Civil Engineering Reference
In-Depth Information
CLIMATE CHANGE LEVY
The climate change levy commenced in April 2001. It is basically a tax on the
business use of energy, and it covers the use of electricity, gas, coal and liquefied
petroleum gas (LPG) used by the non-domestic sector. The levy is imposed on each
business energy bill according to the amount of kilowatts used. There are differential
rates for different energy sources. The levy is nearly three times higher for electricity
(£0.00509 per kilowatt hour) than gas or coal (£0.00117 per kilowatt hour). This
differential has been introduced because the use of each type of fuel creates different
levels of greenhouse gas emissions. The levy has increased energy costs in the
commercial sector by 10 to 15 per cent.
The purpose of the climate change levy is to encourage businesses to internalise
- that is, pay for - the negative externalities associated with the greenhouse gas
emissions that they are responsible for generating. Firms using environmentally
friendly energy technologies, such as photovoltaic systems, energy crops and
wind energy, or combined heat and power systems are exempt from the levy.
Manufacturing, mining and utilities companies have been hit the hardest by the
introduction of this levy. Ironically, the impact on the construction industry could
be beneficial: the climate change levy encourages businesses to use energy more
efficiently, and as all businesses occupy buildings, the expertise of the construction
industry could potentially help to make offices and factories more energy efficient
and, therefore, reduce energy costs.
AGGREGATES LEVY
The aggregates levy came into effect in April 2002. It is a tax applied to the
commercial exploitation of rock, sand and gravel. It applies to imports of aggregate
as well as to aggregate extracted in the UK. Exports of aggregate are not subject
to the levy. The purpose of the levy is to give businesses operating in the UK an
incentive to compare the full costs - including all negative externalities - of using
virgin aggregates with alternatives or recycled materials.
To explain it another way, the levy has been established to reduce the noise
and scarring of the landscape associated with quarrying. These environmental costs
could not continue to be ignored, and the levy is meant to encourage the polluter to
pay. The intention is that the construction industry should reduce its demand for
primary materials by recycling as much as possible and by reducing waste on site.
The immediate benefactors from the removal of these negative externalities would
be those communities living close to the quarries. And it is interesting to note that
their opinions were sought in the preparatory research that established the initial
level of aggregate levy at £1.60 per tonne. By 2012 it had increased marginally to
£2.00 per tonne, and in April 2013 it will see further revision to £2.10 per tonne.
Finding an exact value for the environmental costs of quarrying will be examined
further in the next chapter.
Government Spending
The second area that we identified as a cause of market failure relates to the
free-rider problem. The basic problem here is excludability. The benefits of some
