Skip to content
Northern Powerhouse European Union

Green business needs more carrot, less stick, says EEF

Ahead of the Government’s upcoming energy taxation review, a new report from the manufacturers’ organisation, EEF, argues that more financial incentives are needed to encourage green business.

Ahead of the Government’s upcoming energy taxation review, a new report from the manufacturers’ organisation, EEF, argues that more financial incentives are needed to encourage green business.

EEF, which recently ran a survey that found that nearly three quarters of manufacturers want wide-sweeping legislative reform on environmental regulations, suggests that the Government should move away from using green taxes which penalise businesses on their energy use and instead use tax incentives to encourage green investment. 

Energy efficiency review

The report, The Low Carbon Economy – From Stick to Carrot, is the organisation’s response to George Osborne’s Summer Budget, which pledged to launch a consultation to review energy efficiency taxes on businesses and consider new approaches to improve the effectiveness of energy efficiency policy.

Energy and climate change secretary, Amber Rudd, said at the time: “We want to create a simple business energy tax system that rewards energy and carbon saving.”

The energy efficiency tax landscape for businesses, which includes several often overlapping initiatives such as the Climate Change Levy, Carbon Reduction Commitment (CRC) energy efficiency scheme and the Energy Saving Obligation Scheme (ESOS), is a “bewildering mix” of red tape, according to EEF.

Incentivising change

With the Government’s Committee on Climate Change (CCC) having recently highlighted the looming policy gap beyond 2020 for reducing emissions and encouraging low carbon business, the EEF report argues that over-regulation is stifling, rather than encouraging, progress on energy efficiency.

The report instead calls for a “bold new approach” that cuts costs and red tape for energy users, lowers emissions and helps manufacturers maximise the benefits of low carbon innovation.

Incentives recommended in the report include:

  • Replacing tax schemes like the Carbon Reduction Commitment (CRC) with tax credits and discounts to drive investments in energy efficiency
  • Expanding decarbonisation roadmaps for key energy-intensive sectors and developing a comprehensive strategy for tackling emissions in these industries
  • Increasing the percentage of R&D funding spent on energy and environmental innovation to match the EU average and better signposting the support available to businesses
  • Developing a targeted low carbon technology innovation programme to encourage manufacturers to tap into the growing £3.4 trillion global market for low carbon and environmental goods and services.

‘Grasping the opportunity’

Paul Raynes, director of policy at EEF, said: “The current system of energy taxation is too complex and is hurting Britain’s competitiveness. So instead of simply hitting firms with the big stick of ever-higher carbon taxes and levies, we should be offering them the carrot of tax breaks to invest in potentially very profitable advanced low carbon technologies.

“It is no secret that the low carbon transition provides a major opportunity for manufacturers, but unfortunately it is not one we have been fully able to grasp to date.”

The Government’s industry consultation on energy taxation is expected to be announced during Autumn 2015.