Environment Tax

Budget 2021 - Environmental taxes


Using fiscal levers to tackle climate change has always been something of a balancing act: Taxes designed to reduce environmentally damaging behaviours will raise a diminishing amount of revenue and mechanisms to maintain a minimum price of carbon are often at odds with economic growth in energy intensive sectors. Nevertheless, its too late now to avoid radical action – in spite of the Covid crisis – so has the Chancellor stepped up in this year’s Budget?

Budget measure

Our thoughts

The government will maintain the freeze on Carbon Price Support rates at £18 per tonne of carbon dioxide in 2022-23. The government is committed to carbon pricing as a tool to drive decarbonisation and intends to set out additional proposals for expanding the UK Emissions Trading Scheme (‘EUETS’) over the course of 2021.


Setting a minimum cost of carbon is crucial to combatting climate change. In the UK the price of carbon has been established by a combination of prices set by the EU Emissions Trading Scheme and the CPS rates of the climate change levy. Some commentators will say that a rate of £18 per tonne is unrealistically low and that a commitment to increase the rate over coming years is essential for the UK to meet target for Net Carbon Zero by 2050.

Furthermore, the EUETS has not been beyond criticism, including that some energy intensive sectors appear to have escaped the full impact of the scheme, so it will be interesting to see how, precisely, a new ‘UKETS’ will operate, but it seems unlikely that it will deviate much from the EUETS on grounds of competition.

Plans for the introduction of a carbon tax in the UK (ostensibly to replace the EUETS following Brexit) have been dropped. Interestingly, the EU is considering introducing a carbon tax for the import into the EU of raw materials (a ‘carbon border adjustment mechanism’). Unless the UK adopts a similar regime, we anticipate that this could increase the price in the EU of raw materials extracted in the UK and supplied to the EU. One to watch …

Climate change levy (‘CCL’). As announced in last year’s Budget, some of the main rates of CCL will increase in 2022-2023 and 2023-2024. The rate for electricity and LPG will remain unchanged, while rates for natural gas and any other taxable commodities will increase in both years.

The reduced rates available to intensive energy sectors via the CCA (climate change agreements) regime will also be amended.


The measure is described as part of the government’s ‘commitment to continue rebalance the electricity to gas ratio. In practice then, it seems unlikely to have a significant impact on energy consumption in industry, especially as the reduced costs applied to energy intensive sectors via the CCA regime, are likely to be unaltered.

Energy suppliers will need to revisit their systems and update CCL rates in billing systems for the main rates and for the reduced rates to be applied to their CCA customer accounts.

As announced in last year’s Budget, landfill tax (‘LFT’) rates will increase from 1 April 2021 in line with RPI. These rates will apply in England. As a tax devolved to both Wales and Scotland, the rates there are likely to follow suit.

From 1 April 2021 the rates will be:

Standard rate - £96.70 per tonne
Reduced rate - £3.10 per tonne




Landfill site operators will need to update systems to reflect these rate changes. Waste producers can anticipate the increase cost of waste disposal going forward.

The rates of LFT used to increase very substantially each year on an ‘escalator’ in order to substantially increase the cost of sending material to landfill. The issue now appears to be how to address fly-tipping which is taking place on an industrial scale.

On 1 April 2018 legislation was introduced to make any disposal of material at a site and in a manner that would have required authorisation from the relevant environment agency, is subject to LFT at the standard rate. A good measure to combat fly-tipping and make it very costly, but only effective if HMRC and other agencies have the resources to apply it.

A new plastic packaging tax (‘PPT) will be introduced from 1 April 2022.

Designed following various consultations by the government over the last three years, this tax will apply to any packaging that comprises less than 30% recycled plastic. The rate initially will be £200 per tonne.

Detailed legislation will be set out in the Finance Bill 2021, including:

-        Registration obligations
-        Imports and exports
-        Scope (products included/excluded)
-        Collection and enforcement powers


A long time coming after much debate within the packaging industry. Issues around the scope of the tax has probably led to delays in its implementation, including how to define the scope of the tax (which products should be included) and how to measure and test the recycled plastic content.

Anticipated revenue is low (£240M the first year) and the cost of manufacturers administering the tax may seem high in comparison. This is clearly a behavioral tax, aimed at manufacturers (illegal disposers of waste packaging being difficult to identify) and it remains to be seen how effective it is going to be.

Manufacturers will need to review their product portfolio (if they haven’t already done so) and consider systems that will allow the to collate and declare the tax next year. They should also consider the terms of sale contracts to determine how much of this tax can be passed on to customers, if its commercially possible to do so.


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