Energy Institute: we must improve on overlapping carbon taxes

On 9 November, HM Treasury completed a consultation on the business energy-efficiency policy landscape. Sarah Beacock discusses the response from energy professionals

This autumn, HM Treasury conducted a consultation (with the Department for Business, Information and Skills (BIS) and the Department of Energy and Climate Change (Decc)) seeking views and evidence on proposals to reform the business energy-efficiency tax landscape and associated regulations. The main objectives of the consultation were to:

  • Review and simplify reporting requirements for businesses;
  • Review and simplify energy and carbon taxes;
  • Identify what (if any) incentives would encourage the uptake of energy-efficiency measures.

Decc asked the Energy Institute (EI) to contact our members – professionals from all sectors and disciplines across the energy industry – to participate in this consultation. The EI response is a synthesis of the views of our members collected through a call for contributions, focusing on a limited set of the questions posed by the Treasury, and sent to 500 EI fellows, members and graduates.
We also contacted 45 selected stakeholders in energy management roles, including members of our Register of Professional Energy Consultants and Chartered Energy Managers. In total we received 100 responses. The views expressed in the resulting document are not those of the EI, but of our members who participated in this exercise.

What’s the response?
EI members are strongly in favour of moving away from the current system of overlapping policies, taxes and reporting mechanisms. The benefits of a simplified scheme would include a reduced administrative and cost burden for organisations which may currently report to disparate and sometimes conflicting schemes. A single mechanism would make it easier for organisations, especially small and medium-sized enterprises (SMEs) or those without a dedicated energy efficiency function, to understand their own energy performance. It should also improve visibility and engagement of energy efficiency at board level and with non-energy stakeholders.
HM Treasury proposes to move to a new tax based on the Climate Change Levy. EI members broadly agreed with this, but offered some provisos about the way a new tax should be designed. For example, the units subject to tax would need to be harmonised – not focusing narrowly on energy use or carbon as units of measurement, but accounting for other greenhouse gases and pollutants as well. Establishing fair, explicit criteria will be necessary to avoid benefit or detriment to certain types of organisations or energy sources.
Any redesigned scheme should distinguish between carbon reduction and energy intensity, and also between relative improvement (reduction in intensity) and absolute consumption. Many EI members were in favour of progressive rewards such as tax relief based on reductions in energy intensity or consumption, or increases in efficiency. This could perhaps be based on individual company performance or on a benchmark for comparable organisations.
Most EI members agree that, while different approaches are needed for different business types, the underlying principles should be the same to ensure the scheme is cohesive and easily understood. While it would require more preparation and administration, a holistic, full-cycle approach could enable accounting for carbon leakage, as would a tax on imported emissions. EI members feel that the Treasury must be particularly sensitive to those organisations at higher risk of carbon leakage and international competition, and also to SMEs limited by resource constraints.
EI members recommend a variety of mechanisms to incentivise energy-efficiency investment. A balanced mix of incentives, with a long-term, stable strategy underpinning them, will entice more investment than current approaches, which are perceived by energy professionals to be short-sighted and discontinuous.

Consistent policy signals
A key message from EI members, and one that is repeated in contexts other than energy efficiency, is the need for strong, clear, consistent policy signals from government.
There are two points commonly made here: clarity of aims – that government needs to demonstrate that it is serious and committed to energy efficiency and carbon reduction; and long-term planning – investor confidence hinges on the continuity of policy frameworks, ensuring that policies will be maintained over time and that any changes do not take business and industry by surprise. Opportunistic and short-term planning can lead to reluctance on the part of investors and hinder uptake of energy efficiency.
Better communication and engagement with the public is one way to demonstrate the commitment of this government to energy efficiency and carbon reduction and the value of these schemes. Publicising good practice, examples of effective projects, and
progress towards targets will all help to validate policy aims.
The EI seeks to act as an honest broker between energy professionals and UK policy makers by assisting with consultations like this, and the follow-up review due in May 2016. Through our Energy Barometer project, EI members are annually surveyed on their views of the UK energy system, with the results reported to policy makers. We look forward to continuing to work closely with policy makers to share the insights of our members.

Sarah Beacock FEI is skills and capability director at the Energy Institute

 

This article first appeared in the December issue of New Power

Also in this issue: Professor Phil Taylor talks about the need for a system architect and the future for local networks

“There could be a patchwork of options, with DNOs taking on different system operator activities depending on their appetite for risk, alongside independent or city networks that bypass the DNO”

How financial regulations are being implemented in energy

Energy Union: rethink or rebranding?

Can Europe ease the distribution bottleneck?

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