Energy users see red over green tax

1 February 2001
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01 February 2001

With the climate change levy imminent, purchasers need to do more to ensure that their organisations are prepared, writes David Arminas

The future looks rosy for companies like Renewable Trading. This new energy trader reckons that the market for its "green" electricity is expanding and it expects to do more deals as the year progresses. The reason for its optimism is simple: electricity suppliers are seeking greater amounts of energy from renewable sources to meet demand from users keen to promote their green credentials and escape the climate change levy, which comes into effect on 1 April.

The levy, which is designed to counteract the effects of global warming, will be charged at around 12 per cent of electricity bills and 15 per cent of gas bills. Companies both large and small are liable to pay the charge. However, the playing field is not as level as many might imagine: there are ways for some organisations to avoid extra costs.

Those with large numbers of employees and operating large offices, such as government departments and city councils, are particularly interested in renewable energy. Gas and electricity from these sources is exempt from the levy, thereby lowering the total bill against which it will be applied. Their levy payments will also be partly offset by lower national insurance payments.

There is, however, still some confusion about who will pay what, and what is classified as a "renewable source". And the business community is none too pleased at the prospect of adding to its tax burden.

The British Retail Consortium has estimated that a major player with 700 stores would pay £3 million a year in levy charges. And a report commissioned by the Engineering Employers' Federation, claims manufacturing will pay £100 million a year.

The loss-making UK arm of Anglo-Dutch steel producer Corus has said the levy will cost it £8 million a year. At a time when it is struggling to keep open its Welsh mills at Llanwern and Port Talbot, extra energy costs are arguably something it could do without.

Purchasers in organisations that use large amounts of energy should not wait for their financial controllers to confront Customs & Excise when it demands levy payments. Rather, they should ensure that their fellow directors see levy costs coming, and make themselves the first port of call for those with questions about how to reduce them.

Yet purchasers in many firms have been slow to take this proactive stance, according to Ian Dobson, chairman of the CIPS energy committee and an expert on the levy.

Energy intensive users, especially those with factories responsible for heavy pollution, can save up to 80 per cent of the levy if they sign up to the government's Integrated Pollution Prevention Control (IPPC) scheme. These companies are committed to reducing their energy consumption per tonne of whatever they manufacture by between 5 per cent and 20 per cent by 2010. This is effectively a 2 per cent a year reduction.

These large energy users will be less concerned with electricity from renewable sources, Dobson noted. But the procurement director must get heavily involved in the efficiency of any new motors, ovens and other heavy electrical equipment required.

There is a cruel irony in this levy, which is designed to make companies more energy efficient. In many cases, those most likely to be affected by the levy already pay great attention to being energy efficient. The EEF report claimed there are around 2,300 firms with annual energy bills of £100,000 that will not qualify for exemptions.

Companies not IPPC-eligible should consult the Enhanced Capital Allowance (ECA) scheme from the Department of the Environment, Transport and the Regions. The DETR will publish a list of technologies, equipment and infrastructure by April whose purchase and use can offset the levy.

Hugh Mortimer, commercial manager of industrial gases firm BOC, another low-polluting company that will be hit by the levy, welcomed initiatives such as the ECA. But he said companies should not give up lobbying for changes to the levy.


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