Levy anti-competitive for aerospace industry?

Citation

(2000), "Levy anti-competitive for aerospace industry?", Aircraft Engineering and Aerospace Technology, Vol. 72 No. 5. https://doi.org/10.1108/aeat.2000.12772eab.014

Levy anti-competitive for aerospace industry?

Levy anti-competitive for aerospace industry?

Keywords Environment, European Union, Aerospace industry, Legislation

The climate change levy (CCL), to be introduced in April 2001, could prove anti-competitive and seriously disadvantage some UK aerospace companies in more ways than one, according to leading industry and legal experts.

The proposed levy has already been softened by the Government's announcement of rebates of up to 80 per cent for intensive energy users.

The UK is the only EU member state where the domestic sector has been excluded from the proposed climate change levy. This has clear implications for UK industry, as businesses will effectively be required to pay higher premiums in order to meet the challenging Kyoto emissions targets. This in turn could directly impact their ability to compete in world markets.

Stuart Jackson of Energy Services, one of the UK's leading energy management service providers, is urging companies and organisations to prepare for the levy now. He says, "It is important that UK businesses and other organisations do not procrastinate when they could start preparing now by installing effective energy monitoring systems which will enable them to assess where they are able to save energy and demonstrate that they are doing so. It would be foolish to wait until 2001 to put these plans in place".

In the future, the levy could also bring disproportionate benefits for some companies as a result of sector-based agreements as energy usage can vary significantly among companies within specific sectors.

For example, the chemicals industry is subject to an 80 per cent rebate, which is fair for those companies such as fertilizer manufacturers where the energy bill accounts for around 8 per cent of turnover. However, the same rebate applies to all the others in this sector, even the soap manufacturers whose energy bill is only 0.8 per cent of turnover.

Dr David Gordon, associate partner and environment law specialist at European law firm, Eversheds, comments: "The sector-based approach could impede competition and reduce the effectiveness of the tax as well as its effectiveness as a means of encouraging energy conservation.

"The EC Directive on integrated pollution prevention and control (IPPC) will be used to define which businesses will qualify for the lower rates of levy if they participate in a sector-based agreement. At the moment it is not planned to differentiate companies within each sector."

For many companies, emissions trading within each sector could be the solution and as electricity producers are exempt from the Levy, the potential for trading emissions permits in electricity is considerable. The UK is leading the way in emissions trading and should be able to reap the first mover benefits from the end of 2001.

Stuart Jackson of Energy Services explains: "While it is still early days and the nature of energy agreements is far from clear, it is likely that some companies may use emissions trading as a means of reducing the cost of the levy which could help them to remain competitive.

"In the meantime, companies should start by putting in place efficient energy management procedures. They will then be ready and able to take advantage of any opportunities and consider joining one of the emerging emissions trading groups in the future."

Dr David Gordon concludes, "Aerospace companies need to plan ahead. For some, trading will be a necessity so they can achieve tough emission and/or energy targets, avoid a destructive tax and play their part in combating climate change. Unfortunately, until the emissions trading can prove its worth, the levy will still look to many like a disguised increase in VAT on business rather than a tax intended to save the environment".

Details available from Energy Services (UK) Ltd. Tel: +44 (0)121 585 4000; E-mail: enq@energy-services.co.uk