Legislative update: Winter 2016

Angus Evers from King & Wood Mallesons explains HM Treasury’s recent consultation on reforming business energy taxes and its implications for the waste management industry 

Many waste management businesses operating in the UK have had to grapple with the complexities of the UK’s various business energy taxes and energy-efficiency schemes, particularly the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) and the recently- introduced Energy Savings Opportunity Scheme (ESOS). These schemes have been particularly burdensome for businesses with complex organisational structures, because they impose compliance obligations at parent company level and (in the case of the CRC) include complicated rules to aggregate energy consumption across corporate groups. Businesses operating in other EU countries in addition to the UK will also have had to grapple with the equivalent of ESOS in those countries, because ESOS has its origins in the EU Energy Efficiency Directive, which was adopted in 2012.

Just as the waste management industry was getting to grips with the requirements of the CRC and ESOS, it may have been surprised by the government’s announcement in the Summer Budget that it would review all of the various business energy-efficiency taxes. However, now that the government has carried out the consultation, it seems that there may be an opportunity to reduce the complexity of the UK’s business energy-efficiency tax landscape and make some improvements.

The consultation offered a high-level review of current policies and sought stakeholders’ views on the general principles of these policies. While the key objective of the UK’s business energy-efficiency taxes and regulations is to help the UK decarbonise, the government stated in the consultation that it aims to achieve this by simplifying compliance, reducing administrative costs, protecting energy-intensive businesses and supporting productivity through improved incentives.

The first question in the consultation asked stakeholders whether they agreed with moving away from overlapping policies towards one energy/carbon tax and one reporting scheme. While businesses that currently spend significant time and money ensuring compliance with the UK’s various energy-efficiency and carbon-reduction policies and regulations will no doubt prefer this option, in reality any single scheme that achieves all the objectives of the existing schemes could end up being overly complicated.

As for reporting, the consultation also asked whether mandatory reporting should remain, and whether reports should require board level sign-off and be publicly available. Although much disliked by those caught by them, it is undoubtedly the case that policies such as the CRC and ESOS have put energy efficiency and carbon reduction on management’s agenda in businesses that are large consumers of energy. It seems likely that this focus will remain in any new reporting framework – which, so long as it is proportionate, is likely to be welcomed by businesses.

This article was taken from Issue 83

As for the move to a single tax, the proposal to abolish the much-disliked CRC and to replace it with a single tax based on the existing Climate Change Levy (CCL) is also likely to be welcomed by businesses, but, before celebrating, business owners and managers should note that there are many questions that need to be answered about how the new single tax would work.

The CCL is a carbon tax on business energy consumption, levied by energy suppliers. The options proposed in the consultation were either a flat rate of CCL applied to businesses, modified by incentives and reliefs, or rates that vary across different businesses. Although businesses with one large energy consumer in their organisation may in future escape the administrative burden and cost of the CRC, any new business energy consumption tax may be more indiscriminate in scope. It is likely that rates would need to be increased to replace the revenue-raising element of the CRC, and smaller businesses that would previously have escaped the CRC may therefore be indirectly affected. This would be an additional operating cost for small and medium-sized waste management businesses.

The consultation ran from 28 September to 9 November 2015, but the government is not expected to publish its formal response until the Budget in March 2016. In addition to the specific questions posed, the government is open to new ideas on how to promote energy efficiency and carbon reduction in a simple way, so this is a good opportunity for the waste management industry to try to shape the proposed changes.

Angus Evers is a Partner in King & Wood Mallesons’ Planning & Environment Group and can be reached at [email protected]