A percentage of energy bills comprises of environmental charges, these charges are costs associated with schemes that are aimed at promoting efficient use of energy, reducing greenhouse gas as well as funding renewable energy generation.
Environmental schemes that affect Industrial and Commercial companies include:
- Feed-in Tariff scheme (FITs)
- The Renewables Obligation (RO)
- The Climate Change Levy (CCL)
- The CRC Energy Efficient Scheme (CRC)
- The EU Emissions Trading System (EU ETS)
- Renewable Heat Incentive (RHI)
The EU Emissions Trading System (EU ETS) is the foundation of the European Union’s policy to combat climate change in adherence to the Kyoto Protocol. The main objective of the scheme since it began in 2005 is to reduce industrial greenhouse gas emissions. The EU ETS works on the ‘cap and trade’ principle; so there is a cap or limit on the amount of carbon dioxide (CO2) emitted by the organisations under this scheme.
Whereas the Climate Change Levy (CCL) is an environmental energy tax for electricity, gas, solid fuels like coal, lignite, coke and petroleum coke. It is aimed at encouraging businesses to reduce their energy consumption as well as use energy from renewable sources.
On the other hand, The CRC Energy Efficient Scheme (CRC) is a mandatory scheme aimed at improving energy efficiency and cutting emissions in large public and private sector organisations. In addition to reducing their emissions, this scheme enable organisations to save money as it reduces their energy bills.
The CRC scheme applies to emissions not already covered by the Climate Change Agreements (CCAs) and the EU Emissions Trading System (EU ETS).
The Renewable Heat Incentive (RHI) is a scheme set up by the government to encourage the uptake of renewable heat technologies amongst businesses. Businesses’ that generate and use renewable energy to heat their buildings gets a financial reward from this scheme. The RHI helps the UK reduce its greenhouse gas emissions and enables them to meet their target for reducing climate change.
Renewables Obligation (RO) is the main policy in place introduced by the government to support renewable electricity projects in the UK. High energy users pay around 8% in Renewables Obligations (RO) charges. It is designed to encourage licensed electricity suppliers to source a fraction of their electricity from a renewable source.
Feed-in Tariff Feed-in-Tariff (FITs) is an environmental programme introduced by the government to encourage the uptake of small scale renewable and low carbon electricity generation technologies. Therefore consumers who generate their own electricity either with solar panel, wind turbines, hydroelectricity, micro combined heat and power (CHP) and many more will receive a monetary reward from their energy supplier.
Overall, these environmental charges represents a significant cost to organisations, yet with good planning and skilful contract negotiations these levies and taxes can be hedged and/or replaced in contracts.
RO and FITS levy rates are only published by the government 6 months in advance but energy suppliers can be convinced to negotiate them long term (2/3 years) at least, giving organisations budget certainty for the period.
CCL tax can be exempted by requesting the Supplier to offer a Green or Renewable contract, which allocates the organisations power usage from its green or renewable power sources. These CCL exempt contracts are the same or sometimes lower in cost and have much needed CSR green credentials for the organisation.