zones Excel/Develop The content of this briefing is based on information that is available from a range of sources. Due to the developing nature of the proposals in the consultation, the content of this briefing should be considered an informed opinion rather than professional advice. This briefing is only publicly available electronically. Energise Ltd 2015 Registered address: Knowledge Centre, Wyboston Lakes, Great North Road, Wyboston, Bedfordshire MK44 3BY Registered Company Number: Tel: Page 1 of 9

2 THE CONSULTATION On 28 th September, HM Treasury released a consultation on Reforming the business energy efficiency tax landscape. The proposals set out in the document would lead to a significant reform of the carbon reporting and taxation regime in the UK. This was long awaited in the industry as reviews of CRC Energy Efficiency Scheme (CRC) and other legislation had been promised. The changes could result in the scrapping of CRC, and the expansion of the Energy Savings Opportunity Scheme (ESOS). There is also a suggestion of new incentives to drive investment in energy efficiency measures. The underlying driver behind these changes, and much other legislation in the energy and carbon world that has been changed under the current government, is an aspiration to deliver energy savings and carbon emissions reduction at the lowest cost. The aim is, in effect, to deliver better value for money in terms of legislation. The consultation suggests that this should be achieved with a principal idea of one scheme, one tax. It is important to bear in mind that the consultation does not necessarily suggest the one scheme and the one tax should be linked to each other, as they presently are in relation to CRC. Exchequer Secretary to the Treasury, Damian Hinds, launching the consultation said that the Government wants to create a sustainable tax system for businesses that is fair and simple and supports growth, adding we recognise business concerns around the complexity of business energy efficiency policy and we want to create a simpler and more stable environment. It is well known within the industry that CRC is more complex than it seems is appropriate for the nature of the reporting (i.e. to arrive at an annual total of consumption) and whilst the simplification in 2012 did deliver some areas of improvement, it also led to some areas becoming more complex or burdensome, hence it being informally referred to as the complexification instead. It would seem that the days of CRC are numbered, and the consultation seeks opinions directly on this issue by asking for feedback on the proposal to move towards a single tax by abolishing the CRC and moving the revenue raising element into a single business energy consumption tax based on the CCL. In essence, the consultation, and its suggestions, are not unexpected, and the underlying philosophy of creating a simpler, more stable environment for energy and carbon management to operate in cannot be a bad thing, but this is a consultation, and the options within it would each have different impacts. The ultimate picture of what happens will be in the detail of the proposals, and the timetable of when it all happens. This briefing now reviews these points further. TIMETABLE It is unclear exactly when the impacts of these changes will formally come into place, but some things can be inferred from the timetable of the consultation and its results. The current timetable is as follows: - 28 th Sept Consultation released - 9 th Nov Consultation closes - Budget 2016 (provisionally March 2016) Announcement of consultation outcome Page 2 of 9

3 As the final announcements of decisions will not be made (according to the consultation) until March 2016, it would at present seem appropriate to assume that the round of CRC reporting will still occur, even if no further CRC reporting is required beyond that date. The answer to the question over the end date of CRC is unclear, so we have already sought clarification from the Environment Agency on this matter, and will update as soon as we are aware of any clarity that might be available. At this point, our direction is to continue in a business as usual manner. THE OPTIONS The consultation asks 17 questions, all of which are shown in full at the end of this document, and are discussed in this section. These range from feedback on principles behind the changes, to requests for suggestions/evidence about any future scheme design. PRINCIPLES The underlying principle of the consultation is to move away from multiple schemes with cross-over, to one scheme focussed on annual reporting (structured around ESOS) and one tax (structured around CCL). Annual Reporting CRC ESOS "One- Scheme" ESOS Fig. 1 outlining the governments intended approach to the reporting element of CRC - If all proposals are taken forward, then ESOS would include an annual reporting element, rather than reporting every four years, with CRC making way. - The consultation asks if the annual reporting should: o Receive board-level sign off (as is required in both CRC & ESOS) o Be made publically available (as is required in CRC) Page 3 of 9

4 Taxation CRC "One-Tax" CCL CCL /CCAs Fig. 2 outlining the governments intended approach to the taxation element of CRC - The Government wants feedback on whether a combined CRC/CCL tax would simplify the tax system - There is a desire to understand how the one-tax could be used to act as an improved incentive for energy efficiency and carbon reduction - There is a request for feedback on the CCL rate structure (i.e. should smaller businesses/energy intensive industries pay lower rates) - The Government is also keen to understand if the current balance of electricity/gas rates for CCL is right - There is also a pair of questions on how to structure CCL so that it does not cause competitive disadvantage, affect international competition, or lead to carbon leakage - The Government is also consulting on whether the current Climate Change Agreement structure is working well enough THE SCOPE OF CHANGES It is important to consider that the consultation covers business, the third sector and the public sector. It also asks specific questions on Energy Intensive Industries (EIIs). The range of organisations affected by this consultation is very significant, and we would advise anyone in the scope of any of the current guises of each scheme to give consideration to the potential impacts of any change. Page 4 of 9

5 One-Tax One-Scheme ESOS Businesses meeting ESOS qualification threshold (c k) Public sector? CCL Business Changes to EIIs? Public sector? Third sector? OUR OPINION It seems pretty clear that the days of CRC are numbered; ignore would be surprising if anyone can provide any evidence to the consultation that will suggest it should not be removed, and in reality, it has always been a clunky way of achieving the intended aim. The crux of the issues that remain if you remove CRC are the need to ensure annual reporting, and the fact that its removal would leave a 1 billion hole in the public finances. The transfer of the annual reporting element to ESOS seems a fairly easy move and does simplify the overall landscape on the reporting side, though the finer details of the rules involved in reporting may be where the real wins or losses are found. The financial implications of the transfer of the taxation if it were added to CCL without amendment to the existing rules of CCL would mean that CCL was uplifted to around 2.5 times its current level, as CCL currently adds c m to the public finances, where CRC brings in just over a 1 billion. The consultation is clear that it is also reviewing the scope of where CCL would apply, but if this were a straight impact on CCL, it would add around 1p/kWh to every bill that it appears on for Electricity, and for Gas would change a rate of just under 0.2p/kWh to closer to 0.5p/kWh. The questions asked about where exemptions for CCL should apply will concern some EII operators, because those exemptions are key to managing the energy costs in energy intensive operations, but it is unlikely they would be completely removed and the Government s intention here is to ensure that there are no competitive disadvantages, or negative impacts on international competition. All of that said, there will be winners and losers here. The Government has been clear that whatever landscape appears at the end of this process must be simple and provide value for money. This process will likely have two stages, with the initial framework being proposed following this consultation, and then further sub-consultations on specific issues like exemptions or incentives, so the true picture will only be understood when that process has concluded and it will likely be well into 2016 or beyond by the time that has occurred. Page 5 of 9

6 It is undoubtedly the case that a single reporting framework will be beneficial to industry, as the combined landscape of CCL, CRC, CCAs, GHG, ESOS, ECAs, EDR and others has caused much confusion for a while now. There will be benefits that have been set out by the Government in terms of value for money, but one of the underlying impacts we suspect will occur is that energy managers or equivalent roles may have a bit more time to save energy, as in recent times, a lot of time has been consumed by participating in schemes rather than getting back to basics on energy and carbon management. There will be positivity at Board Level to the removal of the cash flow implications of CRC moving forward, as the one-off cash payment annually has always been one of the more unpopular parts of the scheme. Whether this removes energy management from the board agenda entirely will be partly down to what comes out of this consultation, and the one-scheme and one-tax that follows. It does seem beneficial to investment if energy costs can be standardised, and the consultation highlights some work that has been done by both the Institute of Fiscal Studies and the Committee on Climate Change about the fact that a common cost of energy saving would be beneficial to the economy overall, and would likely increase investment in this area. It is a well known issue at present that getting energy investment decisions beyond month paybacks is difficult due to the uncertainty in this area, so any progress that comes from this must be good for business, and good for the low carbon industry. The government is also clear in its interest in any practical ideas about how to incentivise energy efficiency, and whilst it states that any ideas that are proposed would need to be revenue neutral it leaves an open door for the industry to put forward its ideas over the next 6 weeks. We know from the conversations we have with clients, partners, suppliers and other industry bodies that there are lots of ideas out there so it is important that these are shared and discussed in the consultation window. On this particular point of investment, particularly with the amount of opportunity identification work that will have been done by ESOS participants recently, we will be running a short piece of research over the consultation period to review what is likely to drive investment in energy efficiency. We will consolidate those responses and provide them to HM Treasury before the end of the consultation window. The final key area for discussion on the consultation are the points about the inclusion of the Public and Third Sectors in these measures. The annual reporting element of CRC has undoubtedly driven some change in the Public Sector, alongside the taxation element of CRC. Which element caused the change is difficult to isolate, but there does appear anecdotal evidence in our work with Local Authorities and Universities that including them in an annual reporting scheme would help to drive efficiency in those organisations. The impacts that any changes to CCL might have to these organisations might be a more sensitive issue, and one that will need to be reviewed by the membership associations for those sectors in coming weeks. Page 6 of 9

7 To conclude, there can be little fault in the Government s aspiration to guide the energy efficiency legislation landscape with the principles of simplicity for business and value for money, but the reality of any legislation in the energy and carbon management world is that it is the detail that makes it workable or not, and whilst the issues caused by scheme overlap are important, it seems key that the Government also makes sure that attention is paid to the detail of where even one-scheme and one-tax might cause problems. There are still intended to be exclusions, different rates level, incentives, reporting rules, and other such conditions and clauses on the proposed scheme/taxation structure that follows. How sensible that structure turns out to be will probably be the point that ultimately affects how successful these changes are so your responses to the consultation are important to ensure that as much as possible, the decisions made over the next few months are the right ones. If you wish to contribute to our response to the consultation, please support@energiseconsulting.com with any comments you have, including any specific responses to the questions at the end of this document. We will be issuing invitations to participate in our energy efficiency investment research in the first full week of October We hope you can contribute to our response and the future landscape. Page 7 of 9

8 THE QUESTIONS 1. Do you agree with the principle of moving away from the current system of overlapping policies towards a system where a single business/organisation faces one tax and one reporting scheme? Please provide evidence on level and types of benefits of an approach like this. 2. Do you agree that mandatory reporting should remain as an important element of the landscape in driving the uptake of low carbon and energy efficiency measures? If not, why not? 3. Should such reports require board level sign-off and should reported data be made publically available? Please give your reasons. 4. Do you agree that government should develop a single reporting scheme requiring all ESOS participants (and potentially the public sector (see paragraphs ) to report regularly at board level? If so, what data should be included in such a report? 5. The government recognises the importance of ensuring market actors have access to transparent, reliable and comparable information to support financing and investment in energy efficiency and low carbon measures. How best can a streamlined report achieve this? To what extent does your response apply to other large companies (as defined in the Companies Act) that are not listed companies? 6. Do you agree that moving to a single tax would simplify the tax system for business? Should we abolish the CRC and move towards a new tax based on the CCL? Please give reasons. 7. How should a single tax be designed to improve its effectiveness in incentivising energy efficiency and carbon reduction? 8. Should all participants pay the same rates (before any incentives/reliefs are applied) or should the rates vary across different businesses? For example, do you think that smaller consumers and at risk Energy Intensive Industries (EIIs) should pay lower rates? 9. Do we currently have the right balance between gas and electricity tax rates? What are the implications of rebalancing the tax rate ratio between electricity and gas? What is the right ratio between gas and electricity rates? 10. Do you believe that the CCA scheme (or any new scheme giving a discount on the CCL or on any new tax based on the model of the CCL) eligibility should only focus on industries needing protection from competitive disadvantage? If so, how should government determine which sectors are in need of protection? 11. Do you believe that the CCA scheme (or new scheme) eligibility should focus only on providing protection to those EIIs exposed to international competition and at risk of carbon leakage? If so, how should the government assess which CCA sectors are at risk of carbon leakage? Page 8 of 9

9 12. Do you believe that the targets set by the current CCA scheme are effective at incentivising energy efficiency? Do you believe that the current CCA scheme is at least as 22 effective, or more effective, at incentivising energy efficiency than if participants paid the full current rates of CCL? How could CCAs be improved? Are there alternative mechanisms that may be more effective? 13. Do you agree that incentives could help drive additional investment in energy efficiency and carbon reduction? Please explain why you agree or disagree. 14. What is the best mechanism to deliver incentives for investment in energy efficiency and carbon reduction (e.g. tax reliefs, supplier obligations, grants, funding based on competitive bidding)? Are different approaches needed for different types of business? If so, which approaches work for which business types? What approaches should be avoided? 15. What impact would moving to a single tax have on the public sector and charities? 16. How should the merged tax be designed to improve its effectiveness in driving energy and carbon savings from the public sector and charities? 17. Should a new reporting framework also require reporting by the public sector? Page 9 of 9