No. 10: VAT on energy efficient goods + services

"Prime Minister. There has been a lot of talk of increasing taxes to drive energy efficiency however I would like you to consider the following tax reductions: Remove VAT on ALL energy efficiency products. Remove VAT on all building works specifically aimed at improving home energy effiicency e.g. Double Glazing, Cavity Wall insulation, loft insulation, micro generation systems, Solar Panels, energy efficient boilers etc. Reduce VAT on energy efficient cars By removing VAT, these products and services will be cheaper for the customer and stimulate demand, reducing energy consumption."

VAT is a broad-based tax on consumer expenditure and reliefs from it have always been strictly limited. When the UK joined the European Community in 1973, it meant signing up to the general agreements which covered the application of VAT throughout the EC. Under these and successive agreements we are allowed to keep our existing zero rates of VAT on things such as food, books and young children's clothing, most of which had been exempt from the old purchase tax that preceded VAT. Whilst these agreements allow us to keep our existing zero rates they do not allow us to extend them or introduce new ones. It is therefore not possible to remove VAT from the environmentally friendly products listed.

Under the same European agreements, a reduced rate of VAT of not less than 5% is available for the construction, renovation and alteration of housing provided as part of a social policy. We have been sparing in our use of reduced rates and have only introduced them where we are convinced that the tax system offers the most efficient and best-targeted support for our social objectives. To date we have used this provision to introduce a reduced rate of VAT for the installation of a range of energy-saving and energy-efficient products and microgeneration technologies, including solar panels, wind turbines, insulation and draught stripping in houses and other residential accommodation.

However, at present, these agreements do not allow a reduced rate to be applied to goods alone when not supplied as part of an overall service. Changes to the European agreements governing the availability of VAT reduced rates require the unanimous support of all EU Member States. The Government has made the case at European level for changes to the agreements that would enable wider use of reduced rates for energy-saving and energy-efficient products. However, there is significant resistance to the introduction of new reduced rates for goods from some Member States because of the potential impact on the Single Market. We will consider our options and priorities for new reduced rates carefully when the issue next becomes due for discussion at EU level.

Labels: 17.5% VAT, 5% VAT, No. 10 petition, zero rate VAT

Ban The Bulb's new logo

Labels: Hyl design, New logo, Steve

Why not ban incandescents in the UK... and the EU?

Labels: Ban incandescent light bulbs in the UK

Ontario in Canada considers a light bulb ban...

Ontario is impressed by Australia's decision to ban old-fashioned incandescent bulbs.

The province is in the midst of drawing up plans to cut greenhouse gas emissions and Environment Minister Laurel Broten says the government hasn't ruled out following in Australia's footsteps.

She said banning incandescent bulbs is just one of many great ideas being put forward.

Australia announced Tuesday it will ban incandescent light bulbs in three years, estimating the move to fluorescent bulbs will cut 800,000 tonnes from the country's current emissions levels by 2012.

Premier Dalton McGuinty says replacing older energy-draining bulbs across the province with more efficient ones could help Ontario shut down its coal-fired power plants.

Among Canadian groups pushing for a move to fluorescent bulbs is the not-for-profit organization One Change in Ottawa.

The group has the backing of Hydro Ottawa and has replaced 250,000 bulbs in Ottawa. Similar campaigns are underway in Whitehorse, Guelph and Thunder Bay.

Labels: Canada, Ontario, shut down a coal power station

Australia considers light bulb ban... by 2010

Australia is set to become the first country in the world to stop using the cheap standard light bulb, with the federal government expected today to announce a commitment to phasing out inefficient incandescent light within three years.

The ambitious plan, set to be unveiled by Federal Environment Minister Malcolm Turnbull, aims to have every Australian home lit by compact fluorescent light by 2009-10.

Replacing the old bulb is expected to cut annual greenhouse gas emissions by 800,000 tonnes, the Sydney Morning Herald reports.

Under increasing pressure to deal with climate change, the Howard government is set to use this plan as an example of Australia's commitment to solving the problem of global warming.

But will the plan be effective? Australia's emissions in 2004 totalled 564.7 million tonnes. The 800,000 saved is barely 1/700 of the total released.

Phasing out the old 40-cent bulbs will also cost Australians more, with fluorescent light generally several times more expensive than the standard option.

But Colin Goldman, the head of lighting importer Nelson Industries, told the Herald he supports the move.

"These days you can buy a six-pack at the $10 mark," he said. "The prices are coming down, and as soon as you get volume with greater numbers on the market they come down further."

Goldman said compact fluorescents were available that offered a range of light for use within households.

Compact fluorescent lights use only 20 percent as much electricity as standard light bulbs to produce the same amount of light, according to the federal government.

The idea of changing the light was also proposed in California last month, branded the "How Many Legislators Does it Take to Change a Lightbulb Act".

Labels: 2009, Australia, Banning incandescents

Philips: phasing out incandescents within 10 yrs?

Labels: 10 years, incandescents, phase out, Philips

Supermarkets use their carbon footprints to compete

Labels: Marks and Spencer, supermarkets, Tesco, Wal-Mart

DEFRA: Effect of Fiscal Measures on Domestic Lamps

BNDL12: Effect of Fiscal Measures on Domestic Lamps

This brief and referenced information is a public consultation document and will be used to inform Government decisions. The information and analysis in the brief forms part of an integrated, public domain knowledge base that is managed and held by Defra’s Market Transformation Programme [1]. The policy scenarios and action plans are illustrative, intended to stimulate discussion and do not imply commitment by Government nor by any other body.

1. Background

This Briefing Note estimates the effects of three alternative economic instruments relating to household lamps:

Option 1: Increasing VAT on tungsten filament (GLS) lamps to 25%;

Option 2: Charging a flat rate of 50p on certain lamps;

Option 3: A combination of reducing the VAT on compact fluorescent lamps (CFLs) to 5% and introducing an inefficiency charge of 85p on tungsten filament lamps.

2. Cost and benefits of economic instruments

2.1 Increasing VAT on tungsten filament lamps to 25%

Increasing the rate of VAT to 25% on the less efficient tungsten filament lamps will increase their prices only marginally, due to the very low price of these lamps (an average price of 50p). As compact fluorescent lamps (CFLs) have a much higher price relative to tungsten filament lamps (an average price of £3.00), it seems unlikely that this change to VAT alone will result in a noticeable increase in the sales of CFLs.

From the Treasury’s point of view, each sale of an extra CFL would net 45p in VAT (at 17.5%) from the CFL sale but would lose 5.5p in tax per annum from the equivalent tungsten filament lamp sales for the next 12 years on average – 66p in all (assuming that each CFL lasts six times as long as a tungsten filament lamp which itself lasts 2 years on average).

At present 18 million CFL lamps are sold each year, netting about £8 million in VAT. 223 million tungsten filament lamps are sold each year netting about £16.7 million pounds in VAT. This figure would rise to £24.5 million per annum under the proposed increase if no extra CFLs were sold.

In the best case scenario (in energy efficiency terms) if all 480 million tungsten filament lamps the changed to CFLs the net cost to the Treasury would be £206 million.

2.2 Charging a flat rate of 50p on tungsten filament lamps

Adding an extra flat charge of 50p on the less efficient tungsten filament lamps will effectively double their price. Although CFLs are still about 300% more expensive, CFLs would then become a cost-effective alternative to tungsten filament lamps on purchase price alone: assuming that a CFL has a lifetime of at least 6000 hours, it would become more expensive to buy six tungsten filament lamps with a lifetime of 1000 hours.

If a tungsten filament lamp was replaced with a CFL the Treasury would gain 45p tax from the CFL sale but would lose an average of 30.5p per annum from ‘lost’ tungsten filament lamp sales tax revenue for the next 12 years £3.66 in all.

Therefore, in the best case scenario in which all the tungsten filament lamps are changed to CFLs, the net cost to the Treasury would be £1540 million over the 12 year life of the lamps. However, £1440 million of this represents taxes that the Government would not have had without the new flat-rate tax surcharge. The Treasury would actually be revenue positive from this measure until more than half the lamps (~260 million) have changed from tungsten filament to CFL.

2.3 Lower VAT for CFLs; flat rate surcharge for tungsten filament lamps

In a paper in 2003, the Energy Savings Trust suggested the following combination of fiscal measures for encouraging the sale of compact fluorescent lamps:

- the introduction of 5% VAT for energy efficient light bulbs, and
- an inefficiency change of 50p for incandescent bulbs.

In a revised paper published in October 2005, EST suggest that this inefficiency charge my need to be increased to 85p per bulb to account for the potential price increase of compact fluorescent lamps arising from a recycling charge applied to take into account the terms of the WEEE Directive on waste.

Such a change would cost the Treasury more in the long term (32p per CFL lamp sold), but would still be revenue positive until about half of the tungsten filament lamps have been switched to tungsten filament lamps.

3. Energy savings from change from tungsten filament lamps to CFL lamps

It has not been possible to quantify the impact of such price changes on sales, but Table 1 does provide estimates of the unit energy savings which result from a switch to selling more energy efficient lamps. It also shows the current proportion of energy efficient sales, thus indicating the scope for increasing sales further.

Table 1. Energy savings associated with economic instruments

CFL
Energy consumption per year of product (GWh) = 1074
Energy saving per product (GWh) = 0
Annual Sales that could be effected by economic instruments = 18 Million
Current % of sales = 7%

Tungsten filament 100W
Energy consumption per year of product (GWh) = 6076
Energy saving per product (GWh) = 4557
Annual Sales that could be effected by economic instruments = 63 Million
Current % of sales = 26.0%

Tungsten filament 60 W
Energy consumption per year of product (GWh) = 6944
Energy saving per product (GWh) = 5208
Annual Sales that could be effected by economic instruments = 117 Million
Current % of sales = 48.0%

Tungsten filament 40 W
Energy consumption per year of product (GWh) = 1765
Energy saving per product (GWh) = 1324
Annual Sales that could be effected by economic instruments = 45 Million
Current % of sales = 18%

Notes:

Energy savings are calculated as the difference between the energy consumption of a tungsten filament lamp and an equivalent (in terms of light output) CFL. Savings depend on the usage of the lamp. The savings given here represent the average hours of use for each lamp type.

5. Other fiscal options

The Chairman of the All-party Group on Climate Change has suggested to the Treasury that the tax on incandescent lamps should be gradually increased until they are the same price as CFLs; the Treasury are looking at the proposal.

With feedback, questions or comments, please contact: info@mtprog.com or call the MTP enquiry line on +44(0)845 600 8951, quoting the document reference.

[1] Further information and briefing on related issues at www.mtprog.com or follow the links if viewing on-line

Labels: kWh, sales, surcharge, tax, Treasury, VAT

Ban The Bulb... by 2012 in California?

Levine Legislation to Make California First State in the Nation to Ban Incandescent Light Bulbs

"How many legislators does it take to change a light bulb act" Touts the Multiple Benefits of Energy-Saving Light Bulbs

SACRAMENTO –– In yet another instance of California being a trend-setter for the rest of the nation, Assemblymember Lloyd Levine (D-Van Nuys), the Chair of the Assembly’s Utilities and Commerce Committee, today announced that he is introducing legislation - the How Many Legislators Does it Take to Change a Light Bulb Act - to ban the sale of incandescent light bulbs in California by the year 2012.

“Incandescent light bulbs were first developed almost 125 years ago, and since that time they have undergone no major modifications,” Assemblymember Levine said. “Meanwhile, they remain incredibly inefficient, converting only about five percent of the energy they receive into light. It’s time to take a step forward – energy-efficient bulbs are easy to use, require less electricity to do the same job, cut greenhouse gas emissions, and save consumers money.”

According to the Rocky Mountain Institute (RMI), a nonprofit organization that focuses on energy policy, replacing a 75-watt incandescent light bulb with a 20-watt compact fluorescent would result in the same amount of light but would save 1,300 pounds of carbon dioxide and save customers $55 over the life of the bulb (while the life of one 75-watt incandescent bulb is roughly 750 hours, the life of a compact fluorescent is a whopping 10,000 hours). Meanwhile, incandescent bulbs use 750 kWh over 10,000 hours, while compact fluorescents use only 180 kWh.

In addition, a utility can give away a compact fluorescent lamps more cheaply than it can fuel its existing power plants, which is why Southern California Edison, for example, has given away more than a million such lamps.

“Electricity-saving technologies may not be glamorous, especially when compared with the idea of a shiny new power plant, but the facts are that there are hundreds of electricity-saving innovations now on the market that if fully used throughout the United States, would significantly decrease the electricity the country now uses,” Levine said. “The time has come for this legislation, and what better state to lead the charge than California.”