Energy efficiency and renewables tax reforms

In a bid to meet ambitious environmental targets the new UK Budget announced significant business energy tax reforms in response to the business energy efficiency tax review.

UK Chancellor George Osborne announced that the CRC (Carbon Reduction Commitment) energy efficiency scheme – a mandatory carbon emissions reporting and pricing scheme – will be abolished following the 2018–2019 compliance year, ending a complex scheme and streamlining the business energy tax landscape. Businesses will be charged only one energy tax by suppliers, rather than the current system where CRC participants are required to forecast energy use, buy and surrender allowances.

The Climate Change Levy (CCL) will be increased from 2019, to recover the revenue from abolishing the CRC, and is claimed to incentivise energy efficiency among CCL-paying businesses.

CCL rates for different fuel types will be rebalanced to reflect data on the changing fuel mix used in electricity generation, moving to a ratio of 2.5:1 (electricity:gas) from April 2019. In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 rates by 2025. ‘The aim is to strongly incentivise reductions in the use of gas, in support of the UK’s climate change targets’, say Treasury Budget 2016 notes.

There is also an aim to keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place until at least 2023, ensuring that energy intensive industries remain protected. Due to the continued low price of the EU Emissions Trading System (EU ETS) the government is maintaining the cap on the Carbon Price Support (CPS) at £18 t/CO₂, uprating this with inflation in 2020–2021.