Budget 2016 – impact on Energy Taxation

Budget update:  in line with our predictions, George Osborne announced the following:

– Abolition of the CRC (Carbon Reduction Commitment) following the 2018-19 compliance year.

– Increase the CCL (Climate Change Levy) from 2019 to recover the revenue from abolishing the CRC in a fiscally-neutral reform, and incentivise energy efficiency among CCL-paying businesses.

– Rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in electricity generation moving to a ratio of 2.5:1 (electricity:gas) from April 2019 .In the longer term, the government intends to rebalance the rates further, reaching a ratio of 1:1 (electricity:gas) rates by 2025. This will more strongly incentivise reductions in the use of gas, in support of the UK’s climate change targets

– Keep existing Climate Change Agreement (CCA) scheme eligibility criteria in place until at least 2023 ensuring energy intensive industries remain protected. From April 2019, the CCL discount available to CCA participants will increase so that they pay no more than an RPI increase. The government will ensure that these agreements deliver on their energy efficiency goals through a DECC-led target review starting in 2016

– At Budget 2014 the government capped Carbon Price Support (CPS) rates at £18 t/CO2 from 2016-17 to 2019-20 to limit competitive disadvantage to British businesses. Due to the continued low price of the EU Emissions Trading System (EU ETS), the government is maintaining the cap on CPS rates at £18 t/CO2, uprating this with inflation in 2020-21,in order to continue protecting businesses. The government will set out the long-term direction for CPS rates and the Carbon Price Floor at Autumn Statement, taking into account the full range of factors affecting the energy market.