Budget aftershock: Osborne’s £3.9 billion tax on green power
The Chancellor’s £3.9 billion tax on renewable energy generators “is a punitive measure for the clean energy sector…another example of this Government’s unfair, illogical and obsessive attacks on renewables.” As Alasdair Cameron writes, “The Chancellor has just effectively put a carbon tax on carbon free electricity, which will mean fewer renewables and more uncertainty for the industry.”
Renewable electricity will no longer be exempt from the Climate Change Levy – even though the tax is meant to encourage businesses to “operate in a more environmentally friendly way.” So why would a renewable energy generator not qualify?
RenewableUK’s Director of Policy, Dr Gordon Edge, said:
“Until now, Levy Exemption Certificates (LECs) generated as a result of the levy have provided vital financial support for renewable energy producers.”
The Treasury will pick up £450 million in 2015/16, rising to £910 million in 2020/21. That’s £3.9 billion in the next six years – worth about the same as the cut in corporation tax also announced yesterday.
“We’re suddenly looking at a substantial amount of lost income for clean energy companies which was totally unexpected.”
Levy Exemption Certificates account for just over 6% on onshore wind generators’ revenues.
“The Government had already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy we have. Now they’re imposing retrospective cuts on projects already up and running across the entire clean energy sector. “Yet again the Government is moving the goalposts, pushing some marginal projects from profit into loss. It’s another example of this Government’s unfair, illogical and obsessive attacks on renewables”.
The government’s explainer on the CCL says the levy is paid at the rate of 0.6p per kilowatt hour of electricity used. It’s not paid by businesses that use small amounts of energy, households and charities, and if “the electricity is generated from renewable sources.” Energy intensive businesses also get a reduced rate if they have entered into a climate change agreement (CCA) with the Environment Agency.
The move also hammered the share price of power generator Drax which is in the process of converting stations from burning coal to burning wood pellets. The company lost more than a quarter of its stock market value as it said the move would cost it £30m this year and £60m in 2016.
The Chancellor aims to go further with business energy tax reform:
“The government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. The review will consider the Climate Change Levy (CCL), Carbon Reduction Commitment energy efficiency scheme and their interaction with other business energy efficiency policies and regulations.”
A consultation will be launched in the autumn. Osborne hasn’t finished with his green economy rollback.
Not only has Osborne put a carbon tax on carbon free electricity, it’s paid for the £1.3 billion in fossil fuel tax breaks announced in his March Budget. As FoE’s analyst said, “If I didn’t know better I’d say there was a pattern…”