U.K. CO2 Tax Switch Removes Loophole, Bloomberg Analyst Says

Britain’s proposed changes to its planned carbon tax from 2013 take away 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 country said yesterday it would tax polluters instead of fuel suppliers.

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 at 4.94 pounds a metric ton at that time. 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 because EU prices have fallen, said Lakis Athanasiou, an independent utilities analyst in London formerly at Evolution Securities Ltd.

4.7 Billion Pounds

That would raise 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 about 1.5 billion pounds more over the two years than the government said in March. The tax, based on futures prices on the ICE Futures Europe exchange, is calculated and fixed annually two years ahead of being implemented. The tax, using today’s emissions prices, may bring 4.7 billion pounds of government revenue in 2020, according to Bloomberg Industries calculations.

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, 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.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE