During the Summer 2015 Budget, the Government announced that it would review the business energy efficiency tax landscape and the interactions between business energy efficiency policies and regulations. These include the Climate Change Levy (CCL), the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), Climate Change Agreements (CCA), Mandatory Carbon Reporting (MCR) and the Energy Saving Opportunity Scheme (ESOS). The review aimed to simplify and improve the effectiveness of the current reporting regime. The Government expressed its intention to move away from overlapping policies towards a system where a single business faces one tax and one reporting mechanism incorporating the most effective elements from the existing schemes delivering a net reduction in compliance costs. The framework for this is expected to be built on the current ESOS structure; an EU requirement under the Energy Efficiency Directive.
The announcements for the business energy tax review and the future of carbon reporting are due to be made during the Spring Budget statement on 16th March 2016. The expectation is that the revenue raising element of the Carbon Reduction Commitment will be incorporated into a single business energy consumption tax based on the CCL. From the reporting aspect, the CRC and Mandatory Carbon Reporting mechanisms will be scrapped in favour of a wider reaching and more robust form of the Energy Savings Opportunities Scheme. The question is – will the reforms deliver a forceful strategy that will drive a genuine reduction in carbon emissions?
The increase in business energy taxation is inevitable and not just for current CRC participants. An increase on the CCL is likely to encompass far more buildings that are currently captured by the CRC and will increase energy costs for many businesses that are not currently financially burdened by CRC. Mitigating the resultant increase in energy costs will not be delivered from the supply side, even giving consideration to the current drop in wholesale energy prices, so demand reduction is the only route. Since the Government scrapped the CCL exemption for 100% renewable energy, the uptake of ‘green’ electricity contracts has fallen. The reform of business energy tax presents the Government with the opportunity to introduce a two tier system that rewards the use of renewable energy but there is no indication that this option is being considered. It is vital that, as renewable generation capacity increases, the consumer is incentivised to utilise this.
There is no doubt that the proposed changes will reduce the administration burden for both the participants and administrators of the CRC and MCR regimes. Both schemes require on-going and substantial data management to ensure compliance; the administrative cost to both parties is significant. The management of the allowance purchasing for the CRC is reliant on a software programme that was constructed to trade allowances and make recycling payments to participants resulting in processes being followed by both parties that serve no constructive purpose. The Environment Agency’s decision not to invest in addressing this has demonstrated for some time that the Government has not been committed to the longevity of the scheme. Despite the administrative burden, neither scheme requires demonstration of energy reduction.
There are significant benefits in moving away from data gathering and reporting mechanisms that do not deliver effective reduction plans to a scheme that will present participants with recommendations on energy efficiency measures. Furthermore, a scheme that sets tangible targets for energy reduction and makes it mandatory to have and act upon such a plan, setting out the cost and return on investment, would be of far more benefit than ESOS currently delivers.
There are few buildings that are managed with energy efficiency as the primary driver. Energy management is often incorporated into the array of FM or maintenance responsibilities resulting in plant and equipment being retained despite inefficiency, poor performance and breakdowns rather than face the capital expenditure of replacement with little understanding of the potential for a relatively short return in investment. This is the Government’s opportunity to really make a difference and introduce measures that will bring attention to such inefficiencies at Board level and drive change by mandating it. A reduction in carbon emissions will not be delivered through higher taxation and data gathering requirements. It is time to mandate businesses to take action but will the Government be brave enough to take such a bold step? All will be revealed on 16th March 2016.