Climate Change Committee urges Treasury to use tax to achieve Net Zero

The Climate Change Committee (CCC) has published ‘Progress in reducing emissions 2022, Report to Parliament’. In part, it calls on HM Treasury to review the tax system as to how it can best support the transition to Net Zero.

The lengthy 619-page report offers recommendations for not only each government department but also industry regulators and devolved governments. 

Specifically for HM Treasury (HMT), the CCC recommends a Net Zero Tax Review should support the transition by: 

• Correcting distortions that penalise low-carbon technologies.
• Ensure that the significant consumer savings from using many low-carbon technologies are also widely enjoyed.
• Moving policy costs due to historical subsidies onto general public spending.
• Avoid carbon leakage as the UK decarbonises. HMT and the Department for Business, Energy and Industrial Strategy (BEIS) should consult on plans to implement by 2030, Carbon Border Adjustment Mechanisms CBAMs.
• Producing mandatory minimum climate-related standards on imports of selected manufactured goods and energy.
• HMT should also increase the multi-year funding commitments for decarbonisation in public buildings up to 2025.

The CCC also echoed the recent Office for Budget Responsibility (OBR) report that as the country transitions to Electric vehicles there would be a serious loss of tax revenues. To help plug holes in public finances, some form of road pricing would offset those tax losses but it warns of risks if policies are not outlined soon.

• Drivers could assume that EV driving will always be tax-free.
• There may be a perception that EVs were tax-free when richer consumers could afford them but will be taxed once they are available to the mass market.

In his foreword, Lord Deben, chairman of the CCC, said, “This Progress Report reveals that, despite important achievements in renewable energy and electric vehicles, the Government is failing in much of its implementation.”

In particular, he pointed to sharply rising fuel costs which should have given added impetus to improving energy efficiency, yet the necessary programmes are not in place. “We are still Building new homes that do not meet minimum standards of efficiency and will require significant retrofitting,” said Lord Deben.

The CCC’s key messages are summarised as follows:

• The UK Government now has a solid Net Zero strategy in place, but important policy gaps remain.
• Tangible progress is lagging the policy ambition. With an emissions path set for the UK and the Net Zero Strategy published, greater emphasis and focus must be placed on delivery.
• Successful delivery of changes on the ground requires active management of delivery risks. Not all policies will deliver as planned. Some may be more successful than expected, while others will fall behind.
• Action to address the rising cost of living should be aligned with Net Zero. There remains an urgent need for equivalent action to reduce the demand for fossil fuels to reduce emissions and limit energy bills.
• Slow progress on wider enablers. The Net Zero Strategy contained warm words on many of the cross-cutting enablers of the transition, but there has been little concrete progress.
• The UK must build on a successful COP26. The UK presidency of the UN COP26 climate summit in Glasgow last November successfully strengthened long-term global ambition and introduced new mechanisms to support delivery. It should prioritise making those new mechanisms work in practice and strengthening global 2030 ambition while preparing for a focus on climate finance and adaptation at COP27 in 2022 and COP28 in 2023.

Useful guides on this topic

Electric Vehicles: Update 2022
With the increased recent focus on climate change and the government’s plan to ban new petrol and diesel car sales by 2030, we provide an update on the tax issues businesses and their employees should consider when acquiring or providing an electric vehicle.

Company cars
Company car tax. How do you work out car benefit? How do you work out car fuel benefit? Are there savings for low-emissions vehicles? How do you reduce car benefit? Cars and the tax tribunals and Top Tax Tips.

Enhanced Capital Allowances: Energy saving plant (inc. vehicles)
What are Enhanced Capital Allowances (ECAs)? What is energy-saving plant and machinery? What allowances are available?  

Energy-Saving Materials
The supply and fitting of energy-saving materials in residential accommodation attracts a reduced rate of VAT. What does it apply to? What are the qualifying conditions? What case law is there on this topic?

External link

OBR report: ‘Fiscal risks and sustainability’ July 2022 

Climate Change Committee (CCC):‘Progress in reducing emissions 2022, Report to Parliament’.