So, the methodology for calculating the CCL carbon price support rates is summarised by the formula:
Rate = (target carbon price – market carbon price) x (emission factor of the fuel)
The difference between the nominal target price and market carbon prices in a future year gives the equivalent carbon price support rate for that year, expressed as pounds per tonne of CO2. This rate, when multiplied by the standard emission factors of individual fuels (gas, LPG, solid fuel and oils) are used to derive CCL carbon price support rates expressed as pence per unit of energy, weight or volume. Carbon prices (£/tCO2) are converted into tax rates for individual fuel inputs using standard emission factors as published by the Department for Environment, Food and Rural Affairs (DEFRA).
Pursuant to the said Carbon price floor consultation all fossil fuels currently liable in the UK to CCL and fuel duty will be liable to the new carbon price support rates when such fuels are supplied to a person who uses them to generate electricity. For generators who use oil to generate electricity, the amount of fuel duty they can reclaim will be varied.
It is the final supplier of fuel to a generator who will be liable to pay the carbon price support rates of CCL to HMRC. For oils, there will be no changes to the arrangements where the generator reclaims fuel duty. As the UK government remarks, making the supplier the taxpayer is in line with the European framework for the taxation of electricity and fuels – and is the most administratively simple arrangement.
The price floor is limited to UK-based electricity generators. The concept design elements as regards export/import issues are as follows:
- the treatment of imported electricity will not change (electricity imported into the UK will not be liable to the carbon price support rates as electricity is not a fossil fuel),
- fossil fuels used to generate electricity in the UK that is subsequently exported will be taxed at the relevant carbon price support rate,
- imports of fossil fuels that are used to generate electricity in the UK will be liable to carbon price support rates,
- exports of fossil fuels that are used to generate electricity outside of the UK will not be liable to carbon price support rates.