What exactly is the Climate Change Levy?
Essentially, the Climate Change Levy is a special tax placed on the energy which firms use. It is designed to help firms to be environmentally friendly in how they work, and also helping to cut their overall carbon emissions. This has become important with the recent focus on green living and working and has been put in place in order to compensate for the increased demand for low carbon energy.
How does the Climate Change Levy work? Firstly, there are two main parts. A carbon pricing mechanism is implemented, meaning that firms who emit a certain amount of carbon will have to pay a fee to the government every time they produce or generate a certain amount of carbon dioxide. A similar mechanism is also used when firms produce or generate any other kind of greenhouse gases. In addition to paying a fee, firms are also required to cover a cost called a carbon offset. This is a fixed cost, which is taken into account when calculating a firms actual Carbon Price.
What kind of firms are involved in the scheme?
In essence, anyone who wants to participate in the scheme must be registered under the Companies Act along with UK non-domestic companies, and all UK domiciled firms. However, it is important to note that this is not the case everywhere in the UK, and some regions may differ slightly. An example of this is in the East Midlands where energy-efficient homes are not considered a form of industry.
What does the scheme entail? Basically, firms need to ensure that a certain proportion of their emissions are offset by using alternative energy sources, meaning that a high percentage of their emissions are replaced by green sources. If the firm produces or generates a large amount of carbon dioxide or methane, they need to pay a carbon dioxide and methane levy. These taxes are in addition to the normal tax and are calculated by the amount of energy the firm uses. If the company uses more than 4 billion kilowatt hours a year, then they will have to pay a higher rate.
the firm is still obliged to pay the Climate Change Levy
When considering the use of renewable sources of energy in the UK, it is essential to consider whether this can be offset. If a firm produces more electricity than it consumes, then the excess can often be sold to the grid, providing an opportunity for offsetting. The second condition for companies being granted the Climate Change Levy is that they have to generate the majority of their electricity from renewable sources. The first condition, however, means that if a firm produces less electricity than it uses, then it has to compensate for the carbon dioxide and methane accounts. However, even if the amount is less than zero, the firm is still obliged to pay the Climate Change Levy, in order to ensure that its carbon emissions are controlled.
As the UK government prepares for the next phase of the global warming agreement, one thing is for sure. The government is serious about reducing the harmful effects caused by greenhouse gas, but it will not be able to do so unless a firm commits itself to reducing its overall greenhouse gas emissions. If a company is still unwilling to make such an effort, then perhaps it should start considering the options provided by the climate change levy. The citizens of the UK may not like the Climate Change Levy, but at least they will be able to breathe easy knowing that their energy suppliers have an obligation to keep their air clean.