London (Platts)--10Mar2008

The UK's climate change levy policy--a tax on energy--produced
significant savings of carbon, according to a report from parliament's
Environmental Audit Committee Monday. But the savings were "strongly front-end
loaded and have eased off since soon after its introduction," the report said.

The levy will reduce annual UK CO2 emissions by 12.8 million metric
tonnes by 2010. But, said the report, these savings have come mainly from the
effect its announcement had on raising awareness of the potential for energy
savings; most of these savings were therefore the result of actions taken
before the tax actually came into operation.

The levy itself "has had relatively little effect on business emissions,"
the report said, especially in the case of small and medium enterprises and
large but non-energy intensive organizations.

The government believes that climate change agreements--under which
companies agree to cut their emissions in a negotiated deal as an alternative
to paying the levy--will cut about 7 million mt/year by 2010. But the EAC
report said that it was "extremely difficult" to evaluate the effectiveness of
these agreements.

The exemptions from the climate change levy for green electricity and
combined heat and power have had minimal effect on the construction of new
renewables and CHP capacity, essentially because they are worth too little
money, the EAC said.

The climate change levy package does not impose a damaging economic
burden on UK business overall, and may in many cases be positive, through
encouraging greater resource productivity and stimulating energy efficient
industries, it added.

"The CCL has not worked quite as expected," it concludes. "According to
economic theory, businesses should have acted rationally by seeking to reduce
their costs through increased energy efficiency. In practice, they appear to
have needed an extra stimulus to change their approach to energy use."

CONSERVATIVES ATTACK

The opposition Conservative party attacked the success of the levy.
Commenting on the EAC report, Shadow Secretary of State for the Environment,
Food and Rural Affairs, Peter Ainsworth said:

"This report reinforces [Prime Minister] Gordon Brown's attempts to
portray the climate change levy as the solution to all our environmental
problems as a sham. The climate change levy may be a great brand name but it
is not fit for purpose. What we need is a carbon levy that will properly
address industries' carbon emissions."

The climate change levy is a tax on energy use, not specifically on
carbon dioxide emissions, which the Conservatives favor.

The EAC said that "while it might have been preferable for the government
to have introduced an economy-wide carbon tax, once it implemented the levy as
a 'downstream' tax, the scope for basing it on carbon rather than energy was
greatly restricted, and its benefits made questionable."

"Climate change agreements, on the other hand, should be reformed so that
their targets are in the form of absolute reductions in carbon emissions,
rather than relative improvements in energy efficiency," the EAC said.

The EAC is a committee made up of a cross-party group of members of
parliament.