Climate Change and Business Implications
Climate change agreements and climate change levy implications for UK organisations
"The UK Climate Change Levy came into effect on 1st April 2001 and applies to energy used in the non-domestic sector (industry, commerce, and the public sector). The aim of the levy will be to encourage these sectors to improve energy efficiency and reduce emissions of greenhouse gases." (Defra - the UK Department for Environment, Food & Rural Affairs - 2005)
The UK Government's Climate Change strategy is to encourage UK industry to use less energy by using financial measures, specifically taxation. And more specifically the Government's stated aim is to reform the tax system, according to this oft-quoted statement made in 1997, following the Kyoto Agreement: "The burden of taxation will move from the 'goods' to the 'bads'; (thereby to) encourage innovation in meeting higher environmental standards."
In this context, 'goods' are products or services considered to be socially and environmentally beneficial, for example, health and public transport services; whereas 'bads' are products or services considered to be socially and environmentally damaging, for example, tobacco, alcohol, private and commercial road transport. Stemming from the Kyoto and related EU commitments, and following the recommendations in the Marshall Report on Economic Instruments, the UK Government introduced the Climate Change Levy on all non-domestic use in April 2001, after announcing it in the 1999 Budget. So we've known about this for a while... The Climate Change Levy (CCL) is charged on certain energy supplies used by the industrial and commercial sectors, agriculture, public administration and other institutional services and organisations. Typically businesses and other organisations pay the Climate Change Levy through their utilities bills.
Reasons for the Climate Change Levy
The expert opinion is that if we neglect the need to improve our energy consumption, it is predicted that the earth's climate will rise by 3 degrees over the next 100 years resulting in, for example:
• Sea levels rising
• Global food supplies reduced
• 3 billion people could suffer increased water stress
• 290 million people could be exposed to the risk of malaria
• Tropical rain forests could disappear due to water shortages
According to Defra (the UK Department for Environment, Food & Rural Affairs), in 2005: "...The scientific evidence is growing that man-made greenhouse gas emissions are having a noticeable effect on the earth's climate. Globally, the ten hottest years on record have all occurred since the beginning of the 1990s. Current climate models predict that global temperatures could warm from between 1.4 to 5.8°C over the next 100 years, depending on the amounts of greenhouse gases emitted and the sensitivity of the climate system. The social, environmental and economic costs associated with this could be huge..."
The Climate Change Levy, Implications for UK Organisations
The Kyoto Protocol
The participating nations at the 1997 Kyoto summit conference agreed to control and reduce emissions of 'greenhouse gases', which are generally now believed to be responsible for global warming. Kyoto's effects are increasingly impacting on UK businesses; notably two significant policies are now influencing UK business decision-making:
• The Climate Change Levy (a system of taxation intended to control energy and emissions levels)
• The ECA (Enhanced Capital Allowances) scheme (which enables reduced levels of tax payable on qualifying capital investment made in energy efficient technologies).
Defra says: ".. Businesses' commitment to tackling climate change is growing in the UK. Many firms have recognised and acted on the cost effective opportunities that are available for cutting greenhouse gas emissions. Some leading firms have adopted high profile initiatives bringing wide-ranging benefits - they deliver real cuts in emissions, offer good examples for others to emulate and introduce a constructive and practical note into climate change debate. The Government welcomes the action that business has already taken, but much more significant changes will be needed as part of the move to a lower carbon economy. In developing its programme, the Government aims to build on the foundations that have already been laid and recognises the diversity within the business sector. The programme aims to encourage and enable businesses of all kinds to take the lead in finding and implementing cost effective measures that will cut greenhouse gas emissions. The intention is to tackle climate change while ensuring that a healthy and competitive business base is maintained and, where possible, improved..."
