Time running out over Climate Change Levy

Less than five months before the introduction of the Climate Change Levy in the UK, industry still doesn't know the full implications of the levy — either in terms of its likely financial aspect, or how it is expected to impact the environment itself.

'The big problem all industry now faces is uncertainty; time is running out,' comments Jennifer Bloor, a design engineer at Ciba Specialty Chemicals in Bradford and the CIA's Young Person of the Year. 'A year or more after the levy was first announced, the government is still awaiting EU State Aid clearance for the package of concessions announced in November 1999.'

It's this uncertainty which has led to more than half of the UK's largest companies neglecting to study the cost implications of the tax, according to a report from the country's largest private engineering and construction company, Shepherd. 'Many companies think they are already energy efficient, with little scope for improvement,' comments Shepherd director Ron Pearson. 'Others believe that because their industry sector has negotiated initial 80 per cent discounts from the levy, the cost impact will be minimal.'

However, says Pearson, this is not accurate. On average, according to the company's research, the levy will increase average energy bills by 11 to 13 per cent.One way for companies to avoid this is to install combined heat and power (CHP) generators. This gives a double exemption from the tax, as both the gas burnt and the electricity generated from a CHP unit will not come under the levy. 'For CHP to be viable, a business needs to be able to use around 4500kW hours of heat a year on activities such as heat processing, steam generation, air conditioning computer rooms or cooling manufacturing processes.' This means that it isn't only large process plants that could benefit. 'Medium and large companies, hospitals, hotels, leisure centres and large office blocks, and businesses spending more than £200 000 per year on energy could all potentially use CHP,' he says.

Despite this, many firms still don't realise that CHP is a viable option. Pearson gives the example of an electronics company — one of the largest in the UK —which thought that its plants did not have the ability to use the heat by-product produced by a CHP plant. 'Yet electronics manufacturing requires sensitive temperature controlling that would more than use up the heat produced,' he comments.

Even Friends of the Earth believes that CHP has an important part to play in reducing industry's impact on the climate. In a recent statement on government plans for the climate, it says that 'the failure to make CHP a priority technology' is one of the main failings of UK climate change policy. Unsurprisingly, its other criticisms are unlikely to find agreement with industry, as they include 'the lack of carbon-based taxes for industry, vehicle and household energy use'. FoE is also calling for legislation for strict energy conservation ratings for offices and homes; more funding for renewable energy such as off-shore wind, and solar homes; and investment in low-carbon and carbon-free fuels. 'We are deeply concerned that the carbon reduction targets won't be met,' says FoE director Charles Secrett. 'It looks like the Environment Department's plans have been scuppered by other government departments. Relative to other countries Britain is doing OK, but much more is needed.'

Meanwhile, industry sectors still believe that the government ought to do more to clarify the position of the Climate Change Levy. 'Despite protestations by the government that the levy is cost-neutral and that it is aimed at improving the environment, it is more likely to result in higher imports, closures of industry and reductions in the workforce,' claims Martin Temple, director-general of the Engineering Employers Federation.

One of the inconsistencies of the tax is that it penalises the use of natural gas, which is the least polluting of the fossil fuels, more heavily than oil, coal or LPG. According to Barrie Church of Global Energy Associates, a consultancy dealing with energy efficiency issues, the levy will actually deter companies from converting to gas. Moreover, he says, this could have a knock-on effect of destabilising the fuels market.