New tax allowance for onshore oil and gas, Green Deal reform, and £5 million investment in large-scale electric vehicles…these are just some of the proposals in the Autumn Statement 2013 delivered by the Chancellor of the Exchequer on 5 December 2013.
Shale gas tax allowances
One of the most significant announcements was the introduction of a new tax allowance for the exploration and development of shale gas in the UK, which the Government hopes will encourage global operators to invest in the UK’s indigenous oil and gas resources. In addition to a generous tax reduction from 62 per cent to 30 per cent, companies will receive an allowance equal to 75 per cent of their capital spend on shale gas projects. According to the Chancellor, this move would make the UK’s tax regime the most generous in the world.
CRC Energy Efficiency Scheme
Of particular importance to the carbon market is the confirmation that the price of allowances under the CRC Energy Efficiency Scheme for 2014/15 will be set at £15.60 per tonne of carbon dioxide in advance of the forecast sale, and £16.40 in the buy-to-comply sale. Readers should note that the Autumn Statement document refers to CRC allowances as an environmental tax, although in practice the scheme is treated by landlords and tenants as a matter of energy usage, and the scheme does not form part of the Finance Bill 2014. Given the forthcoming registration deadline for the Initial Phase of the CRC, this updated classification may impact how responsibilities are defined in tenancy agreements.
Climate Change Agreements
The scope of Climate Change Agreements (CCA) will be extended to cover the data centres sector by the end of 2014, along with other energy intensive sectors already in the scheme. From 1 April 2014, the Government will also introduce a mixed use exemption from the Climate Change Levy (CCL) for solid fuels used in certain gasification processes. The exemption would include coke, coal and anthracite used partly as fuel and partly for their structural properties as a bedding agent in gas extraction from waste.
The Energy Companies Obligation (ECO) scheme requires energy companies to improve energy efficiency for low-income households. It is designed to help means-tested customers fund insulation measures. The ECO covers those customers who will not be able to benefit from the Green Deal as their income is not appropriate for the loan arrangements underlying the Green Deal.
The Chancellor announced plans to revise the ECO as part of this loan to reduce annual household energy bills by £50. To achieve these savings the ECO scheme will be extended to March 2017 giving energy suppliers an additional two years to meet their ECO targets.
The detail on the ECO reforms will be released in a consultation in the spring of 2014. The issue here is that energy suppliers will face pressure to decrease their charges prior to the changes to the legislation being made. Both the energy companies and anyone involved in the ECO arrangements will need to be alive to the changes being reported as they impact on contracts that have already been signed but which were designed to meet the original 2015 deadline.
The Chancellor announced the Government’s intention to simplify the Green Deal scheme, which has so far been implemented with low uptake, partly due to the interest rates payable on Green Deal loans. Given the current level of mortgage rates, it has been cheaper for consumers to extend their mortgages to install these types of measures.
Some changes proposed for the Green Deal involve amending the golden rule and the legislation to allow both landlords and tenants to benefit from the scheme; extending the list of energy improving measures available as part of the Green Deal, and improving the finance offer that the Green Deal Finance Company is able to provide. Further, the Government will consider providing funding to private landlords through the Green Deal to enable them to achieve minimum energy efficiency standards by 2018, as required by wider energy efficiency policies.
No reform measures have been introduced in relation to levies for renewables and other low-carbon technologies which are being dealt with separately by the Department of Energy and Climate Change. This also means that there will be no cut or removal of the Carbon Price Floor (CPF) as had been hoped for by the coal mining sector and some energy intensive industries. For further details on the energy market reform please continue reading the Energy and Projects section of this newsletter.
Following the Autumn Statement, HMRC published the Draft Finance Bill 2014 for consultation on 10 December 2013 which includes proposals set out above. The draft legislation is available for comments until 2 February 2014.