The U.K. Offshore Operators Association told the government its proposed climate-change levy would fail to reduce greenhouse gas emissions as intended while hitting the energy industry hard.
Following a Department of the Environment consultation paper in February, H.M. Customs and Excise drew up a plan to impose a tax on energy users aimed at reducing overall energy use as a means of reducing emissions. Ukooa said the taxation plan proposals ignore the findings of the environment department's earlier consultation and "compare poorly with Treasury's general tests of good taxation."
The operators complain that the proposals would have limited effect at a high cost. Ukooa reckons the proposals would lead to 1.5 million metric tons of carbon being saved at a cost of £1.75 billion.
"That is a cost of £1,166/ton, on average," said Ukooa, "compared with a traded cost of about 1% of that. This demonstrates clearly that the tax is wholly disproportionate to the anticipated benefit to be gained and suggests, therefore, that it is a most inefficient way of achieving the designed environmental aims."
The operators point out that, during 1990-97, Britain reduced its emissions of greenhouse gases from power stations by a total 12 million tons as a result of building gas-fired plants instead of coal-fired.
As with government's current moratorium on building new gas-fired electricity generating plants, Ukooa complains that the climate-change levy proposals again overlook the major benefits of natural gas: "The U.K. could not have accepted the Kyoto target, nor would the country be well on its way to achieving the desired results-one of the few to meet the interim Rio target-without the contribution made by natural gas produced from the U.K. continental shelf.
"However, the (proposed) climate-change levy will have a substantial effect on the price of gas for industry and commerce and, as a result, a potentially significant reduction in demand for this clean fuel.
"The levy is in the form of an energy, as opposed to a carbon, tax that will therefore affect clean and efficient gas as much as more carbon-intensive fuels-a perverse outcome. This will discourage further gas investment in the U.K. and reduce the number of jobs in the industry. It also taxes nuclear, hydro power, and other renewables without any rational basis, except administrative ease, which would hardly seem to be in keeping with the intended purpose of the levy.
"All of this sends the wrong signals in trying to encourage changes in behavior, so as to achieve the objective of reducing emissions of greenhouse gases and meeting the government's international targets for 2008-2012."
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