Climate change levy benefit

Renewable energy is to be exempt from the UK's proposed tax on business use of energy-the so called climate change levy (CCL). The decision by Chancellor of the Exchequer, Gordon Brown, was made after a fierce attack on the levy by the green lobby, who might otherwise have been relied upon to support it. The lobby objected to the tax being placed on all electricity at the same rate irrespective of whether it was produced from coal, gas or renewable sources.

In his November pre-budget statement, Brown claims that exempting electricity from "new" renewable sources (other than large scale hydro) and "good quality" combined heat and power plant, will increase the environmental effectiveness of the levy. The exemption will give electricity from renewables a £0.0043/kWh advantage over other sources. More environmental gains will arise from the government's plans to treble support for energy efficiency measures through levy proceeds from £50 million announced in March 1999 to £150 million in 2001-2. But the bulk of levy revenue will be recycled back to business via a reduction in employers' National Insurance Contributions.

As a result of these measures, Brown claims he can set the levy at a lower level than expected-£1 billion instead of £1.75 billion, while saving at least two million tonnes of carbon a year by 2010, compared to the 1.5 million tonnes anticipated under the original levy proposals. As much again could be saved through negotiated agreements with energy intensive users under which they are allowed an 80% discount from the levy in return for implementing reductions in energy consumption. The government hopes to run an emissions trading scheme alongside the CCL so that firms covered by an agreement will have another way to meet their emissions limits.

The Confederation of Renewable Energy Associations (CREA) welcomes the move. "Renewables are an essential part in the battle against climate change and it would have been completely contradictory to tax them," says David FitzHerbert from CREA. He expects the exemption for renewables to give business customers a real incentive to buy green power.