Reforming the business energy efficiency tax landscape
Consultation response from the British Printing Industries Federation
9th October 2015
1. Do you agree with the principle of moving away from the current system of overlapping
policies towards a system where a single business/organisation faces one tax and one
reporting scheme?
Please provide evidence on level and types of benefits of an approachlike this
The BPIF agrees that there is a significant overlap between the reporting policies, ESOS and the Mandatory GHG reporting requirements.
It is the BPIF’s view that whilst both the Mandatory Greenhouse gas reporting and ESOS cover the same ground and should be merged into one policy, strenuous efforts should be made to ensure compliance is far more cost effective.
However it believes that the current policy to limit the overlap between CCA’s and the CRC Energy Efficiency scheme is effectively dealt with under existing legislation.
The current energy regime allows those sites with a CCA to avoid participating in the CRC energy efficiency scheme. This therefore precludes any overlap and also provides a further incentive for companies to join a CCA scheme and improve energy efficiency.
If the government were to scrap both and replace with one further scheme this would only add further complication as both current schemes are well understood by participants.
In the main CCA’s have provided a popular incentive for companies to improve energy efficiency.
The Ekins and Etheridge report in 2006 on the environmental impacts of the UK Climate Change Agreements concluded that while the targets, in themselves, were not stringent, and were in the main met well before the due date, the CCA’s appear to have had an awareness effect in stimulating energy savings. This has resulted in overall environmental benefits above those which would have derived from the imposition of a flat rate tax with no rebate and no CCA’s, and economic benefits for the sectors and companies with which CCA’s were negotiated
The current CCA Scheme has renegotiated targets and perhaps more importantly increased the cost of failing to reach those targets, thus ensuring it provides a significant incentive to improve energy efficiency. CCA’s have also extended the scope of the governments energy efficiency policies to smaller companies. With extremely tight profit margins within the printing industry even companies with around 50 employees or less are finding it beneficial to join the scheme. This therefore incentivises many more companies to invest in energy saving equipment and processes than would be the case by simply relying on the reporting requirements for larger companies or the CRC Energy Efficiency Scheme.
The BPIF therefore considers that within the printing industry the tax policies do not overlap. The CCA scheme for printing industry has 250 of the largest sites in the industry who are incentivised to improve efficiency particularly with the high penalties for failure to reach targets. Those large users without an agreement are also incentivised through the CRC Energy efficiency Scheme.
If the government decides however that it wishes to simplify the tax system, and remove the CRC Energy efficiency Scheme and replace it with a modified CCL scheme, it is vital that any new scheme does not result in increased costs to the existing CCA sectors.
The printing sector continues to strongly support the CCA scheme as a means of driving energy
efficiency and would be extremely concerned about proposals for its removal or a reduction in its scope. The printing industry is also particularly vulnerable to overseas competition due to the high pace of technological changes and the move to digital printing, which has meant is all too easy to move print production abroad. This is particularly relevant in the packaging and book sectors. Currently the industry is the fifth largest printing industry in the world, with a £750 million positive balance of trade. However with extremely tight margins any further increases in energy costs would put that positive balance of trade at risk, particularly since imports have nearly doubled since the introduction of the CCL in 2001.
2. Do you agree that mandatory reporting should remain as an important element of the
landscape in driving the uptake of low carbon and energy efficiency measures? If not,
why not?
The BPIF doesn’t believe that either ESOS or Mandatory Reporting, are important elements of the landscape in driving the uptake of low carbon and energy efficiency measures. Most companies asked, simply treat these policies as matters of compliance and as a cost rather than a reason to introduce low carbon and energy efficiency measures.
ESOS in particular, given its exorbitant cost of compliance and the lack of compulsion to implement recommendations, is particularly unpopular and unfit for purpose. In an energy intensive industry such as print all sites with over 250 employees are incentivised through CCA’s or the cost of energy to investigate energy efficiency measures and reporting schemes provide no incentive for further improvement.
The cost of Energy and the requirements of customers along with regulation are the main determinants of energy efficiency behaviour rather than enforced reporting or assessment.
3. Should such reports require board level sign-off and should reported data be made
publically available? Please give your reasons.
The BPIF is of the view that if data is required to be reported then it should be signed off at board room level. However it can see no obvious reason or environmental advantage in the data being publicly available. The data may possibly be used for competitive advantage in some industries.
4. Do you agree that government should develop a single reporting scheme requiring all
ESOS participants (and potentially the public sector (see paragraphs 4.21 – 4.23) to
report regularly at board level? If so, what data should be included in such a report?
The BPIF believes that if the government wish to have a reporting scheme it should develop a single reporting framework requiring all ESOS participants to report regularly at board level. In order to do this it should allow the company itself to gather data and not insist on the use of expensive qualified assessors. It should stipulate the use of published GHG Emissions factors and require a single carbon measurement for each company or site. It should in fact extend the Mandatory GHG reporting requirements to all Non SME’S and scrap ESOS.
5. The government recognises the importance of ensuring market actors have access to
transparent, reliable and comparable information to support financing and investment in
energy efficiency and low carbon measures. How best can a streamlined report achieve
this? To what extent does your response apply to other large companies (as defined in
the Companies Act) that are not listed companies?
The BPIF is not confident that any report will ensure that market actors have access to transparent, reliable and comparable information to support financing and investment in energy efficiency and low carbon measures, whether streamlined or not. The introduction of energy efficiency measures is dependent on pay back periodswhich will vary from company to company and technology to technology and not on reported information from a streamlined report.
6. Do you agree that moving to a single tax would simplify the tax system for business?
Should we abolish the CRC and move towards a new tax based on the CCL? Please give
reasons.
The current tax system is complicated but is now understood. The CRC opt out for CCA companies in effect means that sites with a CCA only have one tax to comply with. Therefore although there are two taxes, each category is only affected by one tax regime. Companies either have a CCA or they comply with CRC regulations.
The abolition of both schemes and the replacement by one new scheme based around the CCL may sound attractive but it will inevitably produce more uncertainty and more work as businesses struggle to understand and comply with new regulations.
It is imperative that any new CCL scheme retains the CCA’s for the existing sites and that costs are not increased for the current sectors covered.
The recently published CCA Biennial Progress Report shows that the printing sector saved 268,700 tonnes of CO2ein 2013/14 compared to the base year of 2008 despite having a relative target and seeing throughput figures fall significantly.This equates to a reduction of 1,363.01 GWh’s. The overall unadjusted emissions for all CCA participants over the two year period was reduced by 6.2 million tonnes of CO2e.
Previous criticism of the CCA scheme has centred round the lack of stringent targets and the buy-out mechanism. However with the latest report showing only 75% of the targets reaching their target and 49% of all sites failing to reach their targets, this can no longer be argued. In addition the huge increase in the buy-out fee compared to the previous scheme has had a profound effect on those sites facing the failure to reach targets.
The National Audit Office in its review of the Climate Change Levy and Climate Change Agreements stated that while the policies are estimated to have reduced green house gas emissions in the UK by 3.5 and 1.9 MtC in 2010, it felt that it no longer provided an incentive for improving energy efficiency. However the new schemes more stringent targets and the punitive nature of the buy-out fee means that CCA’s are now seen as providing an even more significant influence on a companies willingness to invest in energy efficient equipment. This is reflected in the £22.1 million payment for the buy-out fee.
The BPIF considers that the reduction from two energy tax schemes to one, based on the CCL, would obviously reduce the bureaucratic burden on industry. However it is concerned that any new tax based on the CCL may add additional complexity to a scheme that is currently well understood and reduce the scope of the discounts currently available.
7. How should a single tax be designed to improve its effectiveness in incentivising energy
efficiency and carbon reduction?
A single tax based around the CCL could be significantly simplified by relaxing the eligibility requirements and dropping the 70/30 rule. If each participating industry was allowed to include all its energy within the CCA regardless of the process, the application and the auditing process would be much simpler and the company would have more incentive to improve energy efficiency over all its energy consumption.
The new CCA scheme could also be extended to include other energy intensive industries in order to increase the incentive to introduce energy efficiency measures.
8. Should all participants pay the same rates (before any incentives/reliefs are applied) or
should the rates vary across different businesses? For example, do you think that smaller
consumers and at risk Energy Intensive Industries (EIIs) should pay lower rates?
In order to maintain the simplicity of the scheme and to enable it to be extended to further industries it’s important that all scheme participants pay the same rates before any relief is applied. This ensures that the burden is shared evenly across the economy. The BPIFs sees little merit in applying differing rates to different industries.
9. Do we currently have the right balance between gas and electricity tax rates? What are
the implications of rebalancing the tax rate ratio between electricity and gas? What is
the right ratio between gas and electricity rates?
The BPIF feels that for the printing industry the current balance between Electricity and Gas is about right.
10. Do you believe that the CCA scheme (or any new scheme giving a discount on the CCL or on any new tax based on the model of the CCL) eligibility should only focus on industries
needing protection from competitive disadvantage? If so, how should government
determine which sectors are in need of protection?
The BPIF believes that any discount on the CCL should be available to all industries that currently receive the discount and that the government should look at extending it to other energy intensive industries. It feels that the discount is an excellent additional incentive for energy intensive industries to improve energy efficiency. This is particularly so as the existing scheme has increased the penalty of failing to reach targets and forced the issue well and truly to the top of the board room agenda.
11. Do you believe that the CCA scheme (or new scheme) eligibility should focus only on
providing protection to those EIIs exposed to international competition and at risk of
carbon leakage? If so, how should the government assess which CCA sectors are at risk
of carbon leakage?
The BPIF feels that incentive to improve energy efficiency should be available to all energy intensive sectors regardless of whether or not they are at risk of carbon leakage. Energy intensive industries by their very nature use a high proportion of UK PLC’s energy and should therefore be particularly targeted by government policies to encourage energy efficiency. These industries have the size of their energy bill as an incentive to introduce energy saving measures however the fear of losing the CCA discount or paying a hefty fee for missing the target provides a vital extra incentive to introduce energy efficiency measures.
12. Do you believe that the targets set by the current CCA scheme are effective at
incentivising energy efficiency? Do you believe that the current CCA scheme is at least as
effective, or more effective, at incentivising energy efficiency than if participants paid the
full current rates of CCL? How could CCAs be improved? Are there alternative
mechanisms that may be more effective?
The current CCA discounts are worth over £7m to the printing industry and any move to remove the discounts would have a significant negative impact on an industry currently suffering from overcapacity and very poor profit margins. Job losses would be a likely result and the increase in incentives to improve energy efficiency would be minimal. Although the increased cost of paying the full CCA rate would provide some incentive for extra efficiency measures, the fear of losing the discount and the one off cost of paying a buy-out fee to retain the discount provides much more of an effective incentive. This is particularly the case as the buy-out fee is a one off fee and can have a significant impact on cash flow, whereas the re-introduction of the full CCL rate would only have a gradual effect.
The CCA scheme could be improved by simplifying the eligibility requirements. Many companies are put off joining the scheme by the complicated application procedure and many more use expensive intermediaries because of the perceived complexities. If the application process allowed eligible companies to claim the full discount regardless of how much energy was used in the eligible process, more companies would be encouraged to join the scheme and more energy would be covered by them.
The CCA’s should also allow for greater flexibility within the target setting procedures. It is currently difficult to amend targets when a company has undergone significant change. Currently structural change is only accepted if the 70/30 status changes and in the printing industry this virtually prevents any applications for structural change, leaving some sites with targets that will never be achieved.
13.Do you agree that incentives could help drive additional investment in energy efficiencyand carbon reduction? Please explain why you agree or disagree.
Decisions to invest in energy efficient technology are far more likely to be made if incentives are available. Particularly in an industry with very poor profit margins. Providing incentives makes the job of energy and production managers far easier in trying to persuade the senior team to invest in energy efficient technology. Senior managers may find it difficult to commit to investment in technologies with long pay back periods without further incentives.
In the current tough market conditions the pressure is to reduce costs immediately rather than to look at increasing costs through investment in technology that will only reduce costs in the longer term. Without incentives they are likely to only look at the short term costs rather than the longer term benefits. Without incentives there is a danger senior management in the industry will be more concerned about fire-fighting and keeping the company afloat rather than planning for greater energy efficiency.
14. What is the best mechanism to deliver incentives for investment in energy efficiency and carbon reduction (e.g. tax reliefs, supplier obligations, grants, funding based on
competitive bidding)? Are different approaches needed for different types of business? If
so, which approaches work for which business types? What approaches should be
avoided?