On 1 April 2001, the climate change levy (CCL) came into effect. It is a tax on energy use in industry, commerce, agriculture and the public sector and is intended to direct businesses to use energy more efficiently. Each year, business consumes #52bn worth of energy, of which up to 20% is wasted.
CCL is a result of the Kyoto talks in December 1997, when the UK pledged to cut its greenhouse gas and CO2 emissions. The levy was announced in the 1999 budget.
At full rate, CCL will be 0.43p/kWh for electricity, 0.15p/kWh for gas, 1.17p/kg coal and 0.96p/kg for LPG. It could increase energy bills by up to 15%. VAT will be charged on top of it.
To underline the government emphasis on environmental responsibility, a reduction in National Insurance Contributions of some 0.3% will be put into force at the same time, effectively lowering the price of labour.
There are a number of ways to reduce exposure to, or avoid, the levy through best practice in energy consumption. Not only will this bypass the levy, but it could also reduce business energy bills.
A Carbon Trust has been set up to coordinate a #130m programme intended to accelerate take-up of low carbon technologies. First, enhanced tax breaks will encourage industry to reduce carbon emissions through investment in energy efficient technology. Reductions will be eligible on 100% of the investment in the first year, and eligible categories include refrigeration, insulation, combined heat and power (CHP), boilers and motors.
There is also a Greenhouse Gas Emissions Trading Incentive, which allows companies to reduce emissions through a trading scheme whereby emission levels of an environmentally friendly site are traded against those of an energy-hungry location.
Some CHP schemes will be exempt from CCL. Combined heat and power is the on-site generation and use of heat and electricity, where a turbine or engine is connected to a generator to produce electricity, while the exhaust heat is recycled to raise steam or hot water.
In addition, energy intensive industries such as manufacturing and chemicals will enjoy 80% discounts on CCL for meeting targets set in negotiated agreements.
Government funding is also available for R&D into innovative ways of improving the competitiveness of renewable* energy. Companies using energy from renewable sources are exempt from CCL.
The government is not leaving industry to fend for itself: there are a number of bodies to help companies assess where they can save energy.
For example, the Energy Efficiency Best Practice programme (EEBP) will undertake a free site visit to help identify ways of saving energy.
To take advantage of the considerable funding available, it is necessary to enter an agreement with a sector association (trade association or similar), which will have signed up to an agreement with the government.
This will have a general target to cut energy usage or carbon emissions across the sector up to 2010.
CCL should make a serious contribution to our environmental responsibilities: it is expected to deliver a saving of some 5 million tonnes of carbon a year by 2010.
But to make a policy of efficient energy usage stick, it is essential the policy is supported from the top and is communicated and adhered to throughout the company.
* Renewable energy is referred to as new renewable energy in government and other official documents.