Policy paper

Climate Change Levy – combined heat and power stations (CHPs) coronavirus (COVID-19) easement

Published 9 June 2021

Who is likely to be affected

Operators of combined heat and power stations (CHPs) who will not meet performance standards for reasons associated with coronavirus (COVID-19).

General description of the measure

These amendments to Climate Change Levy (CCL) and Fuel Duty secondary legislation made via the Climate Change Levy (General) (Amendment and Modification) Regulations 2021 and the Hydrocarbon Oil Duties (Reliefs for Electricity Generation) (Amendment and Modification) Regulations 2021 will allow certain combined heat and power stations (CHPs) to use 2019 data rather than 2020 data to obtain certification as ‘good quality’.

This will mean that relevant CHPs which suffered a drop in performance in 2020 for reasons associated with COVID-19 will not be disadvantaged under CCL or Fuel Duty.

This is in line with the government’s policy to support good quality CHPs because of the contribution they can make towards the government’s environmental ambitions.

These CCL and Fuel Duty legislative amendments sit alongside legislation made by the Department of Business, Energy and Industrial Strategy (BEIS) to ensure that other (non-tax) support for CHPs is preserved despite any COVID-19 performance issues they may have suffered.

Policy objective

‘Good quality’ CHPs provide one of the most cost - effective approaches for making carbon savings and play an important role in achieving the government’s environmental targets. These amendments to secondary legislation will ensure that CHPs that would currently not meet performance standards based on their 2020 data for reasons associated with COVID-19 can use 2019 data and continue to be certified as ‘good quality’. This means that their beneficial treatment under CCL and Fuel Duty will be protected throughout 2021.

Background to the measure

CHPs combine the generation of electricity alongside the production of heat for use on a site. As such, and provided they meet quality standards, they make efficient use of the energy used to power them (which may be gas, biomass, oil etc).

The performance of CHPs as good quality is certified through the (voluntary) CHP Quality Assurance Programme (CHPQA) run by BEIS. The basis of the performance assessment is set out in the CHPQA Standard document and considers performance over the previous year (defined in the CHPQA Standard as the ‘Annual Operation’). CHPs, to the extent that they are certified as good quality via the CHPQA scheme, receive beneficial treatment under CCL and Fuel Duty. They also receive other support (non-tax) based on this certification.

COVID-19 lockdown has impacted some CHP operators resulting in the CHPs not necessarily operating as they would normally. Some will have turned their CHPs off if demand for both heat and power was lost, but some will have altered the mix of heat and power they produce dependent upon changing demands.

Affected CHPs would not meet quality standards if they were assessed against 2020 data which would mean they would lose beneficial treatment under CCL and Fuel Duty over 2021. To preserve their position, a new version of the CHPQA Standard (issue 8) will temporarily change the definition of Annual Operation in such a way that 2019 data can be used where COVID-19 impacted performance in 2020.

Detailed proposal

Operative date

1 July 2021 to 28 May 2022 (inclusive).

Current law

The CCL and Fuel Duty statutory instruments provide the interrelationship between the CHPQA assessment/ certification and beneficial tax treatment. They detail how assessment/certification processes and tax processes sit together including, in the case of CCL, providing for end-year reconciliation. These statutory instruments also cross-reference the CHPQA Standard:

• The Climate Change Levy (Combined Heat and Power Stations) (Amendment and Modification) Regulations 2021
• The Hydrocarbon Oil Duties (Reliefs for Electricity Generation (Amendment and Modification) Regulations 2021

Proposed revisions

The statutory instruments will be amended to bring in a reference to issue 8 of the CHPQA Standard. Issue 8 will temporarily change the definition of Annual Operation in such a way that 2019 data can be used instead of 2020 data where Covid-19 has impacted CHP performance.

Summary of impacts

Exchequer impact (£m)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on around 120 businesses by ensuring that CHPs that would currently not meet performance standards based on their 2020 data for reasons associated with COVID-19 can use 2019 data and continue to be certified as good quality and ensure they are not financially disadvantaged.

There could be a one-off cost as businesses will need to familiarise themselves with the changes which could potentially include updating their systems to reflect these changes. There are not expected to be any continuing costs.

Customer experience is expected to remain broadly the same as there are no changes to how CCL and Fuel Duty benefits are claimed. This measure is not expected to impact on civil society organisations.

Operational impact (£m) (HMRC or other)

Operational impact is nil. There will be no impact to HMRC processes.

Other impacts

This measure preserves the pre-COVID-19 position of relevant CHPs in reflection of their contribution to environmental objectives. Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Joshua Blain on Telephone: 03000 598 224 or email: joshua.blain@hmrc.gov.uk.

Declaration

Kemi Badenoch MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.