U.K. Carbon Tax Switch Removes Loophole, Bloomberg Analyst Says

Britain’s proposed changes to its planned carbon tax from 2013 remove a loophole that would have allowed coal stations to stockpile fuel to avoid paying, according to Bloomberg Industries.

“It removes a loophole” that may have allowed generators to store coal before the tax comes into force, Chris Rogers, a utilities analyst at Bloomberg Industries in London, said today by telephone. It makes it easier to implement and administer the tax and enables the government to more easily collect the revenues, he said.

European Union emissions allowances have lost almost 50 percent of their value this year as fears of a recession damp demand and the bloc prepares to boost supply. U.K. government revenue is likely to rise as the difference between its so- called carbon floor price and EU allowances widens.

The tax for the 2013 to 2014 financial year will raise 740 million pounds ($1.15 billion) for the government, according to documents posted on the Treasury Department’s website in March. It was fixed in March at 4.94 pounds a metric ton. The tax may rise to 9.61 pounds in the following year and 16.70 pounds in the year from April 2015, according to similar calculations since EU prices have fallen, said Lakis Athanasiou, an independent utilities analyst in London formerly at Evolution Securities Ltd.

That raises about 1.5 billion pounds for the government in the second year of the tax and 2.6 billion in the third year, Athanasiou said. That’s an additional 1.5 billion pounds since the government announced the tax in March. The tax will be calculated and fixed annually for two years.

Draft Legislation

The U.K.’s Treasury said yesterday it may change who will pay its proposed carbon tax, shifting the burden to emitters rather than fossil fuel suppliers.

“The person liable to account for the levy charged on the supply is the person to whom the supply is made,” the Treasury said in draft legislation published on its website. “The major electricity generators have indicated that allowing them to self account will deliver greater certainty for them and reduce the indirect costs of complying with the carbon price floor,” according to the document.

Drax Group Plc (DRX), which runs Western Europe’s biggest coal- fired power station, is an example of an emitter that buys fuel from natural resource companies such as Durham, U.K.-based Hargreaves Services Plc and BHP Billiton Ltd., the world’s biggest mining company.

The changes make “logical sense,” Jayne Harold, manager of PricewaterhouseCoopers’ sustainability and climate change tax team in Birmingham, England, said in an e-mail. “In a commodity market, where derivative mechanisms are in use, it makes sense for the charging and accounting responsibility to rest with the receiver of the coal, not the supplier or trader.”

To contact the reporter on this story: Catherine Airlie in London at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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