United Kingdom
Environmental Taxes and Incentives – Changing Behaviour? - Alex Skinner
The most successful environmental tax rise in recent years in terms of changing behaviour has been the inexorable rise in landfill tax. This has resulted in, for example, a staggering reduction in the amount of waste produced by the construction industry over the last few years.
Despite this, plans to persuade people to reduce their own use of fossil fuels and carbon emissions by moving towards generating energy from renewable sources has run into difficulties.
Feed-in-Tariffs (FITs) were designed to encourage small scale generation of electricity from renewable sources like solar, wind and water, with higher tariffs paid for technologies that needed more support. However, recent proposed cuts have been made to solar power FITs because too many people took up the opportunity, which has created huge uncertainty and has put thousands of jobs at risk.
Further examples are easily found, such as the Renewable Heat Incentive which is intended to reward people producing heat from renewable energy sources. The application date for non-domestic producers has now been moved from 1 June to 28 November 2011 (following a State Aid dispute with Europe) and domestic producers will be faced with a grant payment until 31 March 2012 followed by a period of uncertainty until October 2012 which is again affecting businesses and jobs.
The cumbersomely named Carbon Reduction Commitment Energy Efficiency Scheme, was another example. This was introduced in April 2010 to encourage large public and private sector organisations, using half hourly electricity meters and approximately £500,000 in energy per annum, to reduce their carbon emissions. It involved a ‘carrot and stick’ approach, where organisations would be required to buy emission allowances based on their predicted emissions with the option to buy or sell extra allowances. On the downside, organisations in the scheme would be named and shamed, but on the upside the cash from the allowances would be pooled and the organisations that made the biggest improvements would receive the lion’s share of the pooled cash. However, in October 2010 the goal posts were moved. The ‘stick’ of naming and shaming was retained whilst the ‘carrot’ of distributed pooled cash was taken away from participating organisations and handed to the Treasury. The Scheme has since been re-named the CRC Energy Efficiency Scheme and is in the process of being simplified to reduce the administrative burden on participants.
All of these serve as a good illustration of how complicated and unwieldy the current system of environmental incentives and taxes are. There is currently a consultation exercise taking place throughout the EU on the use of emissions allowances trading schemes. The consultation is due to close at the end of February 2012. Serious questions are being asked about the administrative burden they bear, the problems of over-lapping schemes, how they are being used as money-spinning exercises and how effective they are in actually changing people’s behaviour in reducing emissions. There is a growing belief that the emissions allowances trading schemes are not the way to change behaviour - they simply add to the cost of doing business.
We believe a more targeted approach to reducing emissions would be much more effective in the UK. This could be achieved by scrapping the emissions trading schemes with their onerous monitoring and reporting requirements and offset this by increasing the rate of Climate Change Levy paid by non-domestic users of fuel and power. The Levy could be used in a flexible way to target particular businesses and to encourage certain behaviours. Based on the success achieved in the construction industry, if business leaders saw the immediate impact of the Levy on their energy bills, it probably wouldn’t be long before they started to look for ways to reduce their energy consumption.
If you would like to discuss this, or any other matters relating to environmental issues please contact alexandra.l.skinner@bdo.co.uk
16 December 2012
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