UK advisory body calls for energy taxation

Government-appointed body suggests revenue neutral tax, no exemptions for big energy users

The UK should tax commercial energy users to meet its commitments under the Kyoto Protocol, a business taskforce said yesterday. The group was commissioned by UK finance minister Gordon Brown to study the role economic instruments could play in reducing national greenhouse gas emissions (ENDS Daily 17 March). In his annual pre-budget statement yesterday, Mr Brown said the government would consider the taskforce's recommendations "very carefully" when developing its national climate change strategy.

According to the taskforce, which is headed by British Airways chief Colin Marshall, all revenue raised by an energy tax should be recycled back into industry. Some should be channelled into energy efficiency and schemes to reduce emissions, it says. Money should also go to help small and medium sized businesses (SMEs) adapt to the new charges. The taskforce argues against exempting energy-intensive industries, suggesting a system of rebates instead to help reduce adverse economic impacts on these sectors.

Lord Marshall also recommends that the tax reflect "in broad terms," the carbon content of different fuels to encourage more take-up of renewables and combined heat and power (CHP). Nuclear energy should be taxed, even though it produces no greenhouse gas emissions, on account of the long-term environmental problems connected with nuclear power, he says.

A national system of tradable emissions permits would take too long to establish to help with the Kyoto targets, the taskforce concludes. Moreover, it would be too difficult to integrate SMEs and less intensive energy users, which together produce 60% UK greenhouse gas emissions, into any scheme. Lord Marshall yesterday admitted that his advocacy of taxation had made him "not popular" with the Confederation of British Industry (CBI), which has championed trading over taxes.

Lord Marshall also tried to still critics who claim an energy tax would harm the competitiveness of UK companies. He pointed to the many EU member states who already have some sort of energy tax in place and to the tax increases planned by the new German government. However, he did ask the government to give industry "clear signals" of future policy and to introduce measures gradually in order to allow adaptation.

As well as welcoming the taskforce's conclusions on economic instruments, yesterday's pre-budget statement also included proposals to reduce vehicle excise duty on the smallest, most efficient cars.

Nevertheless, the statement provoked widespread criticism from environmental and social groups, who believe that the government is continuing to shy away from environmental pledges it made in its election manifesto (ENDS Daily 10 March). Pressure group Friends of the Earth (FoE) accused Mr Brown of "fiddling while the planet burns," and said he had failed to address pesticide and aggregate taxation, which were promised in the last budget.

Follow Up:
UK finance ministry, tel: +44 171 270 4558. References: "Economic instruments and the business use of energy."

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