Budget 2016: Changes to energy and carbon taxes

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Budget 2016: Changes to energy and carbon taxes

The Chancellor George Osborne announced substantial changes to energy taxes and reporting schemes in the 2016 Government Budget, published on 16th March.

Affected schemes include the Carbon Reduction Commitment (CRC), the Climate Change Levy (CCL) and Climate Change Agreements (CCA).

CRC to end April 2019
The CRC scheme will close with effect from the end of the 2018-19 compliance year, when phase 2 concludes.

The previously planned phases 3-7 will not go ahead. Participants are required to surrender allowances for the final time in October 2019. For the remainder of phase 2 allowance prices are set to increase in line with RPI.

The shortfall in revenue caused by the CRC closure will be addressed by increasing the Climate Change Levy (CCL). The treasury are expecting a £425m windfall in the financial year of 2019/20, which will see a combination of the final payment for CRC and the increased CCL:

CCL rates higher from April 2019
The rate of CCL on electricity is expected to increase from 0.583p/kWh in 2018/19 to 0.847p/kWh in 2019/20, while the rate of CCL on natural gas is expected to jump from 0.203p/kWh in 2018/19 to 0.339p/kWh in 2019/20.

This step change represents a rate increase of 45% for electricity and 67% for natural gas. LPG and other taxable fuels will also increase in line with natural gas.

With these adjustments, the relative difference between CCL rates charged on electricity and gas will change from the current 2.9:1 ratio to a ratio of 2.5:1.

In effect this makes electricity relatively cheaper and gas relatively more expensive. It is intended to incentivise a reduction in gas consumption and reflects changes in the fuel mix used in electricity generation.

The government plans to rebalance the ratio to 1:1 by 2025.

Bigger CCL discounts for CCAs from April 2019
Organisations who benefit from Climate Change Agreements (CCA) will get an increased CCL discount, to compensate for the CCL rate increases.

From April 2019, the discount for electricity will increase from 90% to 93% while the discount for gas will increase from 65% to 78%.

Existing CCA eligibility criteria will be kept in place until at least 2023, to ensure that energy intensive industries remain protected.

Consultation on simplified reporting framework
As part of the budget, the government has announced that they will consult later in 2016 on a simplified energy and carbon reporting framework for introduction in 2019. The aim is to reduce the administrative burden associated with schemes such as the Energy Savings Opportunity Scheme (ESOS), CCA and EU ETS.

 

How Envantage can help

Envantage are experts at energy and carbon reporting schemes including CRC, CCAs, and ESOS. We help businesses and industries across the UK to meet their regulatory obligations, cope with changes to reporting frameworks, and respond to tax rate increases and associated cost-saving opportunities.

Please contact us if you require guidance or support following the 2016 Budget.

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