Facing up to the full cost of CCL in the UK

This week’s rescue of the Kyoto treaty on climate change, minus the participation of the US of course, was a case of high drama on the world stage. The treaty was pulled back from the brink, albeit in a watered down form, after marathon talks and much diplomatic posturing.

While the US believes the protocol would hamstring industry, two reports published by the Worldwide Fund for Nature suggest that in the long term Japan and Europe will benefit economically. Their market share of new environmentally-friendly technologies will increase, and the demands of reducing greenhouse emissions will stimulate the development of more efficient means of production.

However in the short term, when it comes down to the nitty gritty, there will be difficulties.

The full cost of the climate change levy in the UK, which has been estimated to add an average 15% to energy bills, is now being calculated by the EEF.

The figures look complex. companies are only just beginning to try to find their way through the highly-complex and uncharted waters of negotiated agreements – which lessen the impact of the levy in return for pollution reduction – and emissions trading, the planned exchange of pollution ‘permits’ between companies.

The agreements, which can allow businesses a reduction of up to 80% of the levy, have been a tricky issue in the government’s somewhat puzzling creation of the levy.

Negotiated agreements have been most notable for their exclusions rather than inclusions in a system which is intended to reduce emissions. Non-polluting and energy-efficient businesses have looked on in disbelief as the levy breaks accrue to the more traditional smokestack end of industry. Their confusion has been compounded by anomalies such as the ability of the horticultural industry to claim a 50% discount on the grounds of international competition.

The strange application of negotiated agreements has arisen from the decision to structure the levy on the application of existing pollution laws – the Integrated Pollution Prevention and Control legislation. Or rather, to make life even more interesting it has been structured on the application of some of those laws.

Emissions trading, which is aimed to begin next year, is poised to cause yet more frustration. Its draft rules intend to bar firms which have arranged negotiated agreements based on production levels – for example an x% reduction per widget – but include those which pledge an overall cut in emissions.

During its formation, the levy has become one of the most vilified of business taxes. The controversy is unlikely to die away as the tax shifts from an unpopular plan to an everyday reality. It is likely to be a key priority for the EEF and other business organisations as pre-budget submissions begin.Christine Buckley is industrial editor of The