To make it clear that the new tax is not a method of raising overall tax levels, the Chancellor has also proposed that a directly offsetting reduction should be made in the Employers National Insurance contributions. The tax, or levy, will have a neutral effect on the Chancellor's overall resources. Obviously, the impact of the levy is to discourage energy usage and thus reduce emissions of CO2. Simply to tax energy use at the rates proposed will be an unwelcome addition to costs. The possible consequence is that prices may rise but energy usage may not fall significantly.
Energy demand is thought to be very non-responsive to even large price changes.
To offset this effect the Chancellor is offering proportionate CCL rebates to industries which make agreements to enhance energy efficiency. Introducing a CCL will, it is believed, make the increased use of natural gas less likely and hence will have the effect of increasing CO2 emissions, not reducing them. A strong case is being made to the Chancellor that Northern Ireland should be exempt from the levy for at least two reasons. First, introducing the CCL in Northern Ireland when there is no similar levy in the Republic of Ireland will be an extra distortion to the cross-border market in energy with possible implications for the overall competitive position of business in Northern Ireland. Second, introducing CCL will significantly increase the relative price of natural gas which is only now coming on stream in large parts of the Belfast region and has yet to be made available through extended pipelines to other areas, including the North-West.