The government’s decision last year to remove the exemption for renewable energy from the Climate Change Levy (CCL) has substantially reduced the tax incentives for businesses to invest in large scale schemes, according to a senior environmental tax manager.
According to John Brewis, senior manager in the PwC indirect taxes team specialising in environmental taxes and chair of the Chartered Institute of Taxation environmental taxes working group, the decision to remove the exemption has left a sparse tax environment for businesses looking at renewables.
"With the sudden withdrawal last year of the CCL renewable source exemption, the availability of specific tax incentives to enter into large scale renewable schemes seem to be very limited now,” he told Clean Energy News.
Previously firms were able to avoid the tax on business energy use by sourcing their electricity from renewables. However, the chancellor announced as part of his summer Budget last year that energy produced after 1 August 2015 would not be eligible to receive Levy Exemption Certificates.
George Osborne said the decision was to “correct an imbalance in the tax system” and help ensure support for low carbon generation provided better value for money for UK taxpayers.
However, Brewis believes the decision has not only reduced incentives for renewable-sourced power, it has also contributed to the damage in investor confidence caused by recent overall changes to green policy.
"The renewable energy sector has seen a pretty dramatic shift in government policy over the last year or so,” he said. “In recent years the UK has been an attractive place to consider for renewable energy investment, however with the recent policy and relief changes announced, investors may start looking elsewhere.
“Major investment decisions require certainty over longer term government policy and where the goal posts lie, and with the long term picture still out of focus, there is a risk that the current level of uncertainty could result in projects being put on hold, or investors turning their focus on other territories.”
Brewis’ comments reflect those of the recent report from the Energy and Climate Change select committee, which claimed the government’s overhaul of renewable energy subsidies since being elected in May 2015 had spooked investors.
“In my field of environmental taxation there has been a need for some time for a clear government policy road map for future policy not just regarding energy taxation [and] CCL but also how the rest of environmental taxation might look over the coming years,” he added.
However, Brewis – who worked for HMRC for over two decades - added that planned increases in Climate Change Agreement (CCA) discounts to reflect rising CCL payments, combined with increased activity by HMRC looking at relief claimants, “is only likely to increase the focus on compliance from both sides.”
As CCAs are given in exchange for promises to reduce energy use and carbon emissions, greater use of renewables could be incorporated to meet these conditions.