HOW WILL YOUR BUSINESS BEAT THE CLIMATE CHANGE LEVY?
Measures to combat global warming are about to hit commercial Britain in the wallet. Gerald Cole, consulting editor of Self Build & Design magazine, examines how the government's new Climate Change Levy will affect your business and what you can do to soften the blow.
Hauliers may disagree but Britain's businesses have been treated rather well lately in terms of energy costs. Privatisation and utility companies' drive for new custom have put a downward pressure on prices.
But all that is likely to alter as the government's climate change levy, introduced last April, begins to bite. Added to business's utility bills, it is charged at a flat rate on each kilowatt of energy consumed - 0.43p for electricity, 0.15p for gas and coal and around 0.07p for LPG.
Despite government assurance to the contrary, many commentators believe it will add between 10 and 15 per cent to businesses' costs.
The rationale behind the levy is laudable: to combat global warming. It is part of Britain's contribution to the Kyoto Protocol, signed by the developed countries in 1997, to reduce greenhouse gas emissions to 12.5 per cent of 1990 levels by 2012. The UK, however, went a step further and pledged a 20 per cent reduction in carbon dioxide emissions domestically by 2010. The levy is not intended to be a one-way drain on business. Though expected to raise around £1 billion in its first year, a proportion of this will go back to businesses in a 0.3 per cent reduction in employer's National Insurance contributions.
The rest will go towards the Carbon Trust, a non-profit-making company that supports the development of energy efficient, low-carbon technologies and practices.
The Trust will also administer the Enhanced Capital Allowance scheme. This will allow businesses to claim back 100 per cent of the capital cost of installing an energy-saving product, including plant and machinery - as long as it's on an approved Energy Technology Product list.
But the most radical aspect of the levy is the establishment of a trading market for reductions in greenhouse gas emissions. Heavy users of energy will be able to negotiate discounts of up to 80 per cent by agreeing to meet energy reduction targets over a 10-year period - with interim targets every two years.
If a company exceeds its target, its 'surplus' will create an allowance that can be sold through an Emissions Trading Agency. But, if a company fails to reach its targets, it will be forced to buy an allowance to make up the shortfall.
The scheme is due to kick off this year - boosted by incentive payments to companies who sign up. If it succeeds, it could put Britain in the forefront of a dynamic new emissions trading market. The government currently claims it could cut up to two million tonnes of carbon from the atmosphere every year by 2010 and generate many new jobs and investment opportunities. But it will be at least two years before the first discounts are available and the number of approved products for capital allowance is still quite small. Meanwhile commercial energy costs will rise.
One of the beneficiaries, however, is likely to be the insulation industry. New Building Regulations, arrive this April, are already due to beef up the current standards, helping to reduce the demand for space and water heating. But that is only for new construction.
Existing buildings have the greatest, most urgent need, though they are also likely to be the most awkward, and expensive, to improve - at least using the familiar forms of insulation.
One form, however, is ideally suited to retroactive application: spray applied polyurethane foam. Polyurethane is the most effective insulator currently on the market. Sprayed onto the interior of a building, it expands rapidly into a rigid, light, highly adhesive coating which doubles up as a vapour control layer.
To date it's been marketed largely as a means of renovating failing roofs or for strengthening failing cavity walls - it can easily be injected through the wall surface. In Europe, however, it has been a standard form of building insulation for almost 20 years.
It isn't without drawbacks - the chief one being that it uses HCFC gases, the much less damaging successor to the CFCs that attack the ozone layer. However, as recent European studies have shown, its overall effectiveness in reducing greenhouse gas emissions can actually be greater than conventional mineral fibre insulation.
The other major disbenefit of polyurethane foam is cost; it is not a cheap option. But, as energy bills grow and insulation thickness becomes more important, the speed and convenience of application is going to become increasingly appealing and, as usage rises, the price is certain to fall.