This Commons Library briefing provides an overview of the new Control for Low Carbon Levies, and the Levy Control Framework, which it replaced.Jump to full report >>
Government policy has been to finance a number of its energy and climate change policies through levies on energy companies, rather than funding the schemes directly through general taxation. Energy companies then in effect recover the cost of these levy-funded schemes from consumers through bills. In the 2017 Autumn Budget, HM Treasury introduced a new Control for Low Carbon Levies to replace the Levy Control Framework (LCF) which had previously capped the cost of these levy-funded schemes.
Levy Control Framework (LCF)
The Levy Control Framework (LCF) was introduced in 2011 to cap the cost of low-carbon levy-funded schemes. It set absolute (not cumulative) annual limits on the overall costs of all low carbon electricity levy-funded policies until 2020/21, rising to £7.6 billion in 2020/21 (2011/12 prices).
In November 2015, the Office for Budgetary Responsibility (OBR) forecast spending under the LCF would exceed the £7.6 billion cap by 2020/21, and in the 2017 Spring Budget HM Treasury announced that the LCF would be replaced by a new set of controls.
Control for Low Carbon Levies
In the Autumn 2017 Budget the Chancellor announced a moratorium on new low carbon subsidies through a new Control for Low Carbon Levies. The Control applies only to new levies, and specifically excludes existing money committed under the Contracts for Difference (CfD) auctions, Renewables Obligation, Feed-in Tariffs and £557 million allocated for future CfD auctions.
The Treasury says the Control will apply until the total of costs from low carbon levies is falling, which it has calculated will not happen until 2025. Before which it expects spending on low carbon levies (in 2011/12 prices) to reach £8.6 billion up from £5.2 billion in 2016/17. The Control does not affect projects that are not due to become fully operational until after 2025.
Views on the Control
There were mixed views over the introduction of the new Control on low carbon levies.
The renewable industry expressed their concern that the level of support the control imposed could hinder the progress towards cutting the costs of low-carbon technologies, and could mean new technologies (such as marine and tidal energy) are not able to become cost-competitive.
Others praised the clarity the policy provided for investors and noted that the existing commitments should still be able to support significantly more low carbon energy than previously envisaged owing to the falling costs of technologies, such as offshore wind.
Subsidy free renewables
The Control does not rule out new subsidies which would have a net reduction effect on bills. This has led some to speculate further about a subsidy-free future for renewable energy, but this is only a possibility for certain mature technologies. A report commissioned by Scottish Renewables indicated an onshore wind farm could deliver 1 GW of capacity in an auction that could result in a net return to the taxpayer of £18 million over the lifetime of the project.
Commons Briefing papers CBP-8187
Author: David Hirst