UK parliamentarians criticise energy tax plan

MPs worry that climate change levy could be too blunt, cast doubt on voluntary agreements

A UK parliamentary committee has criticised government proposals for an energy tax, saying the measure could be a "blunt instrument" that might do "considerable damage" to some economic sectors. In a report published on Monday, the House of Commons industry committee also claimed that there was a "logic deficit" in the government's plan to tax all energy sources equally regardless of their contribution to climate change.

Dubbed the climate change levy, the government's proposed tax is expected to raise about UK£1.75bn (euros 2.67bn) annually, which would be used to cut employment taxes. The plan has been welcomed by environmental groups but strongly criticised by industry groups, with energy intensive industry sectors to the fore (ENDS Daily 10 March).

Echoing calls already made by energy intensive industries, the parliamentary committee argued that was "imperative" that special provisions were made for these sectors in order to minimise damage to their international competitiveness. The UK Chemical Industries Association (CIA) said yesterday that it was "delighted" by the committee's conclusion.

Tackling another key strategy being pursued by the government in tandem with its tax proposals, the committee went on to voice "concern" at the efficacy of voluntary agreements for reducing greenhouse gas emissions. Such an approach was largely "untested," the MPs said, while results so far from an existing agreement between the government and the CIA were "less than persuasive".

Besides funding cuts in labour costs, the committee said, the government should propose more "subtle" means of recycling tax proceeds to industry. In particular, it said, there should be serious consideration of creating tax incentives for the promotion of energy efficient investments.

The committee also refused to endorse industrial hopes that future trading of greenhouse gas emissions could avoid the need for taxation altogether (ENDS Daily 30 June). The climate change levy could not be "dismissed as a short-term measure" to be abolished once trading began in earnest, it concluded.

Finally, the MPs questioned whether the tax should cover all forms of energy equally. The government had not made a convincing case for ruling out an exemption for nuclear power, it said. The committee also argued that some renewable energy facilities should be excluded, while cogeneration plants should be offered fiscal support.

Follow Up:
House of Commons industry committee, tel: +44 171 219 5777. References: "Impact on Industry of the Climate Change Levy".

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