19 Aug 2013

Summary: Discover more on energy efficiency legislation, Energy Performance Certificates, climate policy and support schemes and incentives.


Currently, the electricity market is supplied by a generation mix which comprises coal, gas, nuclear, hydro and renewables (mainly wind). Less than half of UK gas demand is now met from the fields in the North Sea, with the balance of needs sourced by pipeline from Norway, Belgium and the Netherlands, and by shipments of liquefied natural gas from further-a-field. The UK is also putting in place a streamlined framework to enable the development of unconventional sources of gas.

The range of climate change policies has also broadened to cover all sectors of the economy. EIIs are covered by the CCAs and EU Emissions Trading Scheme (EU ETS). Large but less intensive organizations are covered by a CRC Energy Efficiency Scheme. Household energy efficiency is supported by the Green Deal and Energy Company Obligation. The use of low carbon energy is incentivized by the Renewable Heat Incentive (RHI), Renewable Transport Fuel Obligation, and - for electricity generation - the Renewables Obligation (RO), Carbon Price Floor (CPF), which adds to the EU ETS carbon price signal, and small scale feed-in-tariffs.

Looking forward, the 2008 Climate Change Act sets places in statute a commitment to reduce greenhouse gas emissions in 2050 by 80% (on 1990 levels) with carbon budgets setting the pathway up to 2027. For most part, the instruments described above will be the main delivery mechanisms for carbon reduction this decade. However, the RO is to be superseded by the Electricity Market Reforms (EMR) during 2014-2018. The EMR will guarantee "strike prices" for new renewable and nuclear electricity. Capacity payments for gas fired generators will be introduced to ensure there is sufficient back-up for intermittent sources.

The government is also developing policies to ensure the sustainability of EII businesses as the UK makes its low carbon transition. These include reliefs from the cumulative power price impacts from EU ETS, CPF and EMR and a heat strategy to identify where support is needed to further assist EIIs' carbon reductions, including energy efficiency. Growth is now a cross-departmental responsibility and a "strategy for chemistry-fueled growth" has been developed by the sector.

For further information see the links below:

Energy and climate change policies: Department of Energy and Climate Change

Support for energy-intensive industries: Department of Business, Innovation and Skills

The 2008 Climate Change Act sets places in statute a commitment to reduce greenhouse gas emissions in 2050 by 80% (on 1990 levels). The 3rd carbon budget for 2018-2022 sets a GHG emissions reduction target of 34% on 1990. Under the 4th carbon budget for 2023-2027, this is set to increase to 50% but this figure will be reviewed in 2014 with reference to the EU's decision on its 2030 target.

The Climate Change Agreements are voluntary agreements under which exposed EII businesses can qualify for relief from the CCL in exchange for committing to challenging but achievable energy efficiency targets. A total of 51 sectors participate in the current CCAs, which in aggregate have committed to an 11% improvement in energy efficiency by 2020 on 2008 levels. The chemical sector CCA target is 11.2%. A site is eligible to participate in a sector's CCA if they have activities which are part A under the Directive on industrial emissions (integrated pollution prevention and control) (Recast). Sites that cannot meet their energy efficiency targets by performance alone can pay a buy-out price of £12/tCO2 to meet compliance and ensure they qualify for continued entitlement to CCL relief.

  1. The Climate Change Act – see bullet 1 under the Energy and climate targets section above.
  2. The Climate Change Agreements – see bullet 2 under the Energy and climate targets section above.
  3. The Climate Change Levy (CCL) is a tax on the business use of energy which meets the requirements of the EU's Energy Tax Directive to the extent that these are not met by pre-existing fuel duties. This means that CCL covers electricity, gas, liquefied petroleum gas and solid fuels. Exposed energy intensive industries that participate in Climate Change Agreements (CCAs) currently qualify for 65% relief from CCL. The rate of relief from CCL on electricity increased to 90% from 1 April 2013, relief from CCL on other energy sources stayed at 65%. There are also exemptions on non-fuel use (use of energy as feedstock), dual fuel use and production of electricity in good quality combined heat and power generators (the definition is consistent with that in the COGEN directive). From 1 April 2013 inputs to CHP are taxed at Carbon Price Support rates of CCL (for the Carbon Price Floor – see next item). Rates of CCL and are set out on the following link.
  4. Carbon Price Support (CPS) is a tax on the fossil fuel inputs to electricity which, combined with the cost of EU ETS Allowances, aims to create a Carbon Price Floor for generators of £16/tCO2 from 1 April 2013 rising to £30/tCO2 by 2020 to incentivize low carbon investments. CPS rates will be levied under the CCL and hydrocarbon fuel duty regimes under which generators have previously benefited from exemptions. Combined heat and power stations are included in the definition of generators and will be levied the full rate of CCL at CPS rates on the inputs to electricity generation. Inputs to heat will continue to be exempt for good quality CHP schemes. CPS rates will be equivalent to £4.94 per tonne of carbon dioxide (tCO2). From 1 April 2014, the CPS rates of CCL and fuel duty will be equivalent to £9.55 per tCO2. CPS is levied at the following rates for CCL fuels and the following rates for hydrocarbon duty fuels.
  5. Hydrocarbon fuel duty – this is a tax on consumers' use of hydrocarbons which meets the requirements of the EU's Energy Tax Directive for most hydrocarbons (but see also the CCL at bullet 3, above). Hydrocarbon fuel duty is levied at the following rates.
  6. The CRC Energy Efficiency Scheme (CRC–EES ) - The CRC–EES is a cap and trade scheme aimed at large non-domestic organisations that are less energy intensive, eg: organizations running shops, banks, offices (including government) and activities in EIIs that are outside the scope of the CCAs and EU ETS. Organisations have to surrender CRC–EES emissions allowances for their use of qualifying energy sources. Allowances are provided by the government by direct sale at a fixed price of £12/tCO2 in its first phase. The second phase of the CRC–EES starts on 1 April 2014 and will see the cost of allowances rise to £16/tCO2. Phase 2 also incorporates a number of simplifications including a reduction in the number of qualifying energy sources from 29, to 4: electricity, gas, kerosene and diesel for heating.
  1. The Climate Change Agreements and Climate Change Levy – see bullet 2 under the Energy and climate targets section and bullet 3 under the Energy Efficiency Related Legislation section.
  2. Combined Heat and Power Quality Assurance Program - the CHPQA program provides a route to exemptions on CCL for CPS rates on inputs for the production of heat in good quality CHP schemes generators and also from CCL on their electricity outputs. CHPQA certified schemes also qualify for exemption from business rating of CHP plant and machinery and are eligible for Enhanced Capital Allowances. CHPQA is entirely voluntary and aims to define, assess and monitor CHP Schemes on the basis of energy efficiency and environmental performance, so ensuring fiscal and other benefits are in line with environmental performance. This methodology is based on Threshold Criteria, which must be met or exceeded in order for the whole of the Scheme to qualify as 'Good Quality'. Threshold Criteria are set for Quality Index and Power Efficiency, and both can be determined from just three sets of data: fuel used, power generated and heat supplied (the threshold criteria are consistent with the COGEN directive).
  3. Enhanced Capital Allowances - the ECA scheme provides businesses with enhanced tax relief for investments in equipment that meets published energy-saving criteria. Capital allowances enable businesses to write off the capital cost of purchasing certain energy saving equipment (e.g. boilers, motors), against their taxable profits. The equipment in question has to be listed on the Energy Technology List which details equipment which have been assessed against the scheme's energy-saving criteria and accepted into the list. The long list of equipment is arranged under 17 technology headings. Apart from providing enhanced tax relief, ECAs also therefore help to raise awareness as to what is the most energy efficient equipment by publishing the technology list.
  4. The Green Investment Bank – the GIB is a UK government body which invests in UK projects which are both green and commercial, where capital is "additional" to available private sector finance. The GIB is the first bank of its kind and its mandate from government is to deploy at least 80% of its capital in priority sectors which comprise: energy efficiency (including the Green Deal), offshore wind, waste recycling and energy from waste. The balance of the GIB's capital can be deployed in: biofuels for transport; biomass power; carbon capture & storage; marine energy and renewable heat. The GIB strategy is to participate in larger deals (generally, those of larger than £30 million in total transaction size) directly, and access the market for smaller (less than £30 million transaction size) deals indirectly.
  5. The Green Deal - the Green Deal is financing mechanism that lets people pay for energy-efficiency improvements at their home or business premises through savings on their energy bills. There are 45 measures approved to receive funding which cover: insulation, heating and hot water, glazing and microgeneration. Smaller businesses including sole traders, small partnerships and other unincorporated groups can participate.

Chemical businesses can also access incentives for low carbon energy provided under the Renewable Heat Incentive (RHI), and for electricity, under the Renewables Obligation (RO), and small scale feed-in-tariffs.


EU Legislation

For an overview of EU-wide legislation, please follow this link.

( Be first to rate this item! ) 

rc-logo  eu-logo  cefic-logo 

Powered by