Carbon Tax and Incentives Guide


Carbon Taxes

Climate Change Levy (CCL)

This is a carbon tax paid by all businesses on every kWh of elec, gas and solid fuels purchased. It is typically the largest carbon tax in monetary values and the simplest to understand as it is charged on a £/kWh purchased basis. The charged rates vary by fuel and are updated annually.

Tariffs can be found at: https://www.gov.uk/government/publications/rates-and-allowances-climate-change-levy/climate-change-levy-rates

Discounts can be received for several reasons:


Climate Change Agreement (CCA)

Climate change agreements are voluntary agreements made by UK industry and the Environment Agency to reduce energy use and emissions. In return, operators receive a discount on CCL. The current CCA scheme runs until 31 March 2023.

For operators who hold a CCA, the CCL is reduced by:

  • 90% on electricity bills
  • 65% on other fuels (e.g. gas)

CCAs are available for a range of industry sectors: https://www.gov.uk/government/collections/climate-change-agreements-umbrella-agreements

An operator that has a CCA will measure and report its energy use emissions against agreed targets over a target period. If the operator meets its targets during the period, it continues in the scheme and is eligible for the discount on the CCL.


Carbon Price Support (CPS)

The CPS rates of CCL are paid by owners of electricity generating stations and operators of combined heat and power (CHP) stations with an installed capacity of greater than 2 MW. If you pay CPS you do not pay the main CCL rates.

This tax is complex – if you are near the 2 MW generation threshold for CPS then contact Carbon Architecture for further help/information.


CRC Energy Efficiency Scheme

The scheme applies to most large energy users in the public and private sectors. Organisations that meet the qualification criteria (https://www.gov.uk/guidance/crc-energy-efficiency-scheme-qualification-and-registration#crc-who-needs-to-register) are required to participate (everyone needing to participate will already be in the scheme), and must buy allowances for every tonne of carbon they emit. The costs are here: https://www.gov.uk/government/collections/crc-energy-efficiency-scheme

The government is closing the CRC scheme following the 2018-19 compliance year. Doing this will simplify the business energy tax landscape by replacing it with an increase in the Climate Change Levy.


European Union Emissions Trading Scheme (EUETS)

Operators that combust a large amount of fuel to generate heat must enrol in the EUETS scheme. Members of EUETS are not required to be part of the CRC scheme (the schemes have overlapping remits CRC is EUETS for smaller heat users).

The threshold for entrance to EUETS is:

  • The total combustion capacity is greater than 20MW (thermal)
  • The 20 MW is reached by aggregating all combustion units with an individual capacity greater than 3 MW (thermal)

The combustion capacity covers items including boilers, CHP, generators, furnaces etc.  This tax is complex – if you are near the 20 MW threshold for CPS then contact Carbon Architecture for further help/information.


Combined Heat & Power Quality Assurance (CHPQA)

The CHP Quality Assurance programme (CHPQA) is a government method for assessing Combined Heat and Power schemes. CHPQA monitors and rewards good operation and design of CHP systems by assessing schemes on the basis of their energy efficiency. The inputs and outputs of a CHP need to be metered to apply for the program.

CHPQA certification grants eligibility to benefits:

  • Feed in Tariff (Fit) if applicable
  • Renewable Heat Incentive (RHI) if applicable
  • CCL exemption

Generally all CHPs should be registered under the CHPQA program unless a specific reason not to is identified. The detail of the application process varies depending on the engines size and scheme complexity.

 

Carbon Incentives

Renewable Heat Incentive (RHI)

RHI is a government incentive that provides financial help to encourage the uptake of use of heat from renewable sources.

Eligible installations receive quarterly payments over 20 years based on the amount of heat generated. The payments received are fixed and based on the rate at the time of the application. There are different rates for different technology types which are changed regularly: https://www.ofgem.gov.uk/environmental-programmes/non-domestic-rhi/contacts-guidance-and-resources/tariffs-and-payments-non-domestic-rhi

The scheme covers England, Scotland and Wales. There is a separate scheme for Northern Ireland which is currently suspended due to mismanagement & misuse of the system.

To be eligible for RHI the heat must be generated by an approved technology and must be used by an eligible user. For example heat cannot be claimed on parasitic heat loads and RHI is not applicable if a renewable fuel is co-fired with a non-renewable fuel (i.e biogas co-fired with natural gas in a boiler)

RHI schemes need to have accurate measurement of the renewable heat that is used by the eligible user. This has to be actually measured and cannot be estimated. It is important to consider RHI requirements during the design phase as the application process can be lengthy and complex otherwise. It is also possible to pre-register for the scheme to ensure payments start when the equipment is commissioned.

If a renewable heat generating asset is connected directly to an eligible user (with no other heat sources) then metering is relatively simple and could be placed on either the generating asset or on the heat user. The best location is at the heat user, this is as losses then do not need to be accounted for.

If a renewable heats source is part of a larger heating system containing non-renewable heat sources then the heat has to be metered where it is generated. In this case calculations have to be performed to calculate the heat losses between generation and use (these are subtracted from RHI payments). This case is far more complex and typically an independent metering report (IRMA) has to be commissioned (contact CA for help). In this scenario it is important to minimise heat losses between generation and use. This can be done by keeping pipework or accumulators indoors (it can then be excluded) and using well insulated pipework (check guidance for what is required). Good documentation on what insulation is used should be kept.

This guide provides answers to basic questions: https://www.ofgem.gov.uk/system/files/docs/2018/05/rhi_faqs.pdf

 

Feed in Tariff (FiT)

This is a government programme designed to promote the uptake of renewable and low-carbon electricity generation technologies.

The scheme provides payments on both generation and export from eligible installations. The government announced that the FIT scheme will close to new applicants from 1 April 2019. On this date applications do not need to be finalised but must have preliminary accreditation approved. Generally this means you have to have a grid connection agreement, planning permission and have a largely finalised design. Preliminary accreditation is valid for 12 months for AD.

Eligible installations receive quarterly payments over 20 years based on the amount of electricity generated. The payments received are fixed and based on the rate at the time of the application. There are different rates for different technology types which are changed regularly: https://www.ofgem.gov.uk/environmental-programmes/fit/fit-tariff-rates

As with RHI it is important to install good metering in compliance with the scheme requirements.

This guide provides answers to basic questions: https://www.ofgem.gov.uk/system/files/docs/2018/06/fit_faq_v4_2.pdf

 


About Dan Jackson

Dan Jackson is a process and sustainability consultant. He has experience in helping clients reduce energy and cost in the NHS and across the hospitality supply chain, from breweries to pubs.