The UK Government has committed to cutting carbon emissions and meeting its obligations to reduce greenhouse gas emissions by at least 80 percent before 2050. However, it is also aiming to keep energy prices competitive and has pledged in recent budgets to reduce green regulatory costs.
In the recent budget, the Government confirmed the abolition of the CRC energy efficiency scheme from 2019, as part of a move towards a single tax, the existing Climate Change Levy (CCL). As part of its wider Comprehensive Spending Review in November 2015, the Government also announced its intention to replace the existing compensation arrangements for the Renewables Obligation and Feed in Tariff schemes. It would be replaced with an exemption scheme for electricity intensive industries, meaning that eligible businesses would pay at a reduced rate, as opposed to receiving the money back as compensation.
A consultation on this proposal is expected in the coming months. The anticipated consultation will cover the proposed replacement, a system of exemptions, and will cover the eligibility criteria and the mechanism for exempting eligible companies.
The Need for Clear Communication
We surveyed a group of 200 manufacturers and retailers, all with over 250 employees, to find out their views about the proposed legislation and exemption. Although only certain manufacturers are eligible for the new exemption, non-eligible companies (such as retailers) may bear some of the financial cost, depending on the exact model proposed in the consultation.
When asked if they were aware of the proposed changes to RO and FiT, 54 percent of manufacturers highlighted that they had no knowledge of Government plans. This lack of awareness was shared by the retail sector, despite the potential financial implications. Over six in ten retailers (64 percent) also said that they were unaware of the changes.
Our survey reveals that the Government faces a challenge in communicating the proposed benefits of the scheme. Businesses need to be made aware of these changes, which could have an important impact on how businesses consume and pay for energy. That’s why we’re working with Government to host a round table event, to explain these upcoming changes to businesses.
Fair and Equitable Distribution
It is difficult to predict the cost implications at this time as it will depend on the specific exemption process and eligibility criteria proposed by the Government. The consultation is expected to include projections around the overall economic impact on those consumers not eligible for the new exemption.
In terms of costs to the Government, last year’s Spending Review and Autumn Statement forecast that moving from cash compensation to an exemption from the costs of renewables levies would save £410 million a year by 2019/20.
However, this will be paid by other non-exempt energy consumers, raising questions around how this will change the energy landscape. These changes may not be good news for all customers, however we hope that the policy will be executed in a proportionate way, mindful of the potential distributive impact.
Reducing Red Tape
The proposed exemption represents good news for the businesses and sectors which are eligible. We have been big advocates for the simplification of regulation and so we would welcome any measures to cut ‘red tape’.
The recent decisions to incorporate the CRC into the CCL and launch a new consultation around business reporting represent an additional positive step.
Making regulatory processes more transparent and more straightforward would reduce the burden on businesses, providing them with greater clarity about their finances and allowing them to make clearer strategic decisions. This will provide energy intensive industries with the certainty they need to continue to invest in the UK economy.
According to our survey, there was considerable interest in the upcoming consultation, with half of all respondents saying that they would like to take part. We would encourage all businesses to get involved in the consultation and to make sure they receive all the support that they are eligible for. Your energy provider can help you make sense of the changes and work out how it would affect you and your business.
Lead image: Solar farm. Credit: Shutterstock.