Introduction

There are many vital issues affecting an industry which influences the lives of everyone, from our impact on the environment (and the measures underway to mitigate this) to the importance of our industry to local communities.

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The levy package

Following the recommendations as stated by Lord Marshall’s report, the Government has taken into account that any tax needed to be designed in a way that protected the competitiveness of UK firms. The Government therefore agreed to return revenues from the levy to the non-domestic sector, primarily through a cut in the rate of employers National Insurance Contributions of 0.3 % points. Following the 2002 Finance Act, this rate has been subsequently increase by 1% reversing the reduction. Part of this revenue is used to fund a number of energy efficiency initiatives, such as the ‘Carbon Trust’. 

Certain businesses are set to benefit from schemes aimed at promoting energy efficiency and stimulating the take up of renewable sources of energy, in particular solar and wind power, where £50 million per annum of revenue will be allocated to such schemes, which is a massive increase from its current levels of funding. An additional scheme has also been set up of 100% first year capital allowances for certain energy saving investments, which is expected to be worth approximately £70 million in 2001/2002.

Rates and application of the levy (1st April 2008)

All parts of the non-domestic sector (including business, agriculture, and the public sector) will have to pay the levy, for which the rates apply as follows:

In the 2006 budget it was announced that the levy would in future rise annually in line with inflation, starting from April 1st 2007.

Exemptions from the levy

The Levy does not apply to fuels used by the domestic or transport sector, or fuels used for the production of other forms of energy (e.g. electricity generation) or for non-energy purposes. The levy also doesn’t apply to energy used by registered charities for non-business uses, and energy used by very small firms, i.e. those using domestic amounts of energy. In addition the levy does not apply to oils, which are already subject to excise duty.

There are also several exemptions form the levy, including:

• Electricity generated from new renewable energy (e.g. solar and wind power)
• Fuel used by good quality combined heat and power (CHP) schemes
• Fuels used as feedstock
• Electricity used in electrolysis process

There is also an exemption for natural gas in Northern Ireland for up to 5 years and a 50% discount for horticulture in this period.

Energy intensive sectors and climate change agreements

The Government does, however, recognise that such a scheme would be seriously damaging to energy intensive sectors. Therefore, the Government has provided an 80% discount from the levy for those sectors that agree challenging targets for improving their energy efficiency or reducing carbon emissions. These Climate Change Agreements have now been concluded with almost all eligible sectors.

A facility is deemed eligible to join an agreement if it is regarded as an installation where an activity is covered by Part A (1) or A (2) of Part 1 of Schedule 1 of the Pollution Prevention and Control (England and Wales) Regulations 2000, as amended by the Pollution Prevention and Control (England and Wales) (Amendment) Regulations 2001. This criterion applies throughout the UK. Sites operating Part A PPC activities will be subject to a legal requirement to use energy efficiency - other sites are not subject to this requirement. Small sites which fall below PPC size thresholds (with the exception of thresholds relating to combustion plant), but which would otherwise be covered by the proposed regulations, will also be eligible for the relevant sector agreement. The regulations cover the main energy intensive sectors of industry, and in agriculture, livestock units for the intensive rearing of pigs and poultry.  

There are 10 major energy sectors - (aluminium, cement, ceramics, chemicals, food & drink, foundries, glass, non-ferrous metals, paper, and steel) and over thirty smaller sectors (including lime). Overall, Defra has responsibility for the climate change agreements with these sectors. Agreements have been negotiated and made between sector trade associations, such as the Quarry Products Association (QPA) on behalf of the companies involved.

These sector associations have also agreed to include non-members in the agreements and not to disadvantage them in comparison with their original members. Overall, the Governments objectives are to establish demanding yet achievable energy efficiency or carbon saving targets with each sector, requiring the implementation of all cost-effective energy efficiency measures by 2010. 

The British Lime Association (BLA) - covered by the QPA, have opted for a two tier agreement; comprising an umbrella agreement between the Secretary of State and association and sub-agreements (‘underlying agreements’) between the Secretary of State and individual companies. The Secretary of State will therefore assess companies’ performance against their individual targets if the sector target is not met.

This type of agreement has been preferred by most sectors as it generally possesses a common template which can be modified where necessary to reflect the particular circumstances of the sectors concerned and contain specific targets, conditions, etc.

The umbrella agreement for the lime sector can be found at: www.defra.gov.uk/environment/climatechange/uk/business/ccl/pdf/202bla.pdf

The current agreement does not give rise to contractual obligations, meaning the lime companies involved can drop out at any time. If a facility does not meet its targets in any target period, it will however, lose the discount for the next certification period (i.e. for the next 2 years). It may however, remain in the agreement and attempt to regain the reduced rate of levy during the subsequent period by catching up on the target.

Targets

Lime sector targets have now been negotiated and agreed with Defra, who have been assisted by AEA Technology who have provided advice on energy efficiency to Defra and to business for many years. For the main sectors of industry, AEA have even produced scenarios of energy efficiency trends to 2010 of which have been used as the basis for negotiating the targets. Targets have then been derived at sector level by negotiating what percentage improvements can be made, in a cost effective manner.