Climate Change & the Budget 2011

Climate Change Agreements & the Budget 2011

There were a number of very interesting announcements in the recent budget and it will probably take some time before the full impact can be assessed. The main points in respect of climate change agreements and energy consumption are as follows:

1 - Carbon Price Floor

A minimum price for carbon will come into effect from 1^st April 2013. This will start at £16 per tonne of CO2 and will increase linearly to £30 per tonne of CO2 by 2020. This new mechanism will take the form of a tax (climate change levy or fuel duty type of tax) charged on fossil fuels used for electricity generation. The actual rate charged will be calculated according to the carbon content of the fuel used to generate the electricity and the expected price of EU allowances. This tax is likely to add between 2 to 3% to the price of electricity.

2 - Combined Heat and Power (CHP)

Electricity generated from CHP and supplied indirectly to energy consumers will no longer be levy free as of 1 April 2013. Clients who are currently signed up to receive CHP electricity via a supplier, therefore avoiding the CCL charge, will no longer receive this benefit from 2013.

3 - Carbon Reduction Commitment (CRC)

It was confirmed in the budget that CRC Allowances will be priced at £12/tCO2, although it did not stipulate how long the price would remain at this level. This price level is as expected, but the mechanism for 2013/14 is as yet unclear and is to be consulted on this year.

4 - Climate Change Agreements

Rates of CCL to non-domestic consumers of electricity and gas remain at published levels, to be increased by RPI from 1 April 2012.

To mitigate the cost of the Carbon Price Floor to large industrial consumers, the discount level to CCL for industries with CCAs will be returned to 80% from 1 April 2013, for electricity only. It was also announced that CCAs are to be extended to 2023 and a consultation on simplification will be published by summer 2011. This move is designed to mitigate the effect of carbon price support to energy intensive industries.