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Is the Climate Change Levy successful at encouraging businesses to be more energy-efficient?

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Authored by Liberty Davidson

The climate emergency is something we have seen coming for some decades now, with the damning effects on our natural environment becoming impossible to ignore. Simply being aware of climate change is no longer good enough and the world’s governments are increasingly asking the question: what can we do to encourage significant transformation?

One issue facing the UK Government is businesses’ overconsumption of energy, which is most often fueled by coal and goas. With the announcement at COP26 that UK firms will be forced to show how they will hit Net Zero, encouraging businesses to be more energy efficient in how they operate, as well as helping to reduce their overall emissions, will be crucial.

That is where the Climate Change Levy comes in, to encourage businesses to be more environmentally friendly in their daily operations.

What is the Climate Change Levy?

First introduced in 2001, The Climate Change Levy is a government-imposed tax charged on the energy that businesses use. It applies to business in the industrial, public services, commercial and agricultural sectors and is charged on heating and lighting.

Has it been successful?

While controversial at the time the Climate Change Levy remains in place to this day and has undergone several changes to contribute to greater energy efficiencies. However, the National Audit Office cannot discern the overall effectiveness of this Levy since its introduction.

Despite rising awareness of the impact that business energy consumption has on climate change, its impact on energy prices has been limited and is even argued to no longer drive new energy efficiencies.

The cumulative carbon savings achieved by this Levy cannot be measured either. It can only be estimated due to the existence of other policies and drivers that contribute to the UK’s carbon savings. Therefore, it is extremely difficult to say whether this Levy alone has been an overall success.

There are a few reasons for the difficulty in measuring its success, such as the possibility that businesses are somewhat unaware of the actual cost of this Levy, as it is not usually paid directly by businesses to HMRC. If a policy is to be encouraging and effective, full cooperation from the players involved is needed.

What happens next?

As time goes on, we are increasingly seeing the severity of our climate situation, with a recent IPCC report signalling a ‘code red’ for humanity. Without the full collaboration from businesses, we are heading towards a significantly worsening situation.   However, this is not to say that all hope is lost. Government working in tandem with businesses is a crucial step in our road to further reducing greenhouse gas emissions and undoing the harm we are causing the planet. While tax and levies alone are not enough to save the world, without such legislation to encourage greener business practices, the UK will struggle to meet its commitments to Net Zero by 2050.

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