INFORMATION SHEET 1

DETAILS OF THE CLIMATE CHANGE LEVY

Background

The Climate Change Levy is a tax on the business use of energy. It was introduced in the March 1999 budget and has entered legislation through the Finance Act 2000. The Levy came into effect in April 2001. It aims to encourage business to use energy more efficiently and reduce emissions of carbon dioxide.

The Levy is an important element in a range of policies being put in place by the Government to reduce UK greenhouse gas emissions. These policies are required to ensure the UK meets its commitments under the Kyoto Protocol.

The Levy is intended to be revenue neutral for business. To achieve this, revenue from the Levy will be recycled to business in the form of a 0.3% cut in the rate of employers’ National Insurance Contributions, together with support for investments in energy efficiency.

Rates of Levy

The Climate Change Levy has been charged on energy delivered to business users from April 1^st 2001. Table 1.1 shows which fuels have attracted the levy together with the levy rate. Oil products are not subject to the Climate Change Levy.

Table 1.1 Levy Rates

Fuel	Levy Rate	Approximate increase in price
Electricity	0.43p/kWh	10%
Gas	0.15p/kWh	20%
Coal	1.17p/kg	20%
LPG	0.96p/kg	10%

Sectors Subject to the Levy

The levy covers the above fuels used for non-transport applications in:

• industry
• commerce
• agriculture
• public administration

Sectors and Uses Exempt from the Levy

The Levy will not apply to fuels used for:

• the domestic sector
• transport
• non-energy uses – e.g. gas used as a feedstock for chemicals
• electricity used in certain electrolytic processes similar to chlor-alkali production and primary aluminium smelting

In the business use of energy, several exemptions are allowed for. These include:

• "Good quality" CHP (See Information Sheet 11).
• Electricity generated from "new-renewable" sources, for example solar and wind power - but excluding large scale hydro (See Information Sheet 12).
• Fuels used to generate electricity for sale to third parties. This exemption does not apply to fuels used to generate electricity and heat for on-site use. See CHP above.
• All mineral oil based fuels, for example heavy fuel oil, petrol or diesel. These are already subject to other forms of tax.

Some discounts and delays have also been recently agreed. At the time of writing, these include:

• A discount of 80% for energy intensive users, through Climate Change Levy Agreements (CCLAs) with DEFRA. The definition of energy intensive use is linked to the types of processes that fall under the EU IPPC (Integrated Pollution Prevention and Control) Directive.
• A delay for introducing the Levy on natural gas in Northern Ireland for a period of up to 5 years.
• A discount of 50% for horticultural firms for a period of up to 5 years.

Implications for the Craft Bakery Industry

All bakeries and bakery shops will be subject to the Climate Change Levy.

Most food processing operations, including baking, would be subject to IPPC if they were sufficiently large. To ensure fairness for small sites, the Climate Change Levy eligibility rules ignore the site throughput size thresholds defined in IPPC. This means that almost all bakery sites (including shops that carry out baking), irrespective of size, will be eligible for a Climate Change Levy discount via the CCLA mechanism. See Information Sheet 2 for further details on eligibility.

In addition to the 80% discount opportunity, all bakeries and shops are subject to the general exemptions described above.

Collection of the Levy

The tax will collected by your energy supplier. This will be your electricity or gas provider or fuel merchant. Your energy bill will probably itemise the part of the total price accounted for by the Levy.

The Role of Climate Change Levy Agreements (CCLAs)

CCLAs have been incorporated in the Climate Change Levy structure to help mitigate the financial impact of the Levy on energy intensive companies. Such companies use considerably more energy per employee than business in general, hence the 0.3% cut in the rate of employers’ National Insurance Contributions is not sufficient to make the Levy revenue neutral.

Those companies signing a CCLA will obtain a Climate Change Levy discount of 80% providing they comply with the eligibility rules and meet the energy efficiency targets set out in the Agreement. The energy efficiency targets have been negotiated with industry sector Trade Associations and consist of an overall energy efficiency target to be achieved by 2010 and 2-yearly milestones that must be achieved to ensure good progress is being maintained.

Other Aspects of the Levy Package

Another important aspect of the Levy package for the Craft Baking Industry is that assistance is available for energy saving investments. This is expected to cost around £100 million in 2001/02. This assistance is by way of Enhanced Capital Allowances (ECAs). Equipment currently eligible includes: CHP, boilers, motors, variable speed drives, lighting systems, refrigeration equipment, pipe insulation and thermal screens. Firms making these investments will be able to deduct the full costs of those investments in the first year when calculating their corporation tax bills. See Information Sheet 13.

A further £50 million has been earmarked for 2001/02 to support initiatives that will help UK businesses achieve reductions in greenhouse gas emissions. The allocation of these funds has not been decided yet, but is likely to include initiatives that will help companies in the craft baking industry improve energy efficiency.