The Government’s consultation on the removal of the exemption from the Climate Change Levy (CCL) for 100% renewable electricity supplied to business customers has now closed. We have collated your views and fed back to the Government focusing on the effect of this decision both in the short and long term.
The removal of the exemption form CCL was announced in the Summer Budget and came as a shock to the industry and wider business community. It was evident that the imminence of such a change was unexpected by the reaction of the suppliers trading teams and the weeks of uncertainty that ensued. Contracts that were due to be renewed in that period were invariably secured from ‘brown’ sources as ‘green’ products were withdrawn from the market.
It seems inexplicable that the Government has removed this exemption from renewable energy when the intention both within the EU and globally is to drive forward climate change objectives and reduce harmful emissions. Whilst, it cannot be ignored that removal of this the exemption from 1 August 2015 will raise £450million per year for the treasury, the damage to the sale of renewables has been immediate and wide reaching.
CCL was introduced in 2001 as an additional tax to the energy bill for each kWh used. The exemption was put in place for qualifying energy sources that were considered 100% renewable to encourage businesses to reduce carbon emissions. The additional cost for ‘brown’ energy to the business user is around 5% of the total bill. In recent years, suppliers have been able to offer 100% renewable (CCL exempt) energy to customers at cost neutral prices as the uplift cost of the renewable energy could be offset against the exemption from CCL. In the short term, the announcement of the withdrawal of the exemption initially led to suppliers removing renewable products from their offerings meaning that those renewing contracts could only secure ‘brown’ energy. Longer term, it is impacting on the purchasing decisions of companies that previously purchased from renewable sources and are no longer doing so due to the additional cost.
End user businesses are generally in a stronger position to continue to purchase renewable energy and accept the burden of the additional expense in pursuant of their corporate social responsibility objectives providing the additional operating costs can be met. Little thought has been given to landlords who purchase electricity and recharge the costs to their tenants through the service charge. Landlords have an obligation to ensure that the costs passed on to third parties stand up to scrutiny and are kept at an acceptable level. Unless all tenants are accepting of the additional cost this is likely to drive many landlords away from the environmentally beneficial option. In addition, where budgets are set and agreed by stakeholders many months ahead of the next service charge year, the lack of notice of this significant change has led to some business users having no choice but to switch from ‘green’ to ‘brown’ energy in order to meet targets for the coming years thus having a detrimental effect on emissions targets.
In summary the effect of the removal of the exemption from CCL for renewable energy on energy purchasing decisions has been significant and is damaging to the environment. Unless a business has a robust environmental policy in place, those that would invariably have been persuaded to be supplied with ‘cost neutral’ renewable energy are no longer willing or able to pay the uplifted cost which will have a long term detrimental effect on the fuel mix, the environment and the Government’s longer term objectives.