Tax system hampers environmental investment

News Article - 12 May 2010
Category: Environment

Stephen Pugh, the finance director at Adnams Brewery, has criticised the UK's taxation framework for being unsupportive of environmental industrial investment. In a letter addressed to the Financial Times, Mr. Pugh said that companies who pay extra to construct energy efficient buildings receive no allowances for doing so.

Following the letter, tax authorities informed him that buildings specifically designed to require no artificial cooling would not qualify for tax relief, even though they use far less energy than traditional constructions. Traditional buildings, most of which require cooling and heating equipment to maintain internal temperatures, are able to claim tax relief.

Mr. Pugh has called on the major political parties to address the situation in order to encourage industrial development and incentivise eco-friendly investments. Far greater investment is needed if the UK is to meet its aggressive carbon reduction target of an 80% reduction on 1998 levels by 2050.

The rate of green investments has also suffered due to low taxes on carbon emissions. Many companies have excess carbon allowances as a result of cut-backs during the recession, which has resulted in a marked decline in the price of carbon per tonne. This has de-incentivised carbon reduction as corporations suffer little financial drain from high-energy projects.

Parliament's Environmental Audit Committee is calling for the Government to introduce new measures - such as a more aggressive carbon tax - to hike up carbon prices dramatically and make high-energy projects far less sustainable. Current carbon prices stand at around 15 euros a tonne: a figure around the 100 euro mark is required.

Whilst these issues hamper environmental investment, the introduction of the Carbon Reduction Commitment has pushed larger companies to establish more wilful carbon reduction efforts or face reputational damage - in addition to missing out on financial incentives - as a result. Companies should expect further incentives to invest, whether delivered through the taxation system or external agreements, and should begin preparing to ramp up green investment in the short and long term.

Green investments must show tangible benefits if they are to be well-received by both the boardroom and the Government. By accounting for carbon emissions, companies can actively view the most carbon-intensive areas of operation and focus eco-friendly projects to achieve maximum carbon reduction. Businesses that can show a high return on investment on green projects will be in the best position to receive financial incentives from the Government and strengthen overall market position.

For more information, please call Access on 0845 345 3300.

Article keywords: Green accounting, accounting for carbon emissions, carbon emissions reporting

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