Business Energy Efficiency Tax Reform

Following the Chancellors announcement of the Summer Budget, in which he said energy policies and regulations would be subject to review, HM Treasury has launched a consultation to seek opinions on its proposals to reform the business energy efficiency tax landscape.

The government is looking for feedback about what data should be collected and made public, and whether new regimes, rates and incentives should require signing-off at board level.

The proposals are as follows:

Reporting, Tax and Incentive Reform

Single Reporting Scheme

The government is suggesting the implementation of a single reporting scheme to simplify the management of energy and emissions from businesses. At the moment there are a number of different frameworks in use. The Energy Savings Opportunity Scheme (ESOS) legislates that certain undertakings in the UK are obligated to calculate their total energy consumption and provide a voluntary framework for them to be audited.

Many companies are also subject to the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), while mandatory greenhouse gas (GHG) emissions reporting was introduced in 2013, requiring all UK-based business to add their emissions to their annual reports.

The idea behind the government scheme is to incorporate all of the most effective elements of these schemes into a single reporting framework. The preferred method at the current time is to adopt a framework in line with ESOS in order to significantly reduce compliance costs.

Single Tax

As a response to the following criticisms of the current system, the government is proposing a single tax. The complaints were:

a) The rates of tax paid for carbon emissions varies significantly across different business types and fuel types.

b) The current system is too complex. The new proposal is to abolish the CRC, which requires businesses to monitor their energy use and report it along with their purchase allowances for the carbon they emit. Instead the current business energy consumption tax, known as the Climate Change Levy (CCL), will be broadened in its reach.


The new proposal accepts that long-term cost savings have not been attractive enough to bring in new investment into new technologies. The proposal suggests that new incentives should be introduced, to be funded by the revenues from the new streamlined tax programme.

The Climate Change Agreements (CCA) scheme that is currently in place has been criticised for not offsetting the competitive disadvantage of having to pay the CCL. The current CCA scheme provides eligible sectors with a discount on their CCL rates if they meet efficiency targets but has been accused of allowing businesses to secure CCAs with only marginal energy efficiency improvements.

The consultation over the new proposal is set to close on 9 November 2015 and the response to the input will be included in the 2016 Budget. It is likely that any changes to the schemes will come into force in 2017 at the earliest, due to this short timeframe, and until that time ESOS and CRC compliance requirements will remain applicable.

Any changes made by the government to reduce the complexity for businesses to comply with climate change targets will be a welcome change however. The next step is for the government to follow through with an effective reform.

Catalyst’s View

The original idea behind the CCL charge was a visible tax on energy use that would encourage businesses of all sizes to use less energy. In reality this has just become another tax that has blended into the background over time.