Green Taxes on Excessive Energy UseA ‘Green Tax’ is generally administered as a financial penalty on companies using excessive energy. It also acts as an incentive to reducing fuel emissions and promotes the importance of environmental sustainability by linking profit directly to fuel output.

Climate Change Levy

Following the signing of the Kyoto Protocol, which committed Britain to reducing carbon emissions, the Labour Government implemented the ‘Climate Change Levy’ (CCL). The CCL is a tax added to a businesses energy bill in proportion to the size of that bill. CCL charges are as follows:

  • Coal – 0.015pence/kWh (or 1.17pence/kg)
  • Electric – 0.043pence/kWh
  • Gas – 0.015pence/kWh
  • LPG and Petroleum – 0.007pence/kWh (or 0.96pence/kg)

The rate charged for each commodity is based on its efficiency. Electricity attracts the highest cost because so much carbon is lost in the burning of fossil fuels during its production.

The CCL is not designed to penalise businesses and any loss made through the Climate Change Levy is given back to the business through cuts in national insurance contributions. Here, fuel saving is encouraged without having an adverse effect on the economy.

Exemptions

A company can be exempted from the levy if they are obtaining electricity from a sustainable source (such as a wind or solar generator). Charities and domestic supplies are also exempt. LPG and Petroleum are exempt from the CCL when being used to fuel road vehicles.

Green Tax – Government Policy

New Labour were elected in 1997 on a manifesto that promised the implementation of ‘green taxes’ in order to promote a healthy environment. The CCL was introduced in 2001 and has overcome widespread business opposition to run effectively since then.

However, wider plans to increase tax on road fuel – in a reflection of its negative impact on the environment – met with such widespread opposition that they have been shelved indefinitely.

Both The Conservative Party and The Liberal Democrats recently unveiled radical plans to implement further green taxes, with Conservatives planning to increase road fuel tax and Liberal Democrats aiming to reduce the base rate of income tax and make up the shortfall by heavily penalising fuel users.

Although business and driver lobbies are strong, with both the consumer awareness of environmental issues and a legal commitment to meeting fuel reduction targets set under the Kyoto Protocol, it is likely that more green taxes will be introduced in the UK over the coming years.

Green Tax in Europe

In February 2006 the EU agreed to impose a green tax on air travel that will affect all flights operating within the EU. Aviation companies fear that this could double the cost of cheap flights. Such a radical policy is reflective of the mood throughout the EU, as member states lead the way in implementing green taxes, with countries such as Finland and Norway taxing household goods and domestic energy usage. It must be noted, that although Finland’s policy of green taxation preceded Britain’s by far, and is further reaching in its scope, it has had no recorded detrimental effect on the Finnish economy.