Sting pulled from energy tax

The original plans for a levy have been scaled down by nearly a third. Instead of a levy of 0·21 pence/kWh for gas and coal, and 0·60 pence/kWh for electricity, the actual rates will be 0·15 pence/kWh for gas and coal, and 0·43 pence/kWh for electricity.

On top of this, the government is offering an 80% discount for firms in energy intensive industries that sign legally-binding energy efficiency agreements. Companies qualify as energy intensive if they are covered by the EU's directive on Integrated Pollution and Prevention Control.

The Treasury claimed the watering-down was necessary to "protect competitiveness". Lobbying from the few remaining powerhouses in British heavy industry patently found sympathy at the Treasury.

Dr Elliot Finer, director general of the Chemical Industries Association, said: "The chemical industry is greatly relieved that the government has listened to our representations." Adair Turner, director general of the CBI, said the changes are "a move in the right direction".

It's not all bad news in the revised tax, though, for the Treasury seems to have taken on board the suggestions made by the CIBSE and others for improving the tax. First, there will be a trebling of financial support for energy efficiency measures: about £150 million will be available for 'enhanced capital allowances' and an energy efficiency fund in 2001-2002.

£100 million will be available for businesses to offset specific energy efficiency investments as capital allowances against their corporation or income tax bills. A further £50 million will be set aside for an energy efficiency fund. This is intended to:

provide energy efficiency advice and audits to small and medium-sized firms;

promote development of new sources of renewable energy;

encourage low carbon technologies and measures through a 'carbon trust'.

The second improvement to the tax relates to renewable sources of energy. Apart from large-scale hydro electric, new renewables will be exempt from the tax. Another exemption will be given to "good quality" combined heat and power plant, although the Treasury is mute on what this means.

The Treasury claims that these improvements to the tax will bring clear environmental benefits. Originally expected to cut CO2 emissions by 1·5 million tonnes by 2010, the levy is now forecast to save at least 2 million tonnes. The savings will come from switching to renewable power and extra investments in energy efficiency.

In the new form, the tax is set to raise £1.0 billion in 2001-2002, most of which will be recycled back to business by cutting employers' national insurance contributions by 0·3%.

This news comes hard on the heels of a terrifying report from the Met Office's Hadley Centre. It says that failure to act now could mean the Amazon rainforest is devastated, 3 billion people could go short of food and water, and many coastal areas could be flooded.

Without action, the Hadley Centre says, global temperatures will rise about 3ºC by 2080. As a consequence, 80 million extra people could be flooded each year because of rising sea levels – especially in southern and south-east Asia, and many island states.

There are currently about 325 parts per million (ppm) of CO2 in the atmosphere – a figure that is rising. The Hadley Centre claims that the EU proposal of stabilising atmospheric CO2 at 550 pm would avoid or delay the worst impacts of climate change by up to 100 years.