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In accordance with the 2008 Climate Change Act, the
government aims to reduce UK greenhouse gas emissions by at least 80% (from
1990 figures) by 2050. In order to achieve this, businesses are being
encouraged to reduce their carbon emissions via a series of schemes. Here we
look at three of them.
Climate Change Levy
This is a tax on energy supplied to non-domestic UK users,
designed to encourage energy efficiency and reduce carbon emissions. Businesses
within certain energy-intensive sectors are eligible to enter into a voluntary
Climate Change Agreement (CCA) which allows them to reduce their CCL by as much
as 90%. In order to receive this discount, businesses must agree to achieve
certain energy-efficiency targets.
There are two rates available – the main rates and the
carbon price support (CPS) rates.
Main rates are paid by businesses in the industrial,
commercial, agricultural and public services sectors and apply to electricity,
gas and solid fuels including lignite, coke and petroleum. Charities and
businesses using only small amounts of energy are exempt from paying the main
rates of CCL.
Electricity: 0.541p per kW hour
Gas: 0.188p per kW hour
Gas supplied in a liquid state: 1.210p per
These rates apply to owners of electricity generating
stations and operators of combined heat and power (CHP) stations. Liable fuels
are gas, liquefied petroleum gas (LPG) plus coal and other solid fossil fuels.
Gas: 0.175p per kW hour
LPG: 2.822p per kilogram
Coal and other solid fossil fuels: 81.906p per
gigajoule on gross calorific value (GCV).
CRC Energy Efficiency
Previously known as the Carbon Reduction Commitment, CRC is
a compulsory government scheme which encourages high energy users to increase
efficiency and cut carbon emissions. The scheme covers all organisations
(except state-funded schools in England) that use more than 6,000MWh of
electricity per year because these sectors are responsible for over 10% of the
UK’s CO2 emissions. The scheme intends to reduce non-traded carbon emissions by
17 million tonnes by 2027.
Participating organisations are required to measure, record
and report their electricity and gas-related carbon emissions on an annual
basis. To cover their reported emissions, participants must buy allowances from
the government for every tonne of carbon emitted, so companies that cut emissions
will therefore lower their costs. There are two sales of allowances for each
compliance year, the first based on predicted emissions and the second on a
‘buy to comply’ basis at the end of the period.
Companies not complying will face cumulative financial
ECAs allow organisations to claim a full first-year capital
allowance on investments in certain energy-saving equipment. The scheme means
businesses may write off the cost of new machinery, such as energy-efficient
electric motors, against their taxable profits in the year the equipment was
bought. The main annual rate for allowances is 18%, and there’s a special rate
of 8% per year for certain items such as thermal insulation and long-life
A list of eligible energy-saving equipment is reviewed
annually and changes are ratified by Parliament.
Companies taking advantage of the ECA scheme benefit from
improved cash flow, reduced energy bills and lower CCL and CRC payments.