Confederation of Paper Industries (CPI) calls on the Government not to add a new layer of cost and complexity to the operation of Combined Heat & Power (CHP) plants.
From April 2013, the Government is planning to instigate a new policy called the Carbon Price Floor (CPF) which is designed to drive up the cost of using fossil carbon when used to generate electricity. The CPF starts at £16 per tonne of CO2, and then ramps up annually to reach £30 in 2020 and £70 in 2030.
The intention of the policy is to incentivise investment in low-carbon electricity generation as part of a package of reforms to the electricity market (EMR). The Government intends to include industrial electricity generation within the scope of the taxation, even though it then plans to rebate most of this cost back to operators of installations at risk of carbon leakage.
CPI urges the Government to incentivise CHP operation by simply exempting it from new taxation arising from CPF or as a minimum, only to apply the taxation to the portion of fuel relating to electricity exported to the grid. Electricity generated and used on-site does not enter the market; it is an integral part of the manufacturing process and so should not be subject to CPF taxation as part of EMR.
This is even more pertinent in the case of electro-intensive installations (such as Paper Mills), because while Treasury is busy developing complex rules to apply the new taxation, other parts of Government are settling equally complex rules to refund most of this new cost back to the Paper Mill. Common sense says if it's not applied, there's no need for it to be rebated!
David Workman, Director General, CPI commented:
"If the Government is serious in its aspiration to re-balance the economy then applying CPF taxation to CHP makes no sense as it's a new tax not applied outside the UK. Likewise, if the Government has a real commitment to slashing red tape then a completely new policy measure requiring a complex administrative system to collect the tax and an equally complex administrative system to return most of the tax to the payer is simply not sensible".