December 2003

Climate Change Levy: Change The Climate To Your Advantage

Costing The Earth

Most recognise "climate change" as a key environmental challenge facing many countries, indeed there is an emerging consensus between scientists about the negative impact of increasing concentrations of greenhouse gases (GHG) in the atmosphere. This impact may manifest as rising sea levels and flooding in some regions whilst others may experience water shortage and famine. In England for example, four of the five warmest years on record have occurred in the last decade. Furthermore, we will see a greater rise in temperature over the next century unless we take action to significantly reduce GHGs.

After Reaching The Summit

At the Earth Summit in Rio in 1992, the developed-countries voluntarily agreed to target a reduction in their emissions of greenhouse gases to 1990 levels by the millennium. Furthermore, at Kyoto in 1997, the developed countries agreed a legally binding commitment to reduce greenhouse gas emissions by 5.2 per cent below 1990 levels between 2008-2012.

The Government, in a draft paper, states that all sectors must play their part in reducing greenhouse gas emissions, and have created the key programmes. One element of these programmes is the Climate Change Levy (CCL) announced in the 1999 Budget. This is a tax on energy usage in industry, commerce and the public sector and will play a major role in helping the UK to meet targets for reducing GHG emissions. Levy agreements are intended to promote energy efficiency, even provide employment opportunities and create investment in new technologies.

Climate Change Levy: Inspecting The Tax

The levy is imposed at the point of supply to commercial and industrial consumers. This means suppliers have to register and pay customs when the levy is due. The levy is chargeable on the industrial and commercial supply of taxable commodities for lighting, heating and power to consumers in the following sectors:

Industry
Commerce
Agriculture
Public administration
Other services

The following table indicates what energies the levy affects and those that are exempt - these are:

Energies the Government has imposed the levy on:	Energies that are exempt
Electricity	Oil
Natural Gas as supplied by a gas utility	Road fuel gas
LPG	Heat
Coal	Steam
Coke	Low value solid fuel
Petroleum coke	Waste as defined in statute
	Diesel
	Petrol
	Road fuel

Counting The Cost: How The Government Calculate The Levy

The levy is applied as a specific rate per nominal unit of energy. Each category has a separate rate, where each rate is based on the energy content of each commodity.

Energies the Government has imposed the levy on:	Rate
Electricity	0.43 pence per kilowatt hour
Natural Gas as supplied by a gas utility	0.15 pence per kilowatt hour
LPG	0.96 pence per kilogram
Any other taxable commodity	1.17 pence per kilogram

Self-assessment

To assess the impact of the levy on your business, the following check may prove useful.

Prepare a list of all sources of Natural Gas, Electricity, Coal and LPG for the site. This will comprise of all primary metered supplies of gas and electricity and delivery routes for Coal and LPG
Add to the list the estimated consumption of energy for each source for the year ending March 2002 . This may be based on the estimated annual consumption stated in your energy supply contracts. Remember to list each meter (there may be more than one primary gas or electricity meter supplying any one site)
Calculate the expected cost of the Levy for the year ending March 2002 for each metered supply or delivery route
Calculate the expected cost of Gas, Electricity, Coal and LPG for the same period

Determine the costs of your employer's NI contributions over the same period and multiply this cost by 0.3% to determine the amount of rebate expected for the period. Now calculate the amount of the CCL cost minus the amount of NI rebate: This is the net effect of the CCL.

If this number is negative then you are gaining from the CCL system. This may occur in operations with relatively low energy consumption and higher employee numbers (e.g. administrative sites). If the number is positive, you may wish to consider a product to assist you in managing this complex levy, a tool such as Pro Enviro's Climate Change Advantage.

Minimise Costs Now!

Given that the CCL is still a very new concept to some and given its complexity - many are contemplating using information technologies as a way to manage the levy and minimise the tax. We, at Pro Enviro, have acted swiftly to develop a database-driven product called Climate Change Advantage™ (CCA). The product is a web-enabled relational Database Management System with on-line help and extensive report generation facilities to provide decision makers with accurate and timely information at an appropriate level.

Some of the key features are:

Generation of CCL agreement reports
Reporting and monitoring of energy and carbon under IPPC regimes
Reporting and analysis by any combination of:
- CCLA Number
- Corporation
- Site
- Installation
Reporting in a format to allow access to tax incentives such as the ECA scheme

To help you with all aspects of the levy and how CCA may help your business save money , please contact Dr Richard Whitaker or Darren McNulty on (024) 7627 9000.