End of carbon reduction commitment proposed as part of UK plans to 'simplify' energy taxes

The consultation proposes replacing the CRC, which applies to large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS), with an energy consumption tax based on the Climate Change Levy (CCL). The government is also seeking views on how best to incentivise energy efficiency measures, and on replacing reporting requirements under the various energy efficiency programmes with a single reporting framework.

"This government wants to create a sustainable tax system for businesses that is fair and simple and supports growth," said Damian Hinds, exchequer secretary to the Treasury. "We recognise business concerns around the complexity of business energy efficiency policy and we want to create a simpler and more stable environment."

The UK government's intention is to improve the effectiveness of the energy efficiency tax regime in a way that supports business productivity and growth, security of energy supplies and decarbonisation targets. Its proposals are based on "initial views" from businesses, academics and other relevant bodies, according to the consultation paper. The consultation closes on 9 November.

The UK's current programme of energy efficiency taxes on businesses and public sector bodies has been developed over the past 15 years and consists of a number of overlapping taxes and reporting requirements, both mandatory and voluntary. The overall effect is that some businesses are required to report on their emissions and energy consumption multiple times, while different businesses can experience significant tax rate variations across different sites, activities and fuels.

The current framework includes CRC and CCL taxes; reporting requirements imposed by the CRC, the Energy Savings Opportunity Scheme (ESOS) and mandatory greenhouse gas (GHG) reporting; and additional reporting requirements in relation to various tax exemptions. According to the consultation, the complexity of these conflicting requirements is "among the factors affecting investment in energy efficiency and decarbonisation," while business groups have criticised the framework as administratively burdensome and costly to comply with.

Environmental law expert Georgie Messent of Pinsent Masons, the law firm behind Out-Law.com, welcomed the consultation.

"It is high time that the government's energy efficiency policies are reviewed in a co-ordinated manner, and adjusted to try to lighten the load on businesses without reducing their impact," she said.

Replacing the CRC and CCL with a new energy consumption tax, based on the CCL, would potentially streamline the system in a way that "reduces variations in tax rates faced by different users, simplifies the tax system and strengthens the price signal" to encourage businesses to save energy and cut emissions, according to the consultation. The government is seeking views about the most effective way to balance the cost of the tax across different fuels, such as gas and heating oil, to meet its carbon commitments as part of the consultation.

The consultation also proposes the creation of a single reporting framework, designed in a way that incorporates the most effective parts of the existing range of reporting schemes. This would done "through the prism of the ESOS", as this is an EU requirement under the Energy Efficiency Directive. It could include GHG emissions, automatically generated from energy data; use of energy from renewable sources; and actions taken against audit recommendations; although the government is seeking views on what else should be included as part of the consultation process.

The first ESOS compliance deadline is 5 December 2015; with reporting required in respect of energy usage over a consecutive 12-month period starting no earlier than 1 January 2014 and ending before that date. The scheme applies to 'large enterprises' with 250 employees or more; or those with fewer employees which instead meet certain annual turnover and profit thresholds. It does not apply to public sector bodies, which are subject to different energy efficiency requirements under the Energy Efficiency Directive.