Businesses seeking to improve their environmental impact have been offered a mixed bag of policies in this year’s Budget speech, including a brand-new carbon floor price and bigger tax breaks for green company cars.
As expected, chancellor George Osborne confirmed in his Budget address that the UK would become the first country in the world to impose a floor price on carbon, starting at £16 per tonne of CO2 in 2013 and rising to £30 a tonne by 2020. The floor is designed to ensure the price on carbon imposed through the European Union emissions trading scheme does not fall below a set level – a move that potentially bolsters the case for companies investing in green measures, such as renewable energy and low-carbon fleets.
Stuart Wilkinson, head of carbon taxes at KPMG, warns that while investors would benefit from greater levels of certainty, the price tag on carbon might need to be higher to drive investment.
“It creates a stronger, more certain and more consistent carbon price signal, and this should, in turn, allow businesses to make more effective investment decisions in relation to low-carbon energy which should, therefore, stimulate low-carbon investment,” he says.
However, some companies are concerned they will face increased energy costs as a result of the new floor price. A spokesman from Tata Steel told Financial Director that steel manufacturers in particular would suffer.
“As the power sector is not subject to international competition, these unilaterally imposed additional costs will be passed on to energy consumers such as steel producers, which are subject to international competition and so will not be able to pass them on,” he says.
In an attempt to offset such energy price hikes, Osborne promised a bigger tax break to companies committing to Climate Change Agreements (CCAs). CCAs allow energy-intensive businesses to receive an 80 percent discount from the levy, in return for meeting agreed energy efficiency or carbon-saving targets, but the discount is being reduced to 65 percent from April this year. The Treasury will again increase the Climate Change Levy electricity discount to 80 percent from April 2013 for companies that sign up to CCAs, and the scheme will be extended until 2023.
John Cridland, CBI director-general, says the increased discount will offer an olive branch to manufacturers facing increased energy bills from the floor price, but Tata Steel warned the change will merely revert the discount back to its current level.
“The difference in the discount will almost certainly not come close to compensating energy-intensive industry for the additional energy costs caused by the carbon floor price,” the spokesman said.
The news that the Treasury is also set to tighten the tax threshold for the greenest company cars is more likely to be welcomed by any company looking to invest in a low-emissions fleet. Osborne pledged to freeze company car tax from April 2013 for cars emitting less than 95g of CO2 per kilometre. At the same time, the tax on vehicles with emissions between 95g/km and 219g/km will increase by one percentage point.
Company car tax is calculated based on a percentage of the vehicle’s buying price and the amount of CO2 it emits. Cars that emit between 99g/km and 120g/km now fall into the lowest bracket and are taxed 10 per cent on their buying price. The change means the government has tightened the threshold for low-carbon vehicles, so it stands at 95g/km rather than 99g/km.
Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said the new bracket is likely to increase pressure on businesses to buy greener vehicles.
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