ENVIRONMENTAL TAXATION LAW
To Angela, Caroline and Amelia
Environmental Taxation Law
Policy, Contexts and Practice
JOHN SNAPE
School of Law, University of Warwick, UK
and
JEREMY DE SOUZA
Consultant to White and Bowker, UK
© John Snape and Jeremy de Souza 2006
All rights reserved. No part of this publication may be reproduced, stored in a
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photocopying, recording or otherwise without the prior permission of the publisher.
The authors hereby assert their moral rights to be identified as the authors of the
work, in accordance with the Copyright Designs and Patents Act 1988.
Published by
Ashgate Publishing Limited Ashgate Publishing Company
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British Library Cataloguing in Publication Data
Snape, John
Environmental taxation law : policy, contexts and practice
1.Environmental impact changes - Law and legislation -
Great Britain
I.Title II.De Souza, Jeremy
344.4'1046
Library of Congress Cataloging-in-Publication Data
Snape, John.
Environmental taxation law : policy, contexts and practice / John Snape and
Jeremy de Souza.
p. cm.
Includes bibliographical references and index.
ISBN 0-7546-2304-1
1. Environmental impact charges--Law and legislation--Great Britain. 2.
Environmental impact charges--Law and legislation. I. De Souza, Jeremy. II.
Title.
KD3382.E58S63 2005
344.4104'6--dc22
2005048265
ISBN 0 7546 2304 1
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall.
Ashgate website: http://www.ashgate.com
Contents
About the Authors xi
Authors’ Preface xiii
Table of Cases xvii
Table of Statutes xxv
Table of Statutory Instruments li
Table of Provisions of the European Treaty lxv
Table of European Community Legislation lxix
Table of Provisions of GATT 1994 lxxxi
Table of Other Treaty Provisions lxxxiii
Table of Abbreviations lxxxvii
PART I: PROLOGUE
1 Preliminaries 3
1.1 Introduction 3
1.2 Terminology, approach and sources 5
1.3 International, European, national and regional contexts 19
1.4 Regulatory and taxation contexts 21
1.5 Institutional framework 34
1.6 Scheme of the book 34
2 Regulated Sectors 37
2.1 Introduction 37
2.2 Trade associations, policy-makers and pressure groups 38
2.3 Waste management industry 40
2.4 Energy industries and consumers 42
2.5 Mineral extraction industry 50
2.6 Air passenger and road freight transport sectors 51
2.7 Concluding remarks 53
PART II: POLICY AND CONTEXTS
3 Introduction to Part II 57
4 Institutional Framework 63
4.1 Introduction 63
4.2 Institutions of central, regional and local government 63
4.3 European Union institutions 92
4.4 International institutions 101
4.5 Concluding comments 106
vi Environmental Taxation Law
5 Technical Justifications 109
5.1 Introduction 109
5.2 Sustainable development 110
5.3 Taxation and sustainable development 112
5.4 Economic instruments and market failures 115
5.5 The efficient level of fiscal intervention 120
5.6 Concluding remarks 122
6 Regulatory Context 125
6.1 Introduction 125
6.2 Integrated Pollution Control, Integrated Pollution Prevention and
Control and Environmental Assessment 127
6.3 Waste management regulation 134
6.4 Control of air and atmospheric pollution 144
6.5 Air passenger and road freight transport regulation 159
6.6 Regulation of mineral extraction 161
6.7 Regulation of contaminated land 161
6.8 Concluding comments 162
7 Taxation Context 163
7.1 Introduction 163
7.2 Taxes and tax subsidies 164
7.3 Status of the main levies and subsidies under consideration 176
7.4 Concluding comments 182
8 International Aspects 183
8.1 Introduction 183
8.2 Public international law 184
8.3 International environmental law 191
8.4 International trade law 200
8.5 International air transport law 221
8.6 International energy law 222
8.7 Concluding remarks 223
9 Conclusions on Part II 225
PART III: PRACTICE
10 Introduction to Part III 231
Part III, Section A: Environmental Levies and Other Economic Instruments
Division 1: General
11 Design and Implementation 237
11.1 Introduction 237
11.2 Regulatory impact assessment 238
Contents vii
11.3 Design and implementation of the two post-1997 taxes 240
11.4 Review of landfill tax 248
11.5 Concluding comments 250
12 Community Law Aspects 251
12.1 Introduction 251
12.2 Regulatory aspects 253
12.3 Taxation aspects 293
12.4 Rules on free movement of goods 303
12.5 Concluding comments 305
Division 2: National Taxes
13 Aggregates Levy 309
13.1 Introduction 309
13.2 Operation of the tax 310
13.3 Problems caused by the legal structure 312
13.4 Meaning of ‘a(chǎn)ggregate’ 315
13.5 The concept of ‘exempt processes’ 316
13.6 Administration of the levy 316
14 Climate Change Levy 317
14.1 Introduction 317
14.2 Tax base and rates 318
14.3 Reduced rates 319
14.4 Exemptions 319
14.5 Combined heat and power and renewable source electricity 321
14.6 Climate change agreements and the UK Emissions Trading
Scheme 324
14.7 Administration of the levy 327
15 Landfill Tax 329
15.1 Introduction 329
15.2 Tax base and rates 329
15.3 Securing the tax base 331
15.4 Exemptions 333
15.5 Temporary disposals 335
15.6 Fly-tipping 335
15.7 Administration of the tax 337
16 Customs’ Administrative Model 339
16.1 Introduction 339
16.2 Registration 339
16.3 Deregistration 341
16.4 The form of registration 342
16.5 The problem of trusts 343
16.6 Groups, divisions and going concerns 344
viii Environmental Taxation Law
16.7 Non-UK residents 346
16.8 Site registration 347
16.9 The credit concept 348
16.10 Bad debt relief 350
16.11 Transitional provisions 351
16.12 Record keeping and inspection 352
16.13 Disputes 352
16.14 Irregularities 353
16.15 Enforcement 353
16.16 Problems for landowners 354
Division 3: Local Levies
17 Workplace Parking Levies 361
17.1 Introduction 361
17.2 Changes in planning practice 362
17.3 Double payment 362
17.4 Metropolitan schemes 363
17.5 Other schemes 363
17.6 Those subject to schemes 364
18 Road User Charging Schemes 365
18.1 Introduction 365
18.2 Central London 365
18.3 Other cities 368
18.4 Metropolitan schemes 369
18.5 Other schemes 369
Division 4: Other Economic Instruments
19 The Packaging Regime Route 373
19.1 Introduction 373
19.2 Packaging 374
19.3 Choice 375
19.4 Registration 375
19.5 Obligations once registered 375
19.6 Waste disposal obligations 377
19.7 The future of packaging waste recovery notes 378
20 Emissions and Waste Trading Schemes 381
20.1 Introduction 381
20.2 Design and implementation of the UK Emissions Trading Scheme 381
20.3 Subsequent development of the UK Emissions Trading Scheme 383
20.4 Operation of the UK Emissions Trading Scheme 389
20.5 The regime applicable to direct participants 390
20.6 Green Certificate trading 391
20.7 Landfill Allowances Trading Scheme (‘the LATS’) 392
Contents ix
Division 5: The Instruments in Operation
21 Policies in Practice (1) 397
21.1 Introduction 397
21.2 The employment ‘double dividend’ 397
21.3 Hypothecation, ‘recycling’ of revenue and tax subsidies 399
21.4 Political and industrial aspects 406
21.5 The Renewables Obligation 423
21.6 The 2003 Energy White Paper 425
21.7 Problems with electricity supply industry structures 433
21.8 The case of aggregates levy 436
21.9 Water and the farmers 441
21.10 The effect of Community law and policy 449
Part III, Section B: Greening the UK Tax System
Division 1: Removing Subsidies and Creating Incentives
22 Excise Duties 457
22.1 Introduction 457
22.2 Motor cars and their fuel 457
22.3 Heavy goods vehicles and their fuel 462
22.4 The emissions problem 463
23 Employee Taxes 465
23.1 Introduction 465
23.2 Income tax treatment of company cars 465
23.3 Environmentally-friendly transport 467
24 Business Taxes 469
24.1 Introduction 469
24.2 Nature and role of capital allowances 469
24.3 Motor cars 470
24.4 Environmentally-friendly equipment 470
24.5 Urban regeneration 471
24.6 Private residential landlords 472
24.7 Emissions trading scheme corporation tax and VAT treatment 473
24.8 Direct tax treatment of environmental trust contributions 475
Division 2: The Provisions in Operation
25 Policies in Practice (2) 479
PART IV: PROSPECTS AND NEW DIRECTIONS
26 Environmental Taxes and the Tax Base 483
26.1 Introduction 483
x Environmental Taxation Law
26.2 The consolidation of the tax base 485
26.3 The future of non-property-based taxes in the internet world 487
26.4 International trade treaty problem for federations and economic
areas 492
26.5 Employer’s national insurance contributions 494
26.6 The advantage of environmental taxes 495
26.7 European Union limitations 496
27 Government Proposals 499
27.1 Introduction 499
27.2 Economic instruments and housing development 500
27.3 Road pricing for heavy lorries 501
27.4 Nationwide satellite-based congestion charging 503
27.5 Pricing air passenger transport 504
27.6 Litter taxes 508
27.7 Taxing incineration 509
27.8 Conclusions 510
28 The EU Emissions Trading Directive 513
28.1 Introduction 513
28.2 Background to the EU Emissions Trading Directive 514
28.3 Provisions of the EU ETS Directive 525
28.4 Transposition of the EU ETS Directive into UK law 529
28.5 Developments since transposition of the EU ETS Directive 532
28.6 Concluding observations 534
PART V: PROVISIONAL ASSESSMENT
29 The Current State of Play 537
29.1 The problem of measuring success 537
29.2 How do the UK taxes measure up to this standard? 537
29.3 Success stories 542
29.4 Comparing 1997 with 2004 542
Postscript 545
Select Bibliography 551
Index 557
About the Authors
Jeremy de Souza was educated at Charterhouse and New College, Oxford. Articled
to Mr John Emrys Lloyd of Farrer & Co, he subsequently became an assistant
solicitor and associate at that firm. Between 1976 and 1996, after which he became
a consultant (enabling him to devote more time to writing), he was the firm’s tax
partner. During his 32 years with the firm, he contributed to the newsletters for the
Agricultural Estates Group, the Employment and Pensions Group, the Charities
Group and the Briefing Service for in-house lawyers.
In 1999, he became a part-time consultant to White and Bowker in Winchester, and
has contributed to that firm’s newsletters: The Law of the Land, W&B Charity Law,
Private Client Newsletter and Ins and Outs.
He was a member of The Law Society Revenue Committee’s Corporation Tax Sub-
Committee between 1989 and 1992. Since 1995, he has been the Chairman of the
Holborn and, from 2001, City of Westminster and Holborn, Law Society’s Revenue
Committee, writing a monthly article in the monthly journals, Holborn Report and
The Report.
In 1969, he was a co-author of Reform of Taxation and Investment Incentives. He
was a contributor to Volume 35 of The Encyclopedia of Forms and Precedents (Sale
of Land) in 1989. He was co-author of The Property Investor and VAT in 1990 and
of The Conveyancer’s Tax Primer in 1999. Since 1991, he has been the General
Editor of the Sweet and Maxwell looseleaf, Land Taxation. Since 2001, he has been
a contributor to The Lawyer’s Factbook.
He has contributed articles to The Law Society’s Gazette, STEP Journal, Private
Client Business, The British Tax Review, Taxation, The Tax Journal, The Estates
Gazette, Property Law Journal, Rural Practice, The Environmental Law Review, Trust
Law & Practice, Trusts & Estates Tax Journal, Hampshire Chronicle, Negotiator,
Butler & Co Farming News, Christie’s Bulletin and The Investor’s Chronicle. He has
also lectured on tax topics.
In addition to being a solicitor, he belongs to the Society of Trust and Estate
Practitioners, the Stamp Taxes Practitioners Group and the Royal Institute of
International Affairs.
John Snape was educated at St Mary’s College, Blackburn, and St Edmund Hall,
Oxford. He qualified as a solicitor in 1989 and subsequently worked in corporate
and commercial legal practice. In 1993, he joined Nottingham Law School, the
Nottingham Trent University, moving to the University of Leeds in 2002. In 2005,
he took up a lectureship at the School of Law, the University of Warwick. He has
written on a range of legal topics, including property law and tax law.
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Authorsʼ Preface
During the last seven years or so, the government of the United Kingdom has
embarked on a range of far-reaching social and economic reforms. Among these,
none is more striking, especially to those who have followed its development, than
the enterprise of environmental taxation.
The use of a tax, for long regarded as a means of raising government revenue,
redistributing wealth or of managing the economy, in order to discourage certain
forms of undesirable industrial behaviour, had no systematic antecedent in UK law
prior to 1997. Of course, there had for centuries been duties on cigarettes, petrol
and alcohol, but no tax, not even landfill tax, introduced in the dying days of Prime
Minister John Major’s government, had been researched and designed specifically
to steer the behaviour of those liable to pay it. True, landfill tax had attempted to
put a price on the environmental costs of landfilling waste but, except to a slight
extent, it had not been intended, when originally designed and implemented, to steer
behaviour. By contrast, the two main taxes introduced after 1997, climate change
levy, which is a tax on the industrial, commercial and agricultural consumption of
non-environmentally-friendly forms of energy, and aggregates levy, a tax on the
extraction of minerals, have been specially designed, via their structures and rates, to
encourage the use of alternative resources. This is not the only way in which, if the
reader will forgive the pun, these environmental taxes have been groundbreaking.
The other way in which they have marked a departure, which the authors regard as
highly characteristic, is their use in combination with other economic instruments,
such as trading schemes, green certificates, road and cordon pricing and special
reliefs within non-environmental tax codes.
All of the factors just rehearsed explain the book’s title. We cannot, against the
policy background outlined above, treat of environmental taxes in isolation from
the other instruments which are designed to complement them. So the range of
instruments involved is not the least of the contexts envisaged by the title. However,
we have tried to look for other contexts, primarily legal ones, which will help us to
explain the various aspects of environmental taxation more usefully. As an energy
tax, climate change levy is imposed on gas and electricity supplies. Both the gas
supply industry and the electricity supply industry are sectors of extreme technical
complexity, as a result of their privatisation, in another characteristic adventure, this
time of a decade or more ago and a different government. Grafting climate change
levy onto these post-nationalisation structures, without a consistent energy policy,
has contributed to producing a tax of such extraordinary complexity that it would be
impossible to appreciate its subtleties without a knowledge of ‘what lies beneath’.
So discussions of the post-nationalisation energy sector structures and regulation
have been included as well as environmental regulation and tax law. Again, since
the regulation of air transport and road freight transport affects plans to introduce
new airline taxes, emissions trading schemes and road pricing schemes, we have
xiv Environmental Taxation Law
also included a brief discussion of how these sectors are structured and regulated. In
every case, we seek to provide, not just a UK context for the material but an EU-wide
and international one also. We hope, as a result, that this book will be no less useful
to the overseas reader than to the UK one.
This brings us to another set of contexts: the European Union and international
governance structures within which the UK’s economic instruments for environmental
protection have been designed and implemented.
The more obvious governance structure is the EU one, since the EU’s institutions
– notably the European Commission – provide both the impetus for action at national
level, via the Sixth Environmental Action Programme, and the terms on which that
action can be taken, via the European Treaty and the legislation made thereunder.
Finding the right level of governance is an important question with economic
instruments. In its enthusiasm to introduce emissions trading, partly as a sweetener to
sectors already hit both by Integrated Pollution Prevention and Control and climate
change levy, the government managed, with the UK Emissions Trading Scheme, to
turn, in Sorrell’s words, an ‘early start into a false start’. This is because the period
of the last 18 months to two years has also seen the creation of the EU Emissions
Trading Scheme, under which carbon dioxide emissions will be capped, parcelled
out and traded among all the Member States of the enlarged Union. The government
claims that the UK scheme, set up in 2002, will be good practice for the EU scheme,
due to commence in January 2005. Its detractors claim that the UK scheme was an
irrelevance, nonsensically unilateral and designed simply to buy off opposition to the
government’s environmental policy from sectors most badly hit by climate change
levy and IPPC. At the very least, there is a measure of over-regulation.
Although less obvious, governance is also felt at the international level, via the
United Nations-sponsored 1992 Framework Convention on Climate Change, and
its 1997 Kyoto Protocol, as well as the rules of the WTO/GATT 1994-based system
of multilateral agreements on international trade. Both the EU itself and its Member
States are parties to both sets of agreements. Although there are signs that the position
may be changing, the values of the latter, which have governed international trade
at least since the mid-twentieth century, may be difficult or impossible to reconcile
with those of the former, whose values are, of course, much newer. The influence
of Kyoto is to be felt, not only in the creation of the two emissions trading schemes
referred to above, each of which take Kyoto as their inspiration, but also in the design
of environmental taxes. Climate change levy, an energy tax, neatly sidesteps design
problems created by GATT 1994’s concept of the border tax adjustment and, in doing
so, may sacrifice something of its environmental effectiveness.
The trade-off just referred to is, of course, a matter of political judgement. No less
characteristic of the UK’s environmental taxes and other economic instruments than
their regulatory context and their place within European and international governance
structures are the political choices they represent. These are shown both in present
political compromises and in the political possibilities for the future. Lord Butler
memorably described politics as ‘the art of the possible’. Whether the structuring of
climate change levy as a downstream energy tax owed more to fear of the political
consequences of taxing domestic energy consumption and alienating what remained
of the coal industry, than it did to economic and environmental principles, is a matter
for historians to debate. The authors have some well-founded suspicions on these
Authors’ Preface xv
points. Nevertheless, it remains the case that, with these taxes in place, it would
remain open to a future government, in a time of falling revenues, to supplement
the Exchequer by increasing the rates of aggregates levy and climate change levy
instead of turning to the much more politically sensitive expedient of increasing
rates of income tax. The mechanisms are all now in place, thanks to the enterprise of
environmental taxation.
The controversies on these points will surely continue. For our part, we have tried
to offer a critical account of an area of UK policy, law and practice which has not,
so far as we know, been systematically explored to date in this jurisdiction by any
other lawyer authors. In an age when the expounding of a legal subject – however
complex – does not perhaps enjoy the high reputation that once it did, we seek (as
lawyers) to explain how the different instruments interact at a regulatory level. We
do occasionally pass judgment but we do so, not on matters outside our expertise
(neither of us being economists and, as yet, unwilling to succumb to the siren song of
law and economics), but on the basis of the various accountability mechanisms in the
UK’s unwritten constitutional arrangements. In the last 12 to 18 months, the panoply
of Select Committees at Westminster has begun to take a keen interest in the flutter of
creative activity in environmental regulation in Whitehall. In fact, these accountability
mechanisms and the network of departments, committees, advisory bodies and
executive bodies that have been involved in the design and implementation of the
measures under discussion, feature prominently in what follows. We have included
the explanations of who they are and what they do because of the difficulties facing
the non-specialist or non-UK lawyer in finding his or her way through the myriad of
institutional actors.
What we offer, then, is a pragmatic, critical, account. We do not purport to offer
any empirical conclusion but we think that we can at least provoke others to test our
conclusions.
Each of the authors brings something different to the book. John Snape is an
academic lawyer with an interest in international economic law and in the crossovers
between environmental regulation, energy law and tax law. Jeremy de Souza is a
senior practitioner who retired from full-time practice as a partner in Farrer & Co. in
1996. He has written extensively on tax law matters and is referred to in reference
books as a leading specialist in the environmental taxation area. Thus do we seek
to bring together our different but hopefully complementary skills. Although each
author has read and commented in detail on the work of the other, we have each taken
responsibility for writing different Chapters. Setting aside the very short Chapters 3,
9 and 10, which are very much joint efforts, John Snape was responsible for Chapters
1–12 and 28, while Jeremy de Souza was responsible for Chapters 13–27 and 29. In
addition, Jeremy carried out the herculean task of compiling the tables and indices.
Warm thanks are due in several quarters and we would like to record them as
follows: to Caroline de Souza and to Angela Kershaw, our respective wives, who,
despite many commitments of their own, have taken time to bear with detailed verbal
critiques of government policy; to former colleagues of John Snape at the University
of Leeds, especially to Ann Blair, Michael Cardwell, Oliver Gerstenberg, Roger
Halson and Anna Lawson, each for their wisdom and support; to colleagues of Jeremy
de Souza at the City of Westminster and Holborn Law Society Revenue Committee
and at White and Bowker, especially John Steel, Oliver Sowton and (in putting up
xvi Environmental Taxation Law
with interruptions to her printing facilities), Abi Martin. John Snape began work on
the book in 2000/2001 in a period of sabbatical leave from Nottingham Law School,
the Nottingham Trent University. His thanks are due to Professors Michael Gunn
and Peter Kunzlik, as well as to colleagues at Nottingham Trent who shouldered his
teaching and administrative responsibilities in the period of his absence.
Over the period of writing the book, the subject matter has expanded almost daily.
We must also record our thanks to John Irwin and Alison Kirk at Ashgate, for their
patience and enthusiasm in awaiting a manuscript which therefore became rather
later and rather larger than either of us authors could originally have envisaged.
In the footnotes, we have tended to confine case references to Simon’s Tax Cases,
the series now used by most UK tax academics and practitioners. References to other
reports are to be found in the Tables.
We have attempted to reflect developments and to state the law, unless otherwise
indicated, as at 2 December 2004 (the date of the Pre-Budget Report).
John Snape,
Jeremy de Souza,
20 December 2004.
Table of Cases
Adey v. Trinity House, (1852) 22 LJQB 3 7.2.3
AGF Belgium v. EEC, C–191/94, [1996] ECR I–1859 7.2.2.3
Air Caledonie v. The Commonwealth, (1988) 165 CLR 462 7.2.2.2
Airservices Australia v. Canadian Airlines International Ltd, (1999)
HCA 62 7.2.2.2
Alliance Against the Birmingham Northern Relief Road v. Secretary of
State for the Environment, Transport and the Regions and Midlands
Expressway Ltd, [1999] JPL 426 7.2.3
Amministrazione delle Finanze dello Stato v. Essevi and Salengo, C–142,
143/80, [1981] ECR 833 12.3.3.1
Andrews v. Hereford RDC, (1964) 10 RRC 1, [1963] RA 75, (1963)
185 EC 761, [1963] RVR 168 16.16
Apple & Pear Development Council v. Lewis, C–222/82, [1984] 3
CMLR 733 7.2.2.3
Aprle Srl, in Liquidation v. Amministrazione delle Finanze dello Stato,
C–125/94, [1995] ECR I–2919 8.4.2
ARCO Chemie Nederland Ltd and others v. Minister van Volkshuisvesting;
Ruimtelijke Ordening en Milieubeheer, Vereninging Dorpsbelang Hees
and others v. Directeur van der Dienst Milieu en Water van de Provincie
Gelderland, C–418, 419/97, [2002] QB 646 12.2.5.2
Asscher v. Staatssecretaris van Financien, C–107/94, [1996] STC
1025 12.3.1, 12.3.2
Aston Cantlow v. Wallbank, [2001] 3 WLR 1323, overruled by HL
at [2003] 3 WLR 283 7.2.2.1
Attorney-General v. Wilts United Dairies Ltd, (1921) 124 LT 319,
overruled at [1922] WN 217, 218 7.2.2.1
Attorney-General of British Columbia v. Attorney-General of Canada,
[1937] AC 377 26.4
Attorney-General of Canada v. Attorney-General of Ontario, [1937]
AC 326 26.4
Attorney-General of Canada v. Attorney-General of Ontario, [1937]
AC 355 26.4
Attorney-General of New South Wales v. Homebush Flour Mills Ltd,
(1937) 56 CLR 390 7.2.1
Australian Tape Manufacturers’ Association v. Commonwealth, (1993)
176 CLR 480 7.2.2.2
Ayrshire Employers Mutual Association v. IRC, (1946) 27 TC 331, [1946]
1 All ER, [1946] 1 All ER 637 26.3.3.1
Baker v. Greenhill, (1842) 114 ER 463 7.2.2.1
xviii Environmental Taxation Law
Barclays Mercantile Business Finance Ltd v. Mawson, [2002] EWHC
1527 (Ch), [2002] STC 1068, reversed CA [2002] EWCA Civ 1853,
[2003] STC 66, affirmed [2004] UKHL 51 26.3.3.1
Beco Products Ltd; BAG Building Contractors v. C & E Commrs, (2004)
No. 18, 638, MAN/01/4 21.3.1
Bendall v. C & E Commrs, (2003) LON/00/1305 15.3
Benjamin v. Austin Properties Ltd, [1998] 19 EG 163, [1998] 2 EGLR 147,
[1998] RA 53 17.3
Bergandi v. Directeur Général des Impôts, C–252/86, [1988] ECR 1343 12.3.3.1
Berkeley v. Secretary of State for the Environment, Transport and the
Regions (No.1), [2001] 2 AC 603 6.2.4
Blackland Park Exploration Ltd v. Environment Agency, [2003] EWCA
Civ 1795, [2003] All ER (D) 249 (Dec) 6.3.2.4
Brambletye School Trust Ltd v. C & E Commrs, LON/00/458 16.16
Bresciani v. Amministrazione della Finanze dello Stato, C–87/75, (1976)
ECR 129 7.2.2.3
Brewster v. Kidgill, (1697) 88 ER 1239 7.2.2.1
Re Briant Colour Printing Co Ltd, [1977] 1 WLR 942, [1977] 3 All ER
968, 75 EGR 768, (1977) 244 EG 463, 121 SJ 592 16.16
British Insulated and Helsby Cables Ltd v. Atherton, [1926] AC 205,
[1925] All ER Rep 623, 95 LJKB 336, 134 LT 289, 42 TLR 187,
(1925) 10 TC 177 1.4.3.1, 24.7
Bulmer v. Bollinger, [1974] Ch 401 4.3.7
W Cadsky SpA v. Instituto Nationale per il Comercio Esterio,
C–63/74, [1975] ECR 251 7.2.1, 12.3.3.2
Cape Brandy Syndicate v. IRC, [1921] 1 KB 64, (1920) 12 TC 358 26.3.3.1
Chemial Farmaceutici v. DAF SpA, C–140/79, [1981] ECR 1, [1981]
3 CMLR 350 12.3.3.1
Chemische Afvalstoffen Dusselforp BV and others v. Minister Van
Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, C–203/96,
[1998] 3 CMLR 873 12.2.5.1
Claimants under the Loss Relief Group Litigation Order v. I.R.C.,
[2004] EWHC 3588 (Ch), [2004] STC 594, reversed [2004] EWCA
Civ 650, [2004] STC 1054 26.4
Clark v. Oceanic Contractors Inc, [1983] AC 130, [1983] STC 35 1.4.2.5
Cleanaway Ltd v. C & E Commrs, (2003) L.17 15.2
Cogis v. Amministrazione delle Finanze dello Stato, C–216/81, [1982]
ECR 2701 12.3.3.1
Commission of the European Communities v. Belgium, C–2/90, [1992]
ECR I–4431 12.4
Commission of the European Communities v. Denmark, C–106/84, [1986]
ECR 833 12.3.3.1
Commission of the European Communities v. Denmark, C–302/86,
[1989] 1 CMLR 619 12.2.5.1, 12.4
Commission of the European Communities v. France, C–90/87,
[1981] ECR 283 7.2.2.3
Table of Cases xix
Commission of the European Communities v. France, C–196/85, [1987]
ECR 1597 12.3.3.1
Commission of the European Communities v. France, C–50/87, [1989]
1 CMLR 505 16.5
Commission of the European Communities v. Germany, C–18/87, [1988]
ECR 5427 7.2.2.3
Commission of the European Communities v. Germany, C–442/92, [1995]
ECR I–1097 12.2.5.2
Commission of the European Communities v. Germany, C–463/01,
as yet unreported 12.4
Commission of the European Communities v. Italy, C–24/68, [1969]
ECR 193, [1989] 1 CMLR 505 7.2.1, 7.2.2.3
Commission of the European Communities v. Italy, C–184/85, [1987]
ECR 2013 12.3.3.1
Commission of the European Communities v. Italy, C200/85, [1986]
ECR 3953 12.3.3.1
Commission of the European Communities v. Italy, C–466/99, [2002]
ECR I–851 12.2.5.1
Commission of the European Communities v. United Kingdom,
C–170/78, [1980] ECR 417 12.3.3.1
Commission of the European Communities v. United Kingdom,
C–353/85, [1988] STC 251, [1988] 2 All ER 557, [1988] ECR 817 26.7
Commission of the European Communities v. United Kingdom,
C–416/85, [1988] STC 456, [1990] 2 QB 130, [1989] 1 All ER 364,
[1988] ECR 3127, 1988] 3 CMLR 169 26.7
Commission of the European Communities v. United Kingdom, C–35/00,
[2002] ECR I–953 12.2.5.1
Commissioner of Inland Revenue v. Challenge Corp Ltd, [1987] AC 155,
[1986] STC 548 26.3.3.1
Compagnie Commerciale de l’Ouest and others v. Receveur Principal
des Douanes de las Pallice Port, C–78 to 83/90, [1994]
2 CMLR 425 12.3.3.1, 12.3.3.2
Congreve v. Home Office, [1976] QB 629 7.2.2.1
Cottle v. Coldicott, (1995) SpC 40 24.7
Craven v. White, [1989] AC 398, [1988] 3 All ER 495, [1988] STC 476 26.3.3.1
C & E Commrs v. Darfish Ltd, [2001] Env LR 3 15.3
C & E Commrs v. Dave, [2002] EWHC 969 (Ch), [2002] STC 900 16.13
C & E Commrs v. Glassborow, [1974] STC 142, [1975] QB 465, [1974]
1 All ER 1041 16.4
C & E Commrs v. Sinclair Collis Ltd, [2001] UKHL 30, [2001] STC 989 4.3.7
Dansk Denkavit ApS v. Skatteministeriet, C–200/90, [1992] ECR I–2217 1.2.1.4
Davies v. Hillier Nurseries Ltd, (2001) Env LR 726 19.2
Daymond v. South West Water Authority,
[1976] AC 609 7.2.2.1
De Coster v. College des Bourgmestre et Echevins de Watermael-Boitsfort,
C–17/00, [2002] 1 CMLR 12 12.3.1
xx Environmental Taxation Law
Deutschmann v. Germany, C–10/65, [1968] CMLR 259 7.2.2.3
Diamantis v. Greece, C–373/97, [2000] ECR I–1705, [2001] 3 CMLR 41 26.3.2
Diammantarbeiders v. Indiamex, C–37–38/73, [1973] ECR 1600 8.4.1
Dispit Ltd v. C & E Commrs, (2004) L.19 15.4
Donckerwolcke, C–41/76, [1976] ECR 1921 8.4.1
East Midlands Aggregates Ltd v. C & E Commrs, (2003) A1, affirmed
[2004] EWHC 856 (Ch), [2004] STC 1582 13.2
Ebbcliff Ltd v. C & E Commrs, (2003) L.16, reversed [2003] EWHC
3181 (Ch), [2004] STC 391affirmed [2004] EWCA (Civ) 1071,
[2004] STC 1496 15.4, 26.3.3.1
Edwards v. Bairstow and Harrison, [1956] AC 14, [1955] 3 All ER
48, 36 TC 207 4.2.1.5
Emsland-Stärke v. Hauptzollamt Hamburg-Jonas, C–110/99 26.3.2
Ensign Tankers (Leasing) Ltd v. Stokes, [1992] 1 AC 655, [1992] 2
All ER 275, 64 TC 617, [1992] STC 226 26.3.3.1
Re Eurig Estate, (1999) 165 DLR (4th) 1 1.2.1.1, 1.2.1.2, 1.2.1.4, 7.2.1, 7.2.2.2
Euro Tombesi, C–304/94, C–330/94, C–342/94, C224/95, [1998]
Env LR 59 6.3.2.1, 12.2.5.2
Lord Falmouth v. George (1828) 130 ER 1071 7.2.3
Fazenda Pública v. Câmera Muncipal do Porto (Ministério Público,
third party), C446/98, [2001] STC 560 26.7
Fazenda Pública v. Fricarnes SA, C–28/96, [1997] STC 1348 26.7
Fazenda Pública v. Solisnor-Estaleiros Navais SA, C–130/96, [1998]
STC 191 26.7
Fazenda Pública v. União das Cooperativas Abestacedores, C–347/95,
[1997] STC 1337 26.7
Federal Commissioner of Taxation v. Farley, (1940) 63 CLR 278 26.4
Finanzamt Kohn-Altstadt v. Schumacker, C–279/93, [1995] STC 306,
[1996] QB 28, [1995] All ER (EC) 319, [1995] ECR I–225, [1996]
2 CMLR 450 22.1
Ford España v. Spain, C–170.88, [1989] ECR 2305 7.2.1
Furniss v. Dawson [1984] AC 474, [1984] 1 All ER 530, 55 TC 324,
[1984] STC 153 26.3.3.1
F A Gamble & Sons Ltd v. C & E Commrs, (1998) L.4 15.3
NV Giant v. Commune of Overijse, C–109/90, [1993] STC 651 26.7
GIL Insurance Ltd v. C & E Commrs, C–308/01, [2004] STC 961 21.10
Government of India v. Taylor, [1955] AC 491 1.4.2.5
Gregory v. Helvering, 293 US 465 (1935) 26.3.3.1
Harley v. C & E Commrs, (2001) L.13 15.4
Hoechst AG v. IRC and A-G, C–410/98, [2001] STC 452 26.4
Hoverspeed Ltd and others v. C & E Commrs, [2002] EWCA 1630 (Admin),
reversed in part [2002] EWCA Civ 1804, [2003] STC 1273 22.1
Table of Cases xxi
Andreas Hoves Internationaler Transport-Service SARL v. Finanzamt
Borker, C–115/00 27.3
Iannelli & Volpi v. Meroni, C–74/76, [1977] 2 CMLR 688 7.2.2.3
ICI Chemicals & Polymers Ltd v. C & E Commrs, (1998) V&DR 15.3
Imperial Chemical Industries plc v. Colmer, C–264/96, [1999] 1 WLR
108, [1998] All ER (EC) 585, [1998] STC 874, [1998] 3 CMLR 293,
[1998] CEC 861 21.1
Government of India v. Taylor, [1955] AC 491 1.4.2.5
IRC v. Alexander von Glehn & Co Ltd, (1919) 12 TC 232 24.7
IRC v. Burmah Oil Co Ltd, [1982] STC 30, 54 TC 200 26.3.3.1
IRC v. Church Commissioners for England, [1977] AC 329, [1976] 2
All ER 1037, (1976) 50 TC 516, [1976] STC 339 1.4.3.1
IRC v. Fitzwilliam, [1993] 1 WLR 1189, [1993] 3 All ER 184, 67 TC
614, [1993] STC 502 26.3.3.1
IRC v. McGuckian, [1997] 1 WLR 991, [1997] 3 All ER 817, 69 TC1,
[1997] STC 908 26.3.3.1
IRC v. Océ van der Grinten, [2000] STC 951, [2001] 2 CMLR 9, C–58/01 7.2.2.1
IRC v. Scottish Provident Institution, [2004] UKHL 52 26.3.3.1
IRC v. Duke of Westminster, [1936] AC 1, [1935] All ER 259, 19 TC 490 26.3.3.1
Inter-Environnement Wallonie v. Regione Wallone, C–129/96, [1998]
Env LR 625, [1998] 1 CMLR 1057 12.2.5.2
International Fruit Company NV v. Produktschap voor Groeten en
Fruit, C–21–24/72, [1975] 2 CMLR 1 8.4.1
Laidlaw Transportation Inc v. Commissioner, 75 TCM (CCH) 2598
(1998) 26.3.3.1
Lancashire Waste Services Ltd v. C & E Commrs, (1999) L.8 15.3
John Laing & Son Ltd v. Kingswood Area Assessment Committee,
[1949] 1 KB 344, [1949] 1 All ER 224, 47 LRG 64, 42 R & IT 15 16.16
Lawson v. Interior Tree, Fruit and Vegetable Committee of Direction,
[1931] 2 DLR 193 7.2.1
Lindman, C–42/02 26.4
Lirutti and Bizzaro, C–175, 177/98, [2001] ECR I–6881 12.2.5.2
London County Council v. Williams, [1957] AC 362 16.16
Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal
Dairy Ltd, [1933] AC 168 7.2.1
Luton v. Lassels, [2002] HCA 13 7.2.2.2
MacCormick v. Federal Commissioner of Taxation, (1984) 158 CLR 672 7.2.2.2
McIntosh Plant Hire v. C & E Commrs, (2001) L.10 15.3
McKnight v. Sheppard, [1999] 3 All ER 491 1.4.3.1
J & S Mackie v. C & E Commrs, (2000) L.9 15.3
Macniven v. Westmoreland Investments Ltd, [2001] UKHL 6, [2001] 1
All ER 865, 73 TC 1, [2001] STC 237 26.3.3.1
Mayer Parry Recycling Ltd v. Environment Agency (No.1), [1999] Env
LR 489 6.3.2.1
xxii Environmental Taxation Law
Metal Industries (Salvage) Ltd v. ST Harle (Owners), [1962]
SLT 114 1.4.3.1, 7.2.1
Minister of Justice for Dominion of Canada v. Levis City, [1919]
AC 505 7.2.1
Pat Munro-(Alness) Ltd v. C & E Commrs, (2004) 13.2, 26.3.3.1
NSR Ltd v. C & E Commrs, (1999) L.7 15.3
Naturally Yours Cosmetics Ltd v. Customs and Excise Commissioners,
C–230/87, [1988] STC 879, [1988] ECR 6365, [1988] 1 CMLR 797 4.3.7
Northern Suburbs Cemetery Reserve Trust v. Commonwealth, (1993)
176 CLR 555 7.2.2.2
Northwest Corp v. Commissioner of Internal Revenue, 108 TC 265 (1997) 21.3.3
Re OECD Local Costs Standard, Opinion 1/75, [1975] ECR 1355 8.4.1
Outokumpu Oy, C–213.96, [1998] ECR I–1777 12.3.3.1
Oval (717) Ltd v. C & E Commrs, LON/01/1070 14.4
Parkwood Landfill Ltd v. C & E Commrs, [2002] EWCA Civ 1717,
[2002] STC 1536, reversing [2002] STC 417 6.3.2.1, 12.1, 15.3, 26.3.3.1
Pepper v. Hart, [1993] AC 593, [1993] 1 All ER 42, [1992]
STC 898, 65 TC 421 26.3.3.1
Ponsonby v. C & E Commrs, [1988] STC 28 16.6
PreussenElektra AG v. Schleswag AG (Windpark Reussenköge III GmbH
and another intervening), C–379/98, [2002] 2 CMLR 36 12.2.7.3
Procurer du Roi v. Dassonville, C–8/74, [1974] ECR 837 12.4
W T Ramsay Ltd v. IRC; Eilbeck v.Rawling, [1982] AC 300, [1981] 1
All ER 865, (1981) 54 TC 101, [1981] STC 174 26.3.3.1
Ratford v. Northavon District Council, [1987] 1 QB 357 16.16
R (on the application of British Aggregates Association and others)
v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51,
[2002] EuLR 394 1.4.2.3, 2.5, 8.4.5.1, 11.3.2, 12.1,
12.3.3.1, 21.8
R (on the application of Federation of Technological Industries
and others) v. C & E Commrs and Attorney-General, [2004] EWHC
254 (Admin), [2004] STC 1008; [2004] EWCA (Civ) 1020,
sub nom C & E Commrs and Attorney-General v. Federation of
Technology Industries 26.3.2
R (on the application of The Mayor, Citizens of Westminster and
others) v. The Mayor of London, [2002] EWHC 2440 (Admin) 6.2.4, 18.2
R v. Secretary of State for the Environment, Transport and the Regions,
ex p. Spath Holme Ltd, [2001] 1 All ER 195, [2001] 2 WLR 15 26.3.3.1
R v. North Yorkshire County Council, ex parte Brown, [2000] 1 AC 397 6.2.4
Request for an Examination of the Situation in Accordance with
Paragraph 63 of the Court’s Judgment in the 1974 Nuclear Tests case,
[1995] ICJ Rep 288 8.2.3
Table of Cases xxiii
Rewe v. Hauptzollamt Landau/Pfalz, C–43/75, [1976] ECR 181 12.3.3.1
Rewe-Zentrale AG v. Bundesmonopolverwaltung für Branntwein,
C–120/78, [1979] ECR 649 12.4
Ricketts v. Colquhoun, (1924) 10 TC 118 23.1
Roome v. Edwards, [1981] STC 96 16.5
Saunders and Sorrell v. C & E Commrs, (1980) VATTR 53 16.4
Schöttle & Söhne OHG v. Finanzamt Freudenstadt, C–20/76, [1977] 2
CMLR 98 12.3.3.1
Import Prohibition of Certain Shrimp and Shrimp Products
(‘the Shrimp-Turtle case’), (1999) 38 ILM 118 8.4.2
Société Centrale d’Hypothesques v. Cité de Quebec, [1961] QLR 661 7.2.1
Sociaal Fonds voor de Diamantarbeiders v. SA Ch Brachfeld & Sons
and Chougal Diamond Co, C–2–3/69, [1969] ECR 211 8.4.3
Re Tax on Foreign Legations and High Commissioner’s Residence, (1943)
SCR 208 (Can) 7.2.1
Thanet District Council v. Kent County Council, [1993] Env LR 391 6.2.3.1
Trail Smelter arbitration, (1939) 33 AJIL 182, (1941) 35 AJIL 684 8.3.1.2
Restrictions on the Imports of Tuna (‘the Tuna-Dolphin I Case’), (1991)
30 ILM 1598 8.4.2
Restrictions on the Imports of Tuna (‘the Tuna-Dolphin II Case’), (1994)
33 ILM 839 8.4.2
Re the Uruguay Round Treaties, Opinion 1/94, [1995] 1 CMLR 205 8.4.1
Standards for Reformulated and Conventional Gasoline (‘the US Gasoline
Standards decision’), (1996) 35 ILM 274 8.4.2
Verrall v. Hackney LBC, [1983] 1 QB 445, [1983] 1 All ER
277, 81 LGR 218 16.16
Vessoso and Zanetti, C–206, 207/88, [1990] ECR I–1461 12.2.5.2
Vinal SpA v. Orbab SpA, C–46/80, [1981] ECR 77 12.3.3.1
Criminal Proceedings against de Walle and others, C–1/03 12.2.5.2
Weyl Beef Products BV v. Commission of the European Communities,
C–T197/97, [2001] 2 CMLR 22 7.2.2.3
Westminster City Council v. National Asylum Support Service, [2002]
UKHL 38 26.3.3.1
Williams v. Singer (No.2), (1920) 7 TC 387 16.5
Zanetti, C–359/88, [1990] ECR I–1509 12.2.5.2
Zurstrassen v. Administrations des Contributions Directes, C–87/99,
[2001] STC 1102 22.1
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Table of Statutes
Bill of Rights 1689
Art. 4 7.2.2.1, 11.2
Inland Revenue Board Act 1849 4.2.1.2
Constitution Act 1867 [Canada]
s.92 1.2
Inland Revenue Regulation Act 1890
s.2 4.2.1.2
s.39 4.2.1.2
Finance (1909–1910) Act 1910
ss.1–42 29.2
ss.20–24 29.2
Parliament Act 1911 11.3.2
Settled Land Act 1925 16.5
Petroleum (Production) Act 1934 2.4.3
Town and Country Planning Act 1947 29.2
Parliament Act 1949 11.3.2
Wireless Telegraphy Act 1949
s.2(1) 7.2.2.1
Continental Shelf Act 1964
s.1(7) 1.4.3.2, 6.4.3.3
Gas Act 1965 6.4.3.2
Nuclear Installations Act 1965 6.4.3.2
Land Commission Act 1967 29.2
Parliamentary Commissioner Act 1967
Sched. 2 4.2.1.2
Sched. 3 4.2.1.2
xxvi Environmental Taxation Law
Provisional Collection of Taxes Act 1968 11.3.2
Administration of Justice Act 1969
ss.12–15 4.2.1.5
Taxes Management Act 1970
s.2 4.2.1.5
s.3 4.2.1.5
s.4 4.2.1.5
s.31 4.2.1.5
s.56(6) 4.2.1.5
s.56A(1) 4.2.1.5
s.74(1) 11.3.3
s.100A(1) 11.3.3
Prevention of Oil Pollution Act 1971
s.2 6.4.3.3
European Communities Act 1972 4.2.2, 21.9.3.1
s.2(2) 6.2.4, 6.4.3.1, 28.4
Local Government Act 1972
s.1(1) 4.2.3
s.1(2) 4.2.3
s.1(3) 4.2.3
s.1(4) 4.2.3
s.2 4.2.3
s.79 4.2.3
s.270(1) 4.2.3
Marine Mammal Protection Act of 1972 [USA] 8.4.2
National Environmental Protection Act of 1972 [USA] 12.2.4
Fair Trading Act 1973
Part III 6.4.3.1
Finance Act 1973 1.4.2.5
Water Act 1973
s.30 7.2.2.1
Control of Pollution Act 1974
ss.60–67 6.6
Finance Act 1974 29.2
Table of Statutes xxvii
Health and Safety at Work Act 1974
s.15 6.4.3.3
s.43 6.4.3.3
s.82 6.4.3.3
Sched. 3 6.4.3.3
Ministers of the Crown Act 1975 4.2.1.2
Development Land Tax Act 1976 29.2
Energy Act 1976 20.3
Interpretation Act 1978
Sched. 1 1.4.3.2
Customs and Excise Management Act 1979
s.6(1) 4.2.1.2
s.6(2) 4.2.1.2
s.138 16.15
s.139 16.15
s.141(1) 16.15
s.152(b) 16.15
Sched. 3 16.15
Hydrocarbon Oil Duties Act 1979 22.2
s.20AB 22.3
Sched. 1
para. 2 21.9.2
Isle of Man Act 1979
s.6 1.4.3.2
Tobacco Products Duties Act 1979
s.8H(8) 26.2.3
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 [USA] 8.2.3
Hazardous Substance Response Revenue Act of 1980 [USA] 27.2
Highways Act 1980 6.5.2
s.253 6.5.2
Gas Levy Act 1981 6.4.3.2
Civil Aviation Act 1982 6.5.3
s.77 6.5.2
xxviii Environmental Taxation Law
National Audit Act 1983
s.3(1) 4.2.1.3
s.3(5) 4.2.1.3
s.4(3) 4.2.1.3
Building Act 1984 21.6.3
Inheritance Tax Act 1984
s.3A(6) 24.8
s.6(1) 1.4.3
s.10(1) 21.3.2, 23.8
s.268 1.4.3
Local Government Act 1985 4.2.3
Airports Act 1986 6.5.3
s.37 6.5.3
s.38(1) 6.5.3
Finance Act 1986
Sched. 20
para. 6(1)(a) 11.3.4
Gas Act 1986 4.2.1.3, 6.4.3.2
s.4AA 6.4.3.2
s.4AB 6.1
s.5 6.4.3.2
s.5(1)(a) 6.4.3.2
s.5(1)(b) 6.4.3.2
s.5(1)(c) 6.4.3.2
s.6A 6.4.3.2
s.7A(1) 2.4.2
s.8B 6.4.3.2
s.33BC 6.1
s.36A 6.4.3.2
s.41E 6.4.3.2
Sched. 2B 6.4.3.2
Single European Act 1986 [EU] 12.2.1
Petroleum Act 1987
Part I 6.4.3.2
Income and Corporation Taxes Act 1988
s.19 23.1
s.31A 24.6
s.31B 24.6
Table of Statutes xxix
s.34(1) 16.16
s.74 24.1
s.74(1) 1.4.3.2
s.74(1)(a) 21.3.2, 24.8
s.74(1)(f) 21.3.3, 24.2.1, 24.7
s.131 23.1
s.145 23.1
s.154 23.1
s.155A 18.2
s.158(2) 23.2
s.197A 17.2
s.197AA 23.3
s.197AB 23.3
s.197AC 23.3
s.197AE 23.3
s.198 23.1
s.257(1) 7.2.4
ss.289–312 7.2.4
s.333 7.2.4
s.333A 7.2.4
s.349(2) 1.4.4.2
s.359 7.2.4
s.519(1) 24.1
s.552A(5)(g) 16.7
s.577 24.1
s.577A 24.1
s.830 1.4.3.2
s.839 16.10
Sched. 6 23.2
Local Government Finance Act 1988
Part III 4.2.3
Electricity Act 1989 1.4.2.2, 4.2.1.3, 6.4.3.1, 6.4.3.2, 12.2.6.3
s.3A(1)(b) 21.7.2
s.3A(2)(a) 21.7.2
s.3A(2)(b)(i) 21.7.2
s.3A(2)(b)(ii) 21.7.2
s.3B 6.1
s.4(1) 6.4.3.1
s.4(4) 6.4.3.1
s.5 6.4.3.1
s.6(1)(d) 2.4.1
s.6(9) 6.4.3.1
s.32 6.4.3.1
s.32(1) 6.4.3.1
s.32(1)(b) 6.4.3.1
xxx Environmental Taxation Law
s.32(3) 6.4.3.1
s.32(3)(a) 6.4.3.1
s.32(3)(b) 6.4.3.1
s.32(8) 21.4.4
s.32A 21.4.4
s.32B 6.4.3.1
s.32B(1) 6.4.3.1
s.32B(3) 6.4.3.1
s.32BA 21.5
s.32C 6.4.3.1
s.33 6.4.3.1, 21.4.4
s.33(1)(a) 6.4.3.1
s.36 6.4.3.1
s.37 6.4.3.1
s.41A 6.1
s.41E 6.4.3.2
s.43(1) 6.4.3.2
s.43(2) 6.4.3.2
s.43(3) 6.4.3.2
s.43(4) 6.4.3.2
s.43(5) 6.4.3.2
s.43(6) 6.4.3.2
s.43(6A) 6.4.3.2
s.44A 6.3.1
s.44B 6.3.1
s.56C 6.4.3.2
s.113(3) 6.4.3.1
Sched. 8 6.4.3.1
para. 2(2) 6.4.3.1
para. 3(2) 6.4.3.1
Sched. 9 6.4.3.1
Sched. 12
para. 1(1) 21.4.4
Clean Air Act of 1990 [USA] 8.4.2
Environmental Protection Act 1990 1.4.4.2, 6.3.2, 14.2
Part I 4.2.3, 6.2.1, 14.6
s.1(5) 6.2.2
s.2(1) 6.2.2
s.2(4) 6.3.2
s.2(5) 6.2.2
s.5 6.2.2
s.6 6.2.2
s.6(1) 6.2.2
s.6(3) 6.2.2
s.7 6.2.2
Table of Statutes xxxi
s.7(2) 6.2.2
ss.10–12 6.2.2
s.13 6.2.2
s.14 6.2.2
s.23 6.2.2
s.23(1)(a) 6.2.2
s.27 6.2.2
s.28(1) 6.3.2
Part II 1.4.2.1, 6.3.2, 6.7, 8.4.5.1, 15.2
s.33(1) 6.3.2
s.33(3) 6.3.2
s.33(4) 6.3.2
s.33(8) 6.3.2
s.33(9) 6.3.2
s.34 6.3.2
s.34(1) 6.3.2
s.34(2) 6.3.2
s.34(6) 6.3.2
ss.35–44 6.3.2
s.35(1) 6.3.2
s.35 15.3, 16.2
s.35(2) 6.3.2
s.35(2)(a) 16.5, 16.8, 16.16
s.35(3) 6.3.2
s.36(2) 6.3.2
s.36(3) 6.3.2
s.45 6.3.2, 21.4.1
s.45(3) 6.3.2
s.45(4) 6.3.2
s.45A 21.4.1
s.45B 21.4.1
s.47A 21.4.1
s.48(1A) 6.3.2
s.51 6.3.2, 21.4.1
s.52 21.4.1
s.52A 6.3.2
s.59 15.6
s.62 6.3.2.1
s.75 6.3.2.1
s.75(2) 6.3.2.1
s.75(4) 6.3.2.1
s.75(5) 6.3.2.1
s.75(6) 6.3.2.1
s.75(7) 6.3.2.1
s.75(7)(c) 15.6
s.75(9) 6.3.2.1
Part IIA 6.7, 8.2.3
xxxii Environmental Taxation Law
s.78A(2) 6.7
s.78E 6.7
s.78F(2) 6.7
s.78M 6.7
s.79(1)(g) 6.6
s.79(1)(ga) 6.6
Part III 6.4.2
Sched. 1 6.2.2
Sched. 2B 6.3.2
Planning (Hazardous Substances) Act 1990 4.2.3
Town and Country Planning Act 1990
s.106 27.2
New Roads and Street Works Act 1991 7.2.3, 13.4
Planning and Compensation Act 1991
s.22 6.2.4
Local Government Finance Act 1992 4.2.3
Social Security Contributions and Benefits Act 1992
s.1(6) 1.4.3.2
s.10 23.2
s.172 1.4.3.2
Taxation of Chargeable Gains Act 1992
s.38(1)(b) 21.3.3
s.42 24.7
s.44 24.7
Sched. A1
para. 5(1A) 24.7
Clean Air Act 1993 4.2.3, 6.4.2
s.30(1) 6.4.3.3
s.30(3) 6.4.3.3
s.32(1) 6.4.3.3
s.63(1) 6.4.3.3
Ecotax Law 1993 [Belgium]
s.369 1.2.1.5
Coal Industry Act 1994
Part I 6.4.3.4
s.7(1) 6.4.3.4
s.7(3) 6.4.3.4
Table of Statutes xxxiii
s.23(2) 6.4.3.4
Part II 6.4.3.4
Part III 6.4.3.4
Part IV 6.4.3.4
Finance Act 1994
s.16(4) 16.15
ss.28–44 1.2.1.5
s.30(4) 1.2.1.5
s.35(1)(a) 16.7
s.57(11) 16.7
Sched. 6 1.2.1.5
Value Added Tax Act 1994 22.2
s.5(2)(b) 24.7
s.7 1.4.3.2
s.7(10) 24.7
s.9A 16.7
s.13 1.4.3.2
s.15(1) 1.4.3.2
s.33 24.1
s.43A 16.6
s.43AA 16.6
s.43B 16.6
s.43C 16.6
s.45 16.4
s.46 16.6
s.46(2) 16.4
s.46(3) 16.4
s.47 16.5, 16.10
s.48 16.7
s.51A 16.5
ss.59–67 7.2.3
s.77A 4.2.1.1, 11.3.3, 16.2, 26.3.2
s.83 4.2.1.5
s.84 4.2.1.5
s.94(2) 16.4
s.96(11) 1.4.3.2
Sched. 1
para. 1 16.2
para. 1A 16.2
Sched. 4
para. 3 8.4.5.1
Sched. 5
para. 1 24.7
Sched. 7A
Group 1 21.4.2
xxxiv Environmental Taxation Law
Group 1, Notes 3–6 14.4
Group 2 21.3.1
Group 2,, Note 1(h) 21.3.1
Group 3 21.3.1
Group 3, Note 4A 26.6
Group 3, Note 4B 26.6
Sched. 8
Group 1 21.9.2
Group 8, item 4(a) 1.2.1.5, 14.4, 16.16, 23.3
Group 8, item 4(c) 1.2.1.5, 16.16
Sched. 9A 16.2, 16.6
Sched. 10
paras 2–3 16.5
para. 3A(7)(a) 16.16
Sched. 11
para. 1(1) 4.2.1.2
para. 4(2) 4.2.2.1, 16.2, 26.3.2
para. 5(2) 16.9
para. 5(3) 16.9
Sched. 11A 26.3.3.1
Sched. 12 4.2.1.5
para. 5(1) 4.2.1.5
para. 7(4) 4.2.1.5
Vehicle Excise and Registration Act 1994 22.2
s.1(1C) 22.2.1
s.2(2)–(7) 22.2.1
Sched. 1
para. 9(1) 22.3
Sched. 2
para. 20A 21.9.2
Environment Act 1995 4.2.3, 6.3.2, 9.1
s.1(1) 4.2.1.3
s.4(1) 4.2.1.3
s.4(2) 4.2.1.3
s.4(3) 4.2.1.3
s.4(5) 4.2.1.3
s.5(1) 4.2.1.3
s.6(1) 4.2.1.3
s.39(1) 4.2.1.3
s.41 6.3.2
s.56(1) 4.2.1.3
s.93 1.4.2.2, 19.1
s.94 1.4.2.2, 19.1
s.95 1.4.2.2, 19.1
s.108(1) 4.2.1.3
Table of Statutes xxxv
s.108(4) 4.2.1.3
Part IV 6.4.2
Finance Act 1995
s.154 21.4.4
Gas Act 1995 6.4.3.2
s.18(4) 6.4.3.2
Goods Vehicles (Licensing of Operators) Act 1995 6.5.3
s.2(1) 6.5.3
s.34 6.5.2
Finance Act 1996 1.4.2.1, 8.3.2
ss.39–69 1.4.2.1, 21.2, 26.1
s.39(2) 4.2.1.2
s.40 1.4.2.1
s.40(1) 15.3
s.40(2)(a) 15.3
s.40(2)(b) 15.3
s.40(2)(c) 15.3
s.40(3) 15.3
s.41 2.3, 15.3
s.41(1) 1.4.2.1
s.42(1) 1.4.2.1
s.42(2) 15.2
s.42(3) 15.2
s.42(4) 15.2
s.43(1)–(3) 15.4
s.43(4) 15.4
s.43A(1) 15.4
s.43A(2) 15.4
s.43A(4) 15.4
s.43A(5) 15.4
s.43A(6) 15.4
s.43B 15.4
s.43C 15.4
s.43C(2) 15.4
s.44 15.4
s.44A 15.4
s.45 15.4
s.47(2) 16.2
s.47(3) 16.2
s.47(4) 16.3
s.50(5) 15.6
s.51 16.9, 21.3
s.52 16.9, 16.10
xxxvi Environmental Taxation Law
s.53 4.2.1.2, 16.9, 21.3
s.53(1) 4.2.1.2
s.53(2)(b) 4.2.1.2
s.54 16.13
s.54(3) 4.2.1.5
s.55 4.2.1.5, 16.13
s.58(1) 16.4
s.58(2) 16.4
s.58(3) 16.6
s.59 16.6
s.62(7)(a) 15.5
s.62(7)(b) 15.5
s.63 15.2
s.63(2) 15.2
s.64(1) 15.3
s.64(2) 15.3
s.64(3) 15.3
s.64(4) 15.3
s.65(1)(a) 15.3
s.65(1)(b) 15.3
s.65(2) 15.3
s.65(3)(a) 15.3
s.65(3)(b) 15.3
s.65(4) 15.3
s.65(7) 15.3
s.65(8) 15.3
s.66 1.4.2.5, 8.4.5.1
s.66(a) 15.3
s.67(a) 15.3
s.68 15.2
s.69(2)(a) 15.6
s.70 1.4.2.1
s.71 1.4.2.1
Sched. 5 1.4.2.1, 21.2, 26.1
paras 2–3 16.12
paras 4–5 16.12
para. 6 16.15
paras 7–10 16.12
paras 15–17 16.14
paras 18–23 16.14
para. 26 16.14
para. 27 16.14
para. 29 16.13
para. 31 16.15
para. 45 16.11
para. 46 16.11
para. 47 16.11
Table of Statutes xxxvii
paras 48–60 15.3, 16.2, 16.16
para. 48(1) 16.16
para. 59 16.13
para. 57(1) 16.2
para. 60(3)(a) 16.2
Noise Act 1996 6.6
Finance Act 1997
s.37 26.1
ss.50–53 1.4.2.1
s.51 16.15
s.52 16.15
s.113 1.4.2.1
Sched. 5 1.4.2.1
paras 1–4 16.13
Finance (No.2) Act 1997
ss.1–5 8.6
Scheds 1–2 8.6
Income Tax Assessment Act 1997 [Commonwealth of Australia]
subdiv. 400–A 21.3.3
subdiv. 400–B 21.3.3
Taxpayer Relief Act of 1997 [USA] 21.3.3
Finance Act 1998
s.42(1) 24.1, 24.7
s.153(2) 6.4.3.2
Fossil Fuel Levy Act 1998 6.4.3.1
Government of Wales Act 1998 4.2.2
s.1(2) 4.2.2
s.31 4.2.2
s.33 4.2.2
s.54 4.2.2
s.56 4.2.2
s.57 4.2.2
s.106 4.2.2
s.107 4.2.2
s.108 4.2.2
s.121 4.2.2
Sched. 2 4.2.2
xxxviii Environmental Taxation Law
Human Rights Act 1998
s.3 11.3.4
Northern Ireland Act 1998 4.2.2
s.23 4.2.2
s.29 4.2.2
Petroleum Act 1998 6.4.3.2, 6.4.3.3
Part I 6.4.3.3
s.1 6.4.3.3
s.2 6.4.3.3
s.2(3) 6.4.3.3
s.4 6.4.3.3
s.4(1) 6.4.3.3
s.4(1)(e) 6.4.3.3
s.4(9) 6.4.3.3
s.15(2) 6.4.3.3
s.26 6.4.3.3
Part III 6.4.3.3
Part IV 6.4.3.3
Scotland Act 1998 1.3, 4.2.2
s.3 4.2.2
s.28 4.2.2
s.29 4.2.2
s.44 4.2.2
s.46 4.2.2
s.53(2) 4.2.2
s.73(1) 1.3
s.75 1.3
s.78 4.2.2
s.126(1) 1.3
s.126(2) 1.3
Sched. 5 4.2.2
Part IV 1.3
Finance Act 1999 5.1
s.49 17.2
s.124 1.4.2.1
Greater London Authority Act 1999 4.2.3
s.1 4.2.3
s.2 4.2.3
s.122(1) 4.2.3
s.173 4.2.3
s.295 1.4.2.4, 18.1
s.295(1) 18.4
Table of Statutes xxxix
s.296 1.4.2.4, 17.1, 17.4
s.424(1) 4.2.3
Sched. 1 4.2.3
Sched. 10
para. 2 4.2.3
para. 3 4.2.3
Sched. 23 1.4.2.4, 18.1
para. 2 18.4
para. 4 18.4
para. 5 18.4
para. 7 18.4
para. 8 18.4
para. 9 18.4
para. 10 18.4
para. 11 18.4
para. 12 18.4
para. 16 18.4
para. 17 18.4
para. 18 18.4
para. 19 18.4
para. 20 18.4
para. 21 18.4
para. 22 18.4
Sched. 24 1.4.2.4, 17.1
para. 2 17.4
para. 3(1) 17.6
para. 3(2) 17.6
para. 3(4) 17.6
para. 7 17.4
para. 8 17.4
para. 11 17.4
para. 12 17.4
para. 13 17.4
para. 15 17.4
para. 17 17.4
para. 24 17.4
para. 25 17.4
para. 26 17.4
para. 27 17.4
para. 28 17.4
Mines and Quarries (Tips) Act 1999 6.3.2
Pollution Prevention and Control Act 1999 4.2.1.3, 6.2.1, 6.3.2, 14.6
s.2 6.2.3
Sched. 1, Pt I
para. 1(1) 6.2.3
xl Environmental Taxation Law
para. 1(2) 6.2.3
para. 1(3) 6.2.3
para. 1(4) 6.2.3
para. 4 6.2.3
para. 24 6.2.3
Law Initiating Ecological Tax Reform 1999 [Germany] 21.2
Competition Act 2000 4.2.1.3
Finance Act 2000 1.4.2.2
s.3(2)(a) 2.4.3
s.30 1.4.2.2
ss.140–142 1.4.2.1
s.148 2.4.1
Sched. 6 1.4.2.1
para. 1(2) 4.2.1.2
para. 2 1.4.2.2
para. 3 8.4.5.1, 14.2
para. 3(1) 1.4.2.2
para. 3(1)(d) 2.4.4
para. 3(1)(e) 2.4.4
para. 5 14.2
para. 5(1) 2.4.1
para. 6 14.2
para. 6(1) 2.4.2
para. 7 14.2
para. 7(2) 2.4.4
para. 8 1.4.2.2, 14.4
para. 9 14.4
para. 10 1.4.2.2, 5.6.1
para. 11 1.4.2.2, 8.4.5.1, 14.4
para. 11A 1.4.2.2, 14.3
para. 12 14.4
para. 13 14.4
para. 13A 14.4
para. 14 2.4.4, 14.4
para. 15 5.6.1, 14.4, 14.5
para. 16(2) 14.5
para. 17 14.2
para. 17(2) 14.5
para. 17(3) 14.5
para. 17(4) 14.5
para. 18 14.4
para. 18A 14.4
para. 19 5.6.1
para. 19(1)(a) 16.16
Table of Statutes xli
para. 19(1)(b) 14.5
para. 19(1)(c) 14.5
para. 19(1)(d) 14.5
para. 19(2) 14.5
para. 19(3) 14.5
para. 19(4) 14.5
para. 19(4A) 5.6.1, 14.5
para. 19(5) 14.5
para. 19(6) 14.5
para. 19(7) 14.5
para. 19(8) 14.5
para. 20 14.5, 15.2
para. 20A 5.6.1
para. 20A(1)(a) 16.16
para. 20A(1)(b) 14.5
para. 20A(1)(c) 14.5
para. 20A(1)(d) 14.5
para. 20A(3) 14.5
para. 20A(4) 14.5
para. 20A(5) 14.5
para. 20A(6) 14.5
para. 20A(7) 14.5
para. 20A(8) 14.5
para. 20B 14.5
para. 21 14.9
para. 23(1) 14.2
para. 23(2) 14.2
para. 23(3) 14.2, 16.16
para. 24 14.4
para. 26(2) 16.9
para. 26(4) 16.9
para. 27 16.9
para. 27(5) 16.9
para. 28 16.9
para. 28(4) 16.9
para. 29 15.2, 16.9
para. 30(1) 16.9
para. 30(2) 16.9
para. 31 16.9
para. 32 16.9
para. 33(2) 16.9
para. 33(4) 16.9
para. 40(1) 1.4.2.2, 2.4.1, 2.4.2, 16.2, 16.16
para. 40(2) 1.4.2.2, 8.4.5.1, 16.2, 16.6, 16.9
para. 43 1.4.2.2, 14.3
para. 44 1.4.2.2, 5.6.1, 14.3, 14.6
para. 45 14.3, 14.6
xlii Environmental Taxation Law
para. 46 5.6.1, 14.3
para. 47 14.3, 14.6
para. 48 14.3, 14.6, 16.16
para. 49 14.3, 14.6
para. 49(1) 14.6
para. 49(2) 14.6, 16.16
para. 50 14.3, 14.6, 16.16
para. 51 14.3, 14.6, 16.5, 21.9, 20.1
para. 55(1) 16.2
para. 62(1) 16.9
para. 62(1)(f) 16.10
para. 66 16.13
paras 70–71 16.14
paras 81–89 16.14
paras 92–95 16.14
para. 90 16.15
para. 97 16.15
para. 102 16.9
para. 114 16.7
para. 114(1) 16.7
para. 115 16.7
para. 116 16.6
para. 117 16.4
para. 118 16.6
para. 119 16.6
para. 120 16.6
para. 121 4.2.1.5, 16.13
para. 122 4.2.1.5, 16.13
paras 125–127 16.12
paras 128–134 16.12
para. 139 16.15
para. 142(1) 16.11
para. 142(2) 16.11
para. 142(3) 16.11
para. 142(4) 16.11
para. 142(5) 16.11
para. 143(1) 16.9
para. 143(2) 16.9
para. 147 1.4.2.5, 5.6.1
para. 148 5.6.1, 14.4
para. 149A 14.5
para. 150 16.7
para. 150(2) 14.2
para. 150(2)(a) 2.4.1
para. 150(3)(a) 2.4.2
para. 151 16.2, 16.5
para. 152 14.2, 14.5
Table of Statutes xliii
para. 156 8.4.5.1, 16.5, 16.7, 16.9
Sched. 7 1.4.2.2
Sched. 37 1.4.2.1, 16.2
Transport Act 2000 4.2.3, 6.5.2
Part I 6.5
Part II 6.5
ss.163–177 1.4.2.3, 18.1
s.163(1) 18.5
s.163(2) 18.5
s.163(3) 18.5
s.164(1) 18.5
s.165(1) 18.5
s.166(1) 18.5
s.167 18.5
s.168 18.5
s.169 18.5
s.170 18.5
s.171 7.3.1, 18.5
s.172 7.3.3, 18.5
s.172(2) 7.3.3
ss.178–190 1.4.2.3, 17.1
s.178(1) 17.5
s.178(2)(a) 17.5
s.178(4) 17.5
s.178(5) 17.5
s.179(1) 17.5
s.180(1) 17.5
s.181(1) 17.5
s.182(1) 17.6
s.182(2) 17.6
s.182(3) 17.6
s.182(4) 17.6
s.183 17.5
s.184 17.5
s.186 7.3.1, 7.3.3, 17.5
s.187 17.5
s.188 17.5
s.198(1) 17.5, 18.5
Part III 6.5.2
Part IV 6.5
Sched. 12 7.3.1
para. 2 7.3.1
para. 3 17.5, 18.5
para. 7 7.3.1
Sched. 13
paras 1–18 1.4.2.3, 18.1
xliv Environmental Taxation Law
paras 19–34 1.4.2.3, 17.1
Utilities Act 2000 1.4.2.2, 4.2.1.3, 6.4.3.1, 21.4.3, 21.4.4
s.1 6.4.3.2
s.1(1) 4.2.1.3
s.1(2) 4.2.1.3
s.5A 21.7.2
s.50 14.5
s.62 7.3.1, 21.4.4
s.63 21.4.4
s.66 6.4.3.1, 21.4.4
s.67 6.4.3.1
Sched. 8 6.4.3.1
Warm Homes and Energy Conservation Act 2000 21.4.2
Capital Allowances Act 2001 7.2.4, 11.3.4
s.45A 5.6.1, 21.3.1, 24.4
s.45B 5.6.1, 24.4
s.45C 5.6.1, 24.4
s.45H 21.3.1, 24.4
s.45I 21.3.1, 24.4
s.45J 21.3.1, 24.4
s.74(2)(b) 24.3
s.74(2)(c) 24.3
s.75(1) 24.3
ss.393A–393V 24.5.2
s.393E 24.5.2
Regulatory Reform Act 2001 4.2.1.2
Finance Act 2001 1.4.2.3
s.3 21.3
ss.16–49 1.4.2.3
s.16(1) 1.4.2.3, 13.1
s.16(2) 1.4.2.3, 8.4.5.1
s.16(3) 1.4.2.3, 2.5
s.16(4) 1.4.2.3
s.16(5) 4.2.1.2
s.16(6) 5.6.2
s.17(1) 1.4.2.3, 13.4
s.17(2) 1.4.2.3
s.17(2)(a) 13.2
s.17(2)(b) 1.4.2.3, 13.2
s.17(2)(c) 13.2
s.17(3) 13.2
s.17(3)(b) 13.2, 16.2
Table of Statutes xlv
s.17(3)(b)(i) 13.2
s.17(3)(b)(ii) 13.2
s.17(3)(c) 13.2, 16.2
s.17(3)(d) 13.2, 16.2
s.17(3)(e) 13.2
s.17(3)(f) 13.2
s.17(4) 13.2
s.17(4)(a) 13.2, 13.4
s.17(4)(c) 13.2, 13.4
s.17(4)(d) 13.2, 13.4
s.17(4)(e) 13.2, 13.4
s.17(4)(f) 13.2, 13.4
s.17(5) 13.2
s.18 13.3
s.18(1)(a) 13.4
s.18(1)(b) 13.4
s.18(2)(a) 13.5
s.18(2)(b) 13.5
s.18(2)(c) 13.5, 21.8
s.18(3) 13.5
s.18(4) 13.4, 13.5
s.19 8.4.5.1
s.19(1) 8.4.5.1, 13.3
s.19(1)(a) 2.5
s.19(1)(b) 2.5, 8.4.5.1
s.19(1)(c) 2.5, 8.4.5.1
s.19(1)(d) 2.5
s.19(2)(a) 2.5, 13.3
s.19(2)(b) 13.2
s.19(2)(c) 13.2, 13.3
s.19(3)(a) 13.2
s.19(3)(b) 13.3, 16.4
s.19(3)(c) 13.2
s.19(3A) 13.2
s.20(1)(a) 13.2, 13.3
s.20(1)(b) 13.2, 13.3
s.20(1)(d) 13.2, 13.3
s.20(2) 13.2, 13.3
s.21 13.2, 13.2
s.21(1)(a) 13.3
s.21(1)(b) 13.3
s.21(2)(a) 13.3
s.21(2)(c) 13.3
s.21(2)(d) 13.3
s.22(1) 13.2, 16.2
s.22(1)(a) 13.3, 16.8, 16.16
s.22(1)(b) 13.3, 16.8
xlvi Environmental Taxation Law
s.22(1)(d) 13.3, 16.8
s.22(1)(e) 13.3, 16.8, 16.16
s.22(1)(f) 13.3, 16.8, 16.16
s.22(2) 13.2, 13.3, 16.2, 16.5
s.22(3) 13.2, 16.2, 16.16
s.22(4) 13.3
s.24(2) 13.3, 16.2
s.24(2)(a) 13.2
s.24(3) 13.2
s.24(4)(a) 16.2
s.24(4)(b) 16.2
s.24(6) 13.2
s.24(6)(ca) 13.2
s.24(7) 13.2, 13.3, 16.2, 16.8
s.24(8) 13.2
s.26 16.15
s.30(1) 16.9
s.30(1)(a) 8.4.5.1
s.30(1)(f) 16.10
s.30A 14.3, 21.8
s.32(2)–(4) 16.13
s.33 16.7
s.34 16.7
s.34(1) 16.7
s.35 16.4
s.37 16.4
s.38 16.4
s.39 16.4
s.40 1.4.7, 16.13
s.40(1)(c) 16.4, 16.8
s.41 1.4.7, 16.13
s.41(1)(a) 16.8
s.43(1) 16.11
s.43(2) 16.11
s.44 5.6.2
s.46 16.14
s.65 5.6.1
s.92 23.5.3
s.92A 23.5.3
s.92B 23.5.3
s.109 1.4.2.3
s.110 1.4.2.3
s.111 1.4.2.3
Sched. 4 1.4.2.3
para. 1(1) 17.2
para. 1(1)(a) 13.2, 13.3
para. 2(2) 16.4
Table of Statutes xlvii
para. 2(3) 16.6
para. 2(4) 16.4
Sched. 5 1.4.2.3
paras 14–16 16.15
Sched. 6 1.4.2.3
paras 1–4 16.14
para. 2(2) 8.4.5.1
para. 6 16.15
paras 7–9 16.14
Sched. 7 1.4.2.3
paras 2–4 16.12
paras 5–10 16.12
Sched. 8 1.4.2.3
para. 2 16.13
paras 6–7 16.14
Sched. 9 1.4.2.3, 16.4
Sched. 10 1.4.2.3
Sched. 17
para. 2 5.6.1
Sched. 22 5.5, 21.3.3
para. 1(4)(a) 24.5.1
para. 1(4)(b) 24.5.1
para. 1(5) 24.5.1
para. 2(6) 24.5.1
para. 8 24.5.1
para. 12 24.5.1
para. 31(3) 24.5.1
para. 31(4) 24.5.1
Finance Act 2002
s.123(1) 5.6.1
s.126 5.6.1
s.137 1.4.2.4, 7.2.3, 27.6
Sched. 2
para. 2 22.3
Sched. 5
para. 2 22.2.1
para. 3 22.2.1
Sched. 29 24.7
para. 2(1) 24.7
para. 3(1) 24.7
para. 9 24.7
para. 10 24.7
para. 11 24.7
para. 19(1)(b) 24.7
para. 19(2) 24.7
xlviii Environmental Taxation Law
Sched. 38
para. 2 14.2
Anti–Social Behaviour Act 2003 15.6
Electricity (Miscellaneous Provisions) Act 2003
s.1 21.4.4
s.4 21.4.4
Finance Act 2003 14.4, 14.5, 21.1
s.18 4.2.1.1, 16.2
s.19 4.2.1.1, 16.2
s.82(2) 11.3.2, 11.3.3
s.106(3)(b) 11.3.2, 11.3.3
s.136 26.3.2
Sched. 5 11.3.2
Sched. 6 23.5.3
Sched. 14
para. 4(b) 11.3.2, 11.3.3
Sched. 22 11.3.2
Household Waste Recycling Act 2003 2.3, 21.4.1
Income Tax (Earnings and Pensions) Act 2003 1.4.3.1, 11.3.2
s.10(2) 23.1
s.62(2) 23.1
s.97 23.1
ss.133–144 23.2
s.201 23.1
s.150 23.2
s.233 23.3
s.237 17.2
s.242 23.3
s.243 23.3
s.244 23.3
s.318 18.2
s.328 23.1
Regional Assemblies (Preparations) Act 2003 4.2.3
Sustainable Energy Act 2003 21.7.1
s.1 21.7.1
s.1(1A) 21.7.1
s.1(1B) 21.7.1
s.1(1C) 21.7.1
s.2 21.7.1
s.2(1) 21.7.1
Table of Statutes xlix
s.3 21.7.1
s.4 21.7.1
s.5 21.7.1
s.6 21.7.1
s.7 21.7.1
Waste and Emissions Trading Act 2003 1.4.2.1, 12.2.5.1, 27.7
Part 1 6.3.2
s.1 6.3.2, 20.7
s.2 20.7
s.3 20.7
s.4 20.7
s.4(1) 1.4.2.1
s.5 20.7
s.6 20.7
s.7 20.7
s.8 20.7
s.17 6.3.2
s.18 6.3.2
s.19 6.3.2
s.20 6.3.2
s.21(1) 20.7
s.21(2) 20.7
s.21(3) 20.7
s.22 1.4.2.1
s.22(1) 20.7
s.22(2) 20.7
s.23 20.7
s.24 1.4.2.1
s.24(1)(a) 1.4.2.5
s.24(1)(b) 1.4.2.5
s.24(1)(c) 1.4.2.5
s.24(1)(d) 1.4.2.5
s.25(1) 20.7
s.31 6.3.2, 26.3
s.31(2) 6.3.2
s.31(4) 6.3.2
s.32 6.3.2, 26.3
s.33 6.3.2, 26.3
s.37 20.7
s.38 20.3
s.39 20.3
Energy Act 2004
Part 1 6.4.3.1
Part 2 6.4.3.1
Part 3 6.4.3.1, 12.2.6.3
l Environmental Taxation Law
s.81(2) 21.7.2
s.82(2) 21.7.2
s.115 21.5
s.115(2) 6.4.3.1
s.115(3) 6.4.3.1
s.116 6.4.3.1, 21.5
s.117 21.5
s.118 21.5
s.120 21.5
s.124 6.4.3.3
Chapter 3 6.4.3.3
s.172 21.7.2
Finance Act 2004
s.291 14.4
ss.306–319 26.3.3.1
Sched. 2 26.3.3.1
Sched. 15
para. 11(5)(d) 11.3.4
para. 20(1)(a) 11.3.4
Sched. 41 26.2.1
Housing Act 2004 21.6.1, 21.6.2
Planning and Compulsory Purchase Act 2004 7.4.3.1
Sustainable and Secure Buildings Act 2004 21.6.3
Table of Statutory Instruments
Road Vehicle (Construction and Use) Regulations 1986, S.I. 1986 No. 1078
reg. 3(2) 6.5.2
reg. 97 6.5.2
Civil Aviation Authority (Economic Regulation of Airports) Regulations
1986, S.I. 1986 No. 1544 6.5.3
Environmental Assessment (Afforestation) Regulations 1988, S.I. 1988
No. 1207 6.2.4
Land Drainage Improvement Works (Assessment of Environmental
Effects) Regulations 1988, S.I. 1988 No. 1217 6.2.4
Sludge (Use in Agriculture) Regulations 1988, S.I. 1989 No. 1263 6.3.2
Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990,
S.I. 1990 No. 263 6.4.3.1
Fossil Fuel Levy Regulations 1990, S.I. 1990 No. 266 reg. 28 6.4.3.1
Electricity (Non-Fossil Fuel Sources) (England and Wales) (Amendment)
Order 1990, S.I. 1990 No. 494 6.4.3.1
Electricity (Non-Fossil Fuel Sources) (England and Wales) (No.2) Order
1990, S.I. 1990 No. 1869 6.4.3.1
Environmental Protection (Prescribed Processes and Substances)
Regulations 1991, S.I. 1991, No. 472 6.2.2
reg. 4 6.2.2
Sched. 1 6.2.2
ch. 1 6.2.2, 6.4.3.1, 6.4.3.2, 6.4.3.3
ch. 2 6.2.2
ch. 3 6.2.2, 6.4.3.4
ch. 4 6.2.2
ch. 5 6.2.2
ch. 6 6.2.2
Sched. 4 6.2.2
Sched. 5 6.2.2
Sched. 6 6.2.2
lii Environmental Taxation Law
Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1991,
S.I. 1991 No. 2490 6.4.3.1
Environmental Protection (Duty of Care) Regulations 1991, S.I. 1991
No. 2839 6.2.3
Electricity (Northern Ireland) Order 1992, S.I. 1992 No. 231
(N.I.1) 6.4.3.1
Art. 35 6.4.3.1
Art. 36 6.4.3.1
Licensing of Air Carriers Regulations 1992, S.I. 1992, No. 2992 reg. 2 6.5.3
Batteries and Accumulators (Containing Dangerous Substances)
Regulations 1994, S.I. 1994 No. 232 6.3.2
Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056 6.2.3
reg. 16 6.2.3
reg. 16(1)(a) 6.2.3, 6.3.2
reg. 17 6.2.3
Sched. 3 6.2.3
para. 41(1) 6.2.3
Transfrontier Shipment of Waste Regulations 1994, S.I. 1994 No. 1137 6.3.2
Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1994,
S.I. 1994 No. 3259 6.4.3.1
Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1990, S.I. 1994
No. 3275 (S.190) 6.4.3.1
Value Added Tax Regulations 1995, S.I. 1995 No. 2518
reg. 8 16.4
reg. 101(2)(d) 24.7
reg. 102 24.7
Gas (Northern Ireland) Order 1996, S.I. 1996 No. 275 (N.I.2) 6.4.3.2
Environmental Licences (Suspension and Revocation) Regulations
1996, S.I. 1996 No. 508 6.2.3
Special Waste Regulations 1996, S.I. 1996 No. 972 6.3.2, 12.2.5.1
Landfill Tax Regulations 1996, S.I. 1996 No. 1527 4.2.1.2
reg. 2(1) 16.12
reg. 4(2) 16.8
reg. 4(3) 16.5
Table of Statutory Instruments liii
reg. 5 16.3
reg. 6 16.3
reg. 7 16.4
reg. 8 16.4
reg. 9 16.6
reg. 17 16.9, 21.3.2
reg. 18 16.9, 21.3.2
reg. 19 16.9, 21.3.2
reg. 20 16.9, 21.3.2
reg. 21 21.3.2
reg. 23(a) 16.10
reg. 23(b) 16.10
reg. 23(c) 16.10
reg. 23(d) 16.10
reg. 23(e)(i) 16.10
reg. 25(a) 16.10
reg. 26 16.10
reg. 30 21.3.2
reg. 31 21.3.2
reg. 31(4) 21.3.2
reg. 31(5) 21.3.2
reg. 31(6) 21.3.2
reg. 31(6A) 21.3.2
reg. 32 21.3.2
reg. 33(1)–(1C) 21.3.2
reg. 33(2)(a) 21.3.2
reg. 33(2)(b) 21.3.2
reg. 33(2)(c) 21.3.2
reg. 33(2)(cc) 21.3.2
reg. 33(2)(d) 21.3.2
reg. 33(2)(da) 21.3.2
reg. 33(2)(da)(i) 21.3.2
reg. 33(2)(da)(ii) 21.3.2
reg. 33(2)(e) 21.3.2
reg. 33(2)(f) 21.3.2
reg. 33(2A) 21.3.2
reg. 33(3) 21.3.2
reg. 33(3A)(a) 21.3.2
reg. 33(3A)(b) 21.3.2
reg. 33(3A)(c) 21.3.2
reg. 33(3A)(d) 21.3.2
reg. 33(3A)(e) 21.3.2
reg. 33(3A)(f) 21.3.2
reg. 33(6) 21.3.2
reg. 33A 21.3.2
reg. 37 16.9
reg. 38 15.5
liv Environmental Taxation Law
reg. 39 15.5
reg. 40 15.5
regs 41–44 15.2
reg. 44(5)–(8) 15.2
Landfill Tax (Qualifying Material) Order 1996, S.I. 1996 No. 1528 15.2
Carriage of Dangerous Goods by Road Regulations 1996, S.I. 1996
No. 2095 6.4.3.3
Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1997,
S.I. 1997 No. 248 6.4.3.1
Producer Responsibility Obligations (Packaging Waste) Regulations
1997, S.I. 1997 No. 648 1.4.2.2, 12.2.5.1, 19.1
reg. 2(1)(a) 19.2
reg. 3(5)(b) 19.5
reg. 4 19.4
reg. 5 19.4
reg. 5B 19.5
reg. 6 19.4
reg. 6(4)(dd) 19.5
reg. 7 19.5
reg. 9(2) 19.4
reg. 10 19.4
reg. 11(1) 19.4
reg. 21B 19.5
reg. 25 19.4
Sched. 1 19.4
Sched. 2 19.5
Sched. 3 19.2
Sched. 10 19.5
Electricity (Non-Fossil Fuel Sources) (Scotland) Order
1997, S.I. 1994 No. 799 (S.76) 6.4.3.1
Mines (Notice of Abandonment) Regulations 1998, S.I. 1998
No. 892 6.4.3.4
Electricity (Non-Fossil Fuel Sources) (England and Wales)
Order 1998, S.I. 1998 No. 2353 6.4.3.1
Civil Procedure Rules 1998, S.I. 1998 No. 3132
Sched. 1
para. 2 4.2.1.5
Table of Statutory Instruments lv
Town and Country Planning (Environmental Impact Assessment)
(England and Wales) Regulations 1999, S.I. 1999 No. 293 6.2.4, 12.2.4
Environmental Protection Act 1990 (Extension of Section 140)
Regulations 1999, S.I. 1999 No. 396 6.3.2
Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1999, S.I. 1999
No. 439 (S.24) 6.4.3.1
Motor Fuel (Composition and Content) Regulations 1999, S.I. 1999
No. 3107 6.4.3.1
Contaminated Land (England) Regulations 2000, S.I. 2000, No. 227 6.7
Air Navigation Order 2000, S.I. 2000 No. 1562
Art. 108 6.5.2
Pollution Prevention and Control (England and Wales) Regulations 2000,
S.I. 2000 No. 1973, am. S.I.
2001 No. 503 6.2.1, 6.2.3, 6.3.2, 12.2.2, 14.6
reg. 2 6.3.2
reg. 2(1) 6.2.3
reg. 3 6.2.3
reg. 4(3)(c) 6.2.3
reg. 8 6.2.2
reg. 9(1) 6.2.3
reg. 11(1) 6.2.3
reg. 11(2) 6.2.3
reg. 11(3) 6.2.3
reg. 12 6.2.3
reg. 21 6.2.3
reg. 25 6.2.3
reg. 32 6.2.3
reg. 32(2) 6.2.3
reg. 32(3) 6.2.3
Sched. 1 6.2.2
Pt I, Ch. 1
s.1.1 6.2.3, 6.4.3.1
s.1.2 6.4.3.2
s.2.1–2.3 6.2.3
s.3.1–3.4 6.2.3
s.3.5 6.2.3, 6.4.3.2
s.3.6 6.2.3
s.4.1–4.8 6.2.3, 6.3.2
s.5.1 6.2.3
s.5.2 6.2.3, 6.3.2
s.5.3 6.2.3, 6.3.2
lvi Environmental Taxation Law
s.5.4 6.2.3, 6.3.2
s.5.5 6.2.3, 6.3.2
s.6.1–6.9 6.2.3
Environmental Protection (Disposal of Polychlorinated Biphenyls and
Other Dangerous Substances) (England and Wales) Regulations 2000,
S.I. 2000 No. 1043 6.3.2
Climate Change Levy (Registration and Miscellaneous Provisions)
Regulations 2001, S.I. 2001 No. 7
reg. 2(1) 16.2
reg. 2(2) 16.5
reg. 3 16.3
reg. 4 16.3
reg. 8 16.6
reg. 9 16.6
reg. 10 16.6
reg. 11 16.6
reg. 12 16.6
reg. 13 16.4
reg. 14 16.7
reg. 14(2) 16.7
reg. 14(3) 16.7
reg. 14(4) 16.7
reg. 14(4)(a) 16.7
reg. 14(6) 16.7
reg. 15 16.7
reg. 15(1) 16.7
reg. 16 16.7
reg. 17 16.7
reg. 17(1) 16.7
reg. 17(2) 16.7
reg. 17(3) 16.7
reg. 17(4)(a) 16.7
reg. 18 16.7
reg. 18(2)(b) 16.7
reg. 19 16.7
Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838 6.4.3.1
reg. 3 16.11
regs 6A–G 16.12
reg. 10(1)(b) 16.10
reg. 10(1)(c) 16.10
reg. 10(1)(d) 16.10
reg. 10(1)(e) 16.10
reg. 10(2) 16.10
reg. 10(7) 14.4, 16.10
Table of Statutory Instruments lvii
reg. 34 14.4, 16.9
reg. 35 16.9
reg. 36 16.9
reg. 37 16.9
reg. 38 16.9
reg. 39 16.9
reg. 40 14.4, 16.9
reg. 41 14.2
reg. 44 14.6
regs 46–51 14.5
regs 51A–51M 14.5
reg. 52 14.4
reg. 54 14.2, 16.9
reg. 55 16.6
reg. 56 16.6
reg. 57 16.6
reg. 59 16.6
Sched. 1 16.9
Sched. 2 14.5
Social Security (Contributions) Regulations 2001, S.I. 2001 No. 1004
reg. 145 1.4.3.2
Offshore Combustion Installations (Prevention and Control of Pollution)
Regulations 2001, S.I. 2001 No. 1091 28.4
Climate Change Levy (Electricity and Gas) Regulations 2001, S.I. 2001
No. 1136 14.2
Climate Change Levy (Use as Fuel) Regulations 2001, S.I. 2001 No. 1138 14.4
Climate Change Levy (Combined Heat and Power Stations) Prescribed
Conditions and Efficiency Percentages Regulations 2001, S.I. 2001
No. 1140 14.4
reg. 5(3) 14.5
reg. 5(4) 14.5
Environmental Protection (Disposal of Polychlorinated Biphenyls and Other
Dangerous Substances) (England and Wales) (Amendment) Regulations
2001, S.I. 2001 No. 3359 6.3.2
Aggregates Levy (Registration and Miscellaneous Provisions)
Regulations 2001, S.I. 2001 No. 4027
reg. 2(1) 13.3, 16.2
reg. 2(3) 16.2, 16.5
reg. 2(6) 16.8
reg. 3(2) 13.2, 16.2
lviii Environmental Taxation Law
reg. 3(3) 13.2
reg. 4 16.3
reg. 8 16.6
reg. 9 16.6
reg. 10 16.6
reg. 11 16.6
reg. 12 16.4
reg. 13 8.4.5.1, 16.4
reg. 13(1) 8.4.5.1
reg. 13(2) 8.4.5.1
reg. 13(2)(a) 8.4.5.1
reg. 14 16.7
reg. 14(2) 16.7
reg. 14(3) 16.7
reg. 14(4) 16.7
reg. 14(4)(a) 16.7
reg. 14(6) 16.7
reg. 15 16.7
reg. 15(1) 16.7
reg. 16 16.7
reg. 17 16.7
reg. 17(1) 16.7
reg. 17(2) 16.7
reg. 17(3) 16.7
reg. 17(4)(a) 16.7
reg. 18 16.7
reg. 18(2)(b) 16.7
reg. 19 16.7
Income Tax (Exemption of Minor Benefits) Regulations 2002, S.I. 2002
No. 205
reg. 3 23.3
reg. 4 23.3
Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 671
reg. 4 16.2
reg. 5 13.2, 16.2, 16.11
reg. 6 13.2, 16.2
reg. 7 13.2, 16.2
reg. 8 13.2, 16.2
reg. 9 13.2, 16.2
reg. 10 13.2, 16.2
reg. 10(i) 16.9
reg. 10(j) 16.9
reg. 11 13.2, 16.2
reg. 12 16.9
reg. 12(1)(a) 16.10
Table of Statutory Instruments lix
reg. 12(1)(c) 16.10
reg. 12(1)(e) 16.10
reg. 12(2) 16.10
reg. 13 16.9
reg. 34 16.6
reg. 35 16.6
reg. 36 16.6
reg. 37 16.6
Sched. 16.9
Air Navigation (Environmental Standards) Order 2002, S.I. 2002 No. 798
Art. 8 6.5.2
Finance Act 2001, section 16, (Appointed Day) Order 2002, S.I. 2002
No. 809 5.6.2
Fossil Fuel Levy (Amendment) Regulations 2001, S.I. 2001 No. 1200 6.4.3.1
Renewables Obligation Order 2002, S.I. 2002 No. 914
Art. 3(1)(b) 21.5
Art. 3(4) 21.5
Art. 7 21.5
Sched. 1 7.3.1, 21.5
Landfill (England and Wales) Regulations 2002, S.I. 2002
No. 1559 6.3.2, 12.2.5.1, 15.6
reg. 1(2) 6.3.2
reg. 2 6.3.2
reg. 3(2) 6.3.2
reg. 3(4) 6.3.2
reg. 4 6.3.2
reg. 4(b) 6.3.2
reg. 5 6.3.2
reg. 6(1) 6.3.2
reg. 6(2) 6.3.2
reg. 7(1) 6.3.2
reg. 7(2) 6.3.2
reg. 7(3) 6.3.2
reg. 7(4) 6.3.2
reg. 8 6.3.2
reg. 9(1)(a) 6.3.2
reg. 9(1)(c) 6.3.2
reg. 10(1) 6.3.2
reg. 10(2) 6.3.2
reg. 10(3) 6.3.2
reg. 11 6.3.2
reg. 12 6.3.2
lx Environmental Taxation Law
reg. 13 6.3.2
reg. 14 6.3.2
Sched. 1
para. 1 6.3.2
para. 2 6.3.2
Air Navigation Order 2002, S.I. 2002 No. 1562 6.5.3
Art. 108 6.5.2
Aggregates Levy (Northern Ireland Tax Credit) Regulations 2002,
S.I. 2002 No.1927 16.2
Aggregates Levy (Registration and Miscellaneous Provisions)
(Amendment) Regulations 2002, S.I 2002 No. 1929 16.2
Transfer of Functions (Transport, Local Government and the Regions)
Order 2002, S.I. 2002 No. 2626 4.2.1.2
Pollution Prevention and Control Regulations (Northern Ireland) 2003,
S.R. (N.I.) 2003 No. 46 28.4
Energy (Northern Ireland) Order, S.I. 2003 No. 419 (N.I.6) 6.4.3.1, 6.4.3.2
Art. 58 6.4.3.1
Aggregates Levy (Registration and Miscellaneous Provisions)
(Amendment) Regulations 2003, S.I. 2003 No. 465 13.2
Electricity (Guarantees of Origin of Electricity Produced from Renewable
Energy Sources) Regulations (Northern Ireland) 2003, S.R. 2003
No. 470 6.4.3.1
Finance Act 2002, section 123, (Appointed Day Order 2003, S. I. 2003
No. 603 14.5
Climate Change Levy (General) (Amendment) Regulations 2003, S.I. 2003
No. 604 14.5
Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605 4.2.1.2
reg. 3(a) 21.3.2
reg. 4 21.3.2
reg. 5 21.3.2
Climate Change Levy (Use as Fuel) (Amendment) Regulations 2003,
S.I. 2003 No. 665 14.4
Table of Statutory Instruments lxi
Climate Change Levy (Combined Heat and Power Stations) Prescribed
Conditions and Efficiency Percentages (Amendment) Regulations 2003,
S.I. 2003 No. 861 14.5
Stamp Duty (Disadvantaged Areas) (Application of Exemptions)
Regulations 2003, S.I. 2003 No. 1056 24.5.3
Value Added Tax (Amendment) (No.2) Regulations 2003, S.I. 2003
No. 1069 11.3.3
Income Tax (Exemption of Minor Benefits) (Amendment) Regulations
2003, S.I. 2003 No. 1434 23.3
Landfill Tax (Amendment) (No.2) Regulations 2003, S.I. 2003 No. 2313 21.3.2
Electricity (Guarantees of Origin of Electricity Produced from Renewable
Energy Sources) Regulations 2003, S.I. 2003 No. 2562 6.4.3.1
reg. 1(2) 6.4.3.1
reg. 2(1) 6.4.3.1
reg. 4(1)(a) 6.4.3.1
reg. 4(1)(b) 6.4.3.1
reg. 5 6.4.3.1
reg. 6(1) 6.4.3.1
reg. 6(3) 6.4.3.1
reg. 7 6.4.3.1
reg. 8 6.4.3.1
Sched. 2 6.4.3.1
Climate Change Levy (General) (Amendment) (No.2) Regulations 2003,
S.I. 2003 No. 2633 14.5
End-of-Life Vehicles Regulations 2003, S.I. 2003 No. 2635 19.7
Motor Fuel (Composition and Content) (Amendment) Regulations 2003,
S.I. 2003 No. 3078 6.4.3.1
Greenhouse Gas Emissions Trading Scheme Regulations 2003 S.I. 2003
No. 3311 28.4
reg. 1 28.4
reg. 2 28.4
reg. 2(1) 28.4
reg. 8 28.4
reg. 10 28.4
reg. 11 28.4
reg. 11(7) 28.4
reg. 12 28.4
reg. 13 28.4
lxii Environmental Taxation Law
reg. 14 28.4
reg. 16 28.4
reg. 18 28.4
reg. 19 28.4
reg. 19(3)(a) 28.4
reg. 19(15)(a) 28.4
reg. 19(16) 28.4
reg. 19(17) 28.4
reg. 20 28.4
reg. 21 28.4
reg. 22 28.4
reg. 23 28.4
reg. 24 28.4
reg. 25 28.4
Sched. 1 28.4
Part 2, para. 2 28.4
Environmental Protection (Waste Recycling Payments) (England)
Regulations 2003, S.I. 2003 No. 639 21.4.1
Producer Responsibility Obligations (Packaging Waste) (England)
(Amendment) Regulations 2003. S.I. 2003 No. 3294 19.5
Energy (2003 Order) (Commencement No. 2) Order (Northern Ireland)
2004, S.R. 2004 No. 71 (C.1)
Art. 2 6.4.3.1
Sched. 6.4.3.1
Coal Industry Act 1994 (Commencement No. 7) and Dissolution of the
British Coal Corporation Order, S.I. 2004 No. 144 (C.6) 6.4.3.4
Petroleum Licensing (Exploration and Production) (Seaward and
Landward Areas) Regulations 2004, S.I. 2004 No. 352 6.4.3.3
Landfill Tax (Amendment) Regulations 2004, S.I. 2004 No. 769
reg. 3 21.3.2
Renewables Obligation (Amendment) Order 2004, S.I. 2004
No. 924 6.4.3.1, 21.5
Aggregates Levy (Northern Ireland Tax Credit) Regulations 2004,
S.I. 2004 No. 1959 13.3
Environmental Assessment of Plans and Programmes Regulations 2004,
S.I. 2004 No. 1633 6.2.4
Table of Statutory Instruments lxiii
Excise Duties (Surcharges or Rebates) (Bioethanol) Order 2004, S.I.
2004 No. 3162 22.2.2
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Table of Provisions of
the European Treaty
Art. 2 12.2.1
Art. 3(1)(b) 12.2.1
Art. 3(1)(c) 12.2.1
Art. 3(1)(f) 12.2.1, 12.2.6.4
Art. 3(1)(l) 12.2.1
Art. 3(1)(u) 12.2.6.3
Art. 6 [ex-3c] 12.2.1, 12.2.4, 12.2.7.2
Art. 7(2) [ex-4(2)] 4.3.4
Art. 12 [ex-6] 12.2.6.4
Art. 14 [ex-7a] 12.3.1
Art. 23 [ex-9] 12.2.6.4, 12.3.3.2
Art. 24 [ex 10] 12.2.6.4
Art. 25 [ex-12] 7.2.1, 7.2.2.3, 12.2.6.4, 12.3.2.2
Art. 26 [ex-28] 12.2.6.4
Art. 27 [ex-29] 12.2.6.4
Art. 28 [ex-30] 12.2.6.4, 12.4
Art. 29 [ex-34] 12.2.6.4, 12.4
Art. 30 [ex-36] 12.2.6.4, 12.4
Art. 31 [ex-37] 12.2.6.4
Art. 43 [ex-52] 26.1
Art. 49 [ex-59] 12.3.1, 26.4
Art. 70 [ex-74] 12.2.6.4
Art. 71 [ex-75] 12.2.6.4
Art. 72 [ex-76] 12.2.6.4
Art. 73 [ex-77] 12.2.6.4, 12.2.7.4
Art. 74 [ex-78] 12.2.6.4
Art. 75 [ex-79] 12.2.6.4
Art. 76 [ex-80] 12.2.6.4
Art. 77 [ex-81] 12.2.6.4
Art. 78 [ex-82] 12.2.6.4
Art. 79 [ex-83] 12.2.6.4
Art. 80 [ex-84] 12.2.6.4
Art. 80(1) 12.2.6.4
Art. 80(2) 12.2.6.4
Art. 81 [ex-85] 12.3.2.1
Art. 81(1) 12.2.6.4
Art. 81(3) 12.2.6.4
Art. 82 [ex-86] 12.3.2.1
lxvi Environmental Taxation Law
Art. 87 [ex 92] 8.4, 12.3.3, 12.3.5
Art. 87(1) 12.2.5.2, 12.2.7.1
Art. 87(2) 12.2.5.2, 12.2.7.1
Art. 87(3) 12.2.5.2, 12.3.5, 12.2.7.1, 12.2.7.4
Art. 87(3)(c) 12.2.7.2, 12.2.7.3
Art. 88 [ex 93] 4.3.2, 8.4, 12.5.2, 12.2.7.1
Art. 88(1) 12.2.7.1
Art. 88(2) 12.2.7.1
Art. 89 [ex-94] 12.2.5.2, 12.2.7.1
Art. 90 [ex-95] 7.2.2.3, 7.2.2.4, 8.4.1, 12.3.2.1, 12.3.2.2, 12.3.5
Art. 92 [ex-98] 12.3.2, 27.2
Art. 93 [ex-99] 4.3.1, 12.3.1, 12.3.2, 12.3.2.1
Art. 94 [ex-100] 12.2.1, 12.3.1, 12.3.2, 12.3.2.1
Art. 95 [ex-100a] 12.2.1
Art. 95(1)(a) 12.2.1
Art. 95(2) 4.3.1
Art. 95(3) 12.2.1
Art. 131 [ex-110] 8.4.1
Art. 132 [ex-112] 8.4.1
Art. 133 [ex-113] 8.4.1
Art. 133(3) 4.3.3
Art. 134 [ex-113] 8.4.1
Art. 135 [ex-115] 8.4.1
Art. 154 [ex-129b] 12.2.6.3
Art. 174 [ex-130r] 28.2.1
Art. 174(1) 1.2.1.5, 12.2.1
Art. 174(2) 8.2.3, 12.2.1
Art. 174(3) 12.2.1
Art. 175 [ex-130s] 4.3.1, 13.2.1, 13.2.2
Art. 175(1) 28.2.1
Art. 175(2) 1.2.1.5
Art. 175(2)(a) 12.2.1
Art. 189 [ex-137] 4.3.3
Art. 190(1) [ex-138(1)] 4.3.3
Art. 190(5) 4.3.3
Art. 191 [ex-138a] 4.3.3
Art. 192 [ex-138b] 4.3.3
Art. 199 [ex-142] 4.3.3
Art. 202 [ex-145] 4.3.2
Art. 203 [ex-146] 4.3.2, 28.2.3
Art. 204 [ex-147] 4.3.2
Art. 205(1) [ex-148(1)] 4.3.2
Art. 205(3) 4.3.2
Art. 207 [ex-151] 4.3.2
Art. 208 [ex-152] 4.3.2
Art. 211 [ex-155] 4.3.2
Art. 213 [ex-157] 4.3.2
Table of Provisions of the European Treaty lxvii
Art. 214(1) [ex-158(1)] 4.3.2
Art. 214(2) 4.3.2
Art. 214(2) 4.3.3
Art. 220 [ex-164] 4.3.7
Art. 224 [ex-168] 4.3.7
Art. 226 [ex-169] 4.3.2
Art. 234 [ex-177] 4.3.7, 12.2.5.2, 12.3.2.1
Art. 251 [ex-189b] 4.3.3, 12.2.1, 12.3.2.1, 28.2.1
Art. 257 [ex-193] 4.3.4
Art. 258 [ex-194] 4.3.4
Art. 300(2) [ex-228(2)] 4.3.3
Art. 302 [ex-229] 4.3.2
Art. 303 [ex-230] 4.3.2
Art. 304 [ex-231] 4.3.2
Art. 307 [ex-234] 8.4.1
Art. 308 [ex-235] 12.2.1
Title VI [ex-V] 4.3.2
Title XIX [ex-XVI] 4.3.2
Treaty of Nice
Art. 1(17) 4.3.3
Art. 1(21) 4.3.2
Art. 12(2) 4.3.1
Protocol on Enlargement 4.3.1
Euratom Treaty (1957) 4.3, 12.2.6.3
Art. 2 4.3, 12.2.6.3
Art. 30 12.2.6.3
European Coal and Steel Community Treaty (1957) 12.2.6.3
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Table of European Community
Legislation
1 Directives
Vehicle Noise Directive, 70/157/EEC 12.2.6.4
Diesel Fuels Directive, 72/306/EEC 12.2.6.4
Waste Oils Directive, 75/439/EC 12.2.5.1
Waste Framework Directive, 75/442/EEC 6.3.2, 12.1, 12.2.5.2
Art. 1 12.2.5.2
Art. 1(a) 6.3.2, 12.2.5.2
Art. 1(c) 12.2.5.2
Art. 3(1)(a) 12.2.5.2
Art. 3(1)(b) 12.2.5.2
Art. 5(1) 12.2.5.2
Art. 5(2) 12.2.5.2
Art. 7 12.2.5.2
Art. 9 12.2.5.2
Art. 10 12.2.5.2
Art. 11 12.2.5.2
Art. 12 12.2.5.2
Art. 14 12.2.5.2
Art. 15 12.2.5.2
Annex 1 12.2.5.2
Q 1 12.2.5.2
Q 2 12.2.5.2
Q 3 12.2.5.2
Q 6 12.2.5.2
Q 8 12.2.5.2
Q 10 12.2.5.2
Q 11 12.2.5.2
Q 12 12.2.5.2
Q 16 12.2.5.2
Annex IIA 12.2.5.2
D 1 12.2.5.2
D 6 12.2.5.2
D 10 12.2.5.2
D 11 12.2.5.2
lxx Environmental Taxation Law
Annex IIB 12.2.5.2
R 1 12.2.5.2
R 2 12.2.5.2
R 3 12.2.5.2
R 4 12.2.5.2
R 8 12.2.5.2
R 9 12.2.5.2
Driver Training Directive, 76/914/EEC 12.2.6.4
Sixth VAT Directive, 77/388/EEC 1.2.1.4
Art. 2(1) 24.7
Art. 5(1) 24.7
Art. 9(1)(e) 24.7
Art. 11A(2)(a) 1.4.3.2
Art. 17(5) 24.7
Art. 19(1) 24.7
Art. 33 1.2.1.4, 27.2
Toxic and Dangerous Wastes Directive, 78/319/EEC 12.2.5.1
Wild Birds Directive, 79/11/EEC 21.4.4
Aircraft Noise Directive, 80/51/EEC 21.2.6.4
EIA Directive, 85/337/EEC 6.2.4, 12.2.4
Art. 5 6.2.4
Art. 6(2) 6.2.4
Annex IV 6.2.4
Sewage Sludge Directive, 86/278/EEC 12.2.5.1
Diesel Fuels Directive, 88/77/EEC 12.2.6.4
Combustion Plant Directive, 88/609/EEC 12.2.6.2
Chapter 2 Aircraft Directive, 89/629/EEC 12.2.6.4
Parent-Subsidiary Directive, 90/435/EEC 7.2.2.1
Council Directive 91/441/EEC 12.2.6.4
Batteries and Accumulators Directive, 91/157/EEC 12.2.5.1
Driving Licences Directive, 91/439/EEC 12.2.6.4
Hazardous Waste Directive, 91/689/EEC 6.3.2, 12.2.5.1
Art. 1(1) 12.2.5.1
Table of European Community Legislation lxxi
Art. 1(3) 12.2.5.2
Art. 1(5) 12.2.5.1
Art. 2 12.2.5.1
Art. 2(1) 12.2.5.1
Art. 2(2) 12.2.5.1
Art. 2(3) 12.2.5.1
Art. 3 12.2.5.1
Art. 4 12.2.5.1
Art. 5 12.2.5.1
Art. 6(1) 12.2.5.1
Art. 8(3) 12.2.5.1
Annex I
para. 1 12.2.5.1
para. 2 12.2.5.1
para. 3 12.2.5.1
para. 4 12.2.5.1
para. 5 12.2.5.1
Annex III 12.2.5.1
Vehicle Speed Directive, 92/6/EEC 12.2.6.4
Single Market Directive, 92/12/EEC 22.1
Aircraft Withdrawal Directive, 92/14/EEC 12.2.6.4
Habitats Directive, 92/43/EEC 21.4.4
Air Transport Directive, 92/81/EEC 16.16, 12.3.4
Excise Duties Directive, 92/82/EEC 12.3.4
Titanium Oxide Waste Directive, 92/112/EC 12.2.5.1
Fuel Sulphur Content Directive, 93/12/EC 12.2.6.3
Council Directive 93/59/EC 12.2.6.4
Council Directive 94/12/EC 12.2.6.4
Hydrocarbons Licensing Directive, 94/22/EC 12.2.6.3
Carriage of Dangerous Goods Directive, 94/55/EC 12.2.6.4
Packaging and Packaging Waste Directive, 94/62/EC 1.4.2.2, 6.2.1,
12.2.5.1, 12.4, 19.1
Art. 1(1) 12.2.5.1
lxxii Environmental Taxation Law
Art. 3(1) 12.2.5.1
Art. 4 12.2.5.1
Art. 4(1) 12.2.5.1
Art. 4(2) 19.1
Art. 5 12.2.5.1
Art. 7(1)(a) 12.2.5.1
Art. 7(1)(b) 12.2.5.1
Art. 9(1) 12.2.5.1
Petrol Storage Directive, 94/63/EC 12.2.6.3
Vehicle Tax Incentives Directive, 96/1/EC 12.2.6.4
PCB/BCT Directive, 96/59/EC 12.2.5.1
Integrated Pollution Prevention and Control Directive,
96/61/EC 6.2.1, 6.3.2, 9.1, 12.2.2, 12.2.6.2, 14.4, 21.9, 28.1
Art. 1 12.2.2
Art. 2(3) 12.2.2
Art. 2(11) 12.2.2
Art. 3 12.2.2
Art. 4 12.2.2
Art. 5 12.2.2
Art. 8 12.2.2
Art. 9(3) 28.3
Annex 1 12.2.2
Air Quality Framework Directive, 96/62/EC 12.2.6.2, 21.4
Electricity Directive, 96/92/EC 12.2.6.3
Gas Directive, 98/30/EC 12.2.6.3
Fuel Quality Directive, 98/70/EC 12.2.6.3, 21.4
Air Quality First Daughter Directive, 1999/30/EC 12.2.6.2, 16.16, 21.4
Landfill Directive, 1999/31/EC 5.2, 5.6.3, 6.3.2, 12.2.5.1, 21.4.1, 20.3, 20.7
Art. 1 12.2.5.1
Art. 2(a) 12.2.5.2
Art. 2(g) 12.2.5.1
Art. 2(m) 12.2.5.1
Art. 5(1) 12.2.5.1
Art. 7 12.2.5.1
Art. 8 12.2.5.1
Art. 9 12.2.5.1
Art. 10 12.2.5.1
Table of European Community Legislation lxxiii
Art. 12 12.2.5.1
Art. 13 12.2.5.1
Art. 13(c) 12.2.5.1
Art. 14 12.2.5.1
Sulphur Content Directive, 1999/32/EC 12.2.6.3, 21.4
Heavy Goods Vehicles Directive, 1999/62/EC 12.2.6.4
Art. 2(d) 12.2.6.4
Art. 4 12.2.6.4
Art. 5 12.2.6.4
Art. 6 12.2.6.4
Art. 7(4) 12.2.6.4
Art. 7(5) 12.2.6.4
Art. 7(7) 12.2.6.4
Art. 7(9) 12.2.6.4
Art. 7(10) 12.2.6.4
Art. 9(2) 12.2.6.4
Annex 1 12.2.6.4
Gas Fuels Directive, 1999/96/EC 12.2.6.4
End-of-Life Vehicles Directive, 2000/53/EC 19.6
Water Framework Directive, 2000/60/EC 21.9.3.3, 21.9.4
Air Quality Second Daughter Directive, 2000/69/EC 12.2.6.2
Incineration Emissions Directive, 2000/76/EC 12.2.6.2, 21.6.2, 27.7
SEA Directive, 2001/42/EC 6.2.4, 12.2.4
Art. 1 12.2.4
Art. 2(1) 12.2.4
Art. 3 12.2.4
Renewables Directive, 2001/77/EC 12.2.6.3
Art. 1 12.2.6.3
Art. 2(a) 12.2.6.3
Art. 3 12.2.6.3
Art. 3(2) 12.2.6.3
Art. 3(4) 12.2.6.3
Art. 5 6.4.3.1, 12.2.6.3
Art. 6(1) 12.2.6.3
Art. 7(1) 12.2.6.3
Large Combustion Plant Directive, 2001/80/EC 12.2.6.2, 21.4
lxxiv Environmental Taxation Law
National Emission Ceiling Directive, 2001/81/EC 12.2.6.2, 21.4
Third Air Quality Daughter Directive, 2002/3/EC 12.2.6.2
Road Transport Working Time Directive, 2002/15/EC 12.2.6.4
Airport Noise Directive, 2002/30/EC 12.2.6.4
Noise Abatement Directive, 2002/49/EC 12.2.6.4
Energy Performance of Buildings Directive, 2002/91/EC 21.6.1, 21.6.2
Hazardous Substances in Electrical and Electronic Equipment Directive,
2002/95/EC 19.1
Waste Electrical and Electronic Equipment Directive, 2002/96/EC 19.1
Biofuels Directive, 2003/30/EC
Art. 1 12.3.4
Art. 2(1)(a) 12.3.4
Art. 2(1)(b) 12.3.4
Art. 2(1)(c) 12.3.4
Art. 2(2) 21.9.3.1, 27.2
Art. 3(1)(a) 12.3.4
Art. 3(3) 12.3.4
Art. 4(1) 12.3.4
Electricity Acceleration Directive, 2003/54/EC 6.4.3.1, 12.2.6.3
recital 4 12.2.6.3
Art. 1 12.2.6.3
Art. 2(1) 12.2.6.3
Art. 2(3) 12.2.6.3
Art. 2(5) 12.2.6.3
Art. 2(7) 12.2.6.3
Art. 2(8) 12.2.6.3
Art. 2(9) 12.2.6.3
Art. 2(12) 12.2.6.3
Art. 2(3) 12.2.6.3
Art. 3 12.2.6.3
Art. 3(6) 20.3
Art. 6(2)(c) 12.2.6.3
Art. 8 12.2.6.3
Art. 9 12.2.6.3
Art. 10 12.2.6.3
Art. 11 12.2.6.3
Art. 11(3) 12.2.6.3
Art. 12 12.2.6.3
Table of European Community Legislation lxxv
Art. 13 12.2.6.3
Art. 14 12.2.6.3
Art. 15 12.2.6.3
Art. 16 12.2.6.3
Art. 17 12.2.6.3
Art. 20(1) 12.2.6.3
Art. 21(1) 12.2.6.3
Art. 21(1)(a) 12.2.6.3
Art. 21(1)(b) 12.2.6.3
Art. 21(1)(c) 12.2.6.3
Gas Acceleration Directive, 2003/55/EC 6.4.3.2, 12.2.6.3
recital 4 12.2.6.3
Art. 1(1) 12.2.6.3
Art. 1(4) 12.2.6.3
Art. 1(7) 12.2.6.3
Art. 2(5) 12.2.6.3
Art. 2(7) 12.2.6.3
Art. 2(11) 12.2.6.3
Art. 2(24) 12.2.6.3
Art. 2(26) 12.2.6.3
Art. 2(27) 12.2.6.3
Art. 2(28) 12.2.6.3
Art. 2(29) 12.2.6.3
Art. 3 12.2.6.3
Art. 3(3) 12.2.6.3
Art. 3(4) 12.2.6.3
Art. 4 12.2.6.3
Art. 7 12.2.6.3
Art. 8 12.2.6.3
Art. 8(1) 12.2.6.3
Art. 9 12.2.6.3
Art. 10 12.2.6.3
Art. 11 12.2.6.3
Art. 12 12.2.6.3
Art. 13 12.2.6.3
Art. 14 12.2.6.3
Art. 15 12.2.6.3
Art. 18 12.2.6.3
Art. 23(1) 12.2.6.3
Art. 23(1)(a) 12.2.6.3
Art. 23(1)(b) 12.2.6.3
Art. 23(1)(c) 12.2.6.3
Art. 32(2) 12.2.6.3
Emissions Trading Directive, 2003/87/EC 20.3, 28.1
Art. 4 28.3, 28.4
lxxvi Environmental Taxation Law
Art. 5 28.3, 28.4
Art. 6 28.3, 28.4
Art. 6(2) 28.3
Art. 6(2)(e) 28.3
Art. 7 28.4
Art. 8 28.3, 28.4
Art. 9(1) 28.3
Art. 9(3) 28.3
Art. 10 28.3
Art. 11(1) 28.3
Art. 11(2) 28.3
Art. 11(3) 28.3
Art. 12 28.3, 28.4
Art. 12(1) 28.3
Art. 12(2) 28.3
Art. 12(3) 28.3, 28.4
Art. 12(4) 28.3
Art. 14 28.3
Art. 15 28.3
Art. 16 28.3
Art. 16(1) 28.3
Art. 16(3) 28.3
Art. 17 28.3
Art. 18 28.3
Art. 19 28.3, 28.4
Art. 20 28.3
Art. 21 28.3
Art. 25 28.3
Art. 25(1) 28.3
Art. 26 28.3
Art. 27 28.3
Art. 27(2) 28.4
Art. 28 28.3
Art. 30(1) 28.3
Art. 32 28.1
Annex 1 28.3
Annex 2 28.3
Energy Products Directive, 2003/96/EC 12.3.4, 14.6, 27.6, 21.2, 21.3, 28.1
recital 7 12.3.4
recital 12 12.3.4
recital 13 12.3.4
recital 25 12.3.4
Art. 4(1) 12.3.4
Art. 14 12.3.4
Art. 14(1)(a) 12.3.4
Art. 14(1)(b) 12.3.4
Table of European Community Legislation lxxvii
Art. 14(1)(c) 12.3.4
Art. 15 12.3.4
Art. 15(1)(c) 12.3.4
Art. 15(1)(d) 12.3.4
Cogeneration Directive, 2004/8/EC 12.2.6.3, 14.5
Art. 3(a) 12.2.6.3
Art. 4(1) 12.2.6.3
Art. 5(1) 12.2.6.3
Art. 6(1) 12.2.6.3
Art. 8(1) 12.2.6.3
Art. 8(2) 12.2.6.3
Art. 10 12.2.6.3
Art. 11 12.2.6.3
2 Regulations
Unprofitable Transport Services Regulation, EEC/1191/69 12.2.7.4
Art. 2(1) 12.2.7.4
Road Transport Regulation, EEC/3820/85 12.2.6.4
Tachographs Regulation, EEC/3821/85 12.2.6.4
Council Regulation EEC/3975/87
Arts 3–19 12.2.6.4
Block Exemptions Regulation, EEC/3976/87 12.2.6.4
Art. 1(2) 12.2.6.4
Art. 6 12.2.6.4
European Environment Agency Regulation, EEC/1210/90 4.3.5
Air Route Access Regulation, EEC/2408/92 12.2.6.4
Art. 2(a) 12.2.6.4
Air Fares Regulation, EEC/2409/92 12.2.6.4
Airport Slots Regulation, EEC/95/93 12.2.6.4
Waste Management Regulation, EEC/259/93 6.3.2, 12.2.5.1, 12.2.5.2
Art. 2(a) 12.2.5.2
Art. 3 12.2.5.1
Art. 4 12.2.5.1
Art. 5 12.2.5.1
Art. 6 12.2.5.1
lxxviii Environmental Taxation Law
Art. 7 12.2.5.1
Art. 8 12.2.5.1
Art. 13 12.2.5.1
Art. 14(1) 12.2.5.1
Art. 14(2) 12.2.5.1
Art. 15 12.2.5.2
Art. 16 12.2.5.1
Art. 18(1) 12.2.5.2
Art. 18(2) 12.2.5.1
Art. 19(1) 12.2.5.1
Art. 20 12.2.5.1
Art. 21(1)(a) 12.2.5.1
Art. 21(1)(b) 12.2.5.1
Art. 22 12.2.5.1
Countervailing Duty Regulation, EEC/2026/97 8.4.4
State Aid Regulation, EC/659/1999 12.2.7.1
Hushkit Regulation, EC/925/1999 12.2.6.4
Ozone Depletion Regulation, EC/2037/2000 12.2.6.2, 28.2.2
Commission Regulation, EC/1392/2001 28.2.2
State Aid to Coal Industry Regulation, EC/1407/2002 12.2.7.3
Council Regulation, EC/2371/2002 28.2.2
Transport Exemptions Regulation, EC/1/2003
Art. 39 12.2.6.4
Art. 41 12.2.6.4
Cross Border Electricity Exchanges Regulation, EC/1228/2003 12.2.6.3
CAP Reform Regulation, EC/1782/2003 27.3, 27.2
Art. 87 27.2
Council Regulation, EC/1788/2003 21.9.3.1
3 Council Decisions
Council Decision 65/271/EC 12.2.7.4
Council Decision 93/591/EC 4.3.1
Table of European Community Legislation lxxix
Council Decision 93/704/EC 12.2.6.4
Council Decision 94/69/EC 28.1
Council Decision 1999/468/EC 4.3.1
Council Decision 2002/358/EC 8.2.2
Council Decision 2002/1600/EC 12.2.3
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Table of Provisions of GATT 1994
Art. I 8.4
Art. II 7.2.2.4, 8.4, 8.4.3
Art. II(1) 8.4.3
Art. II(1)(a) 8.4.3
Art. II(1)(b) 8.4.3
Art. II(2) 12.3.2.2
Art. II(2)(a) 8.4.3, 8.4.5.1
Art. III 7.2.2.4, 8.4, 8.4.2, 8.4.3, 8.4.5.1
Art. III(2) 7.2.2.4, 8.4.3, 8.4.5.1, 12.3.2.1, 12.3.2.2
Art. III(8)(a) 8.4.3
Art. III(8)(b) 8.4.3
Art. VI 8.4, 8.4.2, 8.4.4
Art. VI(4) 4.4.1, 8.4.4
Art. XI(1) 8.4.2
Art. XVI 8.4, 8.4.3, 8.4.4
Art. XVI(A)(1) 8.4.4
Art. XX 8.4, 8.4.2, 8.4.4.1
Art. XX(b) 8.4.2
Art. XX(g) 8.4.2
Annex I 8.4.3, 8.4.4
Annex II 8.4.4
Annex III 8.4.4
WTO Agreement on Subsidies and Countervailing Measures,
1994 1.2.1.2, 1.2.1.4, 21.9
Art. 1 8.4.5.2
Art. 1.1, n 8.4.4
Art. 1.1(a)(1) 8.4.5.2
Art. 2 8.4.5.2
Art. 2.1 4.4.1
Art. 3 8.4.5.2
Art. 4 8.4.5.2
Art. 4.8 8.4.5.2
Art. 4.9 8.4.5.2
Art. 4.10 8.4.5.2
Art. 4.11 8.4.5.2
Art. 4.12 8.4.5.2
Art. 5 8.4.5.2
Art. 7 8.4.5.2
Art. 8 8.4.5.2
lxxxii Environmental Taxation Law
Art. 8.1(a) 8.4.5.2
Art. 8.2(b) 8.4.5.2
Art. 8.2(c) 8.4.5.2
Arts 10–23 8.4.5.2
Art. 10, n35 8.4.5.2
Art. 14 8.4.5.2
Art. 17.3 4.4.1
Art. 25 8.4.5.2
Annex 1
para. (e) 8.4.5.2
para. (f) 8.4.5.2
para. (g) 8.4.5.2
WTO Agreement on Government Procurement 1994 8.5
Table of Other Treaty Provisions
Chicago Convention on International Civil Aviation,
1944 6.1, 12.2.6.4, 16.16, 24.2
Statute of the International Court of Justice, 1945
Art. 38 8.2.1, 8.2.3, 8.2.4, 8.2.5
European Convention on Human Rights, 1950 4.2.2, 4.3.7, 11.3.4
First Protocol
Art. 1 12.2, 11.3.4
Paris Convention, 1960 4.4.2
Art. 2 4.4.2
Art. 6 4.4.2
Art. 6.3 4.4.2
Art. 7 4.4.2
Vienna Convention on the Law of Treaties, 1969
Art. 2(1)(a) 8.2.2
Art. 3 8.2.2
Art. 4 8.2.2
Art. 26 8.2.2
Art. 31(1) 8.4.2
Art. 31(2) 8.4.2
Art. 31(3) 8.4.2
Art. 31(3)(a) 8.4.2
Art. 31(3)(b) 8.4.2
Art. 31(3)(c) 8.4.2
Art. 32 8.4.2
Art. 33 8.4.2
Stockholm Declaration of the United Nations Conference on the
Human Environment, 1972 4.4.3
Principle 21 8.2.3
Convention on the Prevention of Marine Pollution by Dumping of
Wastes or Other Matter (‘the London Dumping Convention’), 1972
(rev. 1993 and 1996) 4.4.4, 8.3.2
Washington Convention on International Trade in Endangered
Species of Wild Flora and Fauna, 1973 4.4.4, 8.4.2
lxxxiv Environmental Taxation Law
Geneva Convention for the Control of Long-Range
Transboundary Air Pollution, 1979 4.4.3, 8.3.1.1, 8.3.1.5
Art. 2 8.3.2
Geneva Protocol on Long-term Financing of the Co-operative Programme
for Monitoring and Evaluation of Long-Range Transmission of Air
Pollutants in Europe, 1985 8.3.1.5
Helsinki Protocol on the Reduction of Sulphur Emissions or their
Transboundary Fluxes, 1985 8.3.1.5
Sofia Protocol concerning the Control of Emissions of Nitrogen Oxides
or their Transboundary Fluxes, 1988 8.3.1.5
Geneva Protocol concerning the Control of Emissions of Volatile Organic
Compounds or their Transboundary Fluxes, 1991 8.3.1.5
Oslo Second Protocol on the Further Reduction of Sulphur Emissions,
1994 8.3.1.5
Bonn Convention on the Conservation of Migratory Species of Wild
Animals, 1980 8.4.2
United Nations Convention on the Law of the Sea, 1982 7.4.3.1, 8.3.2
Annex VI 8.2.5
Vienna Convention for the Protection of the Ozone
Layer, 1985 4.4.4, 8.3.1.1, 8.3.1.5, 12.2.6.2
Montreal Protocol on Substances that Deplete the
Ozone Layer, 1987 4.4.4, 8.3.1.1, 8.3.1.5, 12.2.6.2
Basel Convention on the Control of Transboundary Movements
of Hazardous Wastes and their Disposal, 1989 8.3.2, 8.4.5.1, 12.2.5.1
Preamble 8.3.2
Art. 1 8.3.2
Art. 4 8.3.2
Art. 4(1)(a) 8.3.2
Art. 6 8.3.2
Lomé IV Convention, 1989 8.3.2
International Convention on Oil Pollution Preparedness, Response
and Co-operation, 1990 8.3.2
Bamako Convention, 1991 8.3.2
Art. 4(1) 8.3.2
Table of Other Treaty Provisions lxxxv
Espoo Convention on Environmental Impact Assessment in a
Transboundary Context, 1991 4.4.3
Convention on Transboundary Effects of Industrial Accidents, 1992 8.3.2
Declaration of the United Nations Conference on Environment
and Development [‘the Rio Declaration’], 1992 4.2.1.3, 4.4.3, 8.3.1.3
Principle 2 8.2.3, 8.2.6
Principle 12 8.2.6
Principle 15 8.2.3, 8.2.6
Principle 16 8.2.3, 8.2.6
Principle 17 8.2.6
Johannesburg [‘the Earth Summit’], 2002 23.5
Convention on Biological Diversity, 1992 4.4.3, 4.4.4, 8.3.1.3, 21.3.2
Cartagena Protocol on Biosafety, 2000 26.5
United Nations Framework Convention on Climate
Change, 1992 4.4.3, 4, 5.4, 8.1, 8.2.2, 8.3
Art. 2 8.3.1.3
Art. 4(1) 8.3.1.3
Art. 4(1)(a) 8.3.1.3
Art. 4(1)(b) 8.3.1.3
Art. 4(1)(c) 8.3.1.3
Art. 4(1)(d) 8.3.1.3
Art. 4(1)(f) 8.3.1.3
Art. 4(1)(g) 8.3.1.3
Art. 4(1)(i) 8.3.1.3
Art. 4(2) 8.3.1.3
Art. 4(,2)(a) 8.3.1.3
Art. 4(2)(b) 8.3.1.3
Art. 4(8) 8.3.1.3
Art. 7 8.3.1.3
Art. 8 8.3.1.3
Art. 9 8.3.1.3
Art. 10 8.3.1.3
Kyoto Protocol, 1997 4.4.4, 6.4, 8.1, 8.2.2, 8.3, 14.2, 21.3.1, 21.4.3,
16.16, 26.2, 20.2, 20.3, 28.1
Art. 3 8.2.2
Art. 6 8.2.2
Art. 12 8.2.2
Art. 17 8.2.2, 28.2.2
Art. 25.1 8.2.2
Annex A 2.4.3, 28.3
lxxxvi Environmental Taxation Law
Marakesh Protocol, 2002 23.5, 26.2
North Atlantic Free Trade Area Treaty, 1993 26.4
Aarhus Convention on Access to Information, Public Participation in
Decision-making and Access to Justice in Environmental Matters, 1998 4.4.3
Basel Protocol on Liability and Compensation for Damage Resulting
from Transboundary Movements of Hazardous Wastes and their
Disposal, 1999 8.3.2
Table of Abbreviations
AB WTO Appellate Body
AC Law Reports, Appeal Cases
ACBE Advisory Committee on Business and the Environment
ACEA Association des Constructeurs Européens d’automobiles
ACP African-Caribbean-Pacific
AG German form of public limited liability company
A-G Attorney-General
AJIL American Journal of International Law
All ER All England Law Reports
ALSF Aggregates Levy Sustainability Fund
APD air passenger duty
Art. Article
ASBL Belgian form of limited liability company
BAT best available techniques
BATNEEC best available technology not entailing excessive cost
BETTA British Electricity Trading and Transmission Arrangements
BISD GATT Basic Instruments and Selected Documents Series
BMW biodegradable municipal waste
BNFL British Nuclear Fuels Ltd
BSE bovine spongiform encephalopathy
BTA border tax adjustment
BTR British Tax Review
BV Dutch form of private limited liability company
BYIL British Yearbook of International Law
CA Court of Appeal (England and Wales)
CAP the Common Agricultural Policy
CBA cost-benefit analysis
CBI Confederation of British Industry
CCP Common Commercial Policy
CCT common customs tariff
C & E Commrs HM Commissioners of Customs and Excise
CDM Clean Development Mechanism
CEE charge having an equivalent effect
CFCs chlorofluorocarbons
CFI Court of First Instance
CFIT Commission for Integrated Transport
CGT capital gains tax
Ch. Law Reports, Chancery Division
ch. chapter
CH4 methane
lxxxviii Environmental Taxation Law
CHP combined heat and power
CHPQA combined heat and power quality assurance
CLR Commonwealth Law Reports
CLSA Current Law Statutes Annotated
CMLR Common Market Law Reports
Conv The Conveyancer and Property Lawyer
COREPER Committee of Permanent Representatives
CO2 carbon dioxide
CTE WTO Committee on Trade and the Environment
CTP Common Transport Policy
Defra Department of Environment, Food and Rural Affairs
DETR Department of Environment, Transport and the Regions
DLR Dominion Law Reports
DNO distribution network operator
DSO distribution system operator
DTI Department of Trade and Industry
EAD Electricity Acceleration Directive
ECCP European Climate Change Programme
ECHR European Convention on Human Rights
ECJ Court of Justice of the European Communities
ECOSOC Economic and Social Committee
ECR European Court Reports
ECSC European Coal and Steel Community
ECT Energy Charter Treaty
EEA European Environment Agency
EELR European Environmental Law Review
EFTA European Free Trade Area
EG Estates Gazette
EIA environmental impact assessment
ELM Environmental Law and Management
ELR Environmental Law Review
ERUs emissions reduction units
ENDS Report Environmental Data Services Report
Env LR Environmental Law Reports
EPA (US) Environmental Protection Agency
EPD Energy Products Directive
ER English Reports
ESC Extra-Statutory Concession
ESH Electricity Supply Handbook
EST Energy Saving Trust
EU European Union
EU ETS European Union Emissions Trading Scheme
Euratom European Atomic Energy Community
EWCA Court of Appeal (of England and Wales)
EWHC High Court of Justice (of England and Wales)
FFL fossil fuel levy
FS Fiscal Studies
Table of Abbreviations lxxxix
FSA Financial Services Authority
GAAP Generally Accepted Accounting Practice
GAAR General Anti-Avoidance Rule
GAD Gas Acceleration Directive
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP gross domestic product
GEMA Gas and Electricity Markets Authority
GHG greenhouse gas
GLA Greater London Authority
GM genetically modified
GmbH German form of private limited liability company
HC House of Commons
HCA High Court of Australia
HFCs hydroclorofluorocarbons
Hals Halsbury’s Laws of England
HL House of Lords
HMSO Her Majesty’s Stationery Office (see TSO)
IAEA International Atomic Energy Agency
ICAO International Civil Aviation Organisation
ICCLR International Company and Commercial Law Review
ICJ International Court of Justice
ICJ Rep Reports of Judgments and Advisory Opinions of the International
Court of Justice
ICLQ International and Comparative Law Quarterly
IEA International Energy Agency
IELTR International Energy Law and Tax Review
IGC Inter-Governmental Conference
IHT inheritance tax
ILM International Legal Materials
IPC Integrated Pollution Control
IPPC Integrated Pollution Prevention and Control
IPT Insurance Premium Tax
IRC Commissioners of Inland Revenue
JAMA Japanese Automobile Manufacturers Association
JEEPL Journal for European Environmental and Planning Law
JEL Journal of Environmental Law
JEPP Journal of European Public Policy
JI Joint Implementation
JLE Journal of Law and Economics
JPL Journal of Planning Law
JWT Journal of World Trade
KAMA Korean Automobile Manufacturers Association
KG German limited partnership
LAAPC Local Authority Air Pollution Control
LATS Landfill Allowances Trading Scheme
LEC levy exemption certificate
xc Environmental Taxation Law
LIFO last in, first out
LJQB Law Journal Reports (New Series) Queen’s Bench (1831–1949)
LNG liquified natural gas
LPG liquified petroleum gas
LS Legal Studies
LT Law Times
LTCS landfill tax credit scheme
MEA multilateral environmental agreement
MEP Member of the European Parliament
MLR Modern Law Review
MP Member of the UK House of Commons
MSP Member of the Scottish Parliament
MW megawatt
NAFTA North American Free Trade Area
NAP national allocation plan
NDA Nuclear Decommissioning Authority
NG natural gas
NGG National Grid Group
NICs national insurance contributions
NIROC Northern Ireland Renewable Obligation Certificate
NLJ New Law Journal
NOA National Audit Office
NOX collective term for nitrogen oxides
N2O nitrous oxide
NV Dutch form of public limited liability company
NWRU National Waste Registration Unit
ODPM Office of the Deputy Prime Minister
OECD Organisation for Economic Co-operation and Development
OED Oxford English Dictionary
Ofgem Office of Gas and Electricity Markets
OHG German partnership
OJ Official Journal of the European Communities
PCBs polychlorinated biphenyls
PCTs polychlorinated terphenyls
PERN package waste export recovery note
PFCs perfluorocarbons
PL Public Law
PLC UK form of public limited liability company
Porteous Andrew Porteous, Dictionary of Environmental Science and
Technology, 3rd edn (Chichester: John Wiley, 2000)
PQ Parliamentary Question
PRN packaging waste recovery note
PSA (departmental) public service agreement
PSO public service obligation
QB Law Reports, Queen’s Bench Division
QPA Quarry Products Association
RCEP Royal Commission on Environmental Pollution
Table of Abbreviations xci
REC regional electricity company
REGO renewable energy guarantee of origin
RIA regulatory impact assessment
RICS Royal Institute of Chartered Surveyors
RIIA Royal Institute of International Affairs
RO Renewables Obligation
ROC Renewables Obligation Certificate
ROO 2002 Renewables Obligation Order 2002
RRC Ryde’s Rating Cases
RSPB Royal Society for the Protection of Birds
SA public limited company in France, the Iberian Peninsular and
Latin America
SARL Form of limited liability company in some EU Member States
Sched. Schedule
SCR Supreme Court Reports
SDLT stamp duty land tax
SEA strategic environmental assessment
SEA 1986 Single European Act 1986
SEPA Scottish Environment Protection Agency
SF6 sulphur hexafluoride
SI statutory instrument
SIP single income (or farm) payment
SLT Scottish Law Times
SO Parliamentary Standing Order
SpA Italian form of limited liability company
SpC Special Commissioners’ Decisions
SROC Scottish Renewable Obligation Certificate
STC Simon’s Tax Cases
SWTI Simon’s Weekly Tax Intelligence
TAF Trade Association Forum
TC Tax Cases
TED turtle excluder device
TFL Transport for London
TJ Tax Journal
TN Treaty of Nice
TPA third party access to gas and electricity transmission and
distribution systems
TR Tax Reports
TREC tradeable renewable energy certificate
TSO transmission system operator
TSO The Stationery Office (see HMSO)
UK ETS UK Emissions Trading Scheme
UKHL United Kingdom House of Lords
ULR Utilities Law Review
UNCLOS United Nations Convention on the Law of the Sea
UNCSD United Nations Commission on Sustainable Development
UNECE United Nations Economic Commission for Europe
xcii Environmental Taxation Law
UNEP UN Environment Programme
UNICE Union of Industrial and Employers’ Confederations of Europe
V&DR VAT and Duties Reports
VAT value added tax
VATTR Value Added Tax Tribunal Reports
VED vehicle excise duty
WA written ministerial answer to a Parliamentary Question
WCED World Commission on Environment and Development
WIP Waste Implementation Programme
WCA waste collection authority
WDA waste disposal authority
WFD Waste Framework Directive
WH Westminster Hall debate of the House of Commons
WIP Waste Implementation Programme
WLR Weekly Law Reports
WN Weekly Notes
WPRG waste performance reward grant
WRAP Waste and Resources Action Programme
WRA waste regulation authority
WS written Ministerial statement to Parliament
WTO World Trade Organization
WTA willingness to accept
WTP willingness to pay
PART I
PROLOGUE
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Chapter 1
Preliminaries
1.1 Introduction
The concept of the environmental tax is a new and controversial presence in the
European regulatory landscape. The UK has been a pioneer in the transformation
of this new type of tax from a twinkle in the eye of the environmental economist
to a legal reality. This book seeks to give a comprehensive but critical account of
the law relating to environmental taxes in the UK. It discusses the policies which
have shaped those taxes, together with their relationship both with other forms of
environmental regulation, and with other (non-environmental) taxes. It also offers
insights into the application of environmental taxes in practice. Throughout the book,
UK law and policy is placed in its wider international and European contexts.
In the absence of a general legislative definition,1 the ways in which environmental
taxes are to be identified and classified are, of course, key elements in this first
chapter. The discussion begins,2 however, by introducing the essence of some even
more fundamental concepts, a number of which we shall encounter again and again:
what is a tax? How does the concept differ from other levies, such as charges for
government services? Within the concept of a tax, what distinction is to be drawn
between direct and indirect taxes? What types of tax fall into each category? In each
case, we explain the specific importance of each of these questions to the key term
‘environmental taxes’, both the nature and the classifications of which we discuss in
some detail below.3 Having explained the importance of each of these questions, as
well as indicating something of the policies that inform them, we then go on to set
out the approach which we have adopted to the material under consideration. The
purpose of the study, as already stated, is to offer a critical account of the subject
matter; para. 1.2.2 explains the viewpoint from which the criticism is made.
One of the all-embracing themes of the book is that of how – irrespective, almost,
of the jurisdiction in which they are designed and implemented – the feasibility and
design of environmental taxes (justified, as they often are, by reference to international
environmental agreements), are subject to the law of international trade, as embodied
in the 1994 revision of the General Agreement on Tariffs and Trade (‘GATT 1994’),
and its related agreements, and in the institutions of the World Trade Organization
(‘the WTO’). The UK is no exception to this general proposition and, furthermore,
as a Member State of the EU, its own environmental levies are additionally subject
to the provisions of the European Treaty. The nature and extent of both sets of treaty
provisions, which coincide to a considerable extent, are considered in subsequent
1 None of the taxes with which this book is concerned are described as environmental taxes
within the legislative codes that created them (see para. 1.4.2 below).
2 See para. 1.2.1 below.
3 See para. 1.2.1.5 below.
4 Environmental Taxation Law
chapters.4 In this Introduction, the explanation of the essential concepts and of our
approach to the subject matter as a whole, is followed by a brief introduction to the
international and European context of the material, as well as to the place, within
that setting, of the UK and its constituent countries.5 We seek to highlight throughout
the book the governance questions to which these contexts give rise, since these
help to explain, not only why European-wide action in the field of environmental
taxation has proved so problematic, but also why the UK’s environmental taxes are
of UK-wide application, rather than being found (as, for example, in Spain)6 in its
constituent countries.
So far as the non-UK reader is concerned, the chief usefulness of the present volume,
it is hoped, will be found in the detailed critical exposition, against the background
discussed above, of the UK’s environmental levies and their institutional framework.
To this end, para. 1.4.2 below contains an introductory overview of the levies, most
importantly (in the chronological order of their introduction), landfill tax, a levy on
the landfilling of waste; climate change levy, a levy on the industrial, commercial and
agricultural use of energy; and aggregates levy, which taxes the extraction of primary
minerals. All of the levies have both a regulatory context7 and a taxation context and
paras 1.4.2 and 1.4.3 seek to give an overview of those contexts. Although, as will
be seen, HM Customs and Excise (‘Customs’) is the government department mainly
responsible for the administration and enforcement of each of these levies,8 the non-
UK reader (and possibly, also, even the UK reader new to the subject), will be struck
by the myriad other bodies with some subsidiary role in at least the former process.
Paragraph 1.5 briefly introduces these bodies, by way of a prelude to the detailed,
as well as much more wide-ranging, discussion in Chapter 4 below. Together, the
elements of the discussion in this chapter will equip the reader to appreciate the fiscal
context of the levies to be discussed in the rest of the book.
These opening remarks having been made, we turn first to certain basic issues of
terminology and, specifically, to the idea of environmental taxes and the implications
of the constituent elements of the term.
4 See Chapters 8 and 12 below.
5 See para. 1.3 below.
6 See, for example, Pedro M. Herrera, ‘Legal Limits on the Competence of Governments
in Spain’, in Critical Issues in Environmental Taxation: International and Comparative
Perspectives: Volume I, ed. by Janet Milne, Kurt Deketelaere et al. (Richmond: Richmond
Law and Tax, 2003), pp. 111–23. This chapter is a distilled version of Herrera’s Spanishlanguage
text, Derecho tributario ambiental (Madrid: Marcial Pons – Ministerio de Medio
Ambiente, 2000). Neither of the present authors read Spanish.
7 Throughout the book, economic instruments (including regulatory taxes) are seen, not as
an alternative to regulation, but as a form of regulation in themselves, albeit distinct from
command and control regulation (see, for example, Robert Baldwin and Martin Cave,
Understanding Regulation – Theory, Strategy and Practice (Oxford: Oxford University
Press, 1999), pp. 1–2.
8 See para. 4.2.1.2(2) below.
Preliminaries 5
1.2 Terminology, approach and sources
The use of the term ‘environmental taxation’ in popular discourse tends to elide the
particular significances of each of its two constituent elements.
This para. 1.2 accordingly begins by setting out an initial definition of the concept
of a tax and briefly explaining its relationship, first, with the distinct concept of a
charge for government services and, secondly, with the concept of a fine. Both of these
distinctions, important in the study as a whole, will be revisited in more detail in a
later chapter.9 The term ‘levy’,10 also common in public finance literature, operates
as a generic term for both taxes and charges: the allocation of a particular levy to
one or other category, and the implications of that process, depend on isolating the
characteristics of a tax, and distinguishing it from a charge (or fee) for government
services.
Within the concept of a tax is entrenched a further distinction which, in the specific
context of environmental taxes, is also of considerable significance: that between
direct and indirect taxes. We examine the distinction in some detail here, since it will
be of fundamental importance in explaining the international aspects of environmental
taxation,11 no less than its Community law implications.12
The preceding discussion forms the basis of an examination of the technical
significance of the concept ‘environmental taxation’. This in turn leads into
an explanation of the approach taken in the book to the range of material under
consideration,13 as well as the sources to which we have referred.
1.2.1 Terminology
1.2.1.1 Taxes, fines and charges
The UK’s constitutional arrangements, as will become apparent, have so far tended
to discourage a narrow and prescriptive view of the tax as a legal concept.14
Fortunately, however, for constitutional reasons, there is in the Commonwealth
jurisdictions a plethora of material on the legal nature of a tax and on its relationship
with the concept of a charge or fee for government services.15 A convenient (and
enduring) definition of the former concept was applied in the Canadian case of Re
Eurig Estate.16 There, it was held that, assuming that it has legislative authority, a
levy is a tax if it satisfies all of three conditions, that is, if it is:
1. legally enforceable;
2. levied by a public body; and
3. intended for a public purpose.
9 See Chapter 7 below.
10 See OED, ‘levy’ definition 2a.
11 See Chapter 8 below.
12 See Chapter 12 below.
13 See para. 1.2.2 below.
14 See para. 7.2.2.1 below.
15 See para. 7.2.1 below.
16 (1999) 165 DLR (4th) 1.
6 Environmental Taxation Law
Each of these three characteristics, as well as the decision from which they are
drawn, is analysed in more detail later in the study.17 For present purposes, however,
they provide us with a suitable working definition of a tax.
Whether and, if so, how, the tax concept is to be distinguished from a penalty or
fine has been the subject of some debate. In asserting such a distinction, Hart, whilst
acknowledging that it may often become blurred, expressed the distinction between
fines and taxes in terms that the former involves ‘… an offence or breach of duty in
the form of a violation of a rule set up to guide the conduct of ordinary citizens’.18
Hart’s expression of the distinction needs only to be stated for its problematic nature
in relation to environmental taxes to be obvious; we shall return to it later in the
book.19
By contrast with a tax or with a penalty, a ‘charge’ or ‘fee’ involves the provision
of some service direct to a particular person, which is related to the amount charged
but which does not preclude the possibility of a reasonable profit being made by
the public body in question.20 Spackman says that the essence of a charge is that
it ‘purchases a specific service and will generally vary with usage; the transaction
should be a market exchange of a kind which the private sector could supply (as a
principal rather than as an agent); and the charge should [emphasis added] merely
cover the cost of providing the service’,21 in this last particular differing from the
legal definition of a charge or fee.22 Conversely, the essence of a tax, it might be said,
is that it is a payment to general government which is compulsory and in relation
to which the benefit to the taxpayer is usually not in proportion to the payment.23
Obviously, certain payments will be difficult to allocate to one or other category.24
1.2.1.2 Direct and indirect taxes
Within the tax concept, both economists and lawyers traditionally make a further
distinction, that between direct and indirect taxes. The classic articulation of the
distinction comes from the Principles of Political Economy of John Stuart Mill
(1806–1873) and is as follows:
Taxes are either direct or indirect. A direct tax is one which is demanded from the very
persons who, it is intended or desired, should pay it. Indirect taxes are those which are
demanded from one person in the expectation and intention that he shall indemnify himself
at the expense of another: such as the excise or customs. The producer or importer of
a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar
17 See para. 7.2.2.2 below.
18 H.L.A. Hart, The Concept of Law (Oxford: Clarendon Press, 1961), p. 39.
19 See para. 7.2.3 below.
20 See para. 7.2.1 below.
21 See Michael Spackman, ‘Hypothecation: a view from the Treasury’, in Ecotaxation, ed.
by Timothy O’Riordan (London: Earthscan, 1997), pp. 45–51.
22 Ibid.
23 See Organisation for Economic Co-operation and Development, Revenue Statistics 1965–
2002 (Paris: OECD, 2003), p. 285.
24 See para. 7.3.1 below.
Preliminaries 7
contribution upon him, but to tax through him the consumers of the commodity, from
whom it is supposed that he will recover the amount by means of an advance in price.25
The distinction is sometimes expressed in terms of a dichotomy between those taxes
imposed on products (that is, indirect taxes) and those imposed upon producers (that
is, direct taxes).26 Thus, the key examples of direct taxes are ‘taxes on wages, profits,
interests, rents, royalties, and all other forms of income, and taxes on the ownership of
real property’, whilst indirect taxes are exemplified by ‘sales, excise, turnover, value
added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all
other taxes other than direct taxes and import charges’.27 In Re Eurig Estate,28 after
referring to Mill’s characterisation of the distinction between direct and indirect taxes,
the majority of the Supreme Court of Canada held that probate fees of the Ontario
Court, being chargeable on a deceased individual’s executors in their representative
capacity only, were direct taxes on the deceased’s estate, rather than indirect taxes
levied on the executors personally. For the majority, Major, J. said that:
Applying Mill’s definition, the tax would be indirect if the executor was personally liable
for payment of probate fees, as the intention would clearly be that the executor would
recover payment from the beneficiaries of the estate. However, the legislation does not
make the executor personally liable for the fees. Payment is made by the executor only
in his or her representative capacity … [A]s the amount is paid out of the estate by the
executor in his or her representative capacity with the intention that the estate should bear
the burden of the tax, the probate fees fall within Mill’s definition of a direct tax.29
Despite the fact that it is not free from difficulty in economic terms,30 the distinction
between direct and indirect taxes has been highly influential, both in national legal
orders (that is, in the laws of constitutions) and also in international and supranational
legal orders (such as the EC and the GATT 1994-based system of multilateral trade
agreements). In the context of constitutional law, the distinction between direct and
indirect taxes has been used to delimit the respective taxing powers of federal and
provincial legislatures. In Re Eurig Estate, for instance, the distinction was crucial
25 John Stuart Mill, Principles of Political Economy with Some of their Applications to
Social Philosophy (‘People’s Edition’) (London: Longmans, Green, 1892), Book 5,
ch. 3, pp. 495–6. See also Sir William Blackstone (1723–1780), Commentaries on the
Laws of England, Book I, 16th edn by C.J.T. Coleridge (London: Butterworths, 1825),
pp. 316–317.
26 See WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax
Adjustment (WT/CTE/W/47), para. 31.
27 See 1994 WTO Agreement on Subsidies and Countervailing Measures (see para. 8.4.4
below), fn 58 thereto.
28 See para. 1.2.1.1 above.
29 (1999) 165 DLR (4th) 1, para. 26.
30 See John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 18. One
distinction might be that indirect taxes are ‘shifted into prices, not only more fully but
more quickly’ than are direct taxes (see Organisation for Economic Co-operation and
Development, Taxing Consumption (Paris: OECD, 1988), para. 1.12). See also Paul
Demaret and Raoul Stewardson, ‘Border tax adjustments under GATT and EC law and
general implications for environmental taxes’ (1994) 4 JWT 5, 14–16.
8 Environmental Taxation Law
to deciding whether the tax in question was within the competence of the provincial
legislature. This was because, in Canada, direct taxes could be levied by both federal
and provincial governments. Indirect taxes, by contrast, were leviable only by the
federal government.31
In the world trade context, the distinction between direct and indirect taxes is
crucial to the operation of two principles of international business taxation, the
origin principle and the destination principle. The origin principle requires that
products should be taxed in the country where they are made, regardless of where
they are consumed.32 The destination principle requires that, irrespective of where
a commodity is produced, it should be taxed in the country where it is consumed.33
Direct taxes reflect the origin principle, since they imply the taxation of the producer
rather than of the product. Indirect taxes may be imposed in order to reflect either the
origin principle, in which case products are taxed in the country of their production,
or the destination principle, in which case they are taxed in the country of their
consumption. In the context of international trade, the almost invariable rule is for
indirect taxes to be applied in accordance with the destination principle. This, of
course, is because the universal application of the origin principle in a world of
divergent indirect tax rates would tend to encourage consumers to source products
from countries with lower rates of indirect taxes.
The destination principle is put into effect through the rather misleadingly-named
concept34 of the ‘border tax adjustment’ (the ‘BTA’).35 The BTA refers to the
combined process of ensuring that products are exported from one country free of
tax while being imported into another country subject to a tax designed to ensure that
the products compete in tax terms on an equal footing with similar goods36 produced
domestically.37 For present purposes, the crucial point is that, while the BTA is
essential to giving effect to the destination principle, it has no application to the
origin principle,38 with the result that, traditionally, the BTA has had no application
in relation to direct taxes.39
31 See s.92, (Canadian) Constitution Act 1867. The rule might seem counter-intuitive to a
European lawyer (but see Art 92, European Treaty (ex 98) (see para. 12.3.3.1(6) below)).
32 OECD (1988), para. 7.4.
33 OECD (1988), op. cit., para. 7.3.
34 Misleading, since, where exports are exempted from tax, or imports are taxed after
importation, no adjustment is made at the border (see OECD (1988), op. cit., p. 121). The
term (‘BTA’) is nonetheless in universal use.
35 See para. 8.4.3 below.
36 See Won-Mog Choi, Like Products in International Trade Law: Towards a Consistent
GATT/WTO Jurisprudence (Oxford: Oxford University Press, 2003).
37 OECD (1988), op. cit., para. 7.3. See also WTO Secretariat, Taxes and Charges for
Environmental Purposes – Border Tax Adjustment (WT/CTE/W/47), para. 28. See para.
8.4.3 below.
38 See the reports of the GATT panel of November 1976 in Domestic International Sales
Corporations (‘DISCs’), GATT BISD 23d Supp 98, 114, 127 and 137 (1977), which were
adopted by the GATT Council in December 1981 (see Demaret and Stewardson, op. cit.,
pp. 10–12).
39 See Kalle Määttä, Environmental Taxes – From an Economic Idea to a Legal Institution
(Helsinki: Finnish Lawyers’ Publishing, 1997), p. 253, referring to Lans Bovenberg
Preliminaries 9
Both the destination principle and the concomitant BTA have venerable theoretical
pedigrees. They can each be traced back at least to David Ricardo (1772–1823), one
of Mill’s intellectual mentors,40 who, taking the then topical example of corn, wrote
in 1822 that:
In the degree … in which [domestic indirect] taxes raise the price of corn, a duty should
be imposed on its importation …, and a drawback of the same amount should be allowed
on the exportation of corn. By means of this duty and this drawback, the trade would be
placed on the same footing as if it had never been taxed, and we should be quite sure that
capital would neither be injuriously for the interests of the country, attracted towards, nor
repelled from it.41
Generally, although not invariably, environmental taxes fall into the category of
indirect taxes. However, since discussions of environmental tax proposals have taken
place both at the national and the international levels, some appreciation is necessary
of the different types of direct tax, as well as of the various types of indirect tax. It is
to these distinctions that we now turn.
1.2.1.3 Categories of direct taxes
The main examples of direct taxes are those on income, profits and capital gains. In
the UK, the key direct taxes are income tax, capital gains tax (‘CGT’), corporation
tax42 and national insurance contributions (‘NICs’).43 Subject to the point made
below about the classification of emissions and waste taxes,44 the main significance
of direct taxes to environmental taxation is twofold: (1) the extent to which the taxes
just referred to contain environmentally-damaging ‘tax subsidies’;45 and (2) whether
and, if so then how, the statutory codes relating to them might be ‘greened’, that is,
by incorporating reliefs, exemptions, etc., designed to encourage environmentallyfriendly
behaviour.46 Additionally, however, there is the question of whether
differential tax rates built into non-environmental tax codes (for example as in
and Jocelyn Horne, ‘Taxes on Commodities: A Survey’, in Tax Harmonization in the
European Community: Policy Issues and Analysis, ed. by George Kopits (Washington
DC: International Monetary Fund, 1992), pp. 22–51.
40 See Samuel Hollander, The Economics of John Stuart Mill, vol. 1 (Toronto: University of
Toronto Press, 1985), p. xii.
41 See David Ricardo, ‘On Protection to Agriculture’, in The Works and Correspondence of
David Ricardo: Volume IV, Pamphlets and Papers 1815–1823, ed. by Piero Sraffa with
M.H. Dobb (Cambridge: Cambridge University Press, 1951), p. 218. See also Adam Smith
(1723–1790), The Wealth of Nations, ed. by D.D. Raphael (London: David Campbell,
1991), pp. 440–45.
42 All three of which fall within the OECD’s classification category 1000 (see OECD (2003),
pp. 190–92).
43 See para. 1.4.3 below as to all of these. National insurance contributions fall within the
OECD’s classification category 2000 (see OECD (2003), op. cit., p. 190).
44 See para. 1.4.2.1(1) below.
45 See para. 7.2.4 below.
46 See Chapters 22–25 below.
10 Environmental Taxation Law
relation to the income tax treatment of a company car as a benefit in kind)47 and
intended to put a price on environmentally-undesirable behaviour might themselves
even be described as environmental taxes.48
1.2.1.4 Categories of indirect taxes
In the context of environmental taxes, the most relevant category of indirect taxes is
that of taxes on goods and services. This category, which appears as heading 5000
in the Organisation for Economic Co-operation and Development (‘OECD’)’s49
Classification of Taxes,50 comprises sales taxes, excise, turnover, value added,
franchise, stamp, transfer, inventory and equipment taxes, border taxes and all other
taxes other than direct taxes and import charges. Taxes on goods and services are
in turn one of five categories of consumption taxes. The distinguished authors of
the OECD’s 1988 report on consumption taxes51 identified five ways of taxing
consumption:52
1 (as just mentioned) by imposing ‘taxes on goods and services themselves’;
2 through the use of ‘fiscal monopolies and public utilities’;
3 by making levies for the grant of licences;
4 by making other levies ‘that may contain an element of consumption taxation’;
and
5 by a personal expenditure tax.
Of these, 5 is not relevant in the present context, since it refers to an as yet theoretical
alternative to existing consumption taxes. The most important to the present study
of the classifications in the list are 1 and 3. Of the rest, 2 refers to the possibility that
governments may produce or distribute certain goods and sell them at a higher price
than if they had been sold untaxed in a competitive market.53 At the time that the 1988
report was written, the most important such goods would have been electricity and
gas but, following the ‘unbundling’ of public utilities across Europe in the 1990s,54
this category is now so unimportant as not to be worth further consideration here. The
residual category in 4 refers to the hypothesis that elements of consumption taxation
may be discovered in taxes which are not specifically imposed on consumption.55
This leaves us with categories 1 and 3.
Within the category of taxes on goods and services themselves, the authors of the
OECD’s 1988 report drew a distinction between selective consumption taxes on
47 See para. 23.2 below.
48 See para. 1.2.1.5(2) below.
49 See para. 4.4.2 below.
50 OECD (2003), op. cit., pp. 283–300.
51 OECD (1988), op. cit. The report’s authorship was particularly, perhaps, distinguished,
including (as it did) Professors Cedric Sandford and Sijbren Cnossen.
52 OECD (1988), op. cit., paras 1.7–1.13.
53 Ibid., op. cit., para. 1.9.
54 See paras 2.4, 6.4.3 and 12.2.6.3 below.
55 OECD (1988), op. cit., para. 1.11.
Preliminaries 11
particular products or services, on the one hand, and general consumption taxes on
the other.56 Examples of the former are excise duties on hydrocarbon oils. The latter,
general consumption taxes, are further subdivided, however, into single stage taxes
and multi-stage taxes.57 Single-stage, or ‘sticking’, taxes, may be levied at any one of
the stages of supply,58 that is, from manufacturers to wholesalers, from wholesalers
to retailers or from retailers to consumers. As will be apparent later on in this chapter,
the UK’s indirect environmental taxes are of this single-stage type. Multi-stage taxes
are, however, taxes levied each time goods or their components are sold.59 Unless
credit is given for tax paid at each of the earlier stages,60 such taxes generate multiple
taxation (hence their label as ‘cascade’ taxes) and are therefore generally regarded as
bad. The common system of value added tax (‘VAT’), which does provide for such
a system of credits, is not a cascade tax. Article 33 of the Sixth Council Directive on
the Harmonisation of the Laws of the Member States relating to Turnover Taxes and
a Common System of Value Added Tax (‘the Sixth VAT Directive’)61 bans multistage
taxes similar to VAT. However:
Without prejudice to other Community provisions … this Directive shall not prevent a
Member State from maintaining or introducing taxes on insurance contracts, taxes on
betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties
or charges which cannot be characterised as turnover taxes, provided however that those
taxes, duties or charges do not, in trade between Member States, give rise to formalities
connected with the crossing of frontiers.
Article 33 operates against the general background of the obligation on EU Member
States, which dates from 1967, to replace their turnover taxes with VAT.62 In a series
of decisions, the ECJ has construed Art 33 as banning the adoption by a Member
State of any wide-based turnover tax that might rival VAT.63 In, for instance, Dansk
Denkavit ApS v. Skatteministeriet,64 which concerned a now-repealed levy imposed
in Denmark, the ECJ stated that:
[F]or a tax to be characterized as a turnover tax, it is not necessary for it to resemble
VAT in every respect; it is sufficient for it to exhibit the essential characteristics of VAT.
56 Ibid., op. cit., para. 1.8.
57 Ibid., op. cit., para. 1.8(b).
58 Note the potential significance of a ‘prior-stage’ indirect tax, that is, an indirect tax levied
on goods or services used directly or indirectly in the manufacture of the product in
question (see 1994 WTO Agreement on Subsidies and Countervailing Measures (see para.
8.4.4 below), fn 58 thereto).
59 OECD (1988), op. cit., para. 1.8(b).
60 See 1994 WTO Agreement on Subsidies and Countervailing Measures (see para. 8.4.4
below), fn 58 thereto.
61 Council Directive 77/388/EEC, (1977) OJ L145 1.
62 Council Directive on the Harmonisation of Legislation of Member States Concerning
Turnover Taxes, Council Directive 67/227/EEC/EEC, (1967) OJ Sp Edn 14, Art 1.
63 See David Williams, EC Tax Law (London: Longman, 1998), p. 91. See para. 12.3.2
below.
64 C–200/90, [1992] ECR I–2217.
12 Environmental Taxation Law
In the present case, the differences which have been mentioned [that is, by the Danish
Government] do not affect the nature of a levy such as the Danish levy, which resembled
VAT in all essential respects.65
Thus, within the Member States of the EU, it is in principle permissible for a singlestage
consumption tax to be imposed, provided that it is not one that can be taken to
mimic VAT.66 An obvious example of such a tax is that imposed on plastic bags in
Eire.67 This provision gives rise to the possibility of indirect taxes on consumption
with an environmental purpose and it is one which has been embraced by a number
of Member States, including the UK.
Category 3. in the list given above creates a conundrum for anyone involved in the
study of taxes as regulatory instruments.68 As already stated, levies may be divided
into taxes and charges, the latter having a quality of reciprocity which is not shared
by the former. As suggested in the 1988 OECD report, however, there may be an
intermediate category of levies made for services which are provided direct to the
individual but which lack this element of reciprocity. Re Eurig Estate69 suggests that
such levies are taxes rather than charges.70
The relevance of the category of indirect taxes to environmental taxes is that most,
although not all, environmental taxes, are taxes on the consumption of goods and
services (that is, ‘product taxes’) and are therefore indirect taxes. Subject to the
points made below,71 the UK’s aggregates levy and landfill tax are probably both to
be viewed in this way, whilst climate change levy and excise duties (excise duties
being environmental taxes in a broad sense and only if there is some environmental
differential) are certainly to be regarded as product taxes.
65 [1992] ECR I–2217 (para. 14). From its earlier jurisprudence, the ECJ concluded that the
essential characteristics of VAT were that it ‘a(chǎn)pplies generally to transactions relating to
goods or services; it is proportional to the price of those goods or services; it is charged
at each stage of the production and distribution process; and finally it is imposed on the
added value of goods and services, since the tax payable on a transaction is calculated
after deducting the tax paid on the previous transaction’ ([1992] ECR I–2217 (para. 11)).
66 See, for example, the consideration of, respectively, national meat and dairy products
marketing levies in Fazenda Pública v. Fricarnes SA, C–28/96, [1997] STC 1348,
and Fazenda Pública v. União das Cooperativas Abestacedoras de Leite de Lisboa,
C–347/95, [1997] STC 1337, stamp duty on construction contracts in Fazenda Pública
v. Solisnor-Estaleiros Navais SA, C–130/96, [1998] STC 191, and a local tax upon the
gross receipts from entertainment performances in NV Giant v. Commune of Overijse,
C–109/90, [1993] STC 651. See also a case involving municipal parking charges,
Fazenda Pública v. Câmera Municipal do Porto (Ministério Público, third party), C–
446/98, [2001] STC 560.
67 See para. 12.3.2 below.
68 Most environmental taxes being of this kind (see Chapter 5 below).
69 See paras 1.2.1.1 and 1.2.1.2 above.
70 See OECD (2003), op. cit., p. 286.
71 See para. 1.4 below.
Preliminaries 13
1.2.1.5 Environmental taxes
The preceding discussion enables us to reflect on the nature and classification of
environmental taxes generally.72 This should serve as a useful introduction to setting
out, in para. 1.2.2 below, the approach which we have taken to the material in the rest
of the study, as well as the sources on which the authors have placed reliance in its
preparation. Prior to that, however, it is worth noting the significance of the key word
‘environmental’, as it relates to the expression ‘environmental taxes’.
Environmental taxes, as mentioned above, are one type of economic instrument
for environmental protection, the other main examples being transferable permit
systems, deposit-refund systems and financial assistance from government.73 Within
the last category, that is, financial assistance from government, we include measures
for ‘greening’ a tax system, so the concept of economic instruments is taken to
include ‘green’ exemptions and reliefs which have been built into taxes such as
income tax and corporation tax.74 Emissions trading systems, whilst schematically
distinct from taxes, operate, in one or another form, in conjunction with two of the
UK’s environmental taxes, that is, climate change levy and landfill tax. We shall
therefore make extensive reference to them throughout the rest of the study.
(1) The environmental aspect of environmental taxes
The term ‘environmental’, as it is used in the expression ‘environmental taxation’,
suggests a wide area of operation for the instruments under consideration in this
book.75 This is consistent with the use of the word ‘environmental’ in relation to
‘environmental law’ and ‘environmental regulation’ generally. Krämer, for instance,
in writing about the objectives, principles and conditions of European environmental
law, looks (naturally enough) to the European Treaty for guidance on the scope of the
notion of ‘the environment’. He says:
It follows from Articles [174(1) (ex 130r(1)] and [175(2) (ex 130s(2))]76 that the
environment includes humans, town and country planning, land use, waste and water
management and use of natural resources, in particular of energy. This list, which was not
meant to be exhaustive, includes practically all facets of the environment, in particular
fauna and flora which are part of the natural resources, as well as climate. The inclusion of
town and country planning makes it clear that ‘environment’ is not limited to the natural
environment.77
72 No distinction is drawn in this book between the expressions ‘environmental taxes’,
‘ecological taxes’, ‘ecotaxes’ and ‘green taxes’.
73 Organisation for Economic Co-operation and Development, 1991 Recommendation of the
Council on the Use of Economic Instruments in Environmental Policy, C(90)177/Final,
January 31, 1991 (available from www.oecd.org).
74 See Part III, Section B below.
75 See Sean Coyle and Karen Morrow, The Philosophical Foundations of Environmental
Law (Oxford: Hart Publishing, 2004).
76 See para. 12.2.1 below.
77 See Ludwig Krämer, EC Treaty and Environmental Law, 2nd edn (London: Sweet and
Maxwell, 1995), p. 41.
14 Environmental Taxation Law
Bell and McGillivray, quoting Einstein as having been reported to remark that
‘[t]he environment is everything that isn’t me’, adopt a wide definition of the terms
for the general purposes of their textbook on UK environmental law. In discussing
the expression ‘environmental law’, and therefore the scope of their book, they say:
We intend to concentrate on those laws and practices which relate primarily to the
protection of the whole or part of the general surroundings, as opposed to those where the
true objective is the protection of public health, or individual people such as workers or
consumers. [Emphasis added.]78
Finally, Winter defines the term ‘environmental law’ as follows:
… the law regulating the relationship of us to nature, understood both as the world around
us and as the nature we carry within ourselves.79
From all of the above, a number of areas of application for environmental
taxes may be envisaged. Obvious applications of environmental taxes are in the
waste management and water protection areas, as well as in the control of air and
atmospheric pollution. Less obvious, perhaps, are resource use, town and country
planning and (not specifically referred to in the above quotations) noise abatement.
Although the UK has not yet applied an environmental tax in relation to water
pollution80 or noise, landfill tax operates in the area of waste management, now
being intended (at least in part) to assist in reducing the amount of waste being
sent to landfill,81 while climate change levy is a key instrument in the control
of air and atmospheric pollution.82 Landfill is unusual in that it can perhaps be
identified quite clearly with a single environmental problem. The same may not,
however, be true of some of the less obvious applications. In relation to resource
use, it might be a matter for debate whether the predominant justification for the
tax in question should be the conservation of resources or the control of pollution.
This is the case, for example, with aggregates levy, which, besides being justified
by reference to a need to conserve the supply of virgin aggregate, is also designed
to address the problem of the noise and visual intrusion caused by quarrying.83
Similarly, with projects for road charging or cordon pricing (such as London’s
congestion charge),84 it might be a matter for debate as to whether the predominant
78 Stuart Bell and Donald McGillivray, Ball and Bell on Environmental Law: The Law
and Policy relating to the Protection of the Environment, 5th edn (London: Blackstone
Press, 2000), p. 4. They also adopt the definition of the environment in the Environmental
Protection Act 1990, s.1, that is that the environment consists of ‘a(chǎn)ll, or any, of he following
media, namely, the air, water and land’ (ibid.).
79 Gerd Winter, ‘Perspectives for Environmental Law – Entering the Fourth Phase’ (1989)
1 JEL 39, quoted in John F. McEldowney and Sharron McEldowney, Environmental Law
and Regulation (London: Blackstone, 2001), p. 78.
80 But see para. 29.1 below.
81 See para. 6.3 below.
82 See para. 6.4 below.
83 See para. 11.3.2 below.
84 See para. 18.2 below.
Preliminaries 15
environmental concern should be traffic congestion or the pollution caused by
motor vehicles. Even in the case of air and a,tmospheric pollution, there is the
additional concern of the conservation of energy, something which (as we shall see)
is a key element in climate change levy. All these points made, it should be stressed
that environmental taxation, at least in the UK, tends not to operate specifically in
relation to plants, animals and habitats.85
Finally, it should be noted that, in referring to the use of natural resources, in
particular of energy, Krämer signposts the difficulties which have arisen from
attempts, both at Community and Member State level, to ‘graft’ environmental
policies onto the process of ‘unbundling’ Europe’s energy markets. This is a recurrent
theme throughout the rest of the study, since the design of UK’s tax on the industrial,
commercial and agricultural consumption of non-renewable energy, that is, climate
change levy, evidently seeks to marry up apparently contradictory objectives within
Community and UK energy policy itself.86
(2) The taxation aspect of environmental taxes
It has already been stated that none of the UK’s environmental taxes are specifically
referred to as such in the legislation which creates them.87 This may be problematic,
since, as already mentioned, environmental taxes may be susceptible to different
evaluative criteria from non-environmental taxes. The OECD has espoused
different definitions at various times but the definition reproduced in its 1997 report,
Environmental Taxes and Green Tax Reform88 has gained a certain currency. This
states that:
A tax falls into the category environmental if the tax base is a physical unit (or a proxy for
it) of something that has a proven specific negative impact on the environment, when used
or released.89
The intellectual appeal of this definition is that, in concentrating on the tax base, it
emphasises the way in which a particular tax works, rather than whatever justification
85 It seems that the abolition in 1988 of the income tax charge on commercial woodlands
was motivated by a desire to protect the income tax base by removing a tax shelter,
rather than by environmental considerations. The same point applies to the (heavily
circumscribed) inheritance tax (‘IHT’) relief in respect of growing trees and underwood
forming part of an individual’s estate on death (see Inheritance Tax Act 1984,
ss.125–30).
86 See para. 21.5.2 et seq., below. Helm likens New Labour’s capacity to formulate energy
policy in this way to George Orwell’s ‘doublethink’, that is, ‘the power of holding two
contradictory beliefs in one’s mind simultaneously, and accepting both of them’ (see
Dieter Helm, Energy, the State, and the Market: British Energy Policy since 1979, revised
edn (Oxford: Oxford University Press, 2004), p. 294).
87 Unlike, exceptionally, s.369 of the Ecotax Law in Belgium, in which an environmental
tax, [‘écotaxe’] is defined as a ‘taxe assimilée aux accises, frappant un produit mis à la
consomation en raison des nuisances écologiques qu’il est reputé générer’ (quoted in
Määttä, op. cit., p. 41).
88 Paris: OECD, 1997.
89 OECD (1997), p. 18.
16 Environmental Taxation Law
may be given for the introduction of the tax.90 The definition is certainly capable of
capturing energy, landfill and severance taxes.91
Faced with the problem of categorisation (which may, or may not be significant),92
Määttä makes a useful distinction93 between environmental taxes in the strict sense
and environmental taxes in the broad sense.94 Taxes which do not fall into either
category (for example income tax and corporation tax) are, naturally enough, ‘nonenvironmental
taxes’95 and this is so even if they embody environmentally-motivated
design features.96 One tax which would appear to be a non-environmental tax, whatever
the government’s protestations to the contrary, is air passenger duty (‘APD’), a flatrate
indirect tax which, since 1994, has been chargeable on passenger flights from
the UK.97 Tiley draws our attention to the fact that APD merely imposes an excise
duty on an item which is zero-rated for VAT purposes,98 thus reducing the disparity
between items which come within and those which are outside the VAT net.99
Environmental taxes in the strict sense are ‘taxes about which a long-established
unanimity exists that they can be classified as environmental taxes’.100 The
examples that Määttä instances are effluent taxes, taxes on beverage containers and
incentivising tax differentiations between leaded and unleaded petrol. What each
of these have in common, whether it is to reduce the flow of effluents into water,
to reduce litter or to encourage consumers to buy unleaded petrol, is an intention to
influence behaviour.101 Such environmental taxes are incentive environmental taxes,
a category which includes, not only taxes whose revenues are less important than their
capacity to steer behaviour, but also redistributive environmental taxes, some or all
of the proceeds of which are used to incentivise taxpayers to purchase, for example,
environmental protection equipment, such as energy-saving plant and machinery.102
90 Ibid., p.18. General definitions of environmental taxes which rely on their proffered
justifications are, as Määttä reminds us, problematic (see Määttä, op. cit., p. 47).
91 Nevertheless, in its 2001 report, the OECD preferred the concept of the ‘environmentally
related tax’ (see Organisation for Economic Co-operation and Development,
Environmentally Related Taxes in OECD Countries: Issues and Strategies (Paris: OECD,
2001)). Severance taxes are taxes levied on the extraction of minerals; they are common
in the US.
92 See Määttä, op. cit., p. 45.
93 Ibid., pp. 40–45.
94 Määttä actually uses the Latin tags of environmental taxes sensu stricto and those sensu
largo but we have eschewed the use of the Latin here.
95 Määttä, op. cit., pp. 40–53.
96 Ibid., p. 41.
97 See Finance Act 1994, ss.28–44 and Sched. 6. It is an excise duty (ibid., s.40(1)) and, as
such, is under the care and management of HM Customs and Excise. The rates are £10 per
flight, for flights within Europe, and £20 for flights to destinations elsewhere (see Finance
Act 1994, s.30(4)).
98 See Value Added Tax Act 1994, Sched. 8, Group 8, item 4(a), (c).
99 Tiley, op. cit., p. 11. See para. 27.5 below (proposed taxes on aviation).
100 See Määttä, op. cit., p. 41.
101 Anthony Ogus, ‘Corrective Taxes and Financial Impositions as Regulatory Instruments’
(1998) 61 MLR 767; Anthony Ogus, ‘Nudging and Rectifying: The Use of Fiscal
Instruments for Regulatory Purposes’ (1999) 19 LS 245–66.
102 Ibid., p. 64.
Preliminaries 17
The question raised earlier,103 of whether differential tax rates which are built into
non-environmental tax codes and are intended to put a price on environmentallyundesirable
behaviour, might themselves be described as environmental taxes,
is thus answered in the affirmative, since the differential will itself constitute an
environmental tax.104 A more difficult question arises, however, when taxes whose
taxable characteristics are not, per se, the harmful characteristics of the product (for
example a tax on the carbon content of fuels) but the product itself (for example a
tax on plastic bags).105 Whether or not the revenue raised by a tax is earmarked (or
‘hypothecated’) for an environmental purpose might also determine whether or not a
given tax is to be regarded as environmental in the strict sense.106 In connection with
incentive environmental taxes, it should also be stressed that a tax which intentionally
steers behaviour (that is, distorts the market) does not breach the neutrality principle.
As Tiley says: ‘[t]he principle of neutrality simply asserts that all distortions should
be conscious and so subject to justification through the political process’.107
By contrast with environmental taxes in the strict sense, environmental taxes in the
broad sense are taxes as to ‘which no unanimity exists about the nature of the tax
in the sense in question’.108 They are characterised by the fact that, whilst they are
chiefly concerned with raising revenue, they also have considerable effects on the
environment.109 Such taxes include, says Määttä, taxes on energy and taxes on motor
transport.110 Taxes falling into one or other of the above categories can be divided into
emissions taxes and product taxes in accordance with the official classifications of
the OECD and the European Commission.111 The OECD’s classification is contained
in the 1991 Recommendation of the Council on the Use of Economic Instruments
in Environmental Policy.112 The key part of the 1991 Recommendation reads as
follows:
2. Emission charges or taxes are payments on the emission of pollutants into air or water
or onto or into soil and on the generation of noise. Emission charges or taxes are calculated
on the basis of the quantity and type of pollutant discharged.
…113
4. Product charges or taxes are levied on products that are harmful to the environment when
used in production processes, consumed or disposed of. Product charges or taxes can act
as a substitute for emission charges or taxes when charging directly for emissions is not
feasible. They may be applied to raw materials, intermediate or final (consumer) products.
Product tax differentiation may be designed for the same purpose.114
103 See para. 1.2.1.3 above.
104 Ibid., p. 48.
105 Ibid.
106 Ibid., pp. 49–50. See para. 11.2.2 below (hypothecation).
107 See Tiley, op. cit., p. 11.
108 See Määttä, op. cit., p. 41.
109 Ibid., pp. 50–51.
110 Ibid., p. 41.
111 See para. 4.3.2 below.
112 C(90)177/Final, 31 January 1991. See para. 8.2.6n below.
113 Paragraph 3 of the 1991 Recommendation refers to ‘User charges or taxes, [which are]
payments for the costs of collective treatment of effluent or waste’.
114 C(90)177/Final, 31 January 1991.
18 Environmental Taxation Law
The Commission’s classification is contained in its 1997 Communication on the
use of environmental taxes and charges.115 This is generally to similar effect and is
worth setting out in full:
Emission levies involve payments that are directly related to the real or estimated pollution
caused, whether emitted into air, water or on the soil, or due to the generation of noise.
Existing examples are charges on emissions of NOx from large combustion plants, and
charges on pollution to water from waste water treatment plants. Levies on the emission
of noise exist in the field of aviation. In so far as these levies are applied to stationary
sources (such as industrial plants) they will to a large extent fall outside the scope of this
communication, as the cost of paying them falls only on domestic producers.
Product levies are applied to raw materials and intermediate inputs such as fertilizers,
pesticides, natural gravel, and ground water, and on final consumer products such as batteries,
one way packaging, car tyres and plastic bags. Some product levies that have existed for
many years, mainly in the field of energy, are increasingly regarded as contributing to
the integration between environmental and energy policies. Typical examples are taxes on
gasoline, diesel and heating oils and electricity.116
On the basis of the distinctions set out above, it is clear that environmental taxes
imposed on products are indirect taxes; that they are subject to the destination
principle;117 and that, as such, they are eligible for BTA.118 Equally clear is that
environmental taxes imposed on producers are direct taxes; that they are subject to
the origin principle;119 and that, being subject to the origin principle, they do not
have the benefit of BTA. Effluent or emissions taxes (including carbon taxes)120 are,
in principle, direct taxes; by the same token, energy taxes are, in principle, indirect
taxes (that is, as product taxes). Problems of classification come with waste taxes,
depending on the nature of the taxable event in relation to the tax in question.121
1.2.2 Approach and sources
The title of the present volume reflects its emphasis on the legal aspects of the UK’s
environmental levies. As was mentioned at the beginning, our overriding aim has
been to give a comprehensive, contextual and critical account of the law relating to
environmental taxation in the UK. Such an aim, although relatively modest, seems to
us to be amply justified by the absence of any comparable account of the area.
Our approach has been to centre the work on the legal analysis of the measures
under consideration. Whilst this analysis has broadly been informed by scholarship on
115 Commission Communication, Environmental Taxes and Charges in the Single Market,
COM (97) 9 final, (1997) OJ C224 6 (see para. 12.3.1 below).
116 COM(97) 9 final, para. 12.
117 See para. 1.2.1.2 above.
118 Ibid.
119 Ibid.
120 See Thomas C. Schelling, ‘Prices as Regulatory Instruments’, in Incentives for Environmental
Protection, ed. by Thomas C. Schelling (London: MIT Press, 1983), pp. 1–40, esp. p. 15.
121 See para. 1.4.2(1) below (landfill tax).
Preliminaries 19
environmental regulation, it has not been possible, in what is already rather a large book,
to take a unifying theoretical standpoint, based, for example on the economic analysis
of law.122 Such a theoretical approach will have to await another opportunity.123
In providing a comprehensive account of the material, we have referred to a range
of sources, both theoretical and practical. The detailed reports on both environmental
and energy law and policy appearing in the Financial Times124 have proved
particularly valuable; the reader will find many references to them in the footnotes.
So fast-moving are the areas of law and policy discussed in the book that it is difficult
to imagine keeping abreast of regulatory developments without the data provided by
that newspaper. We have also made much use of the Environmental Data Services
Report (‘the ENDS Report’)125 which, containing, as it does, briefings on the latest
developments in environmental regulation, is also invaluable. Again, there are many
references throughout the footnotes to reports from this source. Finally, we have
referred quite extensively to reports and other documentation published by Chatham
House (the premises of the Royal Institute of International Affairs (‘the RIIA’) which
operates from them).126
Website addresses were correct on 30 September 2004.
1.3 International, European, national and regional contexts
The task of providing a clear account of the UK’s environmental taxes is complicated
by a number of factors, at least one of which is not present in other areas of tax law.
This is the interaction between environmental law and policy on the one hand, and tax
law and policy on the other. We shall return to this interaction in paragraph 1.4 below.
Another complicating factor is the place of UK environmental regulation, including its
environmental taxes, within the international and European Community’s legal order.
Before going any further, it would perhaps be helpful to give a brief indication of the
issues raised by the place of the UK and its constituent countries in that legal order.
The UK is almost, although not quite, a federal state.127 The detailed implications
of this statement will be followed up at a later stage of the discussion.128 It should,
however, be noted at the outset that, except in environmentally-related taxation matters,
122 This is the approach taken by Määttä, op. cit. See Richard Posner, Economic Analysis of
Law, 6th edn (New York: Aspen, 2003). See also the discussion of Posner’s work in David
Campbell and Sol Picciotto, ‘Explaining the interaction between law and economics: the
limits of formalism’ (1998) 18 LS 249–78.
123 On this footing, we are content to accept the theoretical economic arguments and to analyse
the findings of the bodies (mainly Parliamentary Select Committees – see para. 4.2.1.1(3)
below) whose duty it is to report on how these theories have worked in practice. This is
consistent with the approach taken in, for example, Baldwin and Cave, op. cit., throughout.
124 See www.ft.com.
125 See www.endsreport.com.
126 See www.chathamhouse.org.uk. Chatham House is the origin of the so-called ‘Chatham
House Rule’, first promulgated in 1927.
127 See Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart
Publishing, 2000), p. 47.
128 See para. 4.2.2 below.
20 Environmental Taxation Law
the Scottish Parliament and the (currently dissolved) Northern Ireland Assembly have
full legislative powers in relation to the environment.129 Although the UK Parliament
retains competence to pass primary legislation in relation to both England and Wales,
the Welsh Assembly has competence as regards Wales in relation to secondary
legislation. Since this includes the environment but, again, not environmentallyrelated
taxation, and, since most environmental legislation is secondary legislation,
the Welsh Assembly possesses considerable power in relation to the environment.
Thus, except in relation to taxes, as Hilson points out, the result of this structure is
that, ‘[t]he UK Parliament does not appear to have maintained any power to legislate
on the environment for the UK as a whole’.130 One practical consequence of this
situation is that environmentally-related statutory instruments covering the same
subject-matter either exist in two forms, one relating to England and Wales and the
other to Scotland,131 or, possibly, in three forms, relating to each of England, Wales
and Scotland.132 A second, more important, point is that none of Wales, Scotland or
Northern Ireland has any power to create its own environmental tax.133
If it is correct that the UK Parliament has not retained power to legislate on the
environment for the UK as a whole, one explanation may be that the legislative activity
of the UK Parliament in relation to environmental matters consists in transposing the
provisions of European Directives. This is so, even though competence to legislate
in the environmental sphere is shared between the Community and the Member
States.134 Shared, too, is competence in relation to taxation (including environmental
taxation), although, here, any decision must be unanimous135 as between the Member
States of the EU.
Finally, since the UK is a Member State of the EU, and since both the UK and the
EU are members of the WTO, any taxes designed and implemented in the UK must
comply with GATT 1994/WTO rules.136 These are very similar to Community rules on
taxation and free movement of goods137 but, despite the existence of an ‘environmental’
exception,138 do not easily lend themselves to environmental measures. Thus, the
129 Ibid.
130 See op. cit., p. 47.
131 Where this situation obtains, we refer only to the SI for England and Wales, in the absence
of some special consideration. This is simply for reasons of space and we hope not thereby
to offend readers from UK countries other than England.
132 Or possibly three (four) forms, where there is a separate instrument for Northern Ireland
under the current direct rule arrangements (see para. 4.2.2 below).
133 Or any other tax, for that matter. Part IV of the Scotland Act 1998 empowers the Scottish
Parliament to pass a resolution with the effect of varying the basic rate of income tax by
up to three percentage points, upwards or downwards, for a particular tax year (Scotland
Act 1998, s.73(1)). If resolved upon, such a variation affects ‘Scottish taxpayers’, that is,
individuals who are treated as resident in the UK and whose closest connection is with
Scotland (Scotland Act 1998, s.75). The Act grants no other tax-raising power to the Scottish
Parliament, however. ‘Scotland’ is defined in the Scotland Act 1998, s.126(1), (2).
134 See para. 12.2.1 below.
135 See paras 4.3.1, 12.2.1 and 12.3.2 below.
136 See para. 8.4.1 below.
137 See paras 12.3 and 12.4 below.
138 See para. 8.4.2 below.
Preliminaries 21
rule that a direct tax (for example an emissions tax) cannot benefit from BTA has
controversially contributed to the inhibition of taxes on carbon emissions.139
1.4 Regulatory and taxation contexts
1.4.1 Introduction
One of the principal contextual aims of the book is to integrate our discussion of
environmental taxes into a discussion of environmental regulation more generally.
To this end, in subsequent chapters, we consider the UK’s environmental regulation,
and the place of environmental levies and other economic instruments within it, prior
to analysing the taxation context of those levies.140
The discussion of the regulatory context of the levies in Chapter 6 below is divided
into the main areas of application of environmental taxes, that is, waste management
and control of air and atmospheric pollution, as well as air passenger and road freight
transport and mineral extraction. The regulatory background to each of these areas is
discussed in some detail in Chapter 6. Meanwhile, it may assist the reader to have a
brief regulatory and taxation overview, with emphasis, in relation to the former, on
the economic instruments currently employed in the particular area of application.
It is worth noting that, whilst landfill tax and climate change levy form part of
a package of regulatory instruments in their respective areas of application,
aggregates levy forms the sole, or at least the main,141 basis of environmental
policy in the area to which it applies. Määttä would therefore classify aggregates
levy as an independent environmental tax, climate change levy and landfill tax being
complementary environmental taxes.142
1.4.2 Regulatory context of the UK’s environmental taxes
1.4.2.1 Waste management regulation
The command and control framework of waste management law forms an intricate
regulatory pattern.143 The main elements are: (1) the Integrated Pollution Prevention
and Control (‘IPPC’) permit system, which covers, inter alia, the disposal of waste by
139 There are, of course, other formidable obstacles to such a tax!
140 See Chapters 6 and 7 below.
141 Town and country planning law and Environmental Impact Assessment also having a part
to play (see para. 6.6 below).
142 See Määttä, op. cit., p. 70.
143 The expression ‘command and control’ is customarily used to refer to regulation involving
the bringing of influence to bear on the regulated by requiring standards to be met, on pain
of criminal sanction (for example via the imposition of fines). Since command and control
typically relies on licensing processes involving payments to government or government
agencies, it is often difficult for the layperson to distinguish such payments from taxation
(see category 3 in para. 1.2.1.4 above). This, together with the fact that economic
instruments (see para. 1.2.1.5 above) cannot operate satisfactorily without being backed
up by criminal sanctions, makes the distinction between each type of regulation a rather
slippery one (see Baldwin and Cave, op. cit., pp. 35–9).
22 Environmental Taxation Law
incineration or by landfill, as well as waste recovery and fuel production from waste;
(2) a waste management licensing system and a statutory duty of care in relation
to the handling of waste (both under Part II of the Environmental Protection Act
1990); (3) the banning of the co-disposal of hazardous and non-hazardous wastes,
of tyres144 and of liquid, clinical and hazardous wastes at landfill sites (pursuant to
legislation implementing the Landfill Directive);145 (4) special rules for the disposal
of special and hazardous wastes; and (5) rules on waste imports and exports.146
In addition to the above, however, the following economic instruments have a
prominent part to play,147 most importantly, landfill tax.
(1) Landfill tax
Landfill tax was introduced in the Finance Act 1996.148 It is chargeable on taxable
disposals of material as waste, by way of landfill, at landfill sites.149 The person
liable to pay the tax charged on a taxable disposal is the landfill site operator.150 It
is generally payable at a fixed amount for each whole tonne of material disposed of,
plus a proportionately reduced sum for any additional part of a tonne, or, where less
than a tonne is disposed of, just a proportionately reduced amount.151
Landfill tax is discussed in detail in Chapter 15 below but several key features of
the levy will be apparent from the foregoing. First, there is no doubt that landfill tax
is indeed a tax within the definition set out above.152 Secondly, it is also clearly an
environmental tax, since its tax base is a physical unit of something that has ‘negative
impact’ on the environment when released.153 Whether it is treated as a direct tax
on emissions (as theoretically it might be) or an indirect tax on the consumption of
landfill services (as in practice it is) is probably unimportant.154
(2) Packaging waste recovery notes
Packaging waste recovery notes (‘PRNs’) are a market-creating mechanism for the
recovery and recycling of packaging waste. They operated originally155 on a non-
144 That is, whole tyres. Landfilling shredded tyres will be banned in 2006 (see para. 6.3.2(4)
below).
145 See para. 12.2.5.1(2)(b) below.
146 See para. 6.3 below (in relation to all of these).
147 Note also the projected waste performance reward grant (‘WPRG’), currently (December
2004) under consultation (see para. 6.3.3(5) below).
148 Finance Act 1996, ss.39–71, Sched. 5; Finance Act 1997, ss.50–53 and 113, Sched. 5;
Finance Act 1999, s.124; Finance Act 2000, ss.140–42, Sched. 37. There are also at least
ten statutory instruments specifically relating to landfill tax: these are referred to where
appropriate in the text below.
149 Finance Act 1996, s.40.
150 Ibid., s.41(1).
151 Ibid., s.42(1).
152 See paras 1.2.1.1 above and 8.3.1 below.
153 See para. 1.2.1.5(2) above.
154 See Määttä, op. cit., p. 254.
155 Since 1 January 2004, both PRNs and the newly invented PERNs have operated under
the auspices of Producer Responsibility Obligations (Packaging Waste) (England)
(Amendment) Regulations 2003, S.I. 2003 No. 3294: see para. 19.8 below.
Preliminaries 23
statutory basis and as an adjunct to a statutory command and control regime creating
producer responsibility for packaging waste and imposing penalties for a range of
offences. That regime obliges businesses of a certain size who deal in virtually any
way with the packaging of goods to register with the relevant government agency;156
to take reasonable steps to recover and recycle particular percentages of packaging
handled in the preceding year; and to submit a certificate of compliance to the
agency at the end of the current year. Obligated business may meet their recovery
obligation, either individually, or by joining a registered compliance scheme, which
will fulfil the obligation on their behalf. The submission of PRNs is the main way
in which obligated businesses, including compliance schemes, demonstrate their
compliance. They acquire the PRNs either on their issue by accredited packaging
waste reprocessors or by purchase on the open market from other organisations.
Salmons epitomises PRNs by saying that, ‘[a]lthough not conceived as such when
they were introduced in 1998, [PRNs] … have rapidly evolved into a functioning
tradeable compliance credit system’.157 Packaging waste recovery notes are discussed
in detail in Chapter 19 below.
(3) The Waste Recycling Credits Scheme
A waste recycling credits scheme (‘WRCS’) operates, which is designed to ensure
that neither waste disposal authorities (‘WDAs’) nor waste collection authorities
(‘WCAs’)158 are penalised for the costs of recycling. It is not considered further in
this study.159
(4) The Landfill Allowances Trading Scheme (‘the LATS’)
The framework for the landfill allowances trading scheme (‘the LATS’), which is
due to come into operation in England and Wales in 2005, is contained in the Waste
and Emissions Trading Act 2003. The relevant minister160 is empowered by the 2003
Act to allocate to WDAs, in each of the four countries of the UK, allowances which
authorise the sending to landfill161 of specified amounts of biodegradable municipal
waste (‘BMW’), for each year between 2004 and 2020.162 The LATS, a ‘cap and
trade scheme’,163 is discussed in detail in para. 20.7 below.
156 That is, the Environment Agency (see para. 4.2.1.3 below).
157 See Roger Salmons, ‘A New Area for Application of Tradeable Permits: Solid
Waste Management’, in Organisation for Economic Co-operation and Development,
Implementing Domestic Tradeable Permits: Recent Developments and Future Challenges
(Paris: OECD, 2002), pp. 187–226, esp. pp. 199–211.
158 See paras 2.3 and 6.3.2(1) below.
159 It is currently (December 2004) the subject of government consultation (see www.defra.
gov.uk).
160 The identity of whom varies for England, Scotland, Wales and Northern Ireland (see
Waste and Emissions Trading Act 2003, s.24(1)).
161 Defined in Waste and Emissions Trading Act 2003, s.22.
162 Waste and Emissions Trading Act 2003, s.4(1).
163 See Salmons, op. cit., esp. pp. 211–17.
24 Environmental Taxation Law
1.4.2.2 Control of air and atmospheric pollution
This area of environmental regulation is dominated by the UK’s commitment under
the Kyoto Protocol to reduce its 1990 levels of all greenhouse gases (‘GHGs’) by
12.5 per cent by 2010.164 Although there are command and control regimes relating
to emissions and air quality, the chief regulatory instruments at work in the UK’s
climate change programme are economic ones. They are as follows:
(1) Climate change levy
Climate change levy, which was enacted in the Finance Act 2000,165 has been imposed
on supplies for industrial, commercial and agricultural purposes166 of electricity, gas,
liquid natural gas, coal, lignite and coke,167 made after 31 March 2001.168 Excluded
from the list of taxable commodities are hydrocarbon oil, road fuel gas and waste
(within the scope of the Environmental Protection Act 1990).169 There is a series of
environmentally-inspired exemptions, inter alia, for renewable source electricity and
electricity generated in combined heat and power (‘CHP’) stations.170
Normally, the person liable to account for the levy is the person making the
supply.171 However, where a taxable supply is made by a non-UK resident nonutility,
the person liable to account for the levy charged on the supply is the person
to whom the supply is made.172 Exports of taxable commodities are not within the
scope of the levy, an exemption that mirrors the controversial aggregates levy relief
for the supply of aggregate to a destination outside the UK.173 The levy is charged
at different poundages, depending on the type of energy supplied, reduced rates
being applicable to supplies to horticultural producers174 and to supplies made by
certain facilities, where the operator has entered into a so-called ‘climate change
agreement’.175 Climate change levy is discussed in detail in Chapter 14. Introduced
164 See para. 6.4.2 below.
165 Finance Act 2000, s.30, Scheds 6 and 7. See Stephen Smith, ‘Environmental and Public
Finance Aspects of the Taxation of Energy’, in Environmental Policy: Objectives,
Instruments and Implementation (Oxford: Oxford University Press, 2000), pp. 172–202.
There are in addition around at least nine statutory instruments relating specifically to
climate change levy, and these are referred to as relevant in the text below.
166 Finance Act 2000, Sched. 6, para. 8 (this effect is achieved by excluding supplies for
domestic or charity use from the scope of the levy).
167 Finance Act 2000, Sched. 6, paras 2 and 3(1). Coke is the ‘solid porous fuel that remains
after gases have been driven from coal by heating’; lignite is ‘a(chǎn) brownish black coal that
is harder than peat but usually retains the texture of the original wood’ (see the Longman
Concise English Dictionary (London: Longman Group, 1985)).
168 Finance Act 2000, Sched. 6, para. 10.
169 Ibid., para. 3.
170 See paras 14.3 and 14.4 below.
171 Finance Act 2000, Sched. 6, para. 40(1).
172 Ibid., Sched. 6, para. 40(2).
173 Finance Act 2000, Sched. 6, para. 11 (see para. 8.4.5.1 below).
174 Ibid., Sched. 6, para. 43.
175 Ibid., Sched. 6, para. 44. Gas for burning in Northern Ireland is exempted from the levy
on a temporary basis (ibid., Sched. 6, para. 11A).
Preliminaries 25
in Chapter 14, as a prelude to the discussion in Chapter 20, is the UK Emissions
Trading Scheme (‘the UK ETS’), the UK ETS having been designed to bolster the
network of climate change agreements.
Despite its rather coy name, climate change levy is, like landfill tax, a true tax.176 It
is also, on the basis of the 1997 OECD definition given above,177 an environmental
tax, which takes energy consumption as a proxy for the carbon emissions released
into the atmosphere when the various taxable commodities to which it applies are
used or consumed. Since it is an energy tax rather than a carbon tax, as well as a tax
on energy products rather than a tax on emissions, it is an indirect tax. It therefore
makes use of BTA in taxing imports of taxable commodities, whilst exempting their
exportation.
(2) The UK Emissions Trading Scheme (‘the UK ETS’)
The UK ETS was created in March 2002, under powers conferred on the Secretary
of State for Environment, Food and Rural Affairs,178 by ss.3(5)(a) and 153,
Environmental Protection Act 1990. Initial participation in the scheme was on a
voluntary basis.179
There are two main types of participant in the UK ETS. First, there are ‘direct
participants’, who undertook emissions reduction targets in return for incentive
payments from a specially-designated government fund of £215 million. Emission
reduction targets could either relate to carbon dioxide alone or to all six Kyoto
GHGs.180 Secondly, there are ‘a(chǎn)greement participants’, whose emissions reduction
target has been fixed, not in return for an incentive payment, but in return for a onefifth
rate of climate change levy as parties to climate change agreements.
For each year of the UK ETS, direct participants receive allowances corresponding
to their emissions target for that year. Each direct participant must then possess
enough allowances at the end of the year to cover its emissions during that year.
If it does not have enough allowances, then the direct participant must buy more
allowances from other participants, to cover its excess emissions. Failure to have
enough allowances disentitles the direct participant to a slice of incentive payment
and results in the tightening of the following year’s target. If, however, the direct
participant has more than enough allowances, it may sell them to other participants.
Likewise, where an agreement participant overachieves (that is, makes fewer
emissions than its climate change agreement requires), then it is issued with allowances
to the extent of the overachievement. It can then trade these with participants lacking
sufficient allowances. Equally, where an agreement participant underachieves, it may
either purchase allowances from other participants or pay the full rate of the levy.
The detail of the UK ETS is discussed in Chapter 20 below. The scheme is an
entirely novel concept in UK law and has been highly controversial, especially with
176 See para. 1.2.1.1 above and para. 7.3.1 below.
177 See para. 1.2.1.5 above.
178 See para. 4.2.1.2(1) below.
179 For an early legal assessment of the UK ETS, see Anthony Hobley, ‘The UK Emissions
Trading System: Some Legal Issues Explored’, in Economics, Ethics and the Environment,
ed. by Julian Boswall and Robert Lee (London: Cavendish Publishing, 2002), pp. 61–79.
180 See para. 8.3.1.4 below.
26 Environmental Taxation Law
regard to the targets actually set. It is in part a ‘cap and trade scheme’ and in part a
‘baseline and credit scheme’.181
(3) The EU Emissions Trading Scheme (‘the EU ETS’)
The EU ETS is due to start in January 2005.182 The Directive which creates the
scheme183 is based on a provision of the European Treaty which requires the EU
Council to decide on the Community action necessary to achieve the Treaty’s
environmental objectives.184 It is thus a key example of Community level governance
in an area where competences are shared, which, given the transboundary nature of the
environmental problem that it is seeking to address, seems entirely appropriate.185
Participants in the EU ETS are the operators of specified industrial installations,
each of which must have a permit in order to emit carbon dioxide. The initial
limitation of the scheme to emissions of carbon dioxide is one point of difference
with the UK ETS. Another difference is the compulsory nature of participation,
initial participation in the UK ETS having been voluntary only. A third difference is
that the installations covered include electricity generators, who were excluded from
eligibility to participate in the UK ETS.
Under the EU ETS, an operator of a specified installation is allocated with allowances
for each year, which correspond to the relevant installation’s target for the year. This
is a fourth point of difference with the UK ETS, the target being imposed rather than
being agreed in return for a share in an incentivisation fund. Allocation of allowances
is in accordance with a Community-wide emissions cap on the industries covered, the
cap being divided between the Member States in accordance with so-called ‘national
allocation plans’ (‘NAPs’).
At the end of each year, the operator of the relevant installation is required, under the
terms of its emission permit, to surrender allowances equal to the carbon dioxide that
it has actually emitted in that year. If the operator has insufficient allowances to cover
its emissions, then it must either purchase extra allowances from other operators or
pay a penalty. However, if the operator has more than enough allowances to cover its
emissions, then it may sell them to other operators.
The detail of the EU ETS, which is basically a ‘cap and trade’ scheme similar to
earlier US examples designed to combat acid rain,186 is discussed in Chapter 28
below. Whilst unquestionably groundbreaking, as the first trans-national emissions
trading scheme, the design of the EU ETS has been described as ‘a(chǎn) pragmatic
181 See Kumi Kitamori, ‘Domestic GHG Emissions Trading Schemes: Recent Developments
and Current Status in Selected OECD Countries’, in OECD (2002), pp. 69–103.
182 See the overview of the EU ETS in Fiona Mullins and Jacqueline Karas, EU Emissions
Trading: Challenges and Implications of National Implementation (London: Royal
Institute of International Affairs, November 2003), pp. 12–14.
183 See para. 28.1 below.
184 See para. 28.2.1 below.
185 See para. 1.3 above.
186 See Steve Sorrell, ‘Turning an Early Start into a False Start: Implications of the EU Emissions
Trading Directive for the UK Climate Change Levy and Climate Change Agreements’, in
Organisation for Economic Co-operation and Development, Greenhouse Gas Emissions
Trading and Project-based Mechanisms (Paris: OECD, 2004), pp. 129–151, p. 130.
Preliminaries 27
compromise between economic efficiency and political acceptability’.187 Even that
pragmatic compromise may come in time to be severely tested.
(4) The Renewables Obligation (‘the RO’)
The Renewables Obligation was introduced in April 2002. It was imposed under
powers granted to the relevant authorities by the Electricity Act 1989, as amended by
the Utilities Act 2000. As its name suggests, unlike the UK ETS, there was nothing
optional about it.
The RO requires an electricity supplier to prove to the regulator, the Office of Gas
and Electricity Markets (‘Ofgem’),188 that, either alone or in combination with other
suppliers, it has supplied specified quantities of renewable source electricity189 to
customers in Great Britain within a specified period. The supplier must satisfy the
RO by producing so-called ‘Green Certificates’ or ‘ROCs’ to the regulator. Green
Certificates are traded, since the RO may be satisfied by the production of certificates
which were originally issued to a different supplier. Under the rules of the UK ETS,
the holder of Green Certificates may convert them into UK ETS allowances; the
converse is not, however, possible.190
The concept of Green Certificates is well-documented in the literature; they exist in
various forms throughout OECD countries.191
1.4.2.3 Regulation of mineral extraction
The key regulatory instrument here is, as mentioned above, aggregates levy.
The levy was introduced in the 2001 Finance Act.192 It has been chargeable,
since 1 April 2002, whenever quantities of taxable aggregate have been subjected
to commercial exploitation.193 Aggregate is rock, gravel or sand, together with
whatever substances are incorporated in the rock, gravel or sand or naturally occur
mixed with it.194 Aggregate is not taxable, inter alia, if it has previously been used
for construction purposes,195 a point which underlines the fact that the levy is aimed
at reducing the environmental impact of commercial quarrying. The width of the
‘commercial exploitation’ notion means that it is envisaged that imported aggregate
should be treated in the same way as aggregate originating in the UK. In line with
187 See Sorrell, op. cit., p.130.
188 See para. 4.2.1.3 below.
189 See para. 6.4.3.1(2)(a) below.
190 See paras 21.5 and 20.6 below.
191 The concept of Green Certificates is referred to in the literature as a ‘tradeable renewable
energy certificate’ (a ‘TREC’). See the survey of TRECs in Richard Baron and Ysé Serret,
‘Renewable Energy Certificates: Trading Instruments for the Promotion of Renewable
Energy’, in Organisation for Economic Co-operation and Development, Implementing
Domestic Tradeable Permits: Recent Developments and Future Challenges (Paris: OECD,
2002), pp. 105–40.
192 Finance Act 2001, ss.16–49 and 109–11, Scheds 4–10.
193 Ibid., ss.16(1),(2) and 17(2).
194 Ibid., s.17(1).
195 Ibid., s.17(2)(b).
28 Environmental Taxation Law
the points discussed above, the supply of aggregate to a destination outside the UK
is relieved from the levy.196 Anyone who is responsible for subjecting aggregate to
commercial exploitation is liable to pay the levy.197 It is payable at a fixed amount
for each tonne of aggregate subjected to commercial exploitation, the amount of levy
payable on a part of a tonne being the proportionately reduced amount.198
Aggregates levy is discussed in detail in Chapter 13 below. Like climate change
levy and, despite an early governmental equivocation,199 its status as a tax is not
in doubt.200 Unlike climate change levy, it is by comparison a relatively ‘small’
environmental tax, lacking a panoply of associated instruments. Secondly, it is clearly
an environmental tax, the subjection to commercial exploitation of the material in
question being a proxy for the environmental effects of quarrying. Although the
argument that aggregates levy is a direct tax might be a good one, there is judicial
authority to the effect that the levy is an indirect tax.201 On this basis, the BTA for
which the tax provides is a lawful one.
1.4.2.4 Transport regulation
Two economic instruments are currently in operation (setting aside, for example,
excise duty differentials):202
1 Powers to introduce workplace parking levies were introduced by the legislation
instituting the new Mayor and Assembly for Greater London.203 Similar powers
were subsequently granted to other local authorities in England and Wales,204
which legislation also amended the earlier measures relating to London.205
Workplace parking levies are discussed in detail in Chapter 17 below. To the
authors’ knowledge, no local authority has so far206 exercised these powers.
2 The legislation setting up the Mayor and Assembly for Greater London also
introduced the concept of road user charging.207 Again, similar powers were
subsequently granted to other local authorities in England and Wales,208 and
again this legislation also amended the earlier provisions relating to London.209
196 See para. 8.4.5.1 below.
197 Finance Act 2001, s.16(3).
198 Ibid., s.16(4).
199 See para. 13.1 below.
200 See para. 7.3.1 below.
201 See R (on the application of British Aggregates Association and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51, paras 68–78 (Moses, J.).
202 See para. 22.2 below.
203 Greater London Authority Act 1999, s.296 and Sched. 24.
204 Transport Act 2000, ss.178–190.
205 Ibid., Sched. 13, paras 19–43.
206 That is, as at December 2004.
207 Greater London Authority Act 1999, s.295 and Sched. 23. ‘Road user charging’ is used
here in the sense of ‘cordon pricing’ (see Stephen Ison, Road User Charging: Issues and
Policies (Aldershot: Ashgate, 2004), p. 14).
208 Transport Act 2000, ss.163–77.
209 Ibid., Sched. 13, paras 1–18.
Preliminaries 29
In 2002, the government also took powers to tax road user by heavy lorries.210
Road user charging schemes are discussed in Chapter 18 below.
To date,211 only Durham, in the northeast of England, has introduced a road
user charging scheme outside London.
1.4.2.5 Geographical and jurisdictional considerations
Each of landfill tax, climate change levy and aggregates levy apply throughout
the UK. For most tax purposes, the UK consists of England, Wales, Scotland and
Northern Ireland, plus, dating from the 1973 Finance Act, the territorial sea and
continental shelf. Statutory provisions governing the territorial effect of a tax are, of
course, of the first importance on traditional tax law principles.212
Although there is no special definition of the UK in Finance Act 1996, the nature
of landfill tax means that such a definition may, in any event, be unnecessary. This
is because Finance Act 1996, s.66, provides, inter alia, that land is a landfill site at a
given time if at that time a site licence for the purposes of Part II of the Environmental
Protection Act 1990 or an IPPC permit is in force in relation to the land, in each case
authorising disposals in or on the land.213 In an electronic age, the attractions of such
a ‘land-bound’ tax to the resourceful legislator are obvious, and this is again a point
to which we shall return.214
In relation to aggregates levy, whose status as a property tax is rather more doubtful,
the legislator has sought to achieve a comparable effect by casting very wide the net
of accountability and registrability.215 This is a particularly worrisome feature of
the levy, and it is with some relief that we find that the interpretation provisions of
Finance Act 2000 (the principal statute relating to climate change levy) do define the
UK, in the way familiar from non-environmental taxes as including the territorial
waters adjacent to any part of the UK.216
It was mentioned above that all of the devolved administrations have extensive
powers in relation to the environment.217 The non-tax measures referred to above
illustrate some of the consequences of the proposition. A good example is the LATS.
In England, the allocation of allowances under the LATS is the responsibility of the
Secretary of State for Environment, Food and Rural Affairs;218 in Scotland, it is
the responsibility of the Scottish Ministers;219 in Wales, it is the National Assembly
210 Finance Act 2002, s.137.
211 That is, as at December 2004.
212 Two fundamental jurisdictional principles, each of which reflects an axiom of international
practice, apply with full force in UK tax law. See Government of India v. Taylor, [1955]
AC 491 (in the absence of express agreement – which there is within the EU – one state
will not enforce the revenue law of another state) and Clark v. Oceanic Contractors Inc.,
[1983] STC 35 (UK tax laws apply only in the UK).
213 See the discussion in para. 15.2 below.
214 See Chapter 26 below.
215 See para. 1.4.2.3 above and para. 13.3 below.
216 See Finance Act 2000, Sched. 6, para. 147.
217 See para. 1.3 above.
218 See Waste and Emissions Trading Act 2003, s.24(1)(a). See para. 4.2.1.2(1) below.
219 Ibid., s.24(1)(b). See para. 4.2.2 below.
30 Environmental Taxation Law
for Wales;220 and in Northern Ireland, it is ,the Department of the Environment.221
Different commencement dates are proposed, for example, 1 October 2004 (Wales)
and 1 April 2005 (Scotland) and there will be regional variations in the operation
of the scheme. For example, in Wales, allowances will not be tradeable, while in
Northern Ireland, although they will not be capable of being traded, they will be
capable of being banked and borrowed.222
1.4.3 Taxation context of the UK’s environmental taxes
1.4.3.1 Relationship between environmental and non-environmental taxes
There are seven main non-environmental taxes in the UK: income tax, VAT, national
insurance contributions (‘NICs’),223 corporation tax, capital gains tax (‘CGT’),
stamp duties (which are being supplemented, and largely replaced, by stamp duty
reserve tax and stamp duty land tax) and inheritance tax (‘IHT’).
Each one except IHT224 will be mentioned with sufficient frequency in the rest
of the study for a brief note of its essential features to be justifiable at this stage,225
together with a brief note of its relevance to the environmental regulatory instruments
mentioned above.226
1 Income tax is chargeable on the income of individuals, trusts and estates, for socalled
‘tax years’.227 In essence – although this is probably an over-simplification
– the amount charged for each tax year is based on the statutory income of the
person(s) in question for the tax year. The person’s statutory income is then
reduced by any available personal allowances, with the remainder being taxed at
the starting, basic or higher rates.228
220 Ibid., s.24(1)(c). See para. 4.2.2 below also.
221 Ibid., s.24(1)(d), reflecting the dissolution of the Northern Ireland Assembly and the reimposition
of direct rule.
222 See 353 ENDS Report (2004) 47–48.
223 These ought to be treated as taxes, rather than charges, since payments are ‘graduated in a
way which does not relate directly to the graduation in benefit’ (see Tiley, op. cit., p. 6, and
Metal Industries (Salvage) Ltd v. ST Harle (Owners), [1962] SLT 114 (employers’ NICs
are taxes)). As such, NICs are hypothecated taxes (see para. 11.2 below).
224 Inheritance tax is a tax which has but a small part to play in what follows. In essence,
however, it is a tax on non-commercial transfers of capital, whether during an individual’s
lifetime or on death. Lifetime transfers, where they are taxed, are taxed more favourably
than transfers on death, the latter being taxed at double the rate of the former.
225 General guides to UK tax law which can be especially recommended are: Davies:
Principles of Tax Law, ed. by Geoffrey Morse and David Williams, 4th edn (London:
Sweet and Maxwell, 2000); Tiley, op. cit.; and Lesley Browning et al., Revenue Law
– Principles and Practice, 22nd edn (London: LexisNexis Tolley, 2004).
226 These points are developed in much greater detail in the rest of the book, especially in
Chapters 23 and 24 below.
227 6 April to the following 5 April.
228 Or the special rate on dividend income.
Preliminaries 31
2 Capital gains tax is chargeable for tax years on the realised chargeable gains,
less realised allowable losses, of individuals, trusts and estates. It is charged for
individuals at the same rate as their marginal income tax rate, and for personal
representatives and trustees at a single rate.
3 Corporation tax is chargeable at starting, small company and main rates, on the
income and net chargeable gains of companies’ accounting periods.
4 National insurance contributions are chargeable on the earnings of employed
earners, and payable by both the employee (‘primary contributions’) and by the
employer (‘secondary contributions’). Primary and secondary contributions alike
are calculated as percentages of the employee’s earnings for so-called ‘earnings
periods’, from lower earning thresholds, up to an upper earnings limit.
Certain general points can be made about the four taxes summarised above: (1)
not all income is taxable (in the case of income tax and corporation tax), and not
all payments are earnings (in the case of NICs); (2) in the case of income tax and
corporation tax on income alike, the question of what is income and what is capital is,
in general, ascertained by reference to the same tedious and rather arbitrary rules;229
(3) for both income tax and corporation tax on income, income must fall within one
of the so-called ‘Schedules’ (A, D (Cases I and II) and F)230 to be taxable, except
where (in the case of an individual) it is employment income, in which case it is
taxed under the Income Tax (Earnings and Pensions) Act 2003; and (4) in the case
of both CGT and corporation tax on chargeable gains, the realisation of gains on the
disposal of business assets may generally be postponed when the assets in question
are being replaced.
An obvious way of ‘greening’ each of the above taxes (but especially income tax
and corporation tax) is to create exemptions, deductions, reliefs or tax credits to
reflect various ‘environmentally-friendly’ forms of behaviour.231
5 Value added tax is chargeable on domestic supplies of goods and services, on
cross-border acquisitions from other Member States of the EU and upon imports
from countries outside the EU. Depending on the circumstances, when it involves
a cross-border supply, it may be charged either on the origin principle or on
the destination principle.232 It differs from all of the taxes discussed above in
a number of major respects: (1) it is an indirect, as opposed to a direct, tax;233
(2) rather than merely having a counterpart in other EU Member States, it is a
European tax in the sense of being created pursuant to the terms of the European
Treaty; and (3) it features a much more complex rate structure, a structure which
in the UK context has been described as ‘… one of the most complex rate
structures for VAT in the developed world’.234
229 See, for example, British Insulated and Helsby Cables Ltd v. Atherton, (1925) 10 TC 177;
IRC v. Church Commissioners for England, [1976] STC 339.
230 Individuals, trusts and estates only, in the case of Schedule F.
231 See Chapters 23–25 below. The Scedules will be discontinued in 2005 for income tax.
232 See para. 1.2.1.2 above.
233 Ibid.
234 See Davies, op. cit., p. 385.
32 Environmental Taxation Law
6 Stamp duties have recently attained a significance in the UK tax system which
only a few years ago would have seemed barely credible. This is in some measure
due to recent legislative steps taken to ‘green’ the UK tax system235 but it is
also symptomatic of a current tendency of governments to favour property and
product taxes in an attempt to combat erosions in the tax base.236 Stamp duties
are taxes on particular types of document, at rates that are either ad valorem or
fixed.
Provided that the strict requirements of s.74(1), Income and Corporation Taxes
Act 1988, are met, payments in respect of environmental taxes for which no credit
has been obtained237 should be deductible in calculating trading profits238 for the
purposes of income tax and corporation tax. The same point should in principle apply
for payments made under the PRN scheme, the UK ETS, the EU ETS and the RO.239
Penalties under, for example, the UK ETS or EU ETS, are presumably not deductible
in calculating trading profits, however.240 Clearly not deductible for these purposes,
furthermore, are civil penalties imposed under the three main environmental tax
codes.241 Value added tax is, in principle, chargeable on the environmental taxinclusive
amount of the price charged for, for example, landfill services supplied
(landfill tax) or electricity supplied (climate change levy).242
1.4.3.2 Geographical and jurisdictional considerations
In the cases of income tax and corporation tax on income, the general rule is that,
where a person is resident in the UK, he is liable to tax on his worldwide income;243
where a person is not resident in the UK, then he is liable to tax only on income
arising to him in the UK. These principles reflect a series of agreed assumptions
about international taxation applicable to all OECD members, and which differ from
state to state only in matters of detail.244 They are consistent with the idea, already
referred to, that direct taxes are applied consistently with the origin principle.245 The
235 See Part II, Section B below.
236 See Chapter 26 below.
237 See para. 16.9 below.
238 Note the peculiar point on the deductibility of 10 per cent of contributions to environmental
trusts (see paras 21.3.2 and 24.8 below).
239 See para. 24.7 below for a detailed discussion of these points.
240 See McKnight v. Sheppard, [1999] 3 All ER 491.
241 Ibid. See para. 16.14 below.
242 See the Sixth VAT Council Directive 77/388/EEC, Art 11A(2)(a), which states that, for
the purposes of VAT, ‘the taxable amount shall include taxes, duties, levies and charges,
excluding the value-added tax itself’.
243 This is subject to the qualification that, where an individual is resident in the UK but
domiciled elsewhere, he will generally be taxed on his foreign income (and capital gains)
‘only if it is remitted to the UK’ (see summary in Browning et al., op. cit., para. [13.1]).
244 See also Williams, op. cit., p. 15, and, generally, Brian Arnold and Michael McIntyre,
International Tax Primer, 2nd edn (The Hague: Kluwer, 2002) and Roy Rohatgi, Basic
International Taxation (London: Kluwer, 2002), p. 12.
245 See para. 1.2.1.2 above.
Preliminaries 33
same basic principles, with appropriate modifications, apply in relation to CGT and
to corporation tax on chargeable gains.246 Because of double taxation in the case of a
person resident in one jurisdiction who has a source of income in another, credits or
exemptions are available either unilaterally, or under the provisions of the relevant
double tax convention.247
Liability to each of NICs and VAT depend on a range of other rules, the effect of
which may perhaps be summarised as follows. In relation to NICs, liability depends
upon residence or presence in the UK.248 No doubt because of its nature, the position
in relation to VAT is somewhat different. Liability to VAT depends on the State in
which the supply, acquisition or importation249 has taken place, as to the determination
of which there are detailed rules,250 reflecting the origin and destination principles
discussed above.251
In relation to income tax, corporation tax and CGT, the UK is defined as Great
Britain and Northern Ireland.252 However, it is also deemed to include the territorial
sea of the UK and every designated area designated under the Continental Shelf Act
1964, s.1(7).253
As regards NICs, the Social Security Contributions and Benefits Act 1992 states
that any reference to Great Britain in the Act ‘includes a reference to the territorial
waters of the UK adjacent to Great Britain, [and] … any reference to the UK includes
a reference to the territorial waters of the UK’.254 The theme is continued in the VAT
legislation, the UK including, for the purpose of that tax, the territorial sea of the
UK.255 The somewhat anomalous status of the Channel Islands and the Isle of Man
should be noted in this context. They are not included within the general definition
of the UK in the Interpretation Act 1978, Sched. 1. However, for VAT purposes only,
the Isle of Man, although not the Channel Islands, and the UK are treated as a single
area.256
246 It should not be assumed from this, however, that the position is straightforward, since
there are detailed exceptions (see Whitehouse, op. cit., ch. 20 (CGT) and paras [32.121]–
[32.140]).
247 See the discussions in Williams, op. cit., pp. 12–17, and Davies, op. cit., paras 26–07–26–
09.
248 Social Security Contributions and Benefits Act 1992, s.1(6) and Social Security
(Contributions) Regulations 2001, S.I. 2001 No. 1004, reg. 145.
249 That is, from countries outside the EU.
250 Value Added Tax Act 1994, ss.7 (place of supply), 13 (place of acquisition) and 15(1)
(place of importation).
251 See para. 1.2.1.2 above.
252 Interpretation Act 1978, Sched. 1.
253 See Income and Corporation Taxes Act 1988, s.830 (inserted following the discovery of
oil in the North Sea (see para. 2.4.3 below)).
254 See Social Security Contributions and Benefits Act 1992, s.172.
255 See Value Added Tax Act 1994, s.96(11).
256 See the Isle of Man Act 1979, s.6.
34 Environmental Taxation Law
1.5 Institutional framework
It has already been mentioned that Customs is the government department mainly
responsible for administering each of landfill tax, climate change levy and aggregates
levy.257 The detail of the department will be discussed in para. 4.2.1.2(2) below. For
the moment, it should simply be noted that Customs is the department traditionally
responsible for the administration of the UK’s indirect taxes, plus customs duties
and excise duties. The overall position is not as straightforward, however, as this
may suggest, since various ancillary aspects of the taxes are administered by other
Departments and bodies. For example, with climate change levy, in addition to
Customs, the Department for Environment, Food and Rural Affairs (‘Defra’), the
Department of Trade and Industry (‘the DTI’) and Ofgem also have responsibility
for related aspects of the levy. The relevant responsibilities of each of these are also
examined in detail in Chapter 4 below.
Direct taxes (that is, in this case, non-environmental taxes) are traditionally the
responsibility of the Board of Inland Revenue (generally referred to simply as ‘the
Revenue’). Again, the institutional detail of the Inland Revenue will be examined
below.258 There are long-term plans to amalgamate the Revenue and Customs
Departments, following the controversy surrounding a number of recent high-profile
cases. The Revenue’s main interest in the subject matter of this book has been in
devising the environmentally-inspired tax subsidies discussed in Chapters 23 and 24
below, with a view to ‘greening’ the UK’s direct tax system.
It should be stressed that the institutional framework of the study as a whole is
much wider than simply the departments and the executive body mentioned above.
For the moment, however, the key point is that Customs has been the tax authority
more closely involved with the UK’s environmental levies. The Department for
Environment, Food and Rural Affairs, arguably, has become more involved in the
economic instruments enterprise in the last seven or so years than either of them.
1.6 Scheme of the book
All of the foregoing will have assisted the reader in gaining an idea of the basic
concepts at work in the areas covered by the book, as well as the contexts in which
those concepts operate. Chapter 2 looks at the industrial sectors whose activities
are sought to be regulated by the instruments under discussion. This should assist
in an appreciation of the design issues involved in each of the instruments under
discussion.
From Chapter 2 onwards, the discussion progresses in three main Parts. In Part
II, we examine the institutional framework referred to in the previous paragraph in
some detail. This is intended to give the reader some idea of the provenance of the
various measures under discussion. The discussion is followed, in Chapter 5, by an
analysis of the government’s proffered technical justifications for the environmental
taxes referred to above.
257 See para. 1.1 above.
258 See para. 4.2.1.2(2) below.
Preliminaries 35
The detail of the regulatory and taxation contexts referred to earlier in this
introductory chapter forms the matter of Chapters 6 and 7. Chapter 8 then widens
the scope of the discussion to look at the international context of the instruments
under discussion. This is all the more necessary given the international context of
the climate change problem which at least one of the taxes is professedly seeking to
address. This discussion is intended to provide a context for the European aspects
discussed in Chapter 12.
Part III is mainly concerned with the fine detail of the measures outlined in the
present chapter. It should thus be of interest, not only to practitioners, but also to
policy-makers, reflecting, as it does, insights into both the practical operation of the
measures under discussion and also the criticisms which can be made of them. As
to the latter point, the key chapter is Chapter 21, which, rather ambitiously, seeks
to draw together the various policy and industrial aspects of the measures under
discussion. Practitioners will no doubt be very interested in the synthesis of the
administrative provisions applicable to the three main environmental taxes, which
are discussed in Chapter 16.
Part IV concentrates on new directions in the great experiment with which the
book is concerned. Chapter 28 is devoted to the EU ETS. Taxes and other measures
canvassed but as yet not implemented are discussed in Chapter 27 of the book. Under
discussion in Chapter 27, therefore, is a combination of measures, some already
implemented, and some as yet only projected (for example an incineration tax and a
pesticides tax).
Finally, in Part V, we attempt to gather together the threads of the discussion,
with a view to offering some general conclusions about the UK’s experience of
environmental taxes thus far. This is the fruit of an immensely detailed review of the
published sources but it is hoped that it will inspire readers to test through ‘empirical’
study some of the conclusions to which it points.
The material under discussion is characterised by its diversity. To assist the reader
in navigating it, we have included brief ‘orientation’ chapters at the beginning and
end of Part II and at the beginning of Part III. Although they are very short and do
not, in general, contain new material, they will help the reader to anticipate the main
themes of each of the chief components of the book.
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Chapter 2
Regulated Sectors
2.1 Introduction
Having described the scope of the study, we next present a sketch of the structures of
the main sectors whose activities are subject to the environmental levies, subsidies
and other economic instruments introduced in the previous chapter. Such a brief
description is justifiable by the need to refer, in general terms, to the environmental
externalities created by particular sectors of industry. However, it is also desirable
because, unless the reader has at least an outline knowledge of how the regulated
sectors actually operate, together with some awareness of the commercial issues
facing those sectors, it will be difficult to gain a full appreciation of the significance
of the instruments under discussion.
In this chapter, therefore, the reader will find brief descriptions of the sectors
affected by the three environmental taxes and other instruments introduced in Chapter
1. The sectors in question are waste management, energy and mineral extraction.
Of the three, the first and third are relatively straightforward and their discussion
is therefore commensurately brief. With the energy sector, however, the position is
somewhat different. With the obvious exception of oil, the relevant industries are all
former state monopolies and the relevant post-nationalisation structures, especially
those relating to electricity and gas, are extremely complex ones.1 The issues arising
from these ex-state industries are not merely ones of technical complexity, however.
The post-nationalisation structures have also proved more than a little difficult to
reconcile with key objectives of environmental policy. Nowhere is this more apparent
than in the problematic relationship between the UK’s energy policy and the design
of climate change levy, together with its associated economic instruments. This is a
theme to which we shall return at various points in the book.
Landfill tax, climate change levy and aggregates levy are all single-stage indirect
taxes.2 This being so, and although each impose considerable compliance burdens
on the industries referred to above, the three taxes rely for their incentivising effect
on the fact that, when chargeable, they are passed on to their customers. Of equal
importance, therefore, to the structures of the three industries referred to above
are those of the customers themselves. In outlining the waste management and
mineral extraction industries, therefore, we have included some brief comments
on the businesses and other bodies that they serve and on the impact on the latter
of the instruments concerned. In the case of the energy sector, we have devoted
a separate paragraph to enumerating briefly those industries which, as intensive
users of energy, are particularly relevant to climate change levy and its associated
1 The regulatory provisions are discussed in para. 6.4 below. The role of the gas and
electricity markets’ regulator, Ofgem, is discussed in para. 4.2.1.3 below.
2 See paras 1.4.2.1(1), 1.4.2.2(1) and 1.4.2.3 above.
38 Environmental Taxation Law
instruments.3 Besides being liable to pay climate change levy on their energy
use, they are shortly also to become participants in the EU Emissions Trading
Scheme (‘the EU ETS’) which is scheduled for introduction in January 2005.4 The
relationship between the levy and the EU ETS is an intricately-woven thread in
the discussion both of the levy and of the EU ETS. It is further complicated,
moreover, by the interaction of each one with the pre-existing UK Emissions
Trading Scheme (‘the UK ETS’).5
Neither of the authors is, nor professes to be, a specialist in industrial economics or
sectoral analysis. As discussed in para. 1.2.2 above, the principal aim of the book is
to offer a critical account of the environmental taxes and other instruments making
up its subject matter. The details which we have attempted to capture in the present
chapter are therefore intended to be sufficient only to render more intelligible some
of the technical issues involved in the larger discussion. It is for this reason that
we have included at the end of the chapter a brief paragraph on the issues facing
the air transport and road freight transport industries. Although the civil aviation
industry falls outside the scope of existing economic instruments for environmental
protection,6 its prospective inclusion in the EU ETS, together with the possibility
of the ‘greening’ of airport charges,7 makes a quick sketch of the industry useful
here. Likewise with the road freight transport industry, especially given that one
of its trade associations has – surprisingly perhaps – given cautious support to the
proposed scheme for charging heavy lorries by reference to road usage,8 which is
now due to be introduced in 2007.9
Since the larger discussion involves an examination, not only of the institutional
aspects of the instruments under consideration, but also of the processes by which
they have passed into law, reference is often made in what follows to the responses of
trade associations and environmental pressure groups to the various policy initiatives
under discussion. We have also taken the opportunity to introduce, where appropriate,
the main trade associations and environmental pressure groups that continue to
participate in those processes.
2.2 Trade associations, policy-makers and pressure groups
The commercial concerns of each of the sectors described in the present chapter are
represented by a number of trade associations. Equally, the environmental externalities
3 Together with the landfilling of waste, these are activities covered by the Integrated
Pollution Prevention and Control (‘IPPC’) regime (see para. 6.2.3 below).
4 See para. 28.3 below.
5 See Chapter 20 below. Unlike the UK ETS, the EU ETS includes power stations (see para.
28.3 below). However, the beautiful simplicity of this statement is disfigured by the fact
that an electricity generator may convert Renewable Obligation Certificates into UK ETS
allowances (see paras 6.4.3.1(2), 20.6 and 21.5 below).
6 That is, on the basis that air passenger duty is not an environmental tax (see para. 1.2.1.5(2)
above).
7 See para. 2.6 below.
8 See para. 27.3 below.
9 See Wright, Financial Times, 6 February 2004, p. 5.
Regulated Sectors 39
attributable to each of those sectors have long been the preoccupation of a number
of high profile environmental pressure groups. The development of the present
government’s policy on environmental levies, subsidies and other instruments has
attempted conspicuously to build a consensus around their differing viewpoints.10
There is an extensive literature, not only on the relative influence of the interests of
economic groups and ideas on policy-making generally, but also on their influence
specifically on environmental policy-making.11 It is beyond the scope of this book
either to attempt to add to that literature or to do more than to speculate on the
relative weight of ideas and interest groups in shaping the various instruments under
consideration. However, in describing the various industrial sectors affected by the
levies, subsidies and other instruments under discussion, it is not inappropriate to
begin by drawing attention to two organisations with high profiles in debates on
economic instruments in environmental protection: the Confederation of British
Industry (‘the CBI’)12 and the Friends of the Earth.13 The former body is generally
recognised as being representative of the views of British business; the latter is one
of the UK’s leading environmental pressure groups. The CBI’s activities are financed
by industry and commerce; Friends of the Earth is largely financed by individual
donations. Representatives of both groups are strident voices in the British media.14
The efforts of both bodies are highly coordinated and both have some greater or
lesser international presence.
Despite the undoubtedly high profiles of the organisations just referred to, it
would be too simplistic to view the trade associations, the policy-makers and the
environmentalists as representing three mutually antagonistic corners of a noisy
triangular debate. Setting aside both the ritual complaints of regulated industries about
the effects of regulation on competitiveness and the dissatisfactions of environmental
campaigners on the lack of progress in attaining environmental goals, arguments
about economic instruments in environmental protection tend to operate within a
broad consensus of the need for some regulatory response to commonly recognised
problems. Thus, even allowing for occasional exceptions,15 the contributions of each
to the public debate on economic instruments for environmental protection tends
to be a nuanced and balanced one. The CBI’s consistent viewpoint on economic
instruments is well demonstrated from its comment in a policy brief of April 2002
that, although ‘… the use of environmental economic instruments can be justified,
10 This approach has often been attributed to Anthony Giddens’ argument for the renewal
of social democracy in The Third Way: The Renewal of Social Democracy (Oxford:
Polity Press, 1998) and The Third Way and its Critics (Oxford: Polity Press, 2000). Both
books draw attention to the influence of ecological movements and the latter endorses the
technical justifications for green taxes discussed in Chapter 5 below (see The Third Way
and its Critics, pp. 100–101).
11 See, for example, Anthony Giddens, The Third Way: The Renewal of Social Democracy,
pp. 54–64.
12 See www.cbi.org.uk. The current Director-General of the CBI is Sir Digby Jones, formerly
senior partner of a large firm of Birmingham solicitors.
13 See www.foe.co.uk.
14 For example, Sir Digby Jones’s eloquent objections to the EU ETS on BBC’s Today
programme on 19 January 2004.
15 See, for example, 348 ENDS Report (2004) 18–22, 20.
40 Environmental Taxation Law
… the theory does not always translate well into practical design. This leads to
sub-optimal results for both business competitiveness and the environment, which
we believe the government should put right’.16 For its part, Friends of the Earth,
commenting on the 2003 Pre-Budget Report,17 said that ‘[t]he Chancellor [that is, of
the Exchequer]18 has accepted the concept of sustainability as a basis for the UK’s
future economy. However recently steps taken have been increasingly cautious. The
clearest indicator is the considerable fall in environmental taxation in years, for 9.7
per cent of total taxes in 1999 to 8.8 per cent in 2002’.19 Both assessments are, of
course, highly problematic,20 although both accept the principle of using economic
instruments in environmental protection.
If, as is widely, although not universally, held to be the case, the government’s
approach to the use of economic instruments has become unnecessarily cautious,
this may itself be indicative of its preoccupation with creating an atmosphere of
consensus around its policies on environmental economic instruments. Whether this
preoccupation, with its seemingly endless streams of consultative documents and
policy justifications, masks a rather less palatable reality, is something to which we
shall presently return. Suffice it to say for the present that it is noteworthy that all of
the trade associations referred to in the subsequent paras of this chapter have been
involved, to a greater or lesser extent, and with varying degrees of success, in the
consultations leading to the introduction of the instruments discussed in this book.
The Department of Trade and Industry (the ‘DTI’), whose role in environmental
regulation is discussed in a subsequent chapter,21 even supports22 a body called the
Trade Association Forum (‘the TAF’),23 whose membership includes a number of
the trade associations referred to in succeeding paras.
2.3 Waste management industry
According to the trade association which represents firms providing waste management
and associated services,24 almost 430 million tonnes of waste are generated in the UK
16 See Confederation of British Industry Business Environment Brief, Green Taxes: Rhetoric
and Reality (London: April 2002), p. 1. This viewpoint is closely consistent with the view
of the theory and reality of environmental taxes taken by a former Director-General of the
CBI (see Adair Turner, Just Capital: The Liberal Economy (London: Pan Books, 2002),
pp. 310–15).
17 See para. 21.3.2 below.
18 See para. 4.2.1.2(2) below.
19 See Friends of the Earth Briefing, Time for a Sustainable Economy? (London: Friends of
the Earth, November 2003), p. 1.
20 The CBI’s in that it is always possibly to lament ‘the shadow between the idea and the
reality’, especially from a viewpoint of some self-interest; the Friends of the Earth’s
because a drop in revenue from environmental taxes might indicate that they are actually
having some environmental effect!
21 See para. 4.2.1.2 below.
22 Together with the CBI and the TAF’s own membership.
23 See www.taforum.org.
24 The Environmental Services Association Ltd. See para. 2.2.3 below.
Regulated Sectors 41
every year.25 The association divides this into four main categories, that is, waste
arisings from agriculture, from mining and quarrying, from construction and demolition
and, finally, from other industries, commerce and households. The waste arisings in
the fourth category are estimated at 110 million tonnes per annum, over 45 per cent
coming from the relevant industrial sectors, with a little over 27 per cent arising in
each of the commercial and household sectors. Almost 60 per cent of all of the waste
arising in the UK each year is, according to the same source, sent to landfill.
The structure of the industry whose business it is to sort out, or at least to bury or
burn, the mess referred to above has recently and usefully been outlined by Barrow.26
Responsibilities relating to the collection and disposal of waste are imposed by
legislation on local authorities,27 although the services relating thereto are supplied
under contract between those authorities and private sector firms which provide the
collection and disposal services. Waste disposal is the responsibility of the waste
disposal authority (‘WDA’), which is usually the county council,28 while waste
collection is the responsibility of the waste collection authority (‘WCA’), usually the
relevant district council.29 Where, instead of county and district councils, there is
a unitary authority, the authority in question combines the collection and disposal
functions. The relevant WCA contracts either with its own refuse collection service
or a private sector firm for the collection of waste from commercial premises and
households. Then, under the direction of the WDA, the firm takes the waste to a landfill
site, incinerator or other disposal site. Landfill sites (usually disused quarries or mine
workings) are generally owned and operated by private sector firms with whom the
WDA has negotiated contracts. By Finance Act 1996, s.41, the landfill site operator
is, of course, the person liable to pay the landfill tax charged on a taxable disposal.30
The contracts, made between WDAs and landfill site operators, specify minimum
and maximum annual quantities of waste, are usually concluded for relatively long
periods of time and contain provisions for renegotiation in appropriate circumstances.
The gate price per tonne of waste, exclusive of landfill tax, is usually related to a
price index for the contract term. The costs of collecting the waste and transporting
it to the landfill site are borne by the WCA, while the WDA pays the gate price to the
landfill site operator. It will thus be appreciated that the landfill tax collected by the
site operator has itself been paid by a public authority out of public funds.31
The environmental effects of landfilling waste32 and the understandable public
enthusiasm for recycling are well known. Landfill produces emissions to air, water
and soil and causes disamenities such as visual intrusion, noise, odour, vermin and
25 See www.esauk.org/waste, from which some of the information in this paragraph is drawn.
26 Michael Barrow, ‘An Economic Analysis of the UK Landfill Permits Scheme’, (2003) 24
FS 361–81, 363. This paragraph is much indebted to the portrait of the industry structure
contained in that paper.
27 See para. 6.3.2.1 below.
28 See para. 4.2.3 below.
29 Ibid.
30 See paras 1.4.2.1(1) above and 15.2 below.
31 See para. 21.4.1 below.
32 See, for example, Cambridge Econometrics, A Study to Estimate the Disamenity Costs of
Landfill in Great Britain (London: Department for Environment, Food and Rural Affairs,
2003), section 1.
42 Environmental Taxation Law
litter.33 Despite suggestions that recycling may be more equivocal a good than it may
at first appear,34 enthusiasm for household recycling is undiminished.35
The waste management industry is characterised by a close engagement with policy
development, both at the sectoral level, via the Environmental Services Association
(‘the ESA’), and at the level of individual firms. The ESA, which is a member of
the TAF,36 proclaims a vision of ‘a(chǎn)n economically and environmentally sustainable
waste management industry for the United Kingdom’ and, to this end, vows to assist,
not only its members, but all levels of government in the UK, to achieve the vision.37
Among particular firms, especially prominent perhaps is Biffa Waste Services Ltd,38
which has issued a number of publications dealing with policy issues in waste
management39 and has also funded mass-balance research40 through the landfill tax
credit scheme (‘the LTCS’).41
2.4 Energy industries and consumers
2.4.1 Electricity
The denationalised electricity42 industry in England and Wales43 comprises four
main activities:44 generation,45 transmission, distribution and supply. Of these,
33 Cambridge Econometrics, op. cit., para. 1.5.
34 See, for example, the works referenced in Bjørn Lomborg’s The Skeptical Environmentalist:
Measuring the Real State of the World (Cambridge: Cambridge University Press, 2001),
p. 209. On the current status of Lomborg’s controversial work, see Houlder and MacCarthy,
Financial Times, 18 December 2003, p. 15. See also Richard D. North, Life on a Modern
Planet (Manchester: Manchester University Press, 2001).
35 This has recently been illustrated by the easy passage through Parliament of the symbolically
important Household Waste Recycling Act 2003, originally a Private Member’s Bill
introduced by a Labour MP, Mrs Joan Ruddock (see 346 ENDS Report (2003)).
36 See para. 2.2 above.
37 See www.esauk.org.
38 See www.biffa.co.uk. Interestingly, Biffa is a subsidiary of Severn Trent plc (www.
severn-trent.com), a water utility. The latter acquired Biffa to diversify out of regulated
water activities, which are subject to severe ‘capping’.
39 See www.biffa.co.uk.
40 See www.massbalance.org.
41 See para. 4.2.1.2(2) below. Biffa’s sponsorship of mass-balance research seems to have been
hit by the government’s decision in November 2002 to withdraw two-thirds of the landfill
tax credit scheme (‘the LTCS’) (see para. 21.3.2 below and 336 ENDS Report (2003)).
42 See Walt Patterson, Transforming Electricity: the Coming Generation of Change (London:
Earthscan, 1999), pp. 3–5. Since electricity cannot be stored (except indirectly in pumped
storage schemes), demand must exactly match supply. At every moment of every day,
therefore, the electricity being fed into the system must match the electricity being used
from the system.
43 Different arrangements apply for Scotland and Northern Ireland.
44 See Utility Week, The Electricity Supply Handbook 2004, 57th edn (Sutton: Reed Business
Information, 2004), p. 13 (‘ESH’). See also www.energynetworks.org below.
45 With which ‘production’ is synonymous.
Regulated Sectors 43
generation and supply are subject to competition, whilst transmission and distribution
are monopolies.46 The two monopoly elements have been separated by legislation47
from the competitive elements,48 making the industry among the most liberalised
electricity industries in the world.
The first competitive activity, generation, refers to the conversion of primary and
renewable energy sources into electricity.49 Most electricity is generated at power
stations fired by gas or coal, or at nuclear power stations,50 with renewables as yet
accounting for only a small proportion of the total electricity generated in the UK in
each year.51 There are around 40 major electricity generators, including Powergen (UK)
plc,52 RWE Innogy Holdings plc,53 Drax Power Ltd54 and British Energy plc.55
The second competitive element, supply, is the business of buying electricity in bulk
from generators and selling it on to domestic, commercial and industrial consumers.56
The electricity industry therefore has a wholesale stage (generators and suppliers) and
a retail stage (suppliers and customers). Under Finance Act 2000, sch. 6, paras 5(1)
and 40(1), it is the supplier who is generally the person liable to account for climate
change levy,57 which makes it a downstream, rather than an upstream, energy tax.58
The wholesale trade in electricity has taken place since March 2001 under the New
Electricity Trading Arrangements (‘NETA’).59 A replacement for NETA, the British
Electricity Trading and Transmission Arrangements (‘BETTA’), to include Scotland
46 See Callum McCarthy, ‘Ofgem: Characteristics and Issues of the British Electricity
Market’ 12 [2001/2002] 6 ULR 170–72.
47 See para. 6.4.3.1 below.
48 The ‘unbundling’ of European energy markets has been a major theme of European
Energy policy for decades (see Carlos Ocana et al., Competition in Electricity Markets
(OECD/IEA, 2001) and para. 12.2.6.3 below). The unbundled energy markets of Europe,
in which Enron was a major player, fortunately survived Enron’s collapse (see ‘Power
play’, Economist, 24 July 2003).
49 ESH, p. 13.
50 See DTI/National Audit Office, Digest of United Kingdom Energy Statistics 2004 (London:
HMSO, 2004). This is an annual publication.
51 Ibid.
52 See www.powergenplc.com.
53 See www.rweinnogy.com.
54 See www.draxpower.co.uk. See para. 21.4.3 below.
55 See www.british-energy.com. British Energy plc, whose core business is nuclear
generation, is currently the subject of a proposed £5 billion government-backed rescue,
the background to which has been heavily criticised by the House of Commons Public
Accounts Committee (see Taylor, Financial Times, 12 February 2004, p. 2). See paras
6.4.3.1(3) and 21.4.3 below.
56 ESH, p. 13.
57 Being the holder of a supply licence under Electricity Act 1989, s.6(1)(d) (see Finance Act
2000, Sched. 6, para. 150(2)(a) and paras 7.4 and 15.1 below).
58 See para. 11.3.1 below.
59 The New Electricity Trading Arrangements replaced the ‘pool’ originally created on the
privatisation of the electricity market in 1990. On the introduction of NETA, see, for
example, ‘Beyond the pool’, Economist, 1 March 2001. For the background to NETA, see
Dieter Helm, Energy: The State and the Market British Energy Policy since 1979, revised
edn (Oxford: Oxford University Press, 2004), ch. 17.
44 Environmental Taxation Law
as well as England and Wales, is expected to be introduced in 2005.60 The main
electricity suppliers, among many, include npower Ltd61 and SEEBOARD Energy
Ltd.62 The retail trade utilises published tariffs and involves the reading of meters,
the issuing of bills and the processing of payments.
The monopoly elements of the electricity industry, as mentioned above, are
transmission and distribution. Transmission refers to the transport of electricity in
bulk, on the national grid,63 from the generators’ power stations to the companies
responsible for distributing the electricity to consumers.64 The sole owner and
operator of the national grid is the National Grid Group (‘NGG’),65 which also
operates the national transmission system for gas.66 Besides being interconnected
to the transmission systems of Scotland and Northern Ireland,67 the national grid is
connected to the French national grid.68
Distribution, the second monopoly activity, is the process of delivering electricity
from the national grid, via regional distribution networks, to consumers.69 Each
regional distribution network is owned and operated by a Distribution Network
Operator (‘DNO’). There are presently 14 DNOs,70 including Aquila Networks
plc71 (the West Midlands), Northern Electric Distribution Ltd72 (the North East) and
Southern Electric Power Distribution plc73 and EDF Energy Networks (SPN) plc74
(London and the South East). Suppliers pay for electricity to be transmitted across
the national grid and distributed to their customers.75
The probable effects on climate of burning the primary fuels used in electricity
generation are both notorious and well-documented.76 The possible effects of
nuclear power generation on the environment also remain controversial, possibly
even more so.77 In these circumstances and, given the various legal and policy
60 See para. 6.4.3.1(4) below.
61 See www.npower.com. Npower is RWE Innogy’s retail business (see ESH, p. 94).
62 See www.seeboardenergy.com. SEEBOARD Energy is the retail business of EDF Energy
(see ESH, p. 73).
63 Also referred to as the transmission grid. The most obvious manifestations of the national
grid are the overhead pylons which carry the system of high voltage transmission lines.
High voltage lines may travel underground instead, although underground cables are of
course much more expensive to install and maintain than overhead ones.
64 ESH, p. 13.
65 See www.ngtgroup.com.
66 See para. 4.2.1.3 below.
67 See this para. below.
68 Thus facilitating the importation of ‘renewable electricity’ from France and Belgium (see
331 ENDS Report (2002)).
69 See ESH, p. 13.
70 Ibid., p. 36.
71 See www.aquila-networks.co.uk.
72 See www.ce-electricuk.com.
73 See www.scottish-southern.co.uk.
74 See www.edfenergy.com.
75 ESH, p. 13.
76 See, for example, the works referenced in Lomborg, op. cit., ch. 24.
77 See, for example, 348 ENDS Report (2004) 13 on emissions of radioactive gas from
British Energy’s Hartlepool power station.
Regulated Sectors 45
commitments,78 it is unsurprising that the renewable energy sector, especially in the
shape of wind farms, has been growing,79 although it should be noted that NETA,
among other factors, has not been favourable to renewables generators.80 Moreover,
environmental benefits are promised by combined heat and power (‘CHP’) electricity
generation, which enables the simultaneous generation of electricity and heat at the
point of use.81
The electricity industry has been characterised since 1990 by considerable merger
and acquisitions activity,82 which has produced corporate structures of extreme
complexity.83 For over a decade, the industry’s trade association was the Electricity
Association,84 but this has been replaced by three new associations, from the beginning
of October 2003. The three new associations reflect the differing interests of the
participators in the market: the Association of Electricity Producers;85 the Energy
Networks Association;86 and the Energy Retail Association.87 There is also the British
Wind Energy Association88 and the Combined Heat and Power Association.89
2.4.2 Gas
Although, historically, gas has been produced from both coal and oil,90 the gas used
in Britain today is natural gas, sourced from around 100 offshore gas fields around
the UK.91
78 See para. 6.4 below.
79 See, for example, 348 ENDS Report (2004) 13. A number of suppliers offer ‘green
electricity’ tariffs (see 348 ENDS Report (2004) 29–30).
80 See Ross Fairley and Karina Ng, ‘Green Energy in the NETA World’ 12[2001/2002] 3
ULR 57–60. See also para. 21.4.2 below.
81 See www.chpa.co.uk. See in this para. below. The term ‘combined heat and power’ is
synonymous with ‘cogeneration’ and ‘total energy’. CHP/cogeneration/total energy refers
to the simultaneous generation of useful thermal energy (such as heat or steam) and
electricity in a single process (see Finance Act 2000, s.148, for the definition applicable to
climate change levy).
82 See Electricity Association, Electricity Companies in the United Kingdom – a Brief
Chronology, June 30, 2003 (still available from www.electricity.org.uk).
83 See Electricity Association, Who Owns Whom in the UK Electricity Industry, June 30,
2003 (still available from www.electricity.org.uk).
84 Whose website (www.electricity.org.uk) is/was a mine of useful information.
85 See www.aepuk.com.
86 See www.energynetworks.org.
87 See www.energy-retail.org.uk.
88 See www.bwea.com.
89 See www.chpa.co.uk.
90 This was so-called ‘town gas’, which, prior to the first commercial offshore gas finds in
British Waters in November 1965, supplied the relatively small amounts of gas required
in the UK. Town gas was smelly; natural gas, by contrast, is odourless and is artificially
‘stenched’, to enable leaks to be detected (see David Upton, Waves of Fortune: the Past,
Present and Future of the United Kingdom Offshore Oil and Gas Industries (Chichester:
John Wiley, 1996), pp. 20–22).
91 There is also an interconnector gas pipeline, permitting gas imports, which runs between
Bacton, in East Anglia, and Zeebrugge in Belgium. Plans are currently under way for
46 Environmental Taxation Law
The gas industry92 comprises six main activities: production, storage, shipment,
transmission, distribution and supply. As with the electricity industry, legislation93
has separated transmission and distribution (the monopoly components) from
production, shipment and storage and supply, all four of which are subject to
competition.
Gas production, the first competitive element, comprises the offshore extraction
of gas, its delivery onshore under contracts concluded with gas shippers and its
subsequent treatment at seven beach terminals located around the UK. There are
around 30 offshore gas producers, including BP plc,94 Shell UK Exploration and
Production plc 95 and ExxonMobil International Ltd.96
The second and third competitive elements, gas shipment and st,orage, refer to
the activities of the gas shippers once the gas has been brought ashore. Shipment
describes the process by which shippers arrange with the transmission system
operator (‘the TSO’) for gas to be transported on, and taken out of, the national
transmission system (‘NTS’). This is the wholesale stage of the gas industry, shippers
also being responsible for the large-scale storage of gas in massive submarine gas
storage facilities. The wholesale trade has taken place since March 1996 under the
Network Code. There are around 90 shippers, including PowerGen Gas Ltd97 and
Shell Gas Direct Ltd.98
Gas supply, the fourth competitive element, refers to the purchase of gas by
suppliers from shippers and its onward sale to customers. Gas supply thus generally
corresponds to the retail part of the industry, major suppliers including npower99
and British Gas.100 Under Finance Act 2000, Sched 6, paras 6(1) and 40(1), it is the
supplier101 who is generally the person liable to account for climate change levy;
this replicates the position for electricity and, as mentioned above, makes the tax a
‘downstream’ tax.
The monopoly components of the gas industry, transmission and distribution, are
the responsibility of the TSO, that is, NGG102 (‘Transco’).103 Transmission refers to
upgrading the interconnector and for the construction of two further interconnectors (see
Ofgem Factsheet 37, Securing Britain’s Gas Supply (London: Ofgem, 2003)).
92 It is, of course, somewhat artificial to split out the gas industry from the oil industry (see
para. 2.4.3 below). However, we have embraced this artificiality, given that the sketch of
the industry included here is intended chiefly to elucidate elements of climate change levy,
which is inapplicable to supplies of hydrocarbon oil (see paras 1.4.2.2(1) above and 14.1
below).
93 See para. 6.4 below.
94 See www.bp.com.
95 See www.shell.co.uk.
96 See www.exxonmobil.com.
97 See www.powergen-power.co.uk.
98 See www.shellgasdirect.co.uk.
99 See www.npower.com.
100 See www.gas.co.uk.
101 Being the holder of a supply licence under Gas Act 1986, s.7A(1) (see Finance Act 2000,
Sched. 6, para. 150(3)(a) and paras 6.4 and 14.1 below).
102 See para. 2.4.1 above.
103 See www.transco.uk.com.
Regulated Sectors 47
the high pressure transport of gas in bulk on the NTS, from the beach terminals to
40 power stations,104 to a small number of large industrial consumers and to the 12
Local Distribution Zones (‘LDZs’). Distribution refers to the low pressure transport
of gas on the LDZs, from the NTS to most business and to domestic consumers.
As TSO, Transco is responsible for ensuring that the transmission and distribution
systems remain in balance, being empowered to buy and sell gas to ensure that supply
matches demand.
Like the electricity industry, the gas industry has been for long characterised
by considerable merger and acquisitions activity, many gas suppliers supplying
electricity too. In 2003, the UK was only one of two G7 countries that at that time
were self-sufficient in gas, although this was liable to change.105 Gas consumption,
which is forecast to rise between 14 per cent between 2002 and 2011, presently
stands at 113bn cubic meters per annum and has grown by 66 per cent since 1992.106
A significant proportion of this growth is explicable by the increased use of gas in
electricity generation, 29.7 per cent of all gas consumption being accounted for in
this way in 2002.107 As with the electricity industry’s trade associations, different
associations represent the interests of different participators. The Energy Networks
Association108 and the Energy Retail Association109 are relevant here just as in
relation to electricity and a list of trade associations for gas (and also oil) appears
on the DTI website.110 There is also the UK Offshore Operators Association,111
which represents the offshore oil industry as well as the offshore gas industry.
One of the three fossil fuels,112 natural gas is used as a catch-all term for natural
hydrocarbon gases associated with oil production, of which the main ones are methane
(CH4) and some ethane (C2H6).113 Although the burning of natural gas produces
minimal sulphur dioxide emissions, methane is one of the six GHGs listed in Annex
A to the Kyoto Protocol.114 Scientific opinion is divided as to the sustainability of
natural gas reserves.115
104 See para. 2.4.1 above.
105 Ofgem, op. cit.
106 Ofgem, op. cit.
107 Ofgem, op. cit. There is an exemption from climate change levy for taxable commodities
used in the generation of electricity (see Finance Act 2000, Sched. 6, para. 14).
108 See para. 2.4.1 above.
109 Ibid.
110 See www.dti.gov.uk/sectors.
111 See www.ukooa.co.uk.
112 That is, coal, oil and natural gas, all of which are ‘derived from organic matter deposited
over geological time-scales’ (Porteous).
113 Porteous.
114 See para. 8.3.1.4 below.
115 See Lomborg, op. cit., p. 126, for the (highly controversial!) view that natural gas becomes
more abundant over time.
48 Environmental Taxation Law
2.4.3 Oil
The UK has been a major producer of crude oil ever since the Argyll field in the
North Sea became the first offshore oil field to become operational in June 1975.116
Because the offshore oil production industry has never been a state-owned industry,117
and since hydrocarbon oils are outside the scope of the climate change levy,118 the
structure of the oil industry is not of central relevance to the present study. However,
since oil refineries fall within the scope of the EU ETS,119 and since we devote a
chapter below to a discussion of fuel excise duties,120 it may be useful simply to
draw attention to the fact that the oil industry is usually seen as having ‘upstream’
and ‘downstream’ components. The upstream component includes the activities of
exploration, production and transportation (via oil tankers and pipelines), while the
downstream component involves the refining, distribution and supply of oil products,
such as transport fuels.
The main oil producers are the same group of around 30 companies who are also gas
producers.121 As for gas, the interests of the main UK oil producers are represented by
the UK Offshore Operators Association,122 while those of the downstream industry
are represented by the UK Petroleum Industry Association (‘UKPIA’).123
Since the Second World War, oil has achieved a hegemony over coal as the main
fossil fuel. The use of oil and its distillates such as petrol and DERV for transport
purposes is a major source of carbon dioxide emissions.124 Carbon dioxide is, of
course, one of the GHGs listed in Annex A to the Kyoto Protocol.125 It also does
terrible damage when leaked or spilt from tankers, of course.126
The significance of oil should not simply be seen in terms of its use as a fuel. Oil
is also used in the chemical industry for the production of ethylene, which is in turn
used in the production of a range of end products, such as the higher glycols, acetic
acid and acetic fibre and butadiene.
116 See Upton, op. cit., p. 56. Upton relates that oil was originally discovered in commerciallyworthwhile
quantities on the British mainland at Eakring, near Sherwood Forest, in 1938,
the discovery then being kept secret. The Petroleum (Production) Act 1934 had vested
onshore petroleum reserves in the Crown (see Upton, op. cit., p. 20).
117 See Martha M. Roggenkamp et al., Energy Law in Europe: National, EU and International
Law and Institutions (Oxford: Oxford University Press, 2001), paras 13.26 and 13.259.
With the exception of the long-defunct British National Oil Company, the UK Government
‘has been content to licence the industry and collect its share of the rent’ (ibid., para.
13.259).
118 Finance Act 2000, s.3(2)(a).
119 See para. 28.3 below.
120 See paras 22.2 and 22.3 below.
121 See para. 2.4.2 above.
122 See www.ukooa.co.uk above.
123 See www.ukpia.com.
124 See, for example, Department of Environment, Transport and the Regions, A New Deal
for Transport: Better for Everyone, 1998 (Cm 3950, 1998), paras 1.6–1.11.
125 See para. 8.3.1.4 below.
126 One thinks of the cases of Atlantic Empress in 1979 and Exxon Valdez in 1989.
Regulated Sectors 49
2.4.4 Coal
Following the privatisation of the coal industry in 1994, UK coal production has
been entirely in the hands of private firms, the largest of which is UK Coal plc.127
Despite large helpings of state aid,128 and the fact that the privatisation arrangements
meant that the coal industry’s biggest customers would be the electricity generating
companies, the industry is now a shadow of its former self.129 In November 2002,
there were 15 deep mines in the UK, producing about 18 million tonnes of coal per
annum;130 in 1975, there were around 200 collieries, producing around 130 million
tonnes of coal.131 The coal industry’s trade association is the Confederation of UK
Coal Producers (‘Coalpro’).132
Climate change levy applies to supplies of coal and lignite, as well as to coke and
semi-coke of coal and lignite.133 Tax is chargeable on any supply of these commodities
where the supply is made in the course or furtherance of a business.134 However,
coal supplies to electricity generators are generally exempt from the levy!135
The partial displacement of coal by oil as the most important fossil fuel has not
eroded the status of coal as ‘Environmental Enemy No. 1’.136 Although it is the
dirtiest of the fossil fuels, it is possible to reduce by various technological means the
sulphur dioxide and nitrogen oxide emissions caused by the burning of coal.137 In
addition to coal’s environmental costs, there are, of course, the social costs of what
is still, even in 2004, an industry fraught with physical danger.
2.4.5 Energy-intensive sectors
Certain sectors of industry are extremely high consumers of the three fossil fuels.
Apart from oil refining and electricity generation, the main energy-intensive
sectors are the steel industry, the chemical industry, the paper industry, the glass
industry, the ceramics industry, the gypsum138 industry, the china clay industry, the
cement and concrete industries and the aluminium industry. There is an umbrella
trade organisation, the Energy Intensive Users Group,139 but also individual trade
associations for each of the individual sectors themselves.140 The significance of
127 See www.ukcoal.com.
128 See para. 12.2.6.3 below.
129 See ‘Bottomless pits’, Economist, 18 April 2002.
130 See www.ukcoal.com.
131 See ‘Bottomless pits’, Economist, 18 April 2002.
132 See www.coalpro.co.uk.
133 Finance Act 2000, Sched. 6, paras 3(1)(d) and 3(1)(e).
134 Ibid., Sched. 6, para. 7(2).
135 Ibid., Sched. 6, para. 14.
136 See ‘Environmental enemy No 1’, Economist, 6 July 2002, p. 11.
137 See Lomborg, op. cit., p. 127, citing the work in Danish of Jesper Jesperson and Stefan
Brendstrup.
138 Gypsum is hydrate calcium sulphate (CaSO4
.2H2O), which is used in the manufacture of
plasterboard (Porteous).
139 See www.eiug.org.uk. There is a separate trade association for the cement and concrete
industries, that is, the British Cement Association (see www.bca.org.uk).
140 See the links at www.euig.org.uk.
50 Environmental Taxation Law
the energy-intensive sectors in the rest of the study is that they fall within the scope
of the command and control Integrated Pollution Prevention and Control (‘IPPC’)
regime.141 This, in turn, makes sector participators eligible to enter into climate
change agreements (‘CCAs’) and thereby to obtain an 80 per cent reduction in climate
change levy.142 As parties to CCAs, participators in each sector are likely also be
Agreement Participants in the UK ETS.143 Not voluntary, however, will be the EU
ETS which, from January 2005, will apply to all the energy-intensive sectors covered
by the earlier instruments, as well as to electricity generation and oil refining.144
Before leaving energy and its heavy consumers, it is appropriate to mention the
highly influential UK Emissions Trading Group (‘the ETG’), originally formed by
the CBI and the Advisory Committee on Business and the Environment (‘ACBE’)145
‘to represent the UK business interest in greenhouse gas emissions trading’.146
Although the ETG has been involved in the implementation of the EU ETS in the
UK, it was the ETG that originally convinced the government of the need for the cash
subsidy to get the UK ETS going,147 using the argument that the development of a
market in GHG emissions would make the City of London a world leader in trading
emissions.148
2.5 Mineral extraction industry
There are, according to one of the quarry operators’ trade associations, around 1,300
quarries in the UK, producing £3bn worth of quarry products each year.149 Quarried,
as opposed to recycled, aggregates, are generally referred to either as ‘virgin’ or
‘primary’ aggregates. For the purposes of this study, two points are perhaps
significant. First, that the consumer of a considerable proportion of the products
quarried in any year is the public sector, aggregates being of course essential to public
sector construction projects (for example, school and university improvements, road
maintenance and hospital building). Secondly, that the use of recycled aggregates in
such projects seems to be increasing.
For the purposes of aggregates levy, the chargeable person is the person responsible
for subjecting aggregate to commercial exploitation,150 a concept which includes
the removal of the aggregate from the quarry in question,151 its sale,152 its use for
141 See paras 6.2.3 and 12.2.2 below.
142 See para. 14.6 below.
143 See para. 1.4.2.2(2) above and para. 20.4 below.
144 See para. 1.4.2.2(3) above and para. 28.3 below.
145 See para. 4.2.1.4 below.
146 See www.uketg.com.
147 See para. 20.2 below.
148 See Helm, op. cit., pp. 358–9. This was at the time that there seemed to be a possibility
that, with the possible imposition of withholding tax on interest payments on eurobonds,
London would lose its pre-eminence in that particular field.
149 That is, the Quarry Products Association. See www.qpa.org.
150 Finance Act 2001, s.16(3).
151 Ibid., s.19(1)(a) and 19(2)(a).
152 Ibid., s.19(1)(b). See para. 13.2 below.
Regulated Sectors 51
construction purposes153 or its mixing, other than in permitted circumstances, with
any substance other than water.154 This means that the person primarily liable for
aggregates levy will be the quarry operator.
The quarrying industry has two main trade associations, the Quarry Products
Association (‘the QPA’)155 and the British Aggregates Association.156 The latter was
involved in an unsuccessful challenge to the legality of the aggregates levy in April
2002.157
The environmental costs of quarrying are controversial. Certainly, there has been
by no means the same level of concern, at least at a European level, in relation to
its effects as in relation, say, to emissions of GHGs and energy consumption. A later
chapter158 will show how the government has characterised the environmental costs of
quarrying in terms of noise, dust, visual intrusion and biodiversity loss.159 However,
there remains the concern that the level of opposition to the tax, as compared to that
mounted in relation to, say, climate change levy, is a sign that the government may
not have succeeded in demonstrating the environmental case for the tax.
2.6 Air passenger and road freight transport sectors
Two parts of the transport sector figure prominently in the present study: the road freight
transport and the air transport industries. Although neither is currently subject to any
form of environmental levy,160 yet, as mentioned above, there are currently plans for
the introduction of a nationwide road-user charging (‘road pricing’) scheme for heavy
lorries,161 as well as continuing concern about the international exemption from fuel
duties applicable to aircraft fuel.162 In addition, the government has decided to work to
bring the aviation industry within the EU ETS and has promised to prioritise the matter
during the UK’s 2005 EU Presidency.163 The issues facing road freight transport and
air transport therefore merit at least brief mention in the present context.
The Freight Transport Association,164 which, together with the Road Haulage
Association,165 is one of the two main trade associations for the road freight
153 Ibid., s.19(1)(c).
154 Ibid., s.19(1)(d).
155 See www.qpa.org.
156 See www.british-aggregates.com.
157 See R (on the application of British Aggregates Association and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51.
158 See para. 11.3.2 below.
159 Ibid.
160 Air passenger duty is not an environmental tax (see para. 1.2.1.5(2) above).
161 See para. 27.3 below.
162 See paras 8.5 and 27.5 below. See also Friends of the Earth, op. cit., p. 10 and Chris Nash,
‘Transport and the Environment’, in Environmental Policy: Objectives, Instruments, and
Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 241–
59.
163 See Department for Transport, The Future of Air Transport: Summary (London:
Department for Transport, 2003), p. 8.
164 See www.fta.co.uk.
165 See www.rha.net.
52 Environmental Taxation Law
transport industry in the UK, estimates that road freight transport constitutes 64 per
cent of domestic transport as a whole.166 The same source also figures that a total
of around 65,000 companies operate the UK’s commercial vehicles fleet,167 which
is a 31 per cent reduction on the figures for 1996.168 The reduction has mainly been
among operators with less than half-a-dozen vehicles, with the number of businesses
operating in excess of 50 vehicles actually increasing.169 Although heavy lorries are
legendarily associated with graphic levels of noise, air pollution and congestion, it
is clear that the sector as a whole is itself contending increasingly with congestion,
whilst complaining vociferously about what it regards as disproportionately high
levels of fuel duties and road taxes in comparison with other EU Member States.170
The proposed introduction of the road-user charging scheme for heavy lorries will be
made sectorally possible only on the basis of reductions in fuel excise duties.171
The aviation industry in the UK, unlike a number of other EU Member States, has
been entirely in private hands since British Airways was privatised in 1987.172 The
main UK airlines include BMI British Midland, Britannia Airways, British Airways
and Virgin Atlantic Airways, all of which are members of the industry’s trade
association, the British Air Transport Association.173 Something in excess of 105
million passengers were carried on UK airlines in 2000, over 33 million on charter
flights and nearly 72 million on scheduled flights.174 The airlines pay airport (or
‘landing’) charges to the owners of the industry’s infrastructure, the airports. Seven
of the UK’s major airports are owned by BAA plc175 (that is, Aberdeen, Edinburgh,
Gatwick, Glasgow, Heathrow, Southampton and Stansted), whilst Manchester
Airport, in common with a number of others, is owned by the relevant local authority.
The government’s White Paper on the future of air transport, of December 2003,
identified aircraft noise and the property price blight caused by proposals for airport
development as two areas of environmental concern.176 Besides envisaging schemes
requiring airport operators to tackle the latter concern, the White Paper promised
legislation on the air pollution side (‘when Parliamentary time permits’) to allow
airport charges to have an emissions-related element.177 In addition, as mentioned
above, and as an acknowledgement of the growing contribution of civil aviation to
166 See Freight Transport Association, Freight Transport: Delivering for a Successful
Economy (Tunbridge Wells: Freight Transport Association, 2002), p. 2. The Road Haulage
Association puts the figure rather higher, at 80 per cent!
167 Freight Transport Association, op. cit., p. 11.
168 Ibid.
169 Ibid.
170 Freight Transport Association, op. cit., p. 14.
171 Which is why the trade associations are broadly in favour of the scheme (see Wright,
Financial Times, 6 February 2004, p. 5).
172 There is an excellent overview of the UK aviation sector in Whitaker’s Almanack 2004
(London: A. & C. Black, 2004), pp. 453–4, to which this paragraph is greatly indebted.
173 See www.bata.uk.com.
174 See Whitaker’s Almanack, above, p. 454.
175 See www.baa.plc.
176 See Department for Transport, The Future of Air Transport: Summary (London:
Department for Transport, 2003), p. 3.
177 Ibid., p. 8.
Regulated Sectors 53
carbon dioxide emissions, the government has committed itself to working to bring
the aviation industry within the scope of the EU ETS.178
2.7 Concluding remarks
The sketches of the regulated sectors given in this chapter are intended only to
clarify some of the technical issues addressed in our wider critical account of the
taxes and other instruments forming the subject matter of the study. It is appropriate
that these sketches should detail the trade associations – both general and sectoral
– representing the industries in question, since, consistently with the government’s
attempts at consensus-building, they have engaged closely in the debates leading to
the implementation of the instruments in question. This engagement is well, though
not uniquely, illustrated by the involvement of the waste industry in governmental
policy debates, both at a sectoral level and at the level of particular firms. An
even more striking illustration is the success of the ETG in apparently influencing
government policy on emissions trading so dramatically.
However beautiful the empathy may – or may not – be as between government and
industry, such a phenomenon is not more important in the context of the present study
than the structures of the industries in question. It is not insignificant, for instance,
that the main bodies intended to be incentivised by landfill tax are themselves taxraising,
albeit local tax-raising, bodies. Equally, as regards climate change levy, it is
not insignificant that the person liable to account for the tax, in the cases of gas and
electricity, is not the generator – for such a thing would make the levy an ‘upstream
tax’ – but the holder of the gas or electricity supply licence, which, in combination
with other features of the tax, makes it a downstream levy on the industrial,
commercial and agricultural consumption of non-renewable energy. If, as is widely
believed, this structure severely compromises the environmental effectiveness of the
levy, it is no less important than the effect of the structure of the electricity industry
on the potential for greater levels of renewables generation.179 Accordingly, even
if the industry sketches given above may appear somewhat cursory, they should at
least enable a closer understanding of the evaluative issues to be referred to later in
the study.
Whatever the technical strengths and weaknesses of climate change levy may be,
there is at least some measure of agreement of the environmental problem that it
is seeking to address. This, no doubt, goes a considerable way to legitimising the
tax in the eyes of those in industry who are most closely affected by it. The same
cannot, alas, be said for aggregates levy; the highly problematic environmental basis
of this tax, as well as the difficulties of making it acceptable to those affected by
it, will concern us in later chapters. The difficulties of justifying aggregates levy,
an existing tax, contrast rather vividly with the ease with which the application of
economic instruments might be justified, at least in environmental terms, to correct
the externalities created by the civil aviation industry.
178 Ibid.
179 See para. 21.6.1 below.
54 Environmental Taxation Law
Although, in this chapter, we have referred to the environmental externalities created
by each of the sectors under discussion, we have sought mainly to highlight the
structures of those industries. This is not because we are not, in Joanne Scott’s words,
‘on the side of the angels’,180 or that we do not care for environmental issues. It is
simply that such issues are covered in other texts by specialists in the fields. We have
sought merely to illuminate, if only briefly, the often obscure factual background to
the regulatory and fiscal issues to be discussed in the rest of the study.
180 See Joanne Scott, EC Environmental Law (London: Longman, 1998), p. 1.
PART II
POLICY AND CONTEXTS
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Chapter 3
Introduction to Part II
Although we have already referred to the fact that various aspects of the UK’s
environmental economic instruments, including the three main environmental taxes,
are administered by several different government departments, we have not so far
elaborated on that statement. This part of the book accordingly continues our account
with an analytical discussion of the roles of those departments. Such is the intricacy
of the web of departmental involvement that this discussion is unfortunately rather
long and detailed. However, as the material much later in the book unfolds, and the
references to the different departments and government agencies accumulate, we
think that the discussion will have proved indispensable, especially for the reader
whose ‘home’ jurisdiction is one other than the UK. This is not simply because it may
be convenient to gather all this information into one place. It is also because standard
reference works on environmental, energy and transport regulation or, for that matter,
tax law have not, historically, been written specifically with environmental economic
instruments in mind.
The discussion of government departments in Chapter 4 forms part of an overview
of the institutions of UK government divided into the central (that is, the national),
the regional and the local. Our discussion of central government begins, however, not
with government departments, but with a discussion of the committee structure of
the UK parliament. The reader may wonder why we have deemed such a discussion
of the nature and role of Parliamentary Committees to be relevant at this stage. The
reason, quite simply, is that, in Part III of the book, we refer rather extensively to
reports of Parliamentary Select Committees in attempting to map how the various
instruments under consideration have operated in practice. It is our contention that,
for the lawyer or political scientist, there is no more valuable source for discovering
what effect the various instruments are actually having (as it were) on the ground.
However, though valuable, Select Committee reports are the products of a somewhat
idiosyncratic system and, rather than accepting them at face value, it is well to be
aware of the weaknesses, as well as the strengths, of the committee system as it exists
at Westminster. The early sections of Chapter 4 accordingly attempt to convey some
sense of these points.
Besides Select Committees, whose role is to hold the government to account after
the event, there are also the Standing Committees, whose duty it is to scrutinise
legislation and thereby to ensure a measure of accountability before the event. We
have included a brief discussion of the composition of these Committees, and the
conditions under which they work, especially with regard to the length of time
allowed for debate, because pressures on parliamentary time seem too often to have
prevented the proper scrutiny of much of the legislation discussed in this book. This
is a matter to which we return in Part III below.
Whilst the accountability of the relevant government departments to parliament is
an important theme of this Part II, so also is the accountability of the various bodies
58 Environmental Taxation Law
which have been delegated to administer different aspects of the measures under
consideration. These are bodies such as the Environment Agency, which itself has
responsibility for the unit tasked with administering the system of PRNs, and Ofgem,
which, among other things, is responsible for monitoring the operation of the RO
and for issuing Green Certificates. The National Audit Office (‘the NAO’), which is
discussed in the same part of Chapter 4 (as an executive non-departmental body), has,
however, the distinctive statutory task of providing financial advice and assurance
on the application of public funds. In later chapters, we shall see how its qualified
approval of the UK ETS, in a special report on the scheme, has disappointed many
who regard the incentive payments made under the UK ETS to have been a serious
misapplication of public funds. The discussion of these bodies is then followed by
a brief outline of various advisory bodies, such as the Commission for Integrated
Transport (‘CFIT’), whose activities feature prominently in the public debate on
environmental matters in the UK, and whose nature and role must be understood in
order to assess the nature and value of their various contributions.
All of the foregoing relates to central government but, as mentioned in para. 1.3
above, the UK has for some years past had a quasi-federal structure. The almost
non-existent tax-raising powers of each of the devolved governments, together with
the national application of the UK’s environmental levies, means that this is not as
important a point, at present at least, as it may at first appear. However, it will also
be recalled that the devolved governments do have responsibility for various matters
other than taxation, such as environment and energy, which means that, at various
points throughout the book, we shall be drawing attention to regional differences in
the material under discussion. Also, as is perhaps implied by the foregoing, some
emphasis should be placed on the phrase ‘a(chǎn)t present’, since the absence of tax-raising
powers vested in the devolved governments will almost certainly lead in time to
discussions at governmental level, either as to whether these restrictions should be
removed, or as to whether it is nonetheless possible, even as matters currently stand,
for the devolved governments to create economic instruments which nonetheless fall
short of taxes properly so called. A significant part of the discussion in Chapter 4 is
therefore devoted to the detail of the devolution arrangements.
It will be appreciated that, just as the relevant issues differ somewhat as between
central and regional government, so also do they vary at the local level. Suffice it to
say, at this stage, that local government in the UK has even more limited taxation
powers than its regional counterpart. For instance, although they are empowered to
collect and retain local taxes, local authorities have no control over the structure of
those taxes. Subject to two exceptions, there is therefore no question of unilaterally
imposed environmental levies at local level. The two exceptions, of course, are
the statutorily-conferred powers to impose workplace parking levies and road user
charging schemes which, to date (December 2004), remain overwhelmingly and
conspicuously unimplemented. That said, as will be seen, local authorities do have
extensive powers in relation to environmental command and control regulation and
the nature and extent of those powers are also briefly described in Chapter 4.
The near-federal nature of the UK, and the issues relating to environmental
regulation, whether by economic instruments or by command and control, are
mirrored in the near-federal nature of the EU. Of all global regional organisations,
the EU is the most developed and, as we shall see in Part III, it shares competences
Introduction to Part II 59
in both the environmental and taxation spheres with its Member States. In such
circumstances and, given the international context to be described in a moment, it
is not surprising that there have been a number of key Community-level initiatives
over the last decade or so to tackle air and atmospheric pollution, the quintessentially
transnational environmental issue. Early attempts at a carbon/energy tax failed but
– against the expectations of many – the EU-wide emissions trading system, the
‘EU ETS’, did not fail and it is due to become a reality in January 2005. Although
the detail of these measures is for consideration in Part III, this Part of the book
underlines the importance of these issues by describing the relative nature and roles
of the EU institutions which have had some part in the design of the EU ETS and may
yet need to adjudicate on disputes arising from its implementation. Most importantly,
of course, there are the European Commission, the Council of the European Union
and the European Court of Justice (‘the ECJ’), each of which, together with other
Community institutions, have played a part in bringing the EU ETS to fruition.
Just as the 1990s saw an attempt to create an EU-wide carbon/energy tax, so also
did they witness academic suggestions for a global excise on carbon. Interesting as
this notion has been, it is not however the reason for the inclusion in the latter part
of Chapter 4 of a discussion of international organisations. Even a cursory glance
through this volume will indicate the considerable influence on the development of
environmental taxes and other economic instruments of the Paris-based Organisation
for Economic Co-operation and Development (‘the OECD’). The reader is
accordingly introduced to the OECD as a way of illustrating the provenance of many
of the economic ideas which recur throughout the study. Equally important in this
process, however (especially as regards the development of emissions trading) is the
United Nations (‘UN’), whose 1992 Framework Convention on Climate Change,
with its 1997 Kyoto Protocol, has provided the international consensus which,
with the notable exceptions of the US, China and (until September 2004) Russia,
has enabled concepts such as multinational emissions trading schemes even to be
conceivable. The UN’s benevolent role in these matters is frequently contrasted with
that of the World Trade Organization (‘the WTO’), whose GATT 1994-based system
of multilateral agreements on international trade is still seen as a major obstacle
to the development on a global scale of economic instruments for environmental
protection.
If it were necessary to illustrate the pervasive influence of the OECD in the realm of
environmental taxes and their associated instruments, it would be necessary to look no
further than the technical justifications offered by the UK government for the package
of economic instruments introduced in the UK since 1997. Chapter 5 analyses an HM
Treasury policy document, which sets out these technical justifications in some detail.
The discussion covers four main areas, of which the second, third and fourth, dealing
respectively with the taxation of environmental ‘bads’, the correction of market
failures resulting from pollution and the price level at which intervention in the
market should be determined, follow closely the OECD’s thinking on these matters,
as expressed in various policy documents and recommendations. The discussion of
these justifications is offered in this part as a prelude to the account in Part III of the
processes by which the UK’s main environmental levies passed into law.
We asserted at the beginning of the book that the distinctive characteristic of
the UK’s environmental taxation enterprise was the use of environmental taxes in
60 Environmental Taxation Law
combination with other economic instruments and with traditional command and
control instruments.1 The UK’s environmental taxes therefore have both a taxation
context and a regulatory context, involving environmental, market and transport
regulation. Given the regulatory nature of the taxes themselves, it is perhaps useful
to consider regulatory context first. Chapters 6 and 7 seek to explore the two contexts
in detail, bearing in mind that readers whose ‘home’ discipline is tax law will be
unfamiliar with the regulatory background, just as those whose ‘home’ discipline
is environmental or energy law and regulation will be unfamiliar with the taxation
context. Chapter 6 therefore attempts the ambitious task of describing within a
single chapter the regulatory landscape of which environmental taxes are now such a
prominent feature. The discussion is largely concerned to map out the environmental
regulation of waste, of air and atmospheric pollution, of aircraft emissions and road
congestion, as well as the loss of amenity caused by mineral extraction. However,
it also contains a detailed discussion of the economic regulation of the ‘unbundled’
energy markets, as well as an examination of the economic regulation of air passenger
and road freight transport. The reader might wonder why we have cast the net so
wide. So far as the energy markets are concerned, the authors’ contention is that it
is not possible to appreciate the technical legal problems associated especially with
climate change levy, nor yet the renewables generation policies that its exemptions
and exclusions are designed to complement, without understanding the economic
regulation of the energy sector. Chief among these problems is the status, already
discussed, of climate change levy as a downstream energy tax.2 Parallel comments
apply to the economic regulation of air transport, given the continued interest of both
the European Commission and the UK government either in bringing air transport
within the EU ETS or (an interest evinced so far by the Commission only) in imposing
an environmental tax on airliners’ profligate consumption of kerosene.3
While Chapter 6 considers the status of economic instruments as environmental
regulation, Chapter 7 discusses the tax context of those instruments. This part of the
discussion, which is more analytical than the rather descriptive material in Chapter
6, has two main aspects. First, we are concerned to expand the definition of a tax
offered in Chapter 1 and to investigate whether and, if so, which payments made by
those regulated by the UK’s economic instruments are payments of taxes. Secondly,
we seek initially to identify the provisions by which it has been sought to ‘green’ the
UK’s non-environmental tax codes. These latter are indeed economic instruments
and are perhaps best seen as a form of financial assistance from government.4
Since, irrespective of whether they occur in the codes on environmental or nonenvironmental
taxes, they involve an element of revenue foregone by government,
such incentivising ‘green’ measures can be seen as tax expenditures or tax subsidies.
This is borne out, for example, by the state aid implications of the climate change
levy exemptions and reliefs which are discussed in Part III below.
Chapter 9 seeks to draw together the strands of the discussion in Part II but, before
that, Chapter 8 seeks to place the economic instruments under discussion in the
1 See Authors’ Preface above.
2 See para. 2.4.1 above.
3 See Done, Financial Times, 4 October 2004, p. 8.
4 See para. 1.2.1.5 above.
Introduction to Part II 61
context of the UK’s international obligations. Whilst it may well be the case that, at
least in the environmental and world trade spheres, the UK’s role on the international
stage is as a Member State of the EU, such a statement obscures two little-known
but important analytical points. First, that, although the UK’s Kyoto obligations
are reallocated with other EU Member States under the so-called ‘burden-sharing
agreement’, the UK has, in its own right, both signed and ratified the Kyoto Protocol.
Secondly, that, whilst the ECJ subsequently held that it should not have been, the
UK was itself a signatory, along with 14 other Member States, to the GATT 1994
Uruguay Round Treaties signed at Marrakesh in April 1994. These points apart, it
is nonetheless the case that, both in its own right and as an EU Member State, any
economic instrument designed and implemented by the UK government must satisfy,
not only the rules of Community law, to be discussed in Part III below, but also those
of GATT 1994. The inability of the Kyoto mechanisms to ‘mesh’ satisfactorily with
the rules of GATT 1994/WTO is a key theme in Chapter 8.
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Chapter 4
Institutional Framework
4.1 Introduction
It is not easy to locate the UK’s environmental taxes and other economic instruments
into the framework of institutions responsible for their design, implementation
and administration. This is in part a function of the wide range of governmental,
Community and international institutions which have had at least some involvement
in each of these processes. It is also, however, an aspect of the authors’ dilemma
in deciding what, in an already large book, should be regarded as significant in the
involvements of these various institutional actors.
With regard to the former point, we have divided the discussion into three main parts.
First, a description of the institutions of UK central, regional and local government
with an interest, or potential interest, in the design, implementation and operation of
the taxes and other instruments under consideration. Next, the same, although for
the relevant EU institutions, and finally the same again for the relevant international
institutions. Far from being counter-intuitive, this working outwards from the
UK’s domestic institutions emphasises that, unlike other forms of environmental
regulation, environmental taxes at least have implications for national sovereignty.
In each case, we emphasise the question of who is, or was, responsible for what,
since this remains one of the most opaque aspects of the combination of economic
instruments currently being operated in the UK.
In relation to the other point made at the beginning of this chapter, we have contented
ourselves with merely drawing attention to the presence or absence of accountability
mechanisms in relation each of the institutions under discussion. It is not possible,
obviously, in a book of this nature, to embark upon a legitimacy-oriented examination
of the taxes and other instruments under consideration.
4.2 Institutions of central, regional and local government
The initial stage of the discussion is intended to reflect the three main levels of
UK government: the central, the regional and the local. Within the first of these,
we make a fourfold division into the respective roles of the UK Parliament; of
the departments of government; of non-departmental agencies and public bodies;
of bodies with an advisory role; and of bodies with a judicial role, namely the
courts. The first of these involves a discussion of the Committee system, the key
accountability mechanism in the UK’s parliamentary system. The discussion of the
second, that is, of government departments, is further subdivided into a consideration
of those involved in environmental, energy and transport regulation and those
involved in taxation. Discussion of the third and fourth (that is, the advisory bodies
and the courts) is, for reasons of space, relatively short. When it comes to regional
64 Environmental Taxation Law
and local government, a detailed discussion is necessary, given the former’s role in
developing environmental policy, as well as the role of the latter in tackling traffic
congestion.
4.2.1 Central government
Following devolution and the other constitutional reforms introduced after 1997,1
the expression ‘central government’ has come to be used in order to distinguish the
institutions of government of the UK as a whole, not only from local government, but
also from the devolved governments of Wales, Scotland and Northern Ireland.2
Central government in the UK has never been characterised by a strict separation
of powers. The principal executive body under the UK’s unwritten constitution is
the Cabinet, headed by the Prime Minister,3 but all of its 20 or so members are also
members of one or other House of the UK Parliament. Equally, the UK Parliament is
not simply a legislature, since it sets up Select Committees of Inquiry and Committees
tasked with scrutinising the administration.4 The structures of central government, as
they have developed since 1997, are such as to make the scrutinising role of the UK
Parliament no less important, although often considerably less effective, than once
it was. This is a theme to which we shall return, not only in the present chapter, but
throughout the book.
4.2.1.1 The UK Parliament
(1) Generally
Subject to the provisions of Community law, the UK Parliament sitting at Westminster
has responsibility both for the general shape of environmental, energy and transport
regulation in England and Wales5 and for the taxation law of the UK as a whole.
1 The date is of some significance to the present study, since the General Election in May
of that year was when the current Labour Government was returned for the first time. It
was returned again in 2001, on the back of a reduced voter turnout. As at 8 September
2004, the government had 407 seats (a majority of 159), the Conservatives (the main
Opposition party) had 163 seats and the Liberal Democrats had 55 (see www.parliament.
uk/directories/hcio/stateparties.cfm). With the exception of landfill tax, the economic
instruments discussed in this book are from the period 1997 onwards (see para. 11.4
below).
2 See paras 1.3 above and 4.2.2 below.
3 Currently (December 2004) The Rt Hon. Tony Blair, MP.
4 See O. Hood Phillips and Paul Jackson, Constitutional and Administrative Law, ed. by
Paul Jackson and Patricia Leopold, 8th edn (London: Sweet and Maxwell, 2001), paras.
2–020.
5 See www.parliament.uk. The leading reference works on the law and customs of the UK
Parliament are Sir Thomas Erskine May’s Treatise on the Law, Privileges, Proceedings
and Usages of Parliament, ed. by Donald Limon, W.R. McKay, et al., 22nd edn (London:
Butterworths, 1997) and Griffiths and Ryle on Parliament: Functions, Practice and
Procedures, ed. by Robert Blackburn and Andrew Kennan, 2nd edn (London: Sweet and
Maxwell, 2003). For a comprehensive, but more succinct account, see Hood Phillips and
Jackson, op. cit., Part II.
Institutional Framework 65
Being the UK’s highest legislative authority, Parliament may not only pass laws
for the UK as a whole but also for any part of it individually.6 Made up of the
Queen in Parliament, the House of Lords and the House of Commons, the House
of Lords consists of life peers, hereditary peers,7 the Law Lords8 and 26 Church of
England diocesan bishops, while the House of Commons comprises a membership
(‘MPs’) elected by universal adult suffrage.9 The maximum length of a Parliament
is five years, elections to the Commons being by secret ballot, with (unlike in other
countries) voting in parliamentary elections being non-compulsory. Proposed Acts
of Parliament, in draft form, are referred to as Bills, and must normally be passed by
both Houses before becoming law.10 Of the various stages through which legislation
passes before becoming law,11 of greatest interest for the purposes of the present
study is the Committee Stage, since this is the point at which Bills have traditionally
been considered clause by clause and amendments made by a Standing Committee
of the House of Commons.12
With the exceptions of the UK ETS, which was created under pre-existing statutory
powers,13 and PRNs, which seem to have developed almost by accident, all of the
economic instruments discussed in this book have a statutory basis. Whether it can
be inferred from this that they have all been fully debated is a matter which we leave
until Chapter 11.14
(2) Standing Committees
The principal purpose of Standing Committees is to consider and to amend Bills
that have been through their Second Reading and stand committed to one of the
6 By way of illustration, Hood Phillips and Jackson, op. cit., record that, ‘in the first two
years of devolution [see para. 1.3 a,bove], 14 Bills that fell within the legislative powers of
the Scottish Parliament [see para. 4.2.2 below] were passed by Westminster’. They note,
however, that the consent of the Scottish Parliament was sought and given in each case.
7 Albeit now elected by their peers, except in the case of a few office holders.
8 See para. 4.2.1.5 below.
9 See above, n, for the state of the parties as at 8 September 2004. The total number of seats
is 659, consisting of 529 for England, 40 for Wales, 72 for Scotland and 18 for Northern
Ireland.
10 Bills may be public, private or hybrid, although only public ones are referred to in this
book (see Hood Phillips and Jackson, op. cit., for further information on the consequences
of the distinction). Most Private Members’ Bills are public Bills.
11 It is not appropriate to detail the procedure here, although it should be noted that, of the
stages in the passing of a Bill, legally the most informative tends to be the ‘Committee
Stage’, since it involves a detailed technical debate on the text of the Bill, rather than a
broader argument over political priorities. Nonetheless, as the Committee Stage of the
parts of Finance Bill 2000 relating to climate change levy demonstrated, even apparently
technical debate can uncover important information about the nature of a tax.
12 See Kenneth Bradshaw and David Pring, Parliament and Congress (London: Constable,
1972), ch. 5 (esp. pp. 258–62) for a comparison of the UK system with that of the
committee system of the US Congress.
13 See para. 1.4.2.2 above.
14 See para. 11.3 below.
66 Environmental Taxation Law
Committees.15 The Standing Orders16 of the House of Commons allow the
appointment of as many Standing Committees, consisting of anything between 16 and
50 members, as may be necessary for the consideration of Bills in this way. Members
of the Standing Committees are nominated by the Committee of Selection, a body
which is required to have regard both to the qualifications of members and to the
composition of the House in making such nominations. Standing Committee debates
are often extremely searching and, although they have little or no interpretative status,
the minutes of their debates17 provide fascinating clues, not only as to the strengths
and weaknesses of the clauses of a Bill, but also (via, mainly, the contributions of
MPs from the parties other than that of government) as to the possible governmental
motivation in shaping them as they are.18 This is well illustrated by the Standing
Committee debates on climate change levy.19
Whilst Standing Committee debates are an important factor in the accountability of
the parliamentary process, it is important to note that the government of the day has
drastic powers to curtail debate on particular Bills. Of these, the most controversial
is probably what is referred to as ‘the Guillotine’, a procedure the increased use
of which in the current parliament is a matter of mounting concern to a number of
commentators. The procedure, the more formal title of which is an Allocation of
Time Order, allows a government minister to move either that: (1) particular dates
and days be allocated to the various stages of a particular Bill, or (2) that the relevant
Committee must report the Bill to the Commons by a certain date, the detail being
left to the Business Committee of the House or to a business subcommittee of the
Committee.20 Guillotine motions are debated in each case for a maximum of three
hours and are almost invariably subject to a division.21 The procedure inevitably
means that large parts of Bills, including ones of great importance, might receive
very little parliamentary scrutiny. A particularly striking example of the consequences
of this situation is the curtailment of debate on the provisions of the 2003 Finance
Bill.22
(3) Select Committees
Before moving on to consider the government departments, it is important to comment
on another aspect of the Committee system of the UK Parliament. This is the operation
of House of Commons Select Committees,23 especially the departmental ones. Select
15 That is, public Bills.
16 As to which, see Hood Phillips and Jackson, op. cit., para. 11–004.
17 Available in Hansard on the web at www.parliament.uk. Finance Bill 2003, for instance,
was considered by Standing Committee B (see below, passim).
18 See Robert Baldwin and Martin Cave, Understanding Regulation – Theory, Strategy
and Practice (Oxford: Oxford University Press, 1999), ch. 3, for the significance of this
point.
19 HC, Standing Committee H, 7th and 8th Sittings, 16–18 May 2000.
20 See Hood Phillips and Jackson, op. cit., para. 11–014.
21 As to which, see Hood Phillips and Jackson, op. cit., para. 11–010.
22 HC, 1 July 2003, cols 178–180 (Report).
23 These are most relevant to the present study, although it should be noted that the House of
Lords also has a number of Select Committees, for example, on the EU, on Science and
Technology and on Economic Affairs (see www.parliament.uk).
Institutional Framework 67
Committees are made up of MPs chosen by the Selection Committee, such MPs
being either regularly re-appointed or appointed from time to time.24 The powers
and authority of Select Committees, which include the power to send for persons,
papers and records, are delegated to them by the House.25 The eight Committees of
particular importance in the present context are the Environmental Audit Committee;
the Environment, Food and Rural Affairs Committee; the Transport Committee; the
Treasury Committee; the Trade and Industry Select Committee; the Public Accounts
Committee; the Science and Technology Committee; and the Public Administration
Committee. Some comments on some of these might be appropriate.
The Trade and Industry Select Committee has the task of examining, on behalf
of the House of Commons, the expenditure, administration and policy of the
Department of Trade and Industry (‘the DTI’).26 Likewise, the remit of the Treasury
Committee is to examine the same three areas in relation to HM Treasury, the Board
of Inland Revenue, the Board of HM Customs and Excise27 and certain related
public bodies. The Transport Committee, which dates from July 2002, was one of
two committees appointed to replace the former Transport, Local Government and
the Regions Committee.28 It examines the expenditure, administration and policy of
the Department for Transport29 and the public bodies associated with it.
All three of the Treasury, the Trade and Industry and the Transport Committees are,
as their names suggest, departmental Select Committees. Of the remaining three Select
Committees referred to above, the Environment, Food and Rural Affairs Committee
is a Departmental Committee, whilst the Environmental Audit Committee and the
Committee of Public Accounts (‘the Public Accounts Committee’) are not. The first
of these oversees the work of Defra,30 while the second, which dates from 1997,
is intended to monitor ‘… the contribution made by Government departments and
agencies to environmental protection and sustainable development and … [to audit]
… progress against targets’.31 One of the predecessor Committees to the Environment,
Food and Rural Affairs Committee, the Environment, Transport and Regional Affairs
Committee, produced an early report on the operation of landfill tax in 1999.32
24 In their present form, Select Committees are a development of a change in the system
made when Mr Richard Crossman was Leader of the House. Before that, scrutiny was
through the Estimates Committee, before the event, the Public Accounts Committee
(which obviously still exists) after the event, and with other Committees scrutinising
Statutory Instruments (a vital task still performed by that Committee) and (while they still
existed) enquiring into the operation of nationalised industries.
25 Standing Orders of the House of Commons – Public Business 2002(2), SO 152 (see www.
publications.parliament.uk).
26 See www.parliament.uk.
27 See below in this para.
28 See below in this para. for the process of reorganisation that has resulted in the formation
of Defra.
29 See below in this para.
30 Ibid.
31 See www.parliament.uk.
32 That is, House of Commons Environment, Transport and Regional Affairs Committee,
The Operation of the Landfill Tax, HC Papers, Session 1998–1999, HC 150–I (London:
Stationery Office, 1999).
68 Environmental Taxation Law
The sixth of the Select Committees listed above, that is, the Public Accounts
Committee, is also rather important in the present context. Consisting of not more
than 16 members, and chaired by a member of the Opposition,33 the Public Accounts
Committee’s task is to examine how funds granted by Parliament to meet public
expenditure have been spent. The Committee reports to Parliament, one day in
each session being devoted to debating its reports. The government undertakes to
make a reply to the debate, which is an indication of the importance attached to the
Committee’s work. The Public Accounts Committee is the only committee that has,
in the shape of the NAO,34 a strong bureaucracy.35
In recent years, both the Science and Technology Committee and the Environmental
Audit Committee have produced reports highly critical of the government’s climate
change policy and of the three economic instruments designed to tackle air and
atmospheric pollution (that is, climate change levy, the UK ETS and the RO). The
reports in question are analysed later in the book.36
The strength of the system of Select Committees is said to be that the Committees are
allowed to choose the questions that they examine. However, whatever accountability
this might be thought to lend to the parliamentary process may be compromised by
the way in which their membership is selected. Although, as mentioned above, there
is a Selection Committee tasked with appointing MPs to the Select Committees, the
House of Commons Liaison Committee’s 2000 report found that nominations were in
fact controlled by the party whips.37 Despite the potentially negative impact on public
confidence of such a system, the government rejected reform to the selection process
on the basis that it would result in less time being spent on substantive questions than
upon questions of Committee membership.38 Other accountability concerns arise out
of the use of the Guillotine. The procedure was used before the Second Reading of
the Finance Bill 2003, an extremely complex and controversial piece of legislation,
even by the standards of Finance Bills.39 Indeed, the increasing size of Finance Bills
since the mid-1990s has brought the Committee system very close to collapse.
33 Since 2001, the Conservative, Mr Edward Leigh, MP.
34 See para. 4.2.1.3 below.
35 See Hood Phillips and Jackson, op. cit., para. 12–020n.
36 See para. 21.6.2 below.
37 See House of Commons Liaison Committee, Shifting the Balance: Select Committees and
the Executive, HC 1999–2000 (London: Stationery Office, 2000).
38 HM Government, The Government’s Response to the First Report from the Liaison
Committee on Shifting the Balance, 2000 (Cm 4737, 2000).
39 An example is provided by cll 18 and 19, Finance Bill 2003, which introduced a new
s.77A and an amended Sched. 11, para. 4(2), to Value Added Tax Act 1994. These
provisions give draconic powers to HM Customs and Excise to collect tax owing by an
independent third party from a bona fide trader who they think might have been negligent
in not noticing that he was dealing with a defaulter. On the Second Reading, The Rt Hon.
Dawn Primarolo, MP, the Paymaster-General (see para. 4.2.1.2 below) referred to certain
‘in-built safeguards’ [HC, 6 May 2003, col. 629] but in Standing Committee B, Mr John
Healey, MP, the Economic Secretary to the Treasury (see para. 4.2.1.2 below, also) ran
into a barrage of opposition, including some from Labour backbenchers, and gave an
undertaking that Customs would only exercise the powers after having given a written
warning [Hansard HC, 15 May 2003, col. 066].
Institutional Framework 69
4.2.1.2 Government departments
Government departments, or ministries, originated from three sources. First, there
were the holders of the Great Offices of State, insofar as they were political, rather
than ceremonial – only one of these, that of Lord High Chancellor, still exists and is
about to be abolished, but a second, Lord High Treasurer, is technically in commission;
second, the position of Secretary of State, which is technically a single office held
jointly by a number of people, specialist responsibilities only being allocated since
1782;40 and, thirdly, what were originally committees of the Privy Council,41 called
‘boards’,42 being absorbed into ministries following the First World War,43 they
being, in turn, amalgamated into departments from the 1970s onwards.
The head of each department is now a Secretary of State, who will also be a
member of the Cabinet.44 The Secretary of State will be assisted by a number of
junior ministers of two ranks – Minister of State and Parliamentary Under-Secretary
of State – and will divide the responsibilities of his department between them.
Whilst questions of policy are always reserved to a minister for decision, the detailed
administrative and research work involved in policy development has traditionally
been carried out by non-political civil servants appointed during good behaviour.45
During the spring and summer of 2003, however, there was increasing concern as to
the position of special advisers, not least the authority of the Prime Minister’s Chief
of Staff’s authority to give instructions to civil servants.46
Statutory authority is usually required both for the creation of new departments and
for the transfer of functions between them. The latter may, under the Ministers of
the Crown Act 1975, be effected by Order in Council. Environmental regulation has
been an area of government policy beset by departmental reorganisations in recent
years.
40 See David Kynaston, The Secretary of State (Lavenham: Terence Dalton, 1978).
41 The Privy Council is a body that used to advise the Crown on government policy, a role
which is now taken by the Cabinet. One of its roles is to make secondary legislation in
cases where a statute has delegated legislative powers to her Majesty in Council.
42 The last surviving such Board being the Board of Trade, the post of President of the Board
of Trade now being held by the Secretary of State for Trade and Industry (see below).
The title was last used by Mr Michael Heseltine, the deputy Prime Minister in the Major
Government.
43 The first ‘minister’ was Mr David Lloyd George, when asked to take responsibility for
Munitions in 1915. He had been a senior minister and it would not have been appropriate
to rate him as President of a Board. The last full department minister was Mr Nick Brown,
whose Ministry of Agriculture, Fisheries and Food was absorbed into Defra after the food
and mouth disease outbreak of February 2001. Departmental ministers were sometimes
not in the Cabinet. The rank of Minister of State, which is now the senior grade of nondepartmental
minister, was first created for Mr Richard Law (the son of the former Prime
Minister Andrew Bonar Law) in 1943.
44 Since the June 2003 reshuffle, this principle is almost honoured in the breach, with the
Scotland and Wales Offices being entrusted to ministers with primary responsibilities
elsewhere, that is, Transport and Leadership of the House of Commons respectively.
45 See Hood Phillips and Jackson, op. cit., paras 18–021–18–031.
46 Timmins, Financial Times, 12 September 2003, p. 6.
70 Environmental Taxation Law
Most government departments are subject to the supervision of the
Parliamentary Commissioner for Administration (‘the Ombudsman’) in cases of
maladministration.47
(1) Environmental, energy and transport regulation
At least four departments of central government contribute to the design,
implementation and enforcement of various aspects of environmental regulation, that
is, the Cabinet Office;48 the Department for Environment, Food and Rural Affairs
(‘Defra’);49 the Department of Trade and Industry (‘the DTI’);50 and the Department
for Transport (‘the DFT’).51 In addition to these four, the Foreign and Commonwealth
Office52 and the Department for International Development53 each have a role to
play in international environmental policy issues. A further department, the Office
of the Deputy Prime Minister (‘the ODPM’),54 might also be added to the list, since
this has responsibility for a wide range of policy issues touching on environmental
matters, including housing, planning, devolution and regional and local government.
The ODPM and the DFT were together, prior to May 2002, parts of the Department
of Transport, Local Government and the Regions (‘the DTLR’), a Ministry that is
now itself defunct.
The government describes the role of the Cabinet Office as being ‘to support the
Government’s delivery and reform programme’55 by helping other departments
to strike a balance between under- and over-regulating. Whilst not having a direct
involvement in the evolution of the UK’s environmental taxes and other economic
instruments, one of the Units within the Cabinet Office, that is, the Regulatory
Impact Unit, seems to have been highly influential in translating regulatory theory
into practice. Part of the Unit’s role is to work with other government departments,
agents and regulators to help ensure that regulations are fair and effective.56 However,
it has also been responsible for promoting a ‘business friendly’ approach to the
enforcement of regulation57 and for supporting the work of the Better Regulation
47 See the Parliamentary Commissioner Act 1967, Scheds 2 and 3. See also Sir Cecil Clothier,
‘The Value of an Ombudsman’ [1986] PL 204 and Mary Seneviratne, Ombudsmen: Public
Services and Administrative Justice (London: Butterworths, 2002).
48 See www.cabinet-office.gov.uk.
49 See www.defra.gov.uk.
50 See www.dti.gov.uk.
51 See www.dft.gov.uk.
52 See www.fco.gov.uk.
53 See www.dfid.gov.uk.
54 See www.odpm.gov.uk. Although the position of Deputy Prime Minister is not one
recognised by the constitution, the title has been awarded to a senior minister during
Wartime Coalitions and at various times since 1962. The Rt Hon. John Prescott, MP has
held this title since May 1997.
55 See www.cabinet-office.gov.uk/min-org/organisation/index.asp.
56 See www.cabinet-office.gov.uk/regulation/Role/Index.htm.
57 See also the Regulatory Reform Act 2001, which gives ministers extensive powers to use
secondary legislation to reform primary legislation (subject to certain safeguards) as well
as a reserve power to set out a code of good enforcement practice.
Institutional Framework 71
Task Force.58 The Prime Minister’s Strategy Unit,59 another of the Units within
the Cabinet Office60, is tasked with addressing long-term cross-sectoral problems.
One such problem is that of how to reduce dependence on landfill as the primary
method of disposing of waste, to which the Unit has responded by developing the
government’s ‘Waste Not, Want Not’ policy,61 to which reference will be made as
relevant in the rest of the study.62
The remit of Defra is a wide one, including pollution issues (for example, policies
on waste and recycling), climate change policies and international negotiations on
sustainable development.63 The Department is headed by the Secretary of State
for Environment, Food and Rural Affairs, who is a Cabinet member.64 The selfproclaimed
aim of Defra, shortly after its formation in 2001, was to:
… enhance the quality of life through promoting: a better environment; thriving rural
economies and communities; diversity and abundance of wildlife resources, a countryside
for all to enjoy, sustainable and diverse farming and good industries that work together to
meet the needs of consumers.65
The Department is the culmination of a complex process of organisation and
reorganisation after the General Elections of 1997 and 2001. In 1997, the then
Department of Transport was merged with the then Department of the Environment,
to form the Department of Environment, Transport and the Regions (‘the DETR’).66
58 Established in 1997 to promote the idea of better, as opposed to, de- regulation (see
Cabinet Office Press Release CAB 85/97, New Better Regulation Task Force Launched,
17 September 1997).
59 See www.strategy.gov.uk.
60 Its work has since been taken over by the Performance and Innovation Unit.
61 See Cabinet Office Strategy Unit, Waste Not, Want Not: A Strategy for Tackling the Waste
Problem in England (London: Cabinet Office Strategy Unit, 2002).
62 See paras 6.3.2 and 21.4.1 below.
63 As to sustainability, Defra is responsible for the £58.6m Aggregates Levy Sustainability
Fund (‘the ALSF’) (see para. 21.3.1 below). Financed, as its name suggests, by receipts
from aggregates levy, the ALSF makes grants for: ‘improving areas where aggregates
extraction has taken place; helping to reduce demand for primary materials by research
into alternatives; encouraging the recycling and re-use of aggregates and promoting new
methods for extracting and moving aggregates to reduce environmental damage’ (see Defra
News Release, Cleaner Quarries and Fewer Lorries, 11 April 2002). Funds are distributed
through various agencies, including the Countryside Agency (see www.countryside.gov.
uk), English Heritage (see www.english-heritage.org.uk), English Nature (see www.
english-nature.org.uk) and the Waste and Resources Action Programme (‘WRAP’) (see
www.wrap.org.uk and www.aggregain.org.uk – this latter is an information database
funded through the ALSF).
64 Currently (December 2004), the original holder, The Rt Hon. Mrs Margaret Beckett, MP.
65 Department for Environment, Food and Rural Affairs: Aims and Key Tasks, Defra, 2001,
quoted in David Hughes et al., Environmental Law, 4th edn (London: Butterworths
LexisNexis, 2002), p. 33.
66 Secretary of State for the Environment, Transport and the Regions Order 1997, S.I.1997
No. 2971.
72 Environmental Taxation Law
The thinking had been to integrate transport and environment policies,67 so it was
surprising when, following the 2001 General Election, the two policy areas were again
uncoupled, transport being moved to the newly-formed Department for Transport,
Local Government and the Regions (‘the DTLR’), with environment being moved to
another newly-formed ministry, Defra.68 The main other component in Defra, besides
the ‘environmental’ part of the DETR, was the larger part of the Ministry of Agriculture,
Fisheries and Food, whose responsibilities for the promotion of public health and for
the safeguarding of agriculture had long been regarded as being in mutual conflict.69
Below the Secretary of State for Environment, Food and Rural Affairs, who has
overall responsibility for all departmental issues, there are two Ministers of State,
respectively for Environment and Agri-Environment70 and for Rural Affairs and
Urban Life.71 There are then two Parliamentary Under Secretaries, to whom the
responsibilities of food, farming and sustainable energy,72 and Nature Conservancy
and fisheries73 have been allocated.
Directly responsible to the Secretary of State is the Permanent Secretary, a civil
servant, to whom a number of Directorates and Directorates General report directly.
Most importantly, for present purposes, these include the Legal Services Directorate
General, different Directorates of which deal with state aid issues,74 investigations
and prosecutions on behalf of the Department, waste regulation and climate change;
and the Environmental Protection Directorate General, whose responsibilities include
waste management policy and policy on climate, energy and environmental risk.
Within Defra is also the ‘shadow’ Emissions Trading Authority, which is responsible
for the administration of the UK ETS,75 and the Combined Heat and Power Quality
Authority.
In sum, Defra has been responsible for the design, implementation and operation of
PRNs,76 the LATS (in England),77 climate change agreements under climate change
levy78 and the UK ETS.79 As if all this were not enough, it has also been tasked with
the preparation of the UK’s national allocation plan (‘NAP’) under the EU ETS.80
67 Department of the Environment Press Release 216, 11 June 1997.
68 See the Secretaries of State for Transport, Local Government and the Regions and for
Environment, Food and Rural Affairs Order 2001, S.I. 2001 No. 2568.
69 Most notably, of course, in relation to the BSE crisis of the mid-1990s and the foot and
mouth crisis of 2001.
70 Currently (December 2004) Mr Elliot Morley, MP (who replaced The Rt Hon. Michael
Meacher, MP in June 2003).
71 Currently (December 2004) The Rt Hon. Alun Michael, MP.
72 Currently (December 2004) Lord Whitty, the former General Secretary of the Labour
Party, who also deals with all the Department’s business in the House of Lords.
73 Currently (December 2004) Mr Ben Bradshaw, MP.
74 See para. 12.2.7 below.
75 The government had signalled its intention to establish this as an independent statutory
body when Parliamentary time allows.
76 See para. 1.4.2.1(2) above.
77 See para. 1.4.2.1(4) above.
78 See para. 1.4.2.2(1) above.
79 See para. 1.4.2.2(2) above.
80 See para. 1.4.2.2(3) above and para. 28.5 below.
Institutional Framework 73
The DTI, which dates from 1983,81 is responsible for trade policy, not only within
the UK, but also as regards the UK’s relationship with the EU and its Member States,
as well as third countries. At the head of the DTI is the Secretary of State for Trade and
Industry, who, like the Secretary of State for Environment, Food and Rural Affairs, is
a member of the Cabinet.82 Directorates within the Department deal with, inter alia,
company law, competitiveness, international trade policy83 and matters relating to
the production, generation and supply of energy.84 As regards the last of these:
The … [Energy Group] is committed to working with others to ensure competitive energy
markets while achieving safe, secure and sustainable energy supplies. Its role is to set
out a fair and effective framework in which competition can flourish for the benefit of
customers, the industry and suppliers, and which will contribute to the achievement of the
UK’s environmental and social objectives. These include the alleviation of fuel poverty,
and maintaining the security and diversity of the UK energy sources.85
Thus, within the Group are units dealing with energy strategy, British Energy plc,86
nuclear and coal liabilities, energy markets, energy innovation and business and
licensing and consents. Certain aspects of emissions trading are the responsibility
of the strategy unit; European Commission approval for state aids are dealt with by
the British Energy unit;87 international treaties and negotiation, as well as electricity
trading reform and regulatory issues are covered by the energy markets unit;88
renewables and coal state aid and industry sponsorship are dealt with by the energy
innovation and business unit; and oil and gas environmental matters are dealt with by
the licensing and consents unit. The DTI, in conjunction with Defra, was responsible
in February 2003 for the Energy White Paper, Our Energy Future – Creating a Low
Carbon Economy.89
In connection with the promotion of a low carbon economy, the DTI has a further
significance, as being one of four sponsors90 of a body called the Carbon Trust.91
An independent company limited by guarantee, the Carbon Trust was set up by
81 That is, following the amalgamation of two other ministries. Its origins can be traced
much further back, however.
82 Currently (December 2004), The Rt Hon. Mrs Patricia Hewitt, MP.
83 Including relations with the WTO and the OECD (see paras 4.4.1 and 4.4.2 below).
84 See www.dti.gov.uk/energy.
85 See www.dti.gov.uk/energy/about.shtml.
86 See para. 21.4.4 below.
87 Ibid.
88 See paras 2.4 above and 6.4.3 below.
89 DTI/Defra, Our Energy Future: Creating a Low Carbon Economy, 2003 (Cm 5761,
2003). See further Chapters 20 and 21 below.
90 The others are the Department for Environment, Food and Rural Affairs (see para.
4.2.1.2(1) below); the Scottish Executive (see para. 4.2.2 below); from the National
Assembly for Wales and from the Northern Ireland Assembly (see para. 4.2.2 below for
both). The Carbon Trust, whose total funding is £50 million per annum, also receives part
of the receipts from climate change levy (see para. 21.3.1 below).
91 See www.thecarbontrust.co.uk. This is a singularly uninformative website, high on
political rhetoric and low on technical information.
74 Environmental Taxation Law
the government ‘in partnership with business’, to invest in the development and
deployment of low carbon technologies.92 Since July 2002, it has had responsibility
for the everyday administration of the enhanced capital allowances scheme for
expenditure on specified environmentally-friendly energy equipment.93 The members
of the board of directors of the Carbon Trust are primarily, though not exclusively,
from the private sector. The Carbon Trust has a sibling called the Energy Saving
Trust (‘the EST’),94 set up by the pre-1997 Conservative Government after the
United Nations’ Conference on Environment and Development at Rio de Janeiro in
1992.95 The EST runs two schemes aimed at stimulating the market: the Community
Energy programme and the Photovoltaic Demonstration programme.96 It is difficult
to see the justification for either body, or why the functions of either body could not
be transferred to central government.97
The DFT is the result of a further stage in the reorganisation process outlined
above in relation to Defra. In 2002, the DTLR was split yet again, certain of its
transport functions being moved to this new ‘Department for Transport’.98 The
idea was for the DFT to provide a stronger focus on delivering the government’s
transport strategy.99 Its self-proclaimed aim is ‘transport that works for everyone’
and, to that end, it works in partnership with others to ‘tackle congestion;
improve accessibility; reduce casualties; respect the environment; and support
the economy’.100 It describes itself as working with Defra on air-quality, climate
change and sustainability and with HM Treasury,101 Defra and with the DTI on the
government’s Powering Future Vehicles strategy. The DFT has four groups, that
is, the Railways, Aviation, Logistics, Maritime and Security Group; the Strategy,
Finance and Delivery Group; the Roads, Regional and Local Transport Group; and
the Driver and Vehicle Operator Group.102
92 See House of Commons Science and Technology Committee, 4th Report. Towards a Non-
Carbon Fuel Economy: Research, Development and Demonstration (HC Papers, Session
2002–2003, HC 55–I) (London: Stationery Office, 2003), para. 38. See further para.
21.3.1 below.
93 See para. 21.3.1 below.
94 See www.est.org.uk.
95 See paras 8.2.3 and 8.3.1.3 below.
96 The Community Energy programme is funded by Defra (see para. 4.2.1.2(1) below)
and managed by the EST and the Carbon Trust and the Photovoltaic Demonstration
programme is funded by the DTI. In 2002–2003, the EST’s budget was £90 million,
made up of funds from central and regional government (see Towards a Non-Carbon Fuel
Economy: Research, Development and Demonstration, above, para. 43).
97 See Towards a Non-Carbon Fuel Economy: Research, Development and Demonstration,
above, para. 44.
98 See the Transfer of Functions (Transport, Local Government and the Regions) Order
2002, S.I. 2002 No. 2626. Note the difference in nomenclature between the post-2002
‘Department for Transport’ and the pre-1997 ‘Department of Transport’.
99 See www.dft.gov.uk.
100 Ibid.
101 See para. 4.2.1.2(2) below.
102 The DVLA is also part of the DFT.
Institutional Framework 75
(2) Taxes and tax policy
Governmental responsibilities in relation to taxation are located in three departments:
HM Treasury;103 the Board of Inland Revenue;104 and the Commissioners of Customs
and Excise.105 The latter two are to be amalgamated under the name ‘HM Revenue
and Customs’, a process outlined briefly below.
Her Majesty’s Treasury has ultimate responsibility for the other two departments in
the list, each being one of the UK’s two tax authorities.106 However, the Treasury’s
responsibilities extend far beyond tax administration, covering ‘the supervision
and control of national finance’,107 as well as the development and coordination of
economic policy. The Department’s responsibility for economic policy is of relatively
recent origin.108 That it is today one of the most important of the Department’s
functions is, however, plain from the Treasury’s website,109 where the Department’s
aim and objectives are set out. The former includes a specific commitment to the
environment.110
The Treasury Board111 comprises the First Lord of the Treasury, that is, the Prime
Minister,112 the Chancellor of the Exchequer113 and five Junior Lords.114 (Although
called ‘Lords’, these posts are held by members of the House of Commons.)
The Chancellor is the key Finance Minister and under him are a number of
Junior Ministers, that is, the Chief Secretary to the Treasury,115 the Paymaster-
103 See www.hm-treasury.gov.uk. The Treasury has, over the years, been the subject of
several interesting studies, for example, Joel Barnett, Inside the Treasury (London:
André Deutsch, 1982) and Colin Thain and Maurice Wright, The Treasury and Whitehall
(Oxford: Oxford University Press, 1995).
104 See www.inlandrevenue.gov.uk.
105 See www.hmce.gov.uk.
106 An introductory outline of the operational aspects of the two authorities has already been
given (see para. 1.5 above).
107 See Hood Phillips and Jackson, op. cit., para. 18–007.
108 See Edmund Dell, The Chancellors (London: HarperCollins, 1996), p. 110.
109 See www.hm-treasury.gov.uk.
110 See www.hm-treasury.gov.uk/about/about_aimsobject.cfm.
111 Which constitutes, technically and historically, the Commissioners running the Treasury
while the office of Lord High Treasurer is vacant (as indeed it has been since the Duke of
Shrewsbury was appointed by Queen Anne on her deathbed in 1714).
112 As First Lord of the Treasury. The post of Prime Minister was not created until 1905,
although the person so regarded usually held that position since the era of Sir Robert
Walpole (1721–1742). Since the early 1970s, the Prime Minister has also been Minister
for the Civil Service.
113 Currently (December 2004), The Rt Hon. Gordon Brown, MP, New Labour’s original
appointment in May 1997 and the Chancellor with the longest tenure since Nicholas
Vansittart (1812–1823).
114 Although they are used to sign statutory instruments, in practice the junior Lords of
the Treasury are medium ranking House of Commons whips who rank considerably
below Parliamentary Under-Secretary in the political hierarchy. The Chief Whip holds
the (nominal) position of Parliamentary Secretary to the Treasury and the next three in
seniority the posts of Treasurer, Vice-Chamberlain and Comptroller of HM Household
(see, further, Hood Phillips and Jackson, op. cit., para. 18–007).
115 Who is the Cabinet Minister responsible for expenditure, currently (December 2004) The
Rt Hon. Paul Boateng, MP.
76 Environmental Taxation Law
General,116 the Financial Secretary to the Treasury117 and the Economic Secretary
to the Treasury.118 Of these, the Chief Secretary to the Treasury is also, like the
Chancellor, a Cabinet Minister. The Paymaster-General used – before the proposed
departmental amalgamation – to be responsible for the Inland Revenue and has
overall responsibility for each Finance Bill. Responsibility for Customs and Excise
used to lie with the Financial Secretary to the Treasury. The fact that the Treasury has
two Cabinet Ministers tends to underline the popular impression that the Treasury
is the senior department of government. The Treasury is made up of seven main
Directorates, each of which consists of a number of Directorate Standing Teams.
Environmental taxes are dealt with by the Budget and Public Finances Directorate
and, within that, by the Environment and Transport Taxes and Saving Incentives Team.
The Treasury’s key contribution to the evolution of policy relating to environmental
taxes and other economic instruments is reflected in its policy document of 2002, Tax
and the environment: using economic instruments.119
The Board of Inland Revenue is responsible for the administration of the UK’s
direct taxes.120 By the Inland Revenue Regulation Act 1890, s.2, the Board of Inland
Revenue is constituted by a quorum of Commissioners,121 who ‘may do and order
and direct and permit to be done throughout the United Kingdom or in any part thereof
all acts, matters, and things related to inland revenue’.122 Currently, four of the nine
Commissioners have specific areas of responsibility, which the Revenue’s website
lists as Strategic Service Delivery, General Policy and Technical, Corporate Services
and the Valuation Office Agency.123 Below the level of the Board, the structure of
the Department is a complex one,124 made the more so by the Department’s ongoing
programme of reorganisation.125 The three aspects that are worthy of note in the
116 Currently (December 2004) The Rt Hon. Dawn Primarolo, MP, who has been the principal
Treasury Minister in charge of the Inland Revenue since May 1997.
117 In September 2004, Miss Ruth Kelly, MP was replaced by Mr Stephen Timms, MP. He
had been her predecessor in the post.
118 Currently (December 2004), Mr John Healey, MP, whose primary responsibility is for
HM Customs and Excise.
119 See Chapter 5 below.
120 See para. 1.5 above. The Board of Inland Revenue was originally constituted under the
Inland Revenue Board Act 1849.
121 Usually two. The current membership of the Board, the last permanent Chairman of which
was Sir Nicholas Montagu, KCB, until his retirement in March 2004, can be viewed at www.
inlandrevenue.gov.uk/board. Mrs Ann Chant is the current acting Chairman. In Budget
2004, delivered on 17 March 2004, proposals were announced for the amalgamation of
the Inland Revenue with Customs. Shortly thereafter the government started advertising
for an individual of major corporate experience to manage the merger, in the course of
which it was anticipated that a significant reduction in personnel would be achieved.
122 ‘Inland revenue’ is defined, in Inland Revenue Regulation Act 1890, s.39 as ‘… the
revenue of the United Kingdom collected or imposed as stamp duties, taxes, and placed
under the care and management of the Commissioners, and any part thereof’.
123 See www.inlandrevenue.gov.uk/board.
124 The organisation of the Department is envisaged as being along the lines of a Next Steps
Executive Agency (see para. 4.2.1.3 below).
125 See, for example, Inland Revenue, Annual Report 2003, pp. 16–17.
Institutional Framework 77
present context are: first, the Revenue Policy Division, at least three units of which
have an input into the environmentally-inspired provisions of the direct tax codes;126
secondly, the Strategic Service Delivery Division, which contains the units concerned
with enforcement; and, thirdly, the Solicitor’s Office, which conducts the Board’s
civil litigation in England, Wales and Scotland, as well as its prosecutions in England
and Wales. Within the second of these, the UK is divided up into a large number of
Tax Districts in a regional structure. Inspectors and Collectors of Taxes, who are to act
under the Board’s direction, are appointed for each of these Districts and are assisted
by the specialist units in the same Division.127 Given its direct tax-orientation, the
Revenue has not had a close involvement with environmental taxes; it has, however,
contributed to the ‘greening’ of the UK’s direct tax system, through the measures
discussed in Chapters 23 and 24 below and has been working on the income tax and
corporation tax treatment of the UK ETS, as well as of the EU ETS.128
Whereas the Board of Inland Revenue is responsible for the administration of
the UK’s direct taxes, the Commissioners of Customs and Excise are tasked with
administering its indirect taxes. Indirect taxes include, of course, not only VAT and
duties of customs and excise, but also landfill tax, climate change levy and aggregates
levy. By the Customs and Excise Management Act 1979, s.6(1):
Her Majesty may from time to time, under the Great Seal of the United Kingdom,129
appoint persons to be Commissioners of Customs and Excise, and any person so appointed
shall hold office during Her Majesty’s pleasure and may be paid such remuneration and
allowances as the Treasury may determine.
Subsection (2) of s.6 then goes on to provide that, in addition to specific
duties imposed by statute, and subject to the general control of the Treasury, the
Commissioners ‘… shall be charged with the duty of collecting and accounting for,
and otherwise managing, the revenues of customs and excise’. This involves the
care and management of the taxes and duties laid on them, enforcing restrictions and
prohibitions, dealing with individual taxpayer’s affairs and dealing with criminal
investigations.130 Specifically entrusted to the Commissioners are the care and
management of VAT;131 the care and management of landfill tax;132 the care and
management of climate change levy;133 and the care and management of aggregates
levy.134 However, the Department has also been responsible for the management of
the consultations relating to the design, implementation and ongoing review of each
of these taxes.135
126 For example, the Benefits and Expenses Team, which deals with transport-related benefits,
company cars and vans and green transport. See further Chapter 23 below.
127 For example, the National Insurance Contributions Office, the Tax Credit Office, etc.
128 See para. 24.7 below.
129 See Hood Phillips and Jackson, op. cit., paras 18–001–18–003, as to the Great Seal.
130 See, for example, Customs and Excise, Annual Report 2001–2002, p. 113.
131 Value Added Tax Act 1994, Sched. 11, para. 1(1).
132 Finance Act 1996, s.39(2).
133 Finance Act 2000, Sched. 6, para. 1(2).
134 Finance Act 2001, s.16(5).
135 See paras 11.3 and 11.4 below.
78 Environmental Taxation Law
The Department was reorganised from April 2001 to focus all of Customs’
operational activities into two ‘core’ functions: first, the Business Services and
Taxes Directorate; and, secondly, the Law Enforcement Directorate.136 As part of
this reorganisation, an attempt was made to simplify the Department’s management
structure, as well as to separate support services from so-called ‘front-line functions’.
The two ‘core’ functions, though largely self-explanatory, perhaps merit some brief
elaboration. Landfill tax, climate change levy and aggregates levy, as well as VAT
and excise duties, are collected and managed by Business Services and Taxes. Law
Enforcement’s functions are primarily in relation to indirect tax fraud, it having
responsibility for investigation, detection and the recovery of criminal assets. Within
Business Services and Taxes, there is a team that deals exclusively with environmental
taxation issues, including not only aggregates levy, climate change levy and landfill
tax, but also the environmental aspects of excise duties and air passenger duty.137
Other teams, whilst not being solely dedicated to environmental taxes, deal with
the environmental aspects of the VAT code (for example, reduced rates of tax for
domestic installation of energy-saving materials).138
An important function of Customs in the context of the environmental taxes is
the Commissioners’ oversight of Entrust, the regulatory body for the landfill tax
credit scheme (‘the LTCS’).139 Section 53 of the Finance Act 1996 gave power
to the Commissioners to make regulations for securing that a landfill site operator
would be entitled to a credit against landfill tax if he paid a sum to an environmental
body, that is, one whose objects are or include the protection of the environment and
in relation to which certain other prescribed conditions are satisfied.140 The same
section also gave power to Customs to make regulations for requiring environmental
bodies to be approved by a regulatory body.141 The Landfill Tax Regulations 1996,
as amended,142 accordingly contain detailed provisions both as to approved bodies
and as to the appointment of the regulatory body, that is, Entrust.143
Customs have also been given control of the LRUC Management Authority, which
has been set up to run the lorry road user charge.144
Both Customs and the Revenue are subject to the supervision, not only of the
Ombudsman,145 but also of the Revenue Adjudicator, whose function is to examine
complaints from taxpayers about the manner in which the Department in question
136 As with the Revenue, this has been inspired by the Next Steps Executive Agencies (see
para. 4.2.1.3 below).
137 See para. 1.2.1.5(2) above.
138 See para. 21.3.1 below.
139 See www.entrust.org.uk. See also paras 16.9 and 21.3.2 below. For details of the LTCS,
see www.ltcs.org.uk.
140 See Finance Act 1996, s.53(1).
141 See Finance Act 1996, s.53(2)(b).
142 See Landfill Tax Regulations 1996, S.I. 1996 No. 1527, as subsequently amended, most
recently by Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605. See further
para. 21.3.2 below.
143 Entrust’s website states that the body is funded by an enrolment fee from approved bodies
and an administrative fee of 2 per cent of landfill operators’ donations.
144 See para. 27.3 below.
145 See the beginning of para. 4.2.1.2(1) above.
Institutional Framework 79
conducts the taxpayer’s affairs.146 The office is rendered all the more important
because of both Departments’ enforcement powers, particularised as necessary
throughout the rest of the study.147 Because of its ‘policing’ role,148 Customs has the
widest prosecution and enforcement powers of any government department.
Controversy over their handling of a number of high-profile cases,149 no less than
the involvement of the Boards of both the Inland Revenue and Customs and Excise
in a PFI scheme involving an offshore intermediate lessor with existing tax losses,150
prompted the Treasury to announce a major review of the way in which the two
departments operate.151 It was announced on 17 March 2004, that the amalgamation
of the two bodies is to result from this.152 In May 2004, the chairman153 and deputy
chairman154 of the amalgamated Department, to be called ‘HM Revenue and
Customs’,155 were named.
4.2.1.3 Non-departmental public bodies and agencies
Of primary relevance to the environmental regulation strand in this account are a
number of non-departmental public bodies and agencies. There are essentially
four separate bodies: the Environment Agency;156 the Gas and Electricity Markets
Authority; the Office of Gas and Electricity Markets;157 and the National Audit
Office.158 All four are executive non-departmental bodies (or ‘quangos’),159 rather
146 See, for example, the useful summary of the Revenue Adjudicator’s functions in Lesley
Browning et al., Revenue Law – Principles and Practice, 22nd edn (London: Lexis Nexis
Tolley, 2004), para. 2.52.
147 See, esp. para. 16.12 below.
148 For example, in relation to smuggling, etc.
149 Resulting in Customs’ prosecuting role being brought under the direct supervision of the
Attorney-General.
150 See House of Commons Treasury Select Committee, Tenth Report of Session 2002–03,
HC 834, Inland Revenue Matters (published 23 July 2003).
151 See HM Treasury Press Release 78/03, Chancellor Announces Major Review of Inland
Revenue and HM Customs and Excise, 2 July 2003. The issues are of some standing. Tiley
quotes Denis Healey (Lord Healey), the Labour Chancellor from 1974 to 1979, as saying
in his memoirs (characteristically) that the Inland Revenue, like Customs and Excise,
‘considered itself to be at least as independent of the Treasury as the three armed servi,ces
were of the Ministry of Defence!’ (see John Tiley, Revenue Law, 4th edn (Oxford: Hart
Publishing, 2000), p. 58n, quoting Denis Healey’s The Time of My Life (London: Michael
Joseph, 1989), p. 373).
152 The Inland Revenue has recently absorbed the Contributions Agency, which was
responsible to the Department of Social Security for the collection of NICs.
153 Mr David Varney, from a leading listed company.
154 Mr Paul Gray, a Second Permanent Secretary from a Ministry.
155 See, for example, Anon., Financial Times, 13 July 2004, p. 8 (discussing job losses as a
result of the projected merger of the two departments).
156 See www.environment-agency.gov.uk.
157 See www.ofgem.gov.uk.
158 See www.nao.gov.uk.
159 That is, quasi-autonomous non-governmental organisation.
80 Environmental Taxation Law
than Next Steps Executive Agencies.160 To the list might be added at least two other
bodies, who figure to a greater or lesser extent in what follows: the Civil Aviation
Authority,161 which deals with the economic and safety regulation of UK aviation
and airlines, and the Coal Authority,162 which is responsible for licensing coal mining
operations and ensuring the safety of abandoned mine workings.163
Set up under the Environment Act 1995, the Environment Agency took over a range of
functions and powers, including those of her Majesty’s Inspectorate of Pollution, of the
National Rivers Authority and, in relation to waste-management, of local authorities.164
The Agency is funded partly by Defra and the National Assembly for Wales and partly
by its own activities (for example, levies on local authorities and licence fees).165 It is
organised on a regional basis, with the water management boundaries being based on
the National Rivers Authority’s eight river catchment areas, and the pollution control
functions being organised largely on the same areas, but with modifications to match
the local authority boundary closest to the water management boundary.166
By s.4(1), Environment Act 1995, the principal aim of the Agency is to discharge its
functions so to protect or enhance the environment, taken as a whole, as to contribute
to the objective of achieving sustainable development.167 The principal aim is qualified
in two ways: (a) it is subject to, and the discharge of the Agency’s functions must be in
accordance with, other statutory provisions, including those of the Act itself; and (b)
the Agency must take into account any likely costs. Whether or not the wording of the
principal aim creates a legally enforceable duty, in view of its wide scope, is uncertain. As
to (a), the principal aim is overridden by other statutory provisions in cases where such
160 Environment Act 1995, s.1(1), establishes the Environment Agency as an independent
body corporate. As to Next Steps Executive Agencies and the constitutional issues they
raise, see Hood Phillips and Jackson, op. cit., para. 18–023.
161 See www.caa.co.uk.
162 See www.coal.gov.uk.
163 For completeness, we should also mention the roles of the Office of Fair Trading (www.
oft.gov.uk) and of the Competition Commission (www.competition-commission.org.uk)
in relation to the privatised electricity and gas markets discussed in Chapter 2 above and
Chapter 6 below.
164 The history of the Environment Agency is usefully outlined in Bell and McGillivray,
op. cit., pp. 162–163. The Agency has a Scottish equivalent in the Scottish Environment
Protection Agency (‘SEPA’), see www.sepa.org.uk.
165 See, for example, Environment Agency, Annual Report and Accounts 2001–2002.
166 See Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn
(London: Cavendish, 2003), p. 38.
167 The Rio Declaration (see paras 8.2.3 and 8.2.6 below) contains 27 Principles of international
environmental law, which together constitute the main outlines of the concept of sustainable
development. There is no definition of the term in the Environment Act 1995, the Agency’s
own guidance using the Brundtland Report’s definition, that is: ‘[D]evelopment that
meets the needs of the present without compromising the ability of future generations to
meet their own needs’. The Brundtland Report (World Commission on Environment and
Development, Our Common Future (Oxford: Oxford University Press, 1987) was the work
of the World Commission on Environment and Development (‘WCED’) and its definition
of sustainable development has been described as ‘somewhat Delphic’ (see Patricia
Birnie and Alan Boyle, International Law and the Environment, 2nd edn (Oxford: Oxford
University Press, 2002)), p. 41. See, further, Bell and McGillivray, op. cit., pp. 39–46.
Institutional Framework 81
provisions place the Agency under a duty to have regard to particular considerations or
to carry out particular acts. The latter qualification, that is, in (b), includes the costs to
any person and to the environment.168 The Secretary of State must give guidance from
time to time to the Agency with respect to the objectives that he considers it appropriate
for the Agency to pursue in the discharge of its functions.169 Specifically, such
guidance must include advice on how, having regard to the Agency’s responsibilities
and resources, it is to achieve the objective of sustainable development.170 Prior to
issuing such guidance, the Secretary of State is obliged to consult the Environment
Agency and any other appropriate bodies or persons.171 One of the key functions of
the Agency, in the context of the present study, is its administrative and enforcement
role, via its National Waste Registration Unit (‘NWRU’) of the system of producer
responsibility for packaging waste and the non-statutory PRN regime.172
Other duties are imposed upon the Agency by ss.5 and 6, Environment Act
1995. Section 5(1) provides that the Agency’s pollution control powers are to be
exercisable for the purpose of preventing or minimising, or remedying or mitigating
the effects of, pollution of the environment. A very general duty is likewise imposed
on the Agency by s.6(1), which provides that the Agency must, ‘to such extent as it
considers desirable, … generally promote the conservation and enhancement of the
natural beauty and amenity of inland and coastal waters’ (plus associated land), ‘the
conservation of flora and fauna that are dependent on an aquatic environment’ and
‘the use of such waters and land for recreational purposes’.
Section 39(1) of the Environment Act 1995 imposes a duty on the Agency to ‘take
into account the likely costs and benefits of the exercise or non-exercise of a power’
conferred on it, by or under an enactment, or its exercise in the manner in question.
However, the subsection continues, the duty does not apply if it is considered
unreasonable to embark upon this calculation by reference to the nature or purpose
of the power in question or in the circumstances of the particular case. The Agency’s
own guidance suggests that one consequence of this wording is that there is no duty
to conduct a cost/benefit assessment in relation to an enforcement decision.173 The
Agency’s enforcement powers, including those of inspection and entry, are wide, and
are set out in Environment Act 1995, s.108. Subsection (1) of s.108 provides that the
powers are exercisable for the purpose of: determining whether any pollution control
legislation is being complied with; exercising or performing any of the Agency’s
pollution control functions; and determining ‘whether and, if so, how, such a function
should be exercised or performed’. Subsection (4) of s.108 empowers an officer
appointed by the Agency, inter alia, to enter premises; to be accompanied by a police
officer in certain circumstances; and make any necessary investigation. The Agency
has published its policy in relation to the prosecution of environmental offences.174
168 Environment Act 1995, s.56(1).
169 Ibid., s.4(2).
170 Ibid., s.4(3).
171 Ibid., s.4(5).
172 See para. 1.4.2.1(2) above and Chapter 19 below.
173 Environment Agency Sustainable Development Series SD3, Taking Account of Costs and
Benefits, para. 11.1.
174 See www.environment-agency.gov.uk.
82 Environmental Taxation Law
The Office of Gas and Electricity Markets (‘Ofgem’) regulates the UK’s gas and
electricity industries.175 It carries out its work subject to the direction of the first
of the bodies in this list, the Gas and Electricity Markets Authority (‘GEMA’), a
body corporate with the primary duty of carrying out its functions in the way
best calculated to protect the interests of gas and electricity consumers, wherever
appropriate by promoting effective competition. The Gas and Electricity Markets
Authority was established by the Utilities Act 2000 to carry out the functions
formerly carried out by the Director General of Gas Supply and the Director General
of Electricity Supply, as well as the other functions assigned to it under that Act.176
By s.1(2), Utilities Act 2000, GEMA’s functions are performed by it on behalf of
the Crown. It must make arrangements with the Gas and Electricity Consumer
Council for cooperating and exchanging information. As to Ofgem, according to
its website, Ofgem’s work concentrates on the following areas: making gas and
electricity markets work effectively; regulating monopoly businesses intelligently;
securing Britain’s gas and electricity supplies; and meeting its increased social and
environmental responsibilities.177 The Office has enforcement powers under the
Competition Act 1998.
Finally, there is the National Audit Office (‘the NAO’), established by the National
Audit Act 1983. The NAO is tasked with providing independent information, advice
and assurance, both to the public at large and to Parliament, about the financial
operations of government departments and other bodies that receive public funds. The
NAO is made up of the Comptroller and Auditor-General and the staff appointed by
him.178 The NAO’s expenses are defrayed out of money provided by Parliament,179
neither the Comptroller and Auditor-General nor any of his staff being regarded as
holding office under her Majesty or as discharging any functions on behalf of the
Crown.180
4.2.1.4 Advisory bodies
Before going on to consider regional and local government, reference should
briefly be made at this point to four advisory bodies: the Royal Commission on
Environmental Pollution (‘RCEP’);181 the Advisory Committee on Business and the
Environment (‘ACBE’);182 the Commission for Integrated Transport (‘CFIT’);183
and the Commission on Sustainable Development.184
175 Under the Gas Act 1986 and the Electricity Act 1989 (as amended by the Utilities Act
2000).
176 Utilities Act 2000, s.1(1).
177 See www.ofgem.gov.uk.
178 National Audit Act 1983, s.3(1).
179 Ibid., s.4(1).
180 Ibid., s.3(5).
181 See www.rcep.org.uk.
182 See www.defra.gov.uk/environment/acbe/default.htm.
183 See www.cfit.gov.uk.
184 See www.sd-commission.gov.uk; see also the Defra sustainability website: www.defra.
gov.uk/environment/sustainable/index.htm. The Sustainability Commission’s Chairman
is Sir Jonathon Porritt, CBE.
Institutional Framework 83
The Royal Commission on Environmental Pollution is an independent standing
body established in 1970, to advise the Queen, the government, parliament and the
public on environmental issues. As a standing Royal Commission, with its own
secretariat, it is, as Bell and McGillivray say, ‘a(chǎn) rather rare beast’.185 Besides its 20-
odd reports,186 the most visible aspect of its work, it also responds to consultations
and submits memoranda to Committees of the UK Parliament.187 Despite being
described as ‘constitutionally independent’ from government departments, its
funding is provided by Defra, which requires the Commission to supply it with
evidence that the funding has been put to good use and that RCEP is providing value
for money.188
The other three committees mentioned above can be dealt with fairly briefly. The
Advisory Committee on Business and the Environment (‘ACBE’) ‘provides for
dialogue between government and business on environmental issues and aims to
help mobilise the business community in demonstrating good environmental practice
and management’.189 Hughes et al. pinpointed the problem with ACBE as being that,
given that there was no attempt to combine the interests of the industrial sector and
pro-environment groups in ACBE’s membership, there was a danger that it would
become, or would be seen as becoming, ‘a(chǎn)n institutionalised form of lobbying for
industry’.190 These words proved prophetic in relation to the UK Emissions Trading
Group,191 the body formed by ACBE and the CBI192 jointly, in July 1999, to represent
the business interest in emissions trading.193
The role of CFIT was identified in the government’s 1998 White Paper194 as being
‘… to provide independent advice to government on the implementation of integrated
transport policy, to monitor developments across transport, environment, health and
other sectors and to review progress towards meeting … [the government’s objectives
under its 10-year transport plan]’.195 Since then, CFIT has championed a number of
185 See Bell and McGillivray, op. cit., p. 157.
186 Some of the most important of these have been its Fifth Report, Air Pollution Control:
An Integrated Approach, 1976 (Cmnd 6371, 1976); its Tenth Report, Tackling Pollution
– Experiences and Prospects, 1984 (Cmnd 9149, 1984); its Eleventh Report, Managing
Waste: The Duty of Care, 1985 (Cmnd 9675, 1985); its Twelfth Report, Best Practicable
Environmental Option, 1988 (Cmnd 310, 1988); its Twentieth Report, Transport and the
Environment – Developments since 1994, 1997 (Cm 3759, 1997); its Twenty-first Report,
Setting Environmental Standards, 1998 (Cm 4053, 1998); and its Twenty-second Report,
Energy – The Changing Climate, 2000 (Cm 4749, 2000).
187 See para. 4.2.1.1 above.
188 See Hughes et al., op. cit., p. 54.
189 See www.defra.gov.uk/environment/acbe/default.htm.
190 See Hughes et al., op. cit., p. 55.
191 See www.uketg.com.
192 See para. 2.2 above.
193 As the incentive payments made under the UK ETS have graphically demonstrated (see
paras 12.2.7.2, 20.1 and 20.4 below).
194 Department of the Environment Transport and the Regions, A New Deal for Transport:
Better for Everyone, 1998 (Cm 3950, 1998). For the DETR, and its subsequent fate, see
para. 4.2.1.2(1) above.
195 See A New Deal for Transport, para. 4.4.
84 Environmental Taxation Law
causes, including congestion charging, in relation to which it provides excellent upto-
date information via its website.196
Finally, the Commission on Sustainable Development is the successor to the UK
Round Table on Sustainable Development and to the British Government Panel on
Sustainable Development.197 The Commission was originally set up in October 2000,
following up a commitment to do so in the 1999 report A Better Quality of Life.198
Its task is to monitor government progress in relation to sustainable development
across all relevant fields and specifically to identify policies currently undermining
such progress, with a view to their remediation. Recently, it has produced a detailed
response to the joint Treasury and DFT consultation paper on the use of economic
instruments in regulating the environmental effects of aviation.199
4.2.1.5 The court system
The quasi-federal structure of the UK has a single tax system and three different legal
systems.200 The legal system of England and Wales has a different system of appeals
from those of Scotland and Northern Ireland. The factor common to all three systems
is the ultimate appeal to the House of Lords and to the European Court of Justice
(‘the ECJ’). In this para, we outline briefly the legal system of England and Wales, as
it relates to tax and environmental matters.201
Taxpayers may appeal against assessments to income tax, CGT and corporation
tax under certain conditions.202 They may choose whether to appeal to the General
Commissioners or to the Special Commissioners. The General Commissioners are
part-time and unpaid, often lay people rather than experts, and assisted by a clerk,
who is usually a solicitor.203 The Special Commissioners, by contrast, are barristers,
advocates or solicitors of at least ten years’ standing.204 The Commissioners, when
they hear a case, have the right to look anew at any matter of law or fact referred
to them, and they can dismiss or alter an assessment in any way they consider to be
justified.205 By Value Added Tax Act 1994, ss.83 and 84, VAT appeals are made to
the VAT and Duties Tribunals,206 which consist of a chairman sitting either with two
196 See www.cfit.gov.uk/congestioncharging/index.htm.
197 As Hughes et al. point out, this body is not to be confused with the United Nations
Commission on Sustainable Development (see para. 4.4.3.1 below).
198 Cm 4345, 1999. See para. 5.2 below.
199 See www.sd-commission.gov.uk/pubs/aviation/index.htm. For a discussion of the joint
report itself, see para. 27.5 below.
200 See Davies: Principles of Tax Law, ed. by Geoffrey Morse and David Williams, 4th edn
(London: Sweet and Maxwell, 2000), para. 2–06.
201 See, for example, Smith, Bailey and Gunn on the Modern English Legal System, ed. by
S.H. Bailey, J.P.L. Ching, M.J. Gunn and D.C. Ormerod, 4th edn (London: Sweet and
Maxwell, 2002).
202 Taxes Management Act 1970, s.31.
203 Ibid., ss.2, 3.
204 Ibid., s.4.
205 Davies, op. cit., para. 1–12.
206 Value Added Tax Act 1994, Sched. 12.
Institutional Framework 85
other members or with one other member or alone.207 Tribunal chairmen must have
held a right of audience before the tribunal for at least seven years.208 By Finance
Act 1996, s.54(3), a person affected by a decision of Customs on landfill tax may by
notice in writing require them to review the decision. Thereafter, appeal lies to a VAT
and Duties Tribunal under Finance Act 1996, s.55. Virtually identical procedures
apply for the purposes of climate change levy209 and for aggregates levy.210 Such, in
essence, is the relevant system of tax appeals.
If the involvement of the UK courts in tax matters is as a result of appeals against
assessments, in environmental, energy and transport matters it tends to occur as a
result of applications for judicial review of administrative decisions,211 for example,
refusals to grant licences under the various command and control mechanisms212
or refusals of, or the imposition of conditions on, planning permissions.213 Review
may be sought in the High Court on a number of grounds, including procedural
flaws, procedural unfairness and irrationality. It is seen as providing a valuable
accountability mechanism after the event.214
The High Court of Justice is divided into three administrative Divisions: the Queen’s
Bench, Chancery and Family Divisions. It is served by over 100 High Court judges.
The Chancery Division hears appeals from the General and Special Commissioners
on points of law only.215 However, appeals from VAT and Duties Tribunals lie to
the Administrative Court of the Queen’s Bench Division, since they are treated as
administrative law appeals.216 Applications for judicial review are generally made to
the Queen’s Bench Division Administrative Court.
Appeals from both the Chancery Division and the Queen’s Bench Division go to
the Court of Appeal (Civil Division). Around 35 Lords Justices of Appeal serve the
Court of Appeal, but Law Lords may also occasionally sit. There is usually a panel of
three judges on the hearing of appeals, decisions being taken by a majority of them.
The House of Lords, sitting in its judicial capacity, is the final court of appeal within
the UK legal systems. Appeals are usually heard by five Law Lords, their decision
being by a simple majority. Appeals may reach the Lords either from the Court of
Appeal or, under the so-called ‘leapfrog procedure’, direct from the High Court.217
207 Ibid., Sched. 12, para. 5(1).
208 Ibid., Sched. 12, para. 7(4).
209 Finance Act 2000, Sched. 6, paras 121 and 122.
210 Finance Act 2001, ss.40 and 41.
211 See, generally, de Smith, Woolf and Jewell, Judicial Review of Administrative Action, 5th
edn (London: Sweet and Maxwell, 1995). See also Chris Hilson, Regulating Pollution – A
UK and EC Perspective (Oxford: Hart Publishing, 2000), pp. 52–53 and 61–64. There is
also a useful overview at Wolf and Stanley, op. cit., pp. 64–66.
212 See Chapter 6 below.
213 See para. 6.4.3.1(3) below.
214 But see Hilson, passim, on the value of this.
215 Taxes Management Act 1970, s.56(6) and 56A(1). For the distinction between points of
law and points of fact, see, for example, Edwards v. Bairstow and Harrison, [1956] AC
14.
216 See Civil Procedure Rules 1998, S.I. 1998 No. 3132, Sched. 1, para. 2; Davies, op. cit.,
para. 1–12.
217 Administration of Justice Act 1969, ss.12–15.
86 Environmental Taxation Law
4.2.2 Devolved regional government
The UK is now close to being, as already mentioned, a federal state.218 This has had
a number of paradoxical consequences. England is now the only part of the UK that
does not have its ‘own particular institutions’,219 and MPs in the UK Parliament who
represent Scottish seats may vote in the UK Parliament on matters that do not affect
Scotland.220
There are three devolution schemes, that is, those for each of Wales, Scotland and
Northern Ireland. They have certain similarities:221
1 unlike in the UK Parliament, there is a single legislative chamber;
2 elections are based on proportional representation;
3 powers are delegated by central government to the regions ‘without relinquishment
of sovereignty’;
4 there is the same scheme for referring devolution issues to higher courts;
5 each of the devolved bodies is subject to the 1950 European Convention on
Human Rights and the Human Rights Act 1998;
6 the Executive in each province is constituted from elected members, although the
functions and powers of each Executive differs considerably;
7 whereas Wales and Northern Ireland are entirely dependent for revenue on
Westminster, the Scottish Parliament may increase or decrease the basic rate of
income tax fixed by the UK Parliament by a maximum of 3 per cent;222 and
8 whereas the Scottish Parliament has primary legislative power in relation to
pollution for Scotland, and the Northern Ireland Assembly has that power in
relation to Northern Ireland, the UK Parliament retains this power in relation to
England and Wales.
Setting aside such similarities, the devolution scheme for each province is rather
different. At the time of writing, the Northern Ireland Assembly has been dissolved,
following a period of suspension.223
The Government of Wales Act 1998 provides for the election of a National
Assembly for Wales224 for a term of four years, no provision existing for early
218 See para. 1.3 above. See also Hilson, op. cit., p. 47, referring to for the distinction between
devolution and federalism, B. Burrows and G. Denton, Devolution or Federalism?
Options for a United Kingdom (London: Macmillan, 1980).
219 See Hood Phillips and Jackson, op. cit., para. 5–042.
220 This is the so-called ‘West Lothian Question’, so-called after the Constituency of the MP
who reputedly first raised the possibility in the 1970s (Mr Tam Dalyell, MP): see Hood
Phillips and Jackson, op. cit., para. 5–045.
221 See Hood Phillips and Jackson, op. cit., paras 5–013–5–019, to which the following
material in para. 4.2.2 is considerably indebted.
222 See para. 1.3 above.
223 It was suspended from midnight on 14 October 2002 and dissolved on 28 April 2003.
Elections to the new Assembly were held, but the majority parties on both sides of the
political divide changed and, as at December 2004, they had been unable to reach an
accommodation.
224 See www.wales.gov.uk/index.htm.
Institutional Framework 87
dissolution.225 The same period is provided for by the Scotland Act 1998, although
the Scottish Parliament226 may force an election ‘before the end of its four year term
if such a move has the support of two-thirds of its members, or if a vacancy arises in
the office of First Minister and no member is able to win sufficient support to form
a new government within 28 days’.227 The Northern Ireland Act 1998 also provides
for the election of the Northern Ireland Assembly for four years.228
The Welsh Assembly, a body corporate,229 has no power to enact primary legislation,
although it does have the power to enact secondary legislation (called ‘Assembly
Orders’). The Secretary of State for Wales230 is required to ‘carry out such consultation
[that is, with the Welsh Assembly] about the government’s legislative programme for
the session as appears to him to be appropriate’.231 By s.33 of the Government of
Wales Act 1998, the Welsh Assembly may consider and make ‘representations [to
the UK government] about any matter affecting Wales’. Besides enacting Assembly
Orders, the Welsh Assembly may issue policy statements in the form of circulars and
give guidance on the exercise of statutory powers. Within this pattern of possibilities
and constraints, the powers of the Welsh Assembly are broad, covering agriculture,
forestry, fisheries and food, culture, economic development, education and training,
the environment, health and the health services, highways, housing, industry, local
government, social services, sport and recreation, tourism, town and country planning,
transport, water and flood defence and the Welsh language.232 Limitations on the
Assembly’s powers are contained in ss.106, 107 and 108, Government of Wales
Act 1998 (respectively EU obligations, human rights and international obligations).
By s.121, Government of Wales Act 1998, the Assembly must set a new economic
agenda for Wales as well as promote sustainable development.
Like the Welsh Assembly, the Scottish Parliament only has functions falling within
its devolved competencies.233 Unlike the Welsh Assembly, however, the Scottish
Parliament has a general power to make laws234 that fall within its legislative
competence.235 Thus, whilst being unable to modify provisions of, for example, the
Human Rights Act 1998 and parts of the European Communities Act 1972, and whilst
being unable to legislate in certain areas,236 the Scottish Parliament may legislate in
a wide range of areas, including local government (and even ‘local taxes to fund local
225 Government of Wales Act 1998, s.3(2). A provision for early dissolution was deemed
unnecessary, since the Welsh Assembly has no power to refuse to pass government Bills.
226 www.scottish.parliament.uk.
227 See Hood Phillips and Jackson, op. cit., para. 5–028 (Scotland Act 1998, ss.3 and 46).
228 Northern Ireland Act 1998, s.31(1).
229 Government of Wales Act 1998, s.1(2).
230 A Cabinet Minister (see para. 4.2.1 above). The office is currently held by The Rt Hon.
Peter Hain, MP (December 2004), whose main function is Leader of the House of
Commons.
231 Government of Wales Act 1998, s.31.
232 Ibid., Sched. 2.
233 See Colin Reid and Gerardo Ruiz-Rico Ruiz, ‘Scotland and Spain: The Division of
Environmental Competencies’ (2003) 52 ICLQ 209–25.
234 Scotland Act 1998, s.28.
235 Ibid., s.29.
236 Ibid., Sched. 5.
88 Environmental Taxation Law
authority expenditure’), fishing, forestry and economic development. In particular, as
mentioned above, the Scottish Parliament may vary the basic rate of income tax up
to three percentage points up or down but (not mentioned above), in the event that
it reduces the basic rate, it must make a payment to the Board of Inland Revenue to
make up the resulting shortfall, out of the Scottish Consolidated Fund.237
The (dissolved)238 Northern Ireland Assembly’s powers fall somewhat between
those of the Welsh Assembly and of the Scottish Parliament.239 Like the Scottish
Parliament, it has a general legislative power but, unlike the Scottish Parliament, the
power is somewhat closely restricted. Crown matters, defence, elections, Parliament,
international relations, treason and national security are all so-called ‘excepted
matters’,240 on which the Northern Ireland Assembly has no power to legislate. Even
where it does have power to legislate, however, the Assembly must act within its
legislative competence and not, for example, pass an Act that is incompatible with
human rights or European law.
The Executive takes different forms, and has different powers, in each of the three
provinces. With Scotland, there is a Scottish Executive (‘the Scottish Ministers’),
consisting of a First Minister, other ministers and the Scottish Law Officers,241
the Executive exercising devolved executive powers on behalf of the Crown.242
In Northern Ireland, a complicated structure (designed to move Northern Ireland
towards power-sharing) provides for the election of a First Minister and Deputy
First Minister by the Assembly. Their fellow ministers on the Northern Ireland
Executive Committee are elected by the Assembly, by a system of proportional
representation designed to ensure that parties have ministerial posts in proportion
to their strength in the Assembly. The Queen continues to exercise executive power
in Northern Ireland, except with respect to ‘transferred matters’, where ministers on
the Executive Committee and their departments exercise it on her behalf.243 With
Wales, since the Assembly is the executive, there is a Welsh Assembly Cabinet, made
up of the Assembly First Secretary, the Chairman of the Executive Committee and
the Assembly Secretaries.244 The First Secretary is known as the First Minister, and
the other members of the Executive Committee as ministers. None of these have
powers by virtue of their office. Unlike under either of the Scotland or Northern
Ireland settlements, the Welsh Cabinet exercises its functions on behalf of, and in
cooperation with, the Assembly.
The devolved administrations in Wales and Scotland have been responsible for
allocating allowances under the LATS, each choosing different commencement
237 Ibid., s.78.
238 Following the 2003 Election in which the Democratic Unionist Party became the majority
party on the Unionist side and Sinn Fein on the Nationalist side.
239 See www.ni-assembly.gov.uk.
240 Northern Ireland Act 1998, Sched. 2.
241 Scotland Act 1998, s.44. See www.scotland.gov.uk.
242 Ibid., s.53(2).
243 Northern Ireland Act 1998, s.23.
244 Government of Wales Act 1998, s.56. See the website: www.wales.gov.uk. The Executive
Committee is the formal name of the Welsh Assembly Cabinet, the Welsh Assembly
having exercised its power to designate it as such.
Institutional Framework 89
dates.245 In Northern Ireland, following the re-imposition of direct rule, allocation
has been the responsibility of the Department of the Environment for Northern
Ireland.246
Under all three sets of arrangements, Committees have an important part to play.
Section 54 of the Government of Wales Act 1998 requires the Assembly to create,
not only the Executive Committee247 but also subject committees, a subordinate
legislation scrutiny committee, an audit committee and regional committees, these
being elected by the Assembly.248 Besides being able to hold the administration to
account, the subject committees have a role in scrutinising legislation. In Northern
Ireland, s.29 of the Northern Ireland Act 1998 provides for the establishment
of statutory committees ‘to advise and assist each minister in the formulation of
policy’. These committees have both scrutinising functions in relation to legislation
and the power to hold the Executive Committee to account. Finally, the Scottish
Parliament has mandatory committees (for example, standards, finance, audit, equal
opportunities, European, etc) but it has also established special subject committees,
one of which is that for Transport and the Environment. Unlike with the Government
of Wales and Northern Ireland Acts, the Scotland Act 1998 does not contain detailed
provisions on the establishment of committees.
The relationship between the UK and the devolved institutions is dealt with in a
1999 Memorandum of Understanding,249 together with a number of supplementary
agreements. There is also a Joint Ministerial Committee to supply a central
coordination of the relationships between the devolved institutions and the UK.250
4.2.3 Local government
Local government in England and Wales ‘consists of the administration by locally
elected bodies of powers conferred and duties imposed by Parliament’.251 England,
except London and the Isles of Scilly, is divided into counties and, within those
counties, into districts.252 Districts and counties may each be either metropolitan or
non-metropolitan.253 A non-metropolitan county, a district or a London Borough is
a principal area.254 Although each principal area must have a principal council,255
245 See para. 1.4.2.5 above.
246 See www.doeni.gov.uk. This is currently (December 2004) the responsibility of the
Secretary of State for Northern Ireland and the Northern Ireland Office.
247 See above in this para.
248 Government of Wales Act 1998, s.57.
249 Scottish Executive, Memorandum of understanding and supplementary agreements
between the United Kingdom Government, Scottish Ministers and the National Assembly
for Wales, 1999 (Cm 4444, 1999). (Subsequently revised in 2001 as Cm 5240.)
250 On both the Memorandum of Understanding and the Joint Ministerial Committee, see
Hood Phillips and Jackson, op. cit., paras 5–0475–049.
251 See 29(1) Hals, para. 1 (to which this para. 4.2.3 is indebted).
252 Local Government Act 1972, s.1(1).
253 Ibid., ss.1(2)–1(4) (but note that metropolitan county councils were abolished by the
Local Government Act 1985).
254 Local Government Act 1972, s.270(1).
255 Ibid., ss.2 and 270.
90 Environmental Taxation Law
there is an exception to this rule where, instead of both a district council256 and a
county council, there is a unitary authority.257 All three of counties, districts and
London Boroughs are local authorities within the legislative terminology.258
Constituted as corporations, local authorities are persons distinct in law from the
residents of the areas that they govern. To the extent that Parliament, whether by
primary or secondary legislation, has provided for ministers of central government to
direct, control or supervise the exercise of their powers and duties, local authorities
are subordinate to the direction, control and supervision of central government.259
Councillors for each principal area are elected by local government electors260 by
universal adult suffrage. Councillors, who must not be in paid employment with the
local authority in question, are elected for four years and must have a sufficient local
connection.261
Local authorities have for long collected and retained local taxes,262 in relation
to which they have wide powers of enforcement, but they have no control over the
structure of those taxes nor of the rules that provide for the imposition of liability
or the grant of relief.263 Under the terms of the Transport Act 2000, however, they
have acquired powers to impose workplace parking levies264 and to create road
user charging schemes.265 The exercise of these powers is discussed elsewhere in
the book.266 Waste disposal authorities, usually county councils,267 are subject to
the LATS,268 designed to restrict the landfilling of biodegradable municipal waste,
while both WDAs and WCAs269 have the benefit of the much older WRCS, which is
designed to ensure that WCAs are not penalised for the costs of recycling.270
256 A district council may petition for borough status (see Local Government Act 1972, s.245).
257 Sometimes referred to as ‘single tier’ authorities. The government has taken powers in
Regional Assemblies (Preparations) Act 2003 to initiate referenda in the English regions
with a view to setting up Regional Authorities in place of one of the tiers of government.
Where set up, such authorities are likely to have environmental responsibilities.
258 Local Government Act 1972, s.270(1). In England, there are at present 34 non-metropolitan
counties, which are all divided into non-metropolitan districts, 45 unitary authorities and
238 non-metropolitan districts.
259 See 29(1) Hals, para. 1.
260 Local Government Act 1972, s.270(1).
261 Ibid., s.79.
262 That is, council tax (see Local Government Finance Act 1992) and the uniform business
rate (see Local Government Finance Act 1988, Part III). Council tax is a property tax
payable in respect of domestic property to contribute to the cost of local government. The
uniform business rate, which is payable on non-residential property, is also a property
tax. The uniform business rate is fixed by central government but council tax rates are
determined locally.
263 Brief accounts of both council tax and the uniform business rate can be found in CCH
Editions, CCH Tax Handbook 2003–04 (Banbury: CCH, 2003), para. 10050.
264 See Chapter 17 below.
265 See Chapter 18 below.
266 Ibid.
267 See para. 2.3 above.
268 See para. 1.4.2.1(4) above.
269 See para. 2.3 above.
270 See para. 1.4.2.1(3) above.
Institutional Framework 91
By contrast with their still somewhat limited tax-raising powers, the continuing
involvement of local authorities with environmental regulation has been only slightly
diminished with the transfer of their waste management functions to the Environment
Agency in the mid-1990s.271 Their involvement covers town and country planning
under the planning legislation; the investigation and abatement of statutory nuisances
under the Environmental Protection Act 1990; the control of smoke emissions, under
the Clean Air Act 1993; the authorisation of certain atmospheric emissions under
the Environmental Protection Act 1990, Part I, and under the Pollution Prevention
and Control Act 1999; the identification of areas of contaminated land under the
Environmental Protection Act 1990, Part IIA; and, in the case of County Councils,
London Borough Councils and district councils, responsibilities as so-called
‘hazardous substance authorities’, under the Planning (Hazardous Substances) Act
1990.272 Local authorities have extensive powers of enforcement in relation to these
matters.
London is still a special case in the complex of local government in the UK. In
addition to the 32 London Borough Councils is the Greater London Authority
(‘GLA’), which was created by the Greater London Authority Act 1999.273 It consists
of the Mayor of London and the London Assembly.274 The GLA has eight main areas
of responsibility: transport, planning, economic development and regeneration, the
environment, police, fire and emergency planning, culture and health. In relation to
transport, s.154 of the Greater London Authority Act 1999 provides for the creation
of Transport for London (‘TFL’). Transport for London has a number of different
functions, including the provision of public passenger transport services to, from
or within Greater London.275 The Mayor of London is elected and holds office for
four years;276 he has the duty of setting the annual budgets for the GLA277 and
its functional bodies,278 including TFL. The Mayor appoints the members of TFL
and the other functional bodies.279 On the environmental front, he is responsible for
the London biodiversity action plan, the municipal waste management strategy, the
London Air Quality Strategy and the London Ambient Noise Strategy. The London
271 That is, under the Environment Act 1995 (see para. 4.2.1.3 above and para. 6.3.2.1(1)
below).
272 This list is based on the more detailed one in Wolf and Stanley, op. cit., pp. 54–55.
273 See www.london.gov.uk.
274 Greater London Authority Act 1999, ss.1, 2 and Sched. 1.
275 Ibid., s.173.
276 The first Mayor, Mr Ken Livingstone (who had been the last Leader of the old Greater
London Council abolished in 1985), was elected, as an independent, on 4 May 2000
(see www.london.gov.uk). He was readmitted to the Labour Party before his five year
expulsion period had expired in order to stand as the official Labour candidate in the 2004
election. He won that election also. It should be noted that the office of Mayor of London
is entirely separate and distinct from the ancient office of the Lord Mayor of London. The
latter’s authority is confined to the City, that is, ‘the square mile’ financial district.
277 Greater London Authority Act 1999, s.122(1).
278 The four functional bodies are each separate bodies corporate: TFL, the London
Development Agency, the Metropolitan Police Authority and the London Fire and
Emergency Planning Authority (see Greater London Authority Act 1999, s.424(1)).
279 Greater London Authority Act 1999, s.154, Sched. 10, paras 2 and 3.
92 Environmental Taxation Law
Assembly, which consists of 25 elected members,280 has 14 constituency members,
that is, one constituency member for each Assembly constituency, and 11 London
members, that is, members for the whole of Greater London.281
4.3 European Union institutions
Some tension between environmental regulation, on the one hand, and taxation, on
the other, is apparent from an examination of the place of each of these areas in the
institutional framework of the EU.282 Whilst there is broad consensus among Member
States as to the role of environmental concerns in EU policy-making,283 the scope,
and even the meaning, of tax harmonisation, is very much more controversial.284
Not discussed below, although, given the importance of energy policy in the study,
nonetheless relevant to the subsequent discussion in the book, is the European Atomic
Community (‘Euratom’). Eurotom was created in 1957, to support the Member
States’ non-military nuclear industries, by sponsoring research, laying down safety
standards, overseeing implementation issues and monitoring the distribution of
fissionable material.285
4.3.1 The Council of the European Union286
By Art. 203, European Treaty (ex 146), ‘[t]he Council shall consist of a representative
of each Member State at ministerial level, authorised to commit the government
of that Member State’.287 From this wording, it follows that Council members are
therefore politicians rather than civil servants.288 Also by Art. 203, European Treaty
280 Defined ibid., s.424(1).
281 Ibid., s.2.
282 For the institutional framework of the EU, see: Stephen Weatherill and Paul Beaumont,
EU Law, 3rd edn (London: Penguin, 1999), chs 2–6 and Paul Craig and Gráinne de Búrca,
EU Law: Text, Cases and Materials, 3rd edn (Oxford: Oxford University Press, 2003),
ch. 2. See also Sir Leon Brittan, ‘Institutional Development of the European Community’
[1992] PL 567; J. Lewis, ‘The Methods of Community in EU Decision-Making and
Administrative Rivalry in the Council’s Infrastructure’ (2000) 7 JEPP 67; A. Stevens,
with H. Stevens, Brussels Bureaucrats? The Administration of the European Union
(Basingstoke: Palgrave, 2001); and Neill Nugent, The Government and Politics of the
European Union, 5th edn (London: Palgrave Macmillan, 2003).
283 See Chapter 12 below.
284 Ibid.
285 Euratom Treaty, Arts 1 and 2. See Energy Law in Europe: National, EU and International
Law and Institutions, ed. by Martha M. Roggenkamp et al. (Oxford: Oxford University
Press, 2001), paras 3.120–3.123.
286 The name is the result of Council Decision 591/93/EC, (1993) OJ L281 18. The Council
of the European Union must not be confused with the European Council (that is, the
Heads of State or government of the Member States, plus the President of the Commission
(see Craig and de Búrca, op. cit., pp. 71–75)).
287 http://ue.eu.int/en/main.htm.
288 Craig and de Búrca, op. cit., p. 65.
Institutional Framework 93
(ex 146), it is provided that the office of President is to be held in turn by each
Member State in the Council for a term of six months in the order decided by the
Council acting unanimously.
Council meetings, of which there are approximately 80–100 per year, are generally
arranged according to the subject matter under discussion, different ministers attending
from the Member States according to the subject matter under consideration. Article
204, European Treaty (ex 147) provides that the Council shall meet ‘when convened
by its President, on his own initiative or at the request of one of its members or of
the Commission’.
By Art. 202, European Treaty (ex 145), the Council must ensure that the objectives
set out in that Treaty are attained. To this end, it must: ‘… ensure co-ordination of
the general economic policies of the Member States’. However, neither this wording
nor, indeed, the wording of the rest of Art. 202, conveys a sense of the true role of the
Council as a legislative body. Such a sense is apparent only from a consideration of
the European Treaty as a whole:
1 The Council’s approval is required for legislative proposals by the European
Commission. The Council must generally act by a majority of its members,
whether simple or qualified,289 the nature of the majority depending on
the Treaty Art. under which a particular measure is enacted.290 However, in
certain crucially important areas, it is provided that Council approval must be
unanimous.291
Under Title XIX, European Treaty (ex XVI), on the Environment, the areas in
which the Council’s decisions must be unanimous are specified as follows:
a. ‘provisions primarily of a fiscal nature’;
b. measures affecting town and country planning;
c. quantitative management of water resources or affecting, directly or
indirectly, the availability of those resources;
d. land use; and
e. measures ‘significantly affecting a Member State’s choice between different
energy sources and the general structure of its energy supply’.
Excepted from d. are waste management and measures of a general nature.292
289 Qualified majority voting, which is a system of weighted voting, is provided for by Art.
205(2) (ex 148). The Treaty of Nice, together with its Protocol on the Enlargement of
the EU and Declaration 20 of the Declarations adopted by the Nice IGC, has effected a
number of amendments, both current and prospective, to Art. 205(2), European Treaty (see
Craig and de Búrca, op. cit., pp. 155–6). The Treaty of Nice came into force on 1 February
2003 (see Art. 12(2), TN), the Republic of Ireland having deposited its instruments of
ratification in December 2002. For all this, see http://europa.eu.int.
290 See Art. 205(1), European Treaty (ex 148).
291 Abstentions cannot block a measure that requires unanimity (see Art. 205(3) (ex 148(3)).
For the cases where unanimity is required, see Weatherill and Beaumont, op. cit.,
pp. 89–91.
292 See Art. 175, European Treaty (ex 130s), as amended by TN.
94 Environmental Taxation Law
Environmental issues not mentioned in this list must normally be dealt with by
qualified majority voting.293
In relation to taxation, two Arts are significant: Art. 93, European Treaty (ex
99), and Art. 95(2), European Treaty (ex 100a). Both of these appear in Title
VI, European Treaty (ex V) on Common Rules on Competition, Taxation and
Approximation of Laws. Article 93, European Treaty, provided for the unanimous
harmonisation of legislation concerning turnover taxes, excise duties and other
forms of indirect taxation to the extent that such harmonisation was necessary
in the run up to the completion of the internal market on 31 December 1992.294
Article 95(2), European Treaty, reaffirms the need for unanimity when the
Council is considering a proposal of the European Commission relating to fiscal
provisions, provisions relating to the free movement of persons and provisions
relating to the rights and interests of employed persons.
2 By Art. 208, European Treaty (ex 152) the Council may request the European
Commission to undertake ‘… any studies the Council considers desirable for
the attainment of the common objectives, and to submit to it any appropriate
proposals’. This is a powerful weapon in the hands of the Council, since it can
be used to require the Commission to consider specific legislative proposals,295
which can themselves be evolved through COREPER296 and its workin,g
parties.
3. Since the Council can delegate powers to the Commission, under which the latter
may make detailed regulations in a particular area, and since such regulations
can be closely scrutinised by the Council, the Council can exercise close control
over delegated legislation.297
4.3.2 The European Commission
The College of Commissioners consisted until 1 May 2004, of 20 members298 and,
since enlargement, consists of 25. They are chosen on the grounds of their general
competence and on the basis that their independence is beyond doubt.299 Individual
Commissioners are appointed for a renewable period of five years.300 Under the
former wording of Art. 214(2), European Treaty (ex 158), the Commissioners and
the Commission President were appointed by common accord of the Member States,
293 See para. 12.2.1 below.
294 See also Art. 14 (ex 7a). As to whether there may still be life in Art. 93, European Treaty,
see David Williams, EC Tax Law (Longman: London, 1998), p. 34.
295 See Brittan, op. cit., pp. 568–9.
296 Article 207 (ex 151) provides that a committee consisting of the Permanent Representatives
of the Member States (‘COREPER’) is to be responsible for preparing the work of the
Council and for carrying out the tasks assigned to it by the Council. See Lewis, op. cit.,
generally.
297 See Council Decision 468/99/EC, (1999) OJ L184 23.
298 www.europa.eu.int/comm/index_en.htm. See Neill Nugent, The European Commission
(Basingstoke: Palgrave, 2001).
299 Art. 213 (ex 157).
300 Art. 214(1) (ex 158).
Institutional Framework 95
subject to a vote of approval by the European Parliament. Following the entry into
force of the Treaty of Nice, these provisions have been modified, as a result of which
the European Parliament should in future have a greater say in the appointment
process.301 By Art. 213, European Treaty, (ex 157) the Commission had to include at
least one, and no more than two, Commissioners from each Member State.302 Each
Commissioner has a specific portfolio.303 From November 2004, each Member State
of the enlarged EU is to have only one Commissioner.
If and when the European Constitutional Treaty, which was agreed in principle in
June 2004 but has not yet been signed or ratified, comes into force, the procedure for
selecting the Commission will change. The Council will have a full-time president.
It will also, by weighted majority voting, propose a candidate for the approval of the
Parliament for the post of President of the Commission. Once confirmation has been
received, the Commission will be selected by its President and the Council taking
into account suggestions made by Member States. One member of the Commission
will be the Union Minister for Foreign Affairs, a position which is seen as forming
part of a geographically spread troika with the two presidents. From 2014, the size
of the Commission is to be reduced from one per Member State to two-thirds of the
Member States, with an equal rotation of representation. Thus each Member State
will be represented in the Commission for only two five yearly periods out of three.
Under the present arrangements, particular legislative proposals usually begin in one
or more304 of the Commission’s Directorates General (‘DGs’). The DGs of greatest
relevance to the present study are: Energy and Transport,305 Environment,306 Taxation
and the Customs Union307 and Trade.308 From the relevant DG, the draft of the
proposal is then sent to the personal staffs (or cabinets) of the relevant Commissioners
301 See Art. 214(2), as amended by Art. 1(21), TN. The Council, meeting in the composition
of Heads of State or government and acting by qualified majority, nominates the person
it intends to appoint as Commission President. This nomination must be approved by the
European Parliament. The Council, acting by qualified majority and by common accord
with the nominee for President, adopts a list of the other proposed Commissioners, drawn
up in accordance with the proposals made by each Member State. The President and
other Commissioners are then subject to a vote of approval by the European Parliament.
Following this, the Council, by qualified majority, appoints the President and the other
members of the Commission.
302 This arrangement changed in November 2004, following enlargement (see Craig and de
Búrca, op. cit., pp. 55–6).
303 So far as relevant to the present study, they had been, prior to mid-November 2004 (when
the Prodi Commission’s extended mandate came to an end): Mr Frits Bolkestein (Internal
Market, Taxation and Customs Union); Mrs Loyola de Palacio (Energy and Transport);
Mrs Margot Wallström (Environment) and Mr Pascal Lamy (Trade). Only Mrs Wallström
is a member of the new (Barroso) Commission, but she has not retained her previous
environment portfolio (see, for example, Avril, Figaro, 28/29 August 2004, p. 4).
304 See Laura Cram, ‘The European Commission as a Multi-Organisation: Social Policy and
IT Policy in the EU’ (1994) 1 JEPP 194.
305 www.europa.eu.int/comm/dgs/energy_transport?index_en.html.
306 www.europa.eu.int/comm/dgs/environment/index_en.htm.
307 www.europa.eu.int/comm/dgs/taxation_customs/index_en.htm.
308 http://europa.eu.int/comm/trade/index_en.htm.
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and thence to the weekly meeting of the chefs de cabinet. Having been considered
in that forum, the proposal then goes to the College of Commissioners, ‘which may
accept it, reject it or suggest amendments’.309
The Commission has three main functions, that is: as the initiator of legislation,
as guardian of the Treaties and as the Community’s executive. It has the right of
initiation in relation to the Treaties because, under their common format, when
making legislation, the Council and the European Parliament act on a proposal from
the Commission.310 This right of initiation is a particularly powerful weapon in the
Commission’s hands, since it enables it to develop policies via its work programme
for a particular year. Increasingly, for example, in relation to energy, the Commission
is making use of industry for its policy development.311 Undoubtedly, the most
striking achievement of the Prodi Commission (1999-2004), in the environmental
sphere, has been the design and implementation of the EU ETS.312
The Commission’s role as guardian of the Treaties arises from Art. 211, European
Treaty (ex 155), first indent:
[The Commission shall] … ensure that the provisions of this Treaty and the measures taken
by the institutions pursuant thereto are applied.
This wording enables the Commission to bring two types of proceedings:
1 actions under Art. 226, European Treaty (ex 169) against Member States who are
in breach of Community law; and
2 investigations and adjudications on Treaty violations (for example, in relation to
unlawful state aids under Art. 88, European Treaty (ex 93)).313
Craig and de Búrca describe the Commission’s powers under (1) and (2) as ‘judicial
powers’. State aids have a particular importance in the context of the law and policies
under discussion in this book and are discussed in detail in Chapter 12 below.314
Finally, some of the most important of the Commission’s executive powers, so far
as environmental and tax policy is concerned, are in the field of external relations.
Three of these can be enumerated as follows:
1 to determine and conduct the EU’s external trade relations;
2 to negotiate and manage the EU’s various external agreements with third countries
and groups thereof; and
3 to represent the EU at a range of international organisations.315
309 See Craig and de Búrca, op. cit., p. 58.
310 Ibid., pp. 59–60.
311 See Peter Cameron, Competition in Energy Markets (Oxford: Oxford University Press,
2002), p. 284.
312 See para. 28.2 below.
313 See para. 12.2.7 below.
314 Ibid.
315 See Nugent, Government and Politics, op. cit., p. 145.
Institutional Framework 97
The most important of the negotiations referred to in 1 are the tariff negotiations
conducted under the auspices of the WTO.316 As to 3, Art. 302, European Treaty
(ex 229) stipulates that it is for the Commission to ensure the maintenance of all
appropriate relations with the organs of the UN and of its specialised agencies;
Art. 303, European Treaty (ex 230) stipulates that the Community must establish
all appropriate forms of communication with the Council of Europe; and Art. 304,
European Treaty (ex 231) provides that the Community shall ‘… establish close
cooperation with the Organisation for Economic Co-operation and Development, the
details of which shall be determined by common accord’.
4.3.3 The European Parliament
The European Parliament consists ‘of representatives of the peoples of the States
brought together in the Community’.317 Until June 2004 it had 626 Members; the
ceiling on membership of 700 in the European Treaty, as amended by the Treaty
of Amsterdam, has been increased to 732 by the Treaty of Nice.318 Supporting the
Parliament in its work is a secretariat numbering thousands.
The Bureau of the Parliament is the body responsible for organisational, staff and
administrative matters, as well as the Parliament’s budget. The Bureau consists of
the President,319 plus the 14 Vice-Presidents, each of whom hold office for twoand-
a-half years. Both President and Vice-Presidents are elected by the Parliament
as a whole. The Bureau is assisted by five Quaestors, who also oversee financial
and administrative matters concerning MEPs. By Art. 190(5), European Treaty, (ex
138(5)) the Parliament must, after seeking an opinion from the Commission and with
the approval of the Council acting unanimously, lay down the regulations and general
conditions governing the performance of the duties of MEPs. Also, by Art. 199,
European Treaty (ex 142), the Parliament must adopt its own procedural rules.320
Committees play an important part in the Parliament’s work. It has 17 standing
committees, plus a range of subcommittees, with provision also being made for
committees of inquiry and temporary committees. Of the 17 standing committees,
particularly relevant in the present context are: the Committee on Industry, External
Trade, Research and Energy;321 the Committee on the Environment, Public Health
and Consumer Policy;322 and the Committee on Regional Policy, Transport and
Tourism.323 The Committee on the Environment, Public Health and Consumer
Policy unsuccessfully floated 73 amendments to the proposal for the EU ETS on its
first reading in October 2002.324
316 See para. 4.4.1 below and para. 8.4 below.
317 Art. 189, European Treaty (ex 137). See www.europarl.eu.int.
318 See Art. 1(17), TN.
319 That is, of the Parliament.
320 (1999) OJ L202 1.
321 See www.europarl.eu.int/meetdocs/committees/itre.
322 See www.europarl.eu.int/meetdocs/committees/envi.
323 See www.europarl.eu.int/meetdocs/committees/rett.
324 See para. 28.2.3 below.
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Of the eight political groupings in the Parliament elected in June 2004,325 the largest
is the European People’s Party, with 276 seats;326 next is the Party of European
Socialists, which has 202; and third is the enlarged Group of the European Liberal,
Democrat and Reform Party, with 84 seats. There are then several smaller groupings,
including the Greens and (for the first time) Eurosceptics, plus various MEPs who
are unaligned.327
Members of the European Parliament (‘MEPs’) are elected by direct universal
suffrage,328 although the representative legitimacy of the institution is undermined
by the fact that the number of MEPs for each Member State is far from proportionate
to population size, with the result that smaller countries are disproportionately overrepresented.
329 Unhelpful too is the fact that, despite litigation and amendment to
the European Treaty by the Treaty of Amsterdam, the uniform electoral procedure
provided for by Art. 190, European Treaty (ex 138) has never come into existence.330
Finally, the turnout in Member States for European Parliament elections has been
worryingly low.331
Substantial powers are exercised by the Parliament in three areas: legislative,
budgetary and supervisory. The third of these involves the monitoring of the activities
of the other institutions by questions and committees of inquiry. The legislative powers
of the Parliament have been greatly enhanced by successive Treaty amendments,
the general effect of which has been to extend the sphere of operation of the codecision
procedure.332 The procedure, which applies wherever the European Treaty
refers to it for the adoption of an act, accords equal status to the Council and to the
Parliament in the adoption of Community legislation. It prevents the adoption of a
measure without the approval, not only of the Council, but also of the Parliament.333
In the process, the procedure places emphasis on the legislative text in question being
approved by both bodies.
In relation to the Parliament’s legislative role, a number of points are important in
the present context. First, although the Parliament has no right to initiate legislation,
it does have the power, by a majority of MEPs, to request the Commission to submit
an appropriate proposal on matters ‘on which it considers that a Community act is
325 See Art. 191, European Treaty (ex 138a).
326 It consists of Christian Democrats and European Democrats and is a party of the centreright.
327 See www.europarl.eu.int/presentation/default_en.htm.
328 See Art. 190(1), European Treaty (ex 138).
329 See Craig and de Búrca, p. 76. See also, ibid., p. 77, for a breakdown of the composition
of the Parliament in terms of seats numbers to Member States, both before and after
enlargement.
330 See Craig and de Búrca, p. 76.
331 See, for example, The 1999 Elections to the European Parliament, ed. by Juliet Lodge
(Basingstoke: Palgrave, 2001). Craig and de Búrca (op. cit., p. 78n, cite the fact that
turnout in the EU as a whole apparently dropped from 56.5 per cent in the 1994 elections
to 49.7 per cent in 1999, the turnout in the first elections held in 1979 having been 63 per
cent.
332 The procedure is contained in Art. 251, European Treaty (ex 189b) and is summarised in
Craig and de Búrca, op. cit., pp. 144–6.
333 See Craig and de Búrca, op. cit., p. 144.
Institutional Framework 99
required for the purpose of implementing [the] Treaty’.334 Secondly, not merely does
the Parliament have the power to censure the Commission,335 ever since the Treaty
of Amsterdam, its approval must also be sought in relation to the appointment of the
President of the Commission.336 Taken together with the changes made by the Treaty
of Nice to the appointment procedure of the President,337 this marks a significant
change in the political nature of the Commission, as well as in the procedure by
which the President of the Commission is appointed.338
Despite all of these legitimising factors, there are still a number of areas in
which the Parliament has no role. In the present context, a surprising one perhaps
is the Parliament’s meaningful exclusion from matters involving international
agreements.339 Article 133(3), European Treaty (ex 113(3)) does not accord to the
Parliament any role in the negotiation of such agreements and Art. 300(2), European
Treaty (ex 228(2)) merely gives the Parliament the right to be informed about matters
such as their suspension.
4.3.4 The Economic and Social Committee
The Economic and Social Committee (‘ECOSOC’) is an advisory body representing
the various socio-economic organisations in the Member States.340 Article 7(2),
European Treaty (ex 4(2)) provides that the Council and Commission are to be
assisted by ECOSOC and also by the Committee of the Regions, acting in an
advisory capacity. Although the Commission or Council may, without being
obliged to do so, consult ECOSOC on certain matters, in other cases, particular
Treaty Arts require that ECOSOC must be consulted. The Committee, which has
224 members appointed for four years by the Council, acting unanimously,341 has
an increasing role to play in the legitimisation of the EU institutions.342 This is
underlined by the fact that the TN has altered Art. 257 (ex 193), to provide that
ECOSOC must consist of ‘representatives of the various categories of economic
and social activity’, especially ‘representatives of producers, farmers, carriers,
workers, dealers, craftsmen, professional occupations and representatives of the
general public’.
334 Art. 192, European Treaty (ex 138b).
335 Art. 201, European Treaty (ex 144).
336 Art. 214(2), European Treaty (ex 158(2)).
337 See para. 4.3.2 above.
338 See Craig and de Búrca, op. cit., p. 82, referring to Simon Hix, ‘Executive Selection in
the European Union: Does the Commission President Investiture Procedure Reduce the
Democratic Deficit?’, in European Integration after Amsterdam, ed. by K. Neunreither
and A. Weiner (Oxford: Oxford University Press, 2000), pp. 95–111.
339 See para. 8.4.1 below.
340 See www.esc.eu.int/pages/en/home.asp.
341 See Art. 258, European Treaty (ex 194).
342 See ECOSOC, The ESC: A Bridge between Europe and Civil Society (Brussels: European
Economic and Social Committee, 2001).
100 Environmental Taxation Law
4.3.5 The European Environment Agency
An agency rather than an EU institution, the European Environment Agency
(‘EEA’)343 gathers and supplies information to assist in the implementation of
Community policy on environmental protection and improvement. Established in
1993,344 it must publish a report on the state of the environment every three years345
but it has no enforcement or policing powers. It has also published material on the
implementation and environmental effectiveness of environmental taxes.346
4.3.6 The Committee of the Regions
Tasked with providing opinions on matters of particular regional concern, the
membership of the Committee of the Regions is drawn from local and regional
bodies, rather than from governments.
4.3.7 Court of Justice of the European Communities and Court of First
Instance
Finally, the ECJ sits in Luxembourg, and its task is to ensure that Community law is
observed in the interpretation and application of the European Treaty.347 Inter alia,
the ECJ has jurisdiction to give preliminary rulings concerning the interpretation of
the European Treaty and the validity and interpretation of acts of the Community
institutions.348 Where such an issue is raised before any court or tribunal of a Member
State, the court or tribunal may, if it considers that a decision on the issue is necessary
to enable it to give judgment, request the ECJ to give a ruling thereon.349 The Court
of Appeal of England and Wales, in Bulmer v. Bollinger,350 laid down guidelines
for determining whether a reference was necessary for these purposes.351 ‘Where
any such question is raised in a case pending before a court or tribunal of a Member
State against whose decisions there is no judicial remedy under national law, [reads
the relevant Treaty Art.] that court or tribunal must bring the matter before [the
ECJ]’.352 The Court of First Instance, designed to relieve the pressure on the ECJ,
has, since 1993, heard judicial review cases, as well as actions for damages against
343 See www.eea.eu.int.
344 See Council Regulation EEC/1210/90, (1990) OJ L120 1.
345 See European Environment Agency, Europe’s Environment: The Third Assessment
(Luxembourg: Office for Official Publications of the European Communities, 2003).
346 See European Environment Agency, Environmental Taxes – Implementation and
Environmental Effectiveness (Copenhagen: European Environment Agency, 1999).
347 Art. 220, European Treaty (ex 164).
348 Art. 234, European Treaty (ex 177).
349 Art. 234, first indent, European Treaty (ex 177).
350 [1974] Ch. 401.
351 See also, for example, Naturally Yours Cosmetics Ltd v. C & E Commrs, C–230/87, [1988]
STC 879. This was a case of a VAT and Duties Tribunal obtaining a ruling direct from the
ECJ.
352 Art. 234 (ex 177), European Treaty (second indent). See, for example, the reference from
the House of Lords in C & E Commrs v. Sinclair Collis Ltd, [2001] STC 989.
Institutional Framework 101
Community institutions, although not proceedings brought by the Member States or
the Community Institutions.353
It should be noted that the ECJ is a completely distinct entity from the European
Court of Human Rights, the latter having been established by the European
Convention on Human Rights of 1950.
4.4 International institutions354
4.4.1 World Trade Organization
The World Trade Organization is the pre-eminent international trade association.355
It is intended to ‘provide the common institutional framework for the conduct of
trade relations among its members’.356 It is the product of the most recent (1986–
1993) round of trade negotiations under the General Agreement on Tariffs and Trade
(‘GATT 1994’), a process which has become known as the Uruguay Round.
The four principal instruments that establish the WTO and create the multilateral
trading system of which it is the principal institution are as follows:
1 the Final Act embodying the results of the Uruguay Round of Multilateral Trade
Negotiations;357
2 the Agreement establishing the World Trade Organization;358
3 the General Agreement on Tariffs and Trade in Goods, 1994 Revision (‘GATT
1994’);359 and
4 the General Agreement on Trade in Services (‘GATS’).360
The supreme decision-making body of the WTO, which meets at least once every
two years, is the Ministerial Conference. After that, the next level down is the
General Council, which meets on a number of occasions every year and is made up
mainly of heads of delegations and ambassadors in Geneva. The General Council,
which is responsible for issues of governance not dealt with by the Ministerial
Conference, also meets under the guise of the Trade Policy Review Body and the
Dispute Settlement Body.
One of the roles assumed by the Dispute Settlement Body is the appointment of
‘Panels’ to investigate and report on complaints. Another is the adoption of reports
353 See Art. 224, European Treaty (ex 168).
354 In addition to the website details given below, see Bowett’s Law of International
Institutions, 5th edn, by Philippe Sands and Pierre Klein (London: Sweet and Maxwell,
2001).
355 See www.wto.org. Most of the WTO-related legal texts and other documents mentioned
below, together with summaries thereof, can be downloaded from this site.
356 See Art. 2(1), Agreement Establishing the World Trade Organization.
357 (1994) 33 ILM 1.
358 (1994) 33 ILM 13.
359 (1994) 33 ILM 28.
360 (1994) 33 ILM 46.
102 Environmental Taxation Law
of the Appellate Body (the ‘AB’). The AB was established during the Uruguay
Round by the Dispute Settlement Understanding,361 with the power to hear appeals
on questions of law from GATT panels. Consisting of seven members, the AB is a
standing body, unlike the GATT panels. The members of the AB are individuals of
recognised authority with expertise in law, international trade and the GATT/WTO
agreements. They are elected by the Dispute Settlement Body for a four-year period
that can be renewed once.362
The various organs of the WTO obviously require massive technical support, such
support being the responsibility of the WTO Secretariat, based in Geneva, and headed
by the WTO’s Director-General.363 The Director-General of the WTO is appointed
by the Ministerial Conference and his responsibilities are ‘exclusively international
in character’, since he is not to seek nor to accept ‘instructions from any government
or any other authority external to the WTO’.364
The WTO system requires compliance with the decisions both of the Panels of the
AB. The enforcement procedure operates by removing the right of a WTO member
to suspend WTO concessions or to take other measures against another member.
In the words of Sands and Klein, ‘the entire scheme militates strongly against
unilateral determinations and establishes a central role for the [Dispute Settlement
Body] …’.365
The importance of the WTO agreements to environmental levies and subsidies
in general, whether existing or projected, is profound and far-reaching.366 In
recognition of this fact, the WTO founded the Committee on Trade and Environment.
Unfortunately, despite the fact that it is tasked with investigating ‘the relationship
between the provisions of the multilateral trading system and charges and taxes for
environmental purposes’, it has so far achieved relatively little.367 The rules contained
361 That is, the Understanding on Rules and Procedures Governing the Settlement of Disputes
(1994) 33 ILM 112.
362 Art. 17(3), Dispute Settlement Understanding, reads: ‘The Appellate Body shall comprise
persons of recognised authority, with demonstrated expertise in law, international trade
and the subject matter of the covered agreements generally. They shall be unaffiliated
with any government. The Appellate Body membership shall be broadly representative
of membership in the WTO. All persons serving on the Appellate Body shall be available
at all times and on short notice, and shall stay abreast of dispute settlement activities and
other relevant activities of the WTO. They shall not participate in the consideration of any
disputes that would create a direct or indirect conflict of interest.’
363 The details of the post are contained in the Agreement Establishing the World Trade
Organization, Art. VI. The current holder is HE Dr Supachai Panitchpakdi of Thailand,
whose three-year term began in September 2002. His predecessor was The Rt Hon.
Michael Moore, a former Prime Minister of New Zealand (see para. 8.2.1n below), who
held the position from September 1999.
364 Art. VI(4), Agreement Establishing the World Trade Organization.
365 See Bowett, op. cit., para. 12–073.
366 See Zen Makuch, ‘The World Trade Organization and the General Agreement on Tariffs
and Trade’, in Greening International Institutions, ed. by Jacob Werksman (London:
Earthscan, 1996), pp. 94–115.
367 See Ole Kristian Fauchald, Environmental Taxes and Trade Discrimination (London:
Kluwer Law International, 1998), p. 4.
Institutional Framework 103
in GATT 1994 create an international legal structure that raises considerable design
problems for them.368
4.4.2 Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development (‘the OECD’) is the
successor to an organisation called the Organisation for European Economic Cooperation.
369 It has been very influential, at least since the early 1970s, in developing
the economic arguments in favour of environmental levies and subsidies.370
The organs of the OECD are the Council, the Committees and the Secretariat. Of
these, the principal one is the Council, which is ‘the body from which all acts of
the Organisation derive’.371 The Council, which consists of Ministers or Permanent
Representatives of the member countries, develops priorities for the OECD’s activities
and produces directives on future work. The Organisation has a rule that decisions and
recommendations of the Council must be passed unanimously.372 There is one vote
per member country. The unanimity rule has never become a veto, however, because
of the provision that abstentions do not invalidate decisions nor prevent them from
becoming binding on other members.373 Thus, decisions bind only those member
countries that have voted for them and once their own constitutional procedures have
been complied with.374
The Committees, which number over 200, consist of experts and officials from
member countries. The OECD’s most recent work on environmentally-related taxes
has been produced by the Joint Meeting of Experts on Tax and Environment, which
is convened under the joint auspices of the Committee on Fiscal Affairs and the
Environment Policy Committee.375 Individuals who are members of the Committees
are thus in a position to feed OECD thinking into the development of national policies.
The Secretariat, headed by a Secretary-General,376 includes individuals seconded
from academia, commerce and industry, who compile and analyse economic data.377
Indeed, the OECD’s work on environmental levies and subsidies has been of an
economic, rather than of a legal, nature.378
368 See paras 1.2.1.4 above and 8.4.5 below.
369 The older organisation (‘the OEEC’) had been established in 1948 to administer American
aid to Europe under the Marshall Plan (see Bowett, op. cit., para. 6–021). The OECD was
established by the Convention signed in Paris on December 14, 1960 and which came into
force on 30 September 1961.
370 See Chapter 5 below.
371 1960 Paris Convention, Art. 7.
372 Ibid., Art. 6.
373 Ibid.
374 Ibid.
375 See Organisation for Economic Co-operation and Development, Environmentally Related
Taxes in OECD Countries (Paris: OECD, 2001), p. 3.
376 Currently (December 2004), Mr Donald J. Johnston, since June 1996.
377 See the Organisation’s database of environmentally-related taxes in OECD countries, at:
www.oecd.org.
378 See the Bibliography of Organisation for Economic Co-operation and Development,
Environmentally Related Taxes in OECD Countries (Paris: OECD, 2001), pp. 137–42.
104 Environmental Taxation Law
Article 1 of the 1960 Paris Convention states the purposes of the OECD as being:
– to achieve the highest sustainable economic growth and employment and a rising
standard of living in member countries, while maintaining financial stability, and thus to
contribute to the development of the world economy;
– to contribute to sound economic expansion in member as well as non-member countries
in the process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis
in accordance with international obligations.
Thus, by Art. 2 of the 1960 Paris Convention, member countries assume duties
regarding the efficient use of economic resources, regarding research and regarding
the general economic development of both member and non-member countries.379
Possibly because of the highly technical nature of the OECD’s work, possibly because
of its status as a debating forum and possibly because of the unanimity rule referred
to above, the institutional accountability or otherwise of the OECD has not been the
focus of such attention as that accorded to the WTO.
In 1974, in response to the oil crisis, the OECD established an autonomous agency,
called the International Energy Agency,380 funded by member countries via the OECD
itself, primarily to ensure energy security. Although its remit is fairly wide, one of its
key areas of activity is the relationship between energy and the environment.381
4.4.3 United Nations subsidiary bodies
The United Nations’ General Assembly has established two subsidiary bodies to deal
with environmentally-related matters: the UN Environment Programme (‘UNEP’)382
and the UN Commission on Sustainable Development (‘the UNCSD’).383 The
former dates from 1972, following the Stockholm Conference on the Human
Environment;384 the latter was established in 1992, on the basis of the mandate given
by the UN Conference on Environment and Development.385 The United Nations
Economic Commission for Europe (‘the UNECE’)386 has also had an important role
to play in promoting international environmental agreements.387
379 1960 Paris Convention, Art. 2. See also Organisation for Economic Co-operation and
Development, Policy Brief. Environmentally related taxes: Issues and strategies (OECD;
Paris, 2001). Organisation for Economic Co-operation and Development, OECD
Environment Programme 2003–2004 (Paris: OECD, 2003).
380 See www.iea.org.
381 See Roggenkamp, op. cit., paras 3.133–3.179. The IEA’s constituent instrument is the
International Energy Programme, a treaty document created following the suggestion for
greater solidarity in energy matters among OECD member countries, originally made by
US Secretary of State, Henry Kissinger, in 1973 (ibid., paras 3.133–3.134).
382 See www.unep.org.
383 See www.un.org/esa/sustdev/csd/csd12/csd12.htm.
384 See para. 8.2.3n below.
385 See para. 8.2.3 below.
386 See www.unece.org and www.unece.org/env/welcome.html.
387 For example, in the promotion of the 1979 Geneva Convention for the Control of Long-
Range Transboundary Air Pollution (see Chapter 8 below); the 1991 Espoo Convention
Institutional Framework 105
The United Nations Commission on Sustainable Development, which meets in
New York or Geneva, and is supported by a secretariat in the former city, is the main
UN body for sustainable development issues, and has the task of monitoring progress
and making recommendations on the implementation of Agenda 21.388 The United
Nations Environment Programme, which is based in Nairobi, is the sole UN body
exclusively dedicated to international environmental matters, with a range of tasks,
including those of promoting international environmental cooperation, providing
policy guidance on environmental programmes within the UN and promoting
scientific knowledge and information. The United Nations Environment Programme
is made up of 58 members who are elected by the General Assembly and has an
Environmental Secretariat, chaired by an Executive Director. Although it has been
responsible for the promotion of a number of international agreements, not least the
1985 Vienna Convention for the Protection of the Ozone Layer389 and for the 1992
Convention on Biological Diversity,390 the underfunding of its operations, no less
than its relative lack of status within the UN structure, means that its performance
continues to disappoint many people.391
The UN’s closest environmental association is the 1992 UN Framework Convention
on Climate Change and its 1997 Kyoto Protocol. Each of these raise certain
interesting issues at an institutional level. As will be seen in Chapter 8 below,392
and as is well-known, these international agreements commit the developed parties
thereto (referred to as ‘Annex I Parties’)393 to targets for the reduction of their GHG
emissions.394 One of the economic instruments for achieving these targets is the
Clean Development Mechanism (‘the CDM’), which ‘marks an interesting and
innovative new structure in international institutional arrangements, including a
formal role for non-state actors’.395
Given that the present book is much concerned with the energy markets and with the
relationship between energy and the environment, as a background to energy taxation,
it is perhaps useful at this juncture to mention the existence of the International Atomic
on Environmental Impact Assessment in a Transboundary Context (1991) 30 ILM 802;
and (see Chapter 8 below) the 1998 Aarhus Convention on Access to Information, Public
Participation in Decision-making and Access to Justice in Environmental Matters (1999)
38 ILM 517 (in force 30 October 2001).
388 See Chapter 8 below.
389 See para. 8.3.1.1 below.
390 See para. 8.3.1.3 below.
391 Proposals for a new UN specialised agency are discussed by Daniel Esty in Greening the
GATT: Trade, Environment and the Future (Washington DC: Institute for International
Economics, 1994). See also Birnie and Boyle, op. cit., pp. 54–7.
392 See paras 8.3.1.3 and 8.3.1.4 below.
393 The Annex I Parties, not all of whom have ratified the Protocol (see para. 8.2.2 below),
are: Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Czechoslovakia, Denmark,
European Community, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway,
Poland, Portugal, Romania, Russian Federation, Spain, Sweden, Switzerland, Turkey,
Ukraine, United Kingdom and the US.
394 See para. 8.3.1.4 below.
395 Bowett, op. cit., para. 4–024. See para. 8.3.1.4 below.
106 Environmental Taxation Law
Energy Agency (‘the IAEA’).396 Despite its name, the IAEA, which works closely
with Euratom, is an independent intergovernmental agency founded in 1957, which
is obliged to report to the UN in certain situations.397 Also relevant to proposals to
introduce emissions trading schemes for airlines is the International Civil Aviation
Organisation (‘the ICAO’),398 a specialised agency of the UN, which is the treaty
organisation of the 1944 Chicago Convention on International Civil Aviation.
4.4.4 Various international treaty organisations
Before closing this part of the chapter, it is useful briefly to refer for completeness
to some of the myriad treaty organisations covering environmental matters. It might
also help to refer to one of the most recent of international treaty organisations, the
1994 Energy Charter Treaty.
No doubt the significance of such organisations has been enhanced somewhat
by the relative unimportance of the UNEP. For instance, the 1973 Washington
Convention on International Trade in Endangered Species of Wild Fauna and
Flora399 has a Conference of the Parties, which meets at least every two years to
consider amendments to the provisions limiting trade in listed species.400 Similar
Conferences exist for the 1992 Convention on Biological Diversity referred to
above;401 for the 1985 Vienna Convention for the Protection of the Ozone Layer,
also mentioned above, as well as its 1987 Montreal Protocol;402 for the 1992 UN
Framework Convention on Climate Change;403 for the 1997 Kyoto Protocol;404 for
the 1972 London Dumping Convention;405 and for the 1989 Basel Convention.406
The Energy Charter Treaty which, as its name suggests, is limited in scope to
the energy sector, nonetheless has an obvious environmental significance. It is
independent of the EU and has its own Secretariat and Conference, both of which are
based in Brussels.407
4.5 Concluding comments
Finally, it falls to us to gather together the main strands of the discussion. We
began this chapter by considering the organs of central government: Parliament,
government departments, public bodies and agencies and advisory bodies. Thence,
396 See www.iaea.org/worldatom.
397 See Roggenkamp, op. cit., paras 3.49–3.57.
398 See www.icao.int.
399 See para. 8.4.2n below.
400 See www.wcmc.org.uk/CITES/eng/index.shtml.
401 See www.biodiv.org.
402 See para. 8.3.1.5 below.
403 See para. 8.3.1.3 below.
404 See para. 8.3.1.4 below.
405 See para. 8.3.2 below.
406 Ibid.
407 See www.encharter.org. See para. 8.6 below.
Institutional Framework 107
we analysed the contribution to the design, implementation and enforcement of taxes
and other economic instruments, of what is a considerable range of government
departments, non-departmental public bodies, agencies and advisory bodies. The
chief characteristic of this institutional pattern was one of almost overwhelming
complexity but, so far as central government was concerned, it indicated that, in the
UK, chief responsibility for the design and implementation of economic instruments
lies, not with any one body, but mainly with Customs, with Defra and, so far as they
relate to electricity, with Ofgem.
Next, we considered the devolution schemes applicable to Wales, Scotland
and Northern Ireland. The present significance of these to the subject matter is
constrained by the fact that, although all of them have environmental competencies,
importantly in relation to the LATS, only Scotland has any tax raising power, and
that is not relevant to environmental taxation. It seems inevitable, at this juncture,
that pressure for additional tax-raising powers will increase, pre-eminently, perhaps,
in the environmental taxation field.
With regard to the wider picture, we have seen that the ability of the EU institutions
to create environmental taxes is circumscribed by the fiscal veto provisions of the
European Treaty provisions. The successful creation of the EU ETS marks a neat
sidestepping of the problems which had been associated with the ‘shelved’ EU
carbon/energy tax.408
The close relationship of the EU institutions with the OECD, with its commitment
to the development of policy in the environmental taxation field, will ensure
however that its work on environmental taxes and other economic instruments retain
considerable influence globally. Meanwhile, the impact on the possibilities for certain
kinds of environmental taxes (especially carbon taxes), of the rules of the multilateral
trading system, in GATT 1994, continue to be controversial and we return to them
in Chapter 8 below.
408 Note, however, the Energy Products Directive of December 2003 (see para. 12.3.4 below).
For the carbon/energy tax proposal, see para. 28.1n below.
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Chapter 5
Technical Justifications
5.1 Introduction
This chapter analyses the reasons that the UK government has itself provided, via
HM Treasury, for regulating by means of environmental taxes and other economic
instruments. These reasons should be seen in the broader context of the government’s
policy on sustainable development.1
The chapter takes the form of a commentary on HM Treasury’s 2002 paper
containing the government’s most recent detailed justifications for its policy on the
use of economic instruments in pollution regulation.2 Our discussion assumes that,
in its legislative programme on the use of economic instruments for this purpose,
the government is acting in pursuit of the public interest.3 This is in keeping with
the disciplinary approach explained in Chapter 1 above.4 The assumption as to
public interest objectives serves to underline the important distinction between the
technical justification for introducing a particular measure and a theory about why
the measure has in fact been introduced. It does not necessarily imply that, in a
particular instance, there will be found to be a disparity been the two, since a theory
that seeks to explain why a measure has been introduced may reaffirm the public
interest reason. In other words, the proffered reason, which is a good reason, may
also be the real reason.5 We have sought specifically to emphasise in this chapter the
profferred reasons, rather than the theoretical arguments for green levies generally.
Although there is some discussion of the latter, this has been minimised for reasons
of space.6
The 2002 Treasury paper covers aggregates levy, climate change levy and landfill
tax, as well as explaining the rationale for the UK ETS7 and the RO.8 It does not deal
1 See para. 4.2.1.3n above and para. 5.2 below.
2 HM Treasury, Tax and the Environment: Using Economic Instruments (London: HMSO,
2002), available from the Treasury’s website, at www.hm-treasury.gov.uk. It is referred
to alternately below as ‘the 2002 paper’, ‘the 2002 Treasury paper’, ‘the paper’ or ‘the
Treasury paper’.
3 See Robert Baldwin and Martin Cave, Understanding Regulation – Theory, Strategy
and Practice (Oxford: Oxford University Press, 1999), p. 9n, for a survey of the relevant
literature on why and how the motivation or explanation for regulation may differ from
the regulation’s technical justification.
4 See para. 1.2.2 above.
5 The allusion is to a statement attributed to an eminent American financier (see Jean
Strouse’s Morgan: American Financier (London: Harvill Press, 1999), p. xiii).
6 See, generally, for example, Environmental Policy: Objectives, Instruments, and
Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), esp. Part
One. The literature is vase (see nn in this book, passim).
7 See para. 1.4.2.2(2) above.
8 See para. 1.4.2.2(4) above.
110 Environmental Taxation Law
in any detail with the nascent LATS,9 possibly since the enabling legislation was
introduced in the House of Lords at or around the time that the paper was published.10
Also not dealt with in much detail in the 2002 paper is the diverse package of measures
introduced in 1999 and 2000 which were designed to assist in dealing with traffic
congestion and road traffic pollution.11 These are the income tax reliefs introduced in
Finance Act 1999, to encourage employees to choose environmentally friendly ways
of commuting,12 and the provisions allowing local authorities to implement road
user charging and workplace parking levy schemes,13 brought in by the Transport
Act 2000.
The present chapter is divided into four parts:14 an overview of the government’s
policy with regard to sustainable development; a discussion of the government’s
taxation objectives in the light of that policy; a review of the economic arguments
for using fiscal measures to contribute to sustainable development by correcting
market failures resulting from pollution; and, finally, an examination of how the
decision to use fiscal measures for this purpose is taken and the price level at which
intervention in the market is determined. Our discussion of how economic policy on
environmental taxes and other economic instruments has been translated into reality
appears in Chapter 11 below.15
5.2 Sustainable development
In a rather surprising ordering of the material, the third chapter of the 2002 Treasury
paper is devoted to the government’s sustainable development targets and indicators.16
It draws on the former DETR’s17 Sustainable Development Strategy White Paper,
in which the government’s aim is stated as being ‘to achieve a better quality of
life for everyone, now and for future generations’.18 The White Paper reflects
the government’s approach to the commitments made at the 1992 Earth Summit
in Rio; this is somewhat different from that taken by the previous – Conservative
9 See para. 1.4.2.1(4) above.
10 The Waste and Emissions Trading Bill was only introduced in the House of Lords on
November 14, 2002.
11 Although certain of these are used as brief examples in paras 6.18–6.23 of the 2002
paper.
12 See para. 23.3 below.
13 See Chapters 17 and 18 below.
14 Corresponding to the subject matter of four of the chapters of the 2002 paper.
15 See para. 11.3 below.
16 See Giles Atkinson, ‘Sustainable Development and Policy’, in Helm, op. cit., pp. 29–47,
and Victoria Jenkins, ‘Placing Sustainable Development at the Heart of Government in
the UK’ (2002) 22 LS 578–601.
17 See para. 4.2.1.2(1) above.
18 See Department of Environment, Transport and the Regions, A Better Quality of Life: A
Strategy for Sustainable Development in the United Kingdom, 1999 (Cm 4345, 1999).
This was a revision of the previous Conservative Government’s strategy, Sustainable
Development, the UK Strategy, 1994 (Cm 2426, 1994).
Technical Justifications 111
– administration prior to May 1997. The Rio Declaration, it will be recalled, contains
the 27 Principles of international environmental law that together constitute the main
outlines of the sustainable development concept.19
The 2002 paper reflects the 15 headline indicators of the Sustainable Development
Strategy White Paper, grouped into four ‘dimensions’. Only two of these four
dimensions specifically contain indicators relating to environmental matters and they
read as follows:
Effective protection of the environment:
– emissions of greenhouse gases;
– days when air pollution is moderate or high [sic];
– road traffic;
– rivers of good or fair quality;
– populations of wild birds; and
– new homes built on previously-developed land.
Prudent use of natural resources:
– waste arisings and management.20
These indicators, which ‘should move in the right direction over time’,21 are
designed to show, in an accessible way, the progress that society as a whole is making
towards sustainable development.22 The government acknowledges in the paper that,
helpful as these indicators are in providing a snapshot of society’s progress, they
do not measure impacts directly, since, for example, road traffic levels are not in
themselves measures of emissions affecting air quality, GHG emissions, congestion
or noise implications of road use.23 Nonetheless, in reaching its aim of achieving a
better quality of life, now and for future generations,24 the government clearly sees
them as being very useful.25
The government’s comments on performance to date on the environmental, dimensions
of sustainable development have an air of disarming candour about them.26 As to
19 Ibid. and para. 4.2.1.3n above.
20 The other two groups of headline indicators are: ‘(1) maintaining high and stable levels
of economic growth and employment, which group comprises: total output of the
economy (‘GDP’), investment in public, business and private assets and proportion of
people of working age who are in work; and (2) social progress which recognises the
needs of everyone, and which comprises: poverty and social exclusion (fuel poverty etc.);
qualifications at age 19; expected years of healthy life; homes judged unfit to live in; and
level of crime’ (see 2002 paper, Box 3.1, p. 9). The social dimension had been missing
from the 1994 Conservative strategy.
21 See 2002 paper, para. 3.1.
22 Ibid., para. 3.3.
23 Ibid., para. 3.4.
24 The reference to future generations echoes the definition of sustainable development used
in the Brundtland Report of 1987 (see para. 4.2.1.3n above).
25 Ibid., para. 3.1.
26 That is, as distinct from economic growth and social progress. Progress against the
environment-related indicators contained in the White Paper is set out in Annex A to
the 2002 paper. The material in Annex A is derived from Department for Environment,
Food and Rural Affairs, Achieving a Better Quality of Life – Review of Progress towards
112 Environmental Taxation Law
GHGs, although on current trends, the UK is one of the few EU Member States likely
to meet its Kyoto target, after 2012 emissions targets ‘a(chǎn)re likely to become tighter,
and the UK needs to be ready to take further action to continue to reduce emissions
in the longer term’.27 Likewise, with the amount of biodegradable municipal waste
sent to landfill, despite the fact that the Landfill Directive28 fixes a reviewable
target of a 35 per cent reduction on 1995 levels by 2020, ‘volumes of waste sent
to landfill have continued to rise over recent years’.29 Most worrying of all for
the government, perhaps, is the situation with regard to the environmental effects
of transport, since ‘[a]lthough the fuel efficiency of new vehicles is improving,
transport continues to be a major user of energy and source of carbon dioxide
emissions’.30
Lastly, in this third chapter of the 2002 paper, the Treasury seeks to illustrate its
own commitment to making progress on the headline indicators by drawing attention
to the various Departmental Public Service Agreements (‘PSAs’). The PSAs, which
closely reflect the headline indicators referred to above, set out each Department’s
priorities and give targets against which the Department in question’s progress can
be monitored.31 For instance, the Treasury has agreed to: ‘Protect and improve the
environment by using instruments that will deliver efficient and sustainable outcomes
through evidence-based policies’; Defra32 has promised to: ‘[p]romote sustainable
development across government and the country as a whole as measured by achieving
positive trends in the government’s headline indicators of sustainable development’;
and the DFT33 has promised to: ‘Reduce congestion on the inter-urban trunk road
network and in large urban areas in England below 2000 levels by 2010’.34 It is
interesting that the DFT seems to view the chief environmental problem of too much
road traffic as primarily one of congestion, rather than of emissions. This is fully in
tune with modern economic thinking on the subject.
5.3 Taxation and sustainable development
Against the background of government policy on sustainable development, the
2002 Treasury paper begins35 by recalling the government’s Statement of Intent
Sustainable Development in 2001 (London: Defra, 2002), available from www.sustainabledevelopment.
gov.uk.
27 See 2002 paper, para. 3.6.
28 Council Directive 99/31/EC, (1999) OJ L182 1 (see para. 12.2.5.1(2) below). See further
para. 6.3.2.4 below.
29 See 2002 paper, para. 3.7.
30 Ibid., para. 3.8.
31 Ibid., para. 3.11.
32 See para. 4.2.1.2(1) above.
33 Ibid.
34 See 2002 paper, Annex B (pp. 51–2). This is not a complete list of the PSAs, which are
quite extensive, and, specifically, does not include the promise of the ODPM (see para.
4.2.1.2(1) above), also extracted in Annex B to the 2002 paper.
35 Ibid., ch. 2.
Technical Justifications 113
on environmental taxation dated 2 July 1997.36 An important passage in the 1997
document is reproduced in the 2002 paper and reads as follows:
How and what governments tax sends clear signals about the economic activities they
believe should be encouraged or discouraged, and the values they wish to entrench in
society. Just as work should be encouraged through the tax system, environmental pollution
should be discouraged.37
The Statement of Intent goes on to say that, accordingly, where environmental taxes
‘met the general tests of good taxation’, then the government would use them to
achieve its economic objectives, which were expressed as follows:
The Government’s central economic objectives are the promotion of high and sustainable
levels of growth and high levels of employment. By that we mean that growth must be both
stable and environmentally sustainable. Quality of growth matters; not just quantity …
[T]he Government will explore the scope for using the tax system to deliver environmental
objectives – as one instrument, in combination with others like regulation and voluntary
action.38 Over time, the Government will aim to reform the tax system to increase
incentives to reduce environmental damage. That will shift the burden of tax from ‘goods’
to ‘bads’;39 encourage innovation in meeting higher environmental standards; and deliver
a more dynamic economy and a cleaner environment, to the benefit of everyone.40
The translation of this statement of policy into a legal reality is discussed below.41
The Treasury seeks to draw a distinction between ‘[t]axes on broad aspects
of economic activity such as energy, waste and transport’42 and ‘much smaller
taxes which target specific environmental impacts’.43 The former, presumably
meaning climate change levy, landfill tax and environmentally-friendly excise duty
differentials, the 2002 paper states, raise significant levels of revenue which can be
used to ‘offset’ other taxes. The latter, by contrast, ‘would be unlikely to raise very
much revenue and therefore would not have any significant impact on the overall tax
36 That is, Budget day. This was the Rt Hon. Gordon Brown, MP’s first Budget as Chancellor
(see HM Treasury, Tax Measures to Help the Environment, News Release, 2 July 1997,
available from HM Treasury’s website at www.hm-treasury.gov.uk).
37 See Tax Measures to Help the Environment, above.
38 Probably for presentational reasons, the government contrasts the use of economic
instruments, such as environmental levies and subsidies, with regulation. In reality, the
idea of regulation is wide enough to encompass the economic instrument concept, and it
is in this wider sense that the term is used in this study (see Baldwin and Cave, op. cit.,
pp. 1–2, and Chapter 1 above). See also Chris Hilson, Regulating Pollution – A UK and
EC Perspective (Oxford: Hart Publishing, 2000), p. 103.
39 See Department of the Environment, First Report of the British Government Panel on
Sustainable Development (Sir Crispin Tickell, Chairman) (London: 1995), p. 12. See also,
more recently and (possibly) more influentially, Anthony Giddens, The Third Way and its
Critics (Cambridge: Polity Press, 2000), pp. 100–101.
40 See Tax Measures to Help the Environment, above.
41 See Ch. 11 below.
42 See 2002 paper, para. 2.10.
43 Ibid., para. 2.11.
114 Environmental Taxation Law
base’.44 There is no clue from the brief discussion of the ‘much smaller taxes’ whether
those alluded to are actual or as yet only proposed, although the context seems to
suggest that the latter meaning is intended.45 If this conclusion is correct, then these
paragraphs of the 2002 paper underline the point made elsewhere in the present book
that the hypothecation of tax revenues, even in the context of environmental taxes,
is something that the Treasury still strongly resists.46 The government instead limits
itself to saying that the significant levels of revenue raised by green taxes ‘can be
used to offset other taxes’.47 The first part of its subsequent claim that:
The Government has used revenue from taxes such as the climate change levy and
aggregates levy to reduce employers’ national insurance contributions and has also
introduced enhanced capital allowances to reduce costs of investments in environmentallyfriendly
technologies …48
is examined below, as also is the rather laconic statement which follows the one just
quoted, that is, that: ‘Some of the revenue [that is, from taxes such as the climate
change levy and aggregates levy] has also been used to support related spending
programmes’.49 From a technical point of view, it should be noted that the reference
to the use of environmental tax revenues to reduce labour taxes is commonly known
as ‘the employment double dividend’ and is much contested by economists.50
The Treasury specifically relates each of the levies and subsidies discussed in this
study to the government’s sustainability policy. Thus, the goal of the totality of
44 Ibid.
45 Unless this is a reference to road user charging schemes.
46 See para. 11.2 below. As discussed there, the landfill tax code contains some mechanisms
by which an effect akin to hypothecation is achieved (see para. 11.2 below). The Treasury’s
resistance to hypothecation is highlighted by the fact that, in para. 2.11 of the 2002 paper,
it is stated that, with the much smaller taxes targeting specific environmental impacts, ‘…
there may be a stronger case for using most or all of the revenue to encourage a response
to the tax’.
47 See 2002 paper, para. 2.10.
48 Ibid.
49 Ibid. See para. 21.3 below.
50 A subject on which there is a considerable literature: see, for example, Lawrence Goulder,
Environmental Taxation and the ‘Double Dividend’: A Reader’s Guide (Cambridge,
MA: National Bureau of Economic Research, 1994); Stephen Smith, ‘Green’ Taxes
and Charges: Policy and Practice in Britain and Germany (London: Institute for Fiscal
Studies, 1995), p. 14; Kalle Määttä, Environmental Taxes – From an Economic Idea
to a Legal Institution (Helsinki: Finnish Lawyers’ Publishing, 1997), pp. 157–8; ed. by
Timothy O’Riordan, Ecotaxation (London: Earthscan, 1997), Part II; C.J. Heady et al.,
Study on the Relationship Between Environmental/Energy Taxation and Employment
Creation (Bath: University of Bath, 2000); Organisation for Economic Co-operation and
Development, Environmentally-Related Taxes in OECD Countries: Issues and Strategies
(Paris: OECD, 2001), paras 1.6.2 and 2.3; Adair Turner, Just Capital: The Liberal
Economy (London: Macmillan, 2002), pp. 310–11; and Kurt Kratena, Environmental
Tax Reform and the Labour Market: The Double Dividend in Different Labour Market
Regimes (Cheltenham: Edward Elgar, 2002). See also the 2002 paper, paras 7.9–7.13,
esp. para. 7.11.
Technical Justifications 115
climate change levy, of the UK ETS,51 of the RO52 and of tax reliefs such as capital
allowances for expenditure on energy-saving plant and machinery,53 is to assist
the UK in meeting its carbon emissions reduction targets under the post-Kyoto EU
burden-sharing agreement.54 The objectives of the other levies, given their nature
and scope, is closer to home. Aggregates levy is designed to ‘tackle environmental
costs of aggregate extraction including noise, dust visual intrusion [and], biodiversity
loss’, whilst the goal of landfill tax is ‘[t]o internalise [the] environmental costs of
landfill e.g. methane emissions, nuisance, groundwater pollution; to give better price
signals for alternatives to landfill; and to assist in meeting waste targets in [the] most
efficient way’.55 Landfill tax is to be supported by the LATS,56 whose aim is to
restrict the landfilling of biodegradable municipal waste.57
5.4 Economic instruments and market failures
Government policy with regard to tax and the environment is thus to use the tax
system to ensure the attainment of environmental objectives and to reform it to
increase incentives to reduce environmental damage.58
The basis on which the policy is justified is that of welfare economics, a discipline
which has achieved a ‘near hegemonic status’ as a theoretical basis for pollution
control.59 Under the heading ‘Why not leave it to the market?’, the 2002 paper
justifies the use of economic instruments such as environmental taxes by reference to
market failures and their distributional effects.60 To the lawyer, the discussion reads
almost as a digest of the economic learning in this area.61
Both a vibrant and influential academic literature62 and the ‘soft law’63 and
other policy documentation produced by the OECD64 make a persuasive welfare
economics case for the use of economic instruments in environmental regulation, the
broad outlines of which might be summarised as follows. The economic rationale for
51 See para. 1.4.2.2(2) above.
52 See para. 1.4.2.2(4) above.
53 See 2002 paper, paras 6.39–6.47. See also Chapter 24 below.
54 See paras 8.2.2n and 8.3.1.4 below.
55 See 2002 paper, Table 7.1 (p.42).
56 See para. 1.4.2.1(4) above.
57 Ibid.
58 See Tax Measures to Help the Environment, above.
59 See Hilson, op. cit., pp. 6–8.
60 See 2002 paper, ch. 4.
61 As to which, see, for example, Tom Tietenberg, Environmental and Natural Resource
Economics, 3rd edn (New York: Harper Collins, 1992), to take one distinguished text
from among many.
62 See Benjamin J. Richardson and Kiri L. Chanwai in ‘Taxing and Trading in Corporate
Energy Activities: Pioneering UK Reforms to Address Climate Change’ (2003) 14(1)
ICCLR 18–27, 19.
63 See para. 8.2.6 below.
64 See para. 4.4.2 above.
116 Environmental Taxation Law
environmental regulation via economic instruments65 is the elimination of economic
waste in situations where ‘the unregulated price of a good does not reflect the true
cost to society of producing that good’.66 Baldwin and Cave, in a review of the
relevant arguments, provide the following example:
[A] … manufacturer of car tyres might keep costs to consumers down by dumping pollutants
arising from the manufacturing process into a river. The price of the tyres will not represent
the true costs that production imposes on society if clean-up costs are left out of account.
The resultant process is wasteful because too many resources are attracted into polluting
activities (too many tyres are made and sold) and too few resources are devoted by the
manufacturer to pollution avoidance or adopting pollution-free production methods.67
The disparities between ‘true social costs’ and ‘unregulated price’ are ‘spillover’
costs, which environmental economists generally refer to as ‘externalities’68 or
‘diseconomies’.69 Some form of regulation – of state intervention – is necessary to
compel the internalisation of such spillover costs, on the polluter pays principle.70
There has been a market failure, that is, a specific instance of where ‘the competitive
outcome of markets is not efficient from the point of view of the economy as a
whole’.71 The correction of market failures by regulation might take the form of
traditional command and control mechanisms, voluntary mechanisms or economic
instruments, including environmental taxes or charges.72 The inspiration for the last
of these possibilities is usually attributed to the distinguished early-twentieth century
economist, Arthur Pigou.73 Pigou’s writing is sometimes portrayed as being much
65 See Chapter 6 below.
66 Stephen Breyer, ‘Typical Justifications for Regulation’, in A Reader on Regulation, ed.
by Robert Baldwin, Colin Scott and Christopher Hood (Oxford: Oxford University Press,
1998), pp. 59–92, p. 68.
67 See Baldwin and Cave, op. cit., pp. 11–12.
68 See Breyer, op. cit., p. 68. Spillover costs are the norm, but Breyer acknowledges also the
possibility of a ‘spillover benefit’ in a different situation, for example where ‘honeybees
fertilise nearby apple orchards, the beekeepers provide a spillover benefit to the orchard
owners, so long as the latter do not pay the former for their service’ (ibid.).
69 Or ‘external diseconomies’: see, for example, Määttä, op. cit., p. 7.
70 See Baldwin and Cave, op. cit., p. 12.
71 See 2002 paper, para. 4.2. Factors other than externalities may cause market failure, for
example, information failures, the absence of perfect competition and even government
intervention itself (see the 2002 paper, para. 4.9, and Baldwin and Cave, ch. 2).
72 A voluntary approach, rather than a tax, has been adopted, for the time being, in relation
to pesticide use (see para. 21.9.5 below). A bid for a voluntary arrangement was tried,
and failed, in relation to aggregates levy (see para. 11.3.2 below). The role of voluntary
measures is discussed in para. 7.8 of the 2002 paper.
73 Hence the expression ‘Pigouvian taxes’, which is sometimes used as a synonym for
pollution (that is, environmental) taxes (see para. 1.2.1.5 above). Arthur Cecil Pigou
(1877–1959) held the Chair of Political Economy at the University of Cambridge from
1908 until 1944. Memorably, Pigou saw the inspiration of economic science as being the
‘sordidness of mean streets and the joylessness of withered lives’. His ideas for pollution
taxes were expounded in The Economics of Welfare, 4th edn (London: Macmillan, 1952),
Part II, chs 2 and 3, and in A Study in Public Finance, 3rd edn (London: Macmillan, 1947),
Technical Justifications 117
more straightforward than it is; in Andersen’s words, ‘Pigou is much more cautious
about his pollution taxation scheme than certain of his followers’.74
The academic rationale for correcting market failure is mirrored in the OECD’s
policy documentation:
The basic theoretical premise behind the introduction of environmental instruments,
including environmentally related taxation, to correct for [sic] environmental damage
is the existence of negative environmental externalities in unregulated economies. A
negative externality is a cost that one economic agent imposes on another but does not
take into account when making production or consumption decisions. When the costs
of pollution or resource use are not reflected in prices, market inefficiencies result with
excessive production or consumption of products and activities that impose social costs.
Externalities exist because of the public goods nature of the environment. In the absence of
property rights for clean air, clean water, etc. economic agents use these services without
regard for the impact their decisions have on other economic agents, including future
generations. Even where charges or taxes are raised on a polluting activity, for example
on municipal waste disposal, often they do not fully internalise the cost of the externality.
Where environmental costs are fully internalised into the price of a product or activity a
reallocation of resources in the economy occurs according to fair and efficient prices.75
Besides the internalisation of externalities, the OECD material also claims for
economic instruments in general opportunities to realise static and dynamic
efficiencies.76 Static efficiency implies that marginal abatement costs are equalised
between polluters, without the need for regulators to seek out information about the
abatement costs of particular firms.77 Dynamic efficiency implies that firms have an
‘ongoing incentive to reduce pollution abatement costs, rather than simply to meet
specific standards, which require constant review’.78
Both the academic rationale and the OECD policy statements are closely reflected
in Chapter 4 of the 2002 paper.79 The paper acknowledges the possibility, not
only of negative externalities, but also of positive externalities.80 An example of
a positive externality would be a developer cleaning up contaminated land, since
this would encourage the regeneration of the area surrounding that land.81 Negative
externalities, on the other hand, might include, for example, ‘the visual and noise
impacts of quarries’, says the Treasury.82 It supplies a further example of negative
Part II, ch. 8, both of which are far more difficult reading than the oft-seen ‘summaries’ of
his work may appear to suggest.
74 See Mikael Skou Andersen, Governance by green taxes: making pollution prevention pay
(Manchester: Manchester University Press, 1994), p. 5.
75 See OECD, op. cit., para. 1.1.
76 Ibid., paras 1.3 and 1.4.
77 Ibid., para. 1.3.
78 Ibid., para. 1.4.
79 Both are referred to in the Bibliography thereto (see the 2002 paper, pp. 57–58).
80 A possibility contemplated by Pigou himself: see the example of the lighthouse in A Study
in Public Finance, above, p. 94, and Breyer’s example of the honeybees in n above.
81 See 2002 paper, para. 4.5.
82 Ibid., para. 4.5.
118 Environmental Taxation Law
externalities which develops, though not expressly, the one given by Baldwin and
Cave:
In a simple example, two firms, a factory and a fishery, use the same river as an input good.
By using the river to dispose of waste, the factory imposes costs on the fishery and reduces
its productive capacity; but the market does not reflect this cost in prices because there are
no property rights for the pollution.83 There would be an overall gain for the economy as a
whole if the amount of pollution was set where the marginal benefit accruing to the factory
from each additional unit of waste disposal was equal to the marginal cost to the fishery
of each additional unit of river pollution … The efficient outcome cannot occur while the
factory does not face the full costs of its activities – its own private costs and the wider
social costs.84
Moreover, the Treasury embraces the concepts of static and dynamic efficiency,
referred to above. It emphasises that a ‘well-designed economic instrument can
equalise the marginal abatement costs between polluters’, because industries that
face lower abatement costs will cut back on pollution relatively more.85 Also, since
polluters are required to pay tax for ‘residual emissions’, as well as for abatement costs,
they will have a strong financial incentive to invest in technological developments
providing greater environmental protection.86
Having identified environmental market failures, Chapter 4 of the 2002 paper then
goes on to look at their distributional implications. Environmental externalities
can lead to differential impacts on different sectors of the economy and on
different income groups; they also impose costs on those not responsible for the
externalities. Traffic congestion, according to the Treasury, impacts on business in
a different way from that in which it impacts on other sectors.87 Air pollution not
only impacts disproportionately on low income groups in the inner cities but, on
a transboundary scale, it impacts more severely on less developed than on more
developed countries. Again, adverse effects on air quality, river pollution, sulphur
emissions and climate change, can have international and even global implications,
not just for this generation but for the ones to come.88 To the extent that addressing
these distributional impacts requires value judgments to be made, these should,
says the Treasury, ‘be underpinned by economic analysis so that the debate is wellinformed’.
89
It should be said that a number of objections could be made to the classical rationale
described above, although they do not seem currently to garner much favour and are
not reflected in government policy. It has, for instance, been argued that ‘spillover
costs do not call for government intervention but, rather, for a rearrangement of
83 This seems to be intended to refer to a regulation-free situation.
84 See 2002 paper, Box 4.1, p. 13.
85 See 2002 paper, para. 6.9.
86 Ibid., para. 6.10.
87 This part of the 2002 paper is a little difficult to follow. If business is defined as economic
activity, it is difficult to exclude anyone from its scope.
88 Ibid., para. 4.14.
89 Ibid., para. 4.17.
Technical Justifications 119
private property rights’.90 Ronald Coase, writing in 1960, famously took this position,
arguing that where there are ‘well-defined property rights, and where the costs of
bargaining are small enough, the affected parties can bargain with one another and
agree on an efficient allocation of resources’.91 Thus, in the examples given above,
those suffering from the pollution would get together and offer to pay the polluter
either to clean up or to adopt a pollution-free production method.92 Such an argument
might be significant in the context of small-group externalities, where there are only
a few affected parties whose rights have clearly been defined93 but the unreality of
the argument in relation to large-group externalities is apparent as soon as it is stated.
Even more unreal would be this argument in relation to mass externalities, such
as emissions causing climate change. The costs of bargaining become ever more
significant with the increase in the number of people affected, and a ‘clear consensus
is harder to obtain’.94 In this situation, there is a continuance of spillover costs,
because of the bargaining costs to those affected in banding together.95
Especially in the light of the subsequent development of environmental regulation,
it now seems almost inconceivable that arguments based upon a rearrangement of
private property rights could ever reassert themselves at a political level, at least
in relation to mass externalities. As the Treasury itself says, ‘if the market does not
reflect costs properly, there will implicitly be subsidies within the economy to those
causing pollution …’.96 Be that as it may, governments should clearly beware of
justifying every environmental intervention in terms of spillover cost. Breyer suggests
that, if the spillover rationale is to be ‘intellectually useful, [it] should be confined to
instances where the spillover is large, fairly concrete, and roughly monetizable’.97
One can always find some – broadly defined – spillover cost rationale for regulation,
since ‘there is always some possible beneficial effect in reversing a market-made
decision’.98 In fairness to the authors of the 2002 Treasury paper, this is a problem of
which they are clearly aware, since they refer to market failures caused by information
failures, the absence of competition and government intervention.99
Besides providing general justifications for the creation of environmental levies
and subsidies, the Treasury specifically states the justification for all except one
of the measures that have actually been taken as being the correction of negative
90 See Breyer, op. cit., p. 69. This paragraph is indebted to Breyer’s analysis of the objections
to the rationale rehearsed in the 2002 paper.
91 See Ronald Coase, ‘The Problem of Social Cost’ (1960) 3 JLE 1–44 (in Kalle Määttä’s
succinct summary (see Määttä, op. cit., pp. 7–8)).
92 See Breyer, op. cit., p. 59.
93 See Määttä, op. cit., p. 8.
94 See Breyer, op. cit., p. 69, and the works cited therein: J Buchanan, ‘An Economic Theory
of Clubs’ (1965) 32 Economica 1; Mancur Olson, The Logic of Collective Action: Public
Goods and the Theory of Groups (Cambridge, MA, London: Harvard University Press,
1965).
95 See Breyer, op. cit., p. 69.
96 See 2002 paper, para. 4.6.
97 See Breyer, op. cit., p. 72.
98 Ibid.
99 See 2002 paper, para. 4.9.
120 Environmental Taxation Law
externalities.100 The exception is the positive externality which is intended to be
corrected by corporation tax relief at a notional 150 per cent of expenditure for the
costs of remedial work on contaminated land.101
5.5 The efficient level of fiscal intervention
Having elucidated the concept of market failures caused by externalities, the Treasury
then poses, in Chapter 5 of the paper, three further issues for policy consideration.102
These are the questions of:
1 how the government decides whether intervention in order to address the
externality is worthwhile; if so,
2 what the most efficient extent of any intervention would be; and
3 whether it would be most appropriate to intervene at the local, at the national or
at the international level.
The Treasury reports that the government recognises that, given that decisions should
be made on the basis of good scientific evidence, the precautionary principle103
should be invoked where the scientific case is uncertain and, in accordance with
the principles of good regulation, the intervention should be proportionate and
consistent.
The question of whether intervention would be worthwhile is answered using a costbenefit
analysis (‘CBA’), part of the regulatory impact assessment (‘RIA’) procedure
discussed below.104 ‘Cost-benefit analysis’ is not here being used in a lay sense but is
‘a(chǎn) highly specialised decision-making tool developed by economists, which provides
a formal, systematic assessment of the costs and benefits of a proposed course of
action’.105 The aim of CBA is to find the point at which the total benefits of control
outweigh the total costs by the greatest margin, since this will be the optimal level of
pollution control. This is unlikely to be the level eventually adopted, however, since
other factors have a part to play in the process of decision-making.106
The CBA involves a two-stage process, whereby an environmental good is first
valued, with the cost of taking action then being subjected to economic appraisal.
Valuing environmental goods involves either inferring the ‘price’ of those goods or
the cost of remediating damage caused by pollution. The price of environmental goods
100 Ibid., Tables 6.1 (p. 23) and 7.1 (p. 42).
101 See Finance Act 2001, Sched 22. See paras 6.7, 7.3.4 and 24.5.1 below.
102 See 2002 paper, ch. 5.
103 See para. 8.2.6 below.
104 See 2002 paper, para. 5.2. Somewhat later in ch. 5, and somewhat inconsequentially,
given what has gone before, the 2002 paper emphasises the importance of cost-benefit
analysis in high-level target setting (see 2002 paper, para. 5.20). See also para. 11.2 below
and ‘Cost-Benefit Analysis and Environmental Policy’, in Helm, op. cit., pp. 48–74.
105 See Hilson, op. cit., p. 73. He gives a full discussion of the process at Hilson, op. cit.,
pp. 73–78, as to which see Chapter 11 below also.
106 See Hilson, op. cit., pp. 73–74.
Technical Justifications 121
may be inferred either from consumers’ behaviour or from their stated valuation of a
good. Customers’ behaviour may be tested, as appropriate, by using hedonic pricing
techniques, by travel cost models or by random utility models.107 Stated valuations
involve eliciting estimates of consumers’ willingness to pay (‘WTP’) or willingness
to accept (‘WTA’) a particular outcome, through the use of specially-designed
questionnaires. The cost of remediating damage, by contrast, is measured simply by
estimating the costs involved in removing the source of the pollution. Inferring the
price of an environmental good places emphasis on the value of that good to society,
whereas measuring the cost of remediating the damage places emphasis on the
resource implications of the environmental damage.108 The latter, says the Treasury,
is useful for testing data obtained by the former (price inference) method.
The implications of valuing the environmental good having been described, the
Treasury then goes on to consider how the government subjects the cost of taking
action to economic appraisal. Economic appraisal also helps to determine the most
efficient extent of any intervention. There is a standard appraisal method, which is
contained in what is colloquially known as the Treasury Green Book,109 although the
government acknowledges that, particularly where significant changes are required, the
costs of taking action may be difficult to substantiate. The Treasury uses as an example
the process through which the former DETR went in deciding whether to impose
what became the aggregates levy and, in the event that it was imposed, what would be
the appropriate rate at which it should be charged.110 Essentially, the latter question
involved estimating how much people valued avoiding the effect of quarrying for rock,
sand or gravel both in their locality and in landscapes of national importance.111
In the aggregates levy consultation, 10,000 people, residing in the vicinity of 21
aggregates production sites, including quarries,112 were asked how much they would
107 For the distinctions between these, see Hilson, p. 74, and the 2002 paper, para. 5.10.
108 Pigou had not been particularly troubled about fixing the appropriate rate of tax, although
he did refer to an inquiry in Manchester showing that an annual loss of £290,000 resulted
from ‘the extra laundry costs, artificial light and damage to buildings as a result of heavy
air pollution’ (quoted in David Gee, ‘Economic Tax Reform in Europe: Opportunities
and Obstacles’, in Ecotaxation, ed. by Timothy O’Riordan (London: Earthscan, 1997),
pp. 81–105, p. 87).
109 That is, HM Treasury, The Green Book: Appraisal and Evaluation in Central Government:
Treasury Guidance (London: TSO, 2003). The methodology described therein involves,
for example, discounting future costs and benefits to reflect the value that society places
on the consumption of goods and services now, as compared with future consumption.
110 See para. 11.3.2 below.
111 See 2002 paper, Box 5.1, p. 19. See London Economics, The Environmental Costs
and Benefits of the Supply of Aggregates (DETR: London, 1998); Susana Mourato and
David Pearce, Environmental Costs and Benefits of the Supply of Aggregates: A Review
of the London Economics Report (DETR: London, 1998); and London Economics, The
Environmental Costs and Benefits of the Supply of Aggregates Phase 2 (DETR: London,
1999) (this last is referred to below as ‘Phase Two’).
112 The list of 21 was made up of eight sites carrying out sand and gravel operations; eight
sites with hard rock quarries; three sites carrying out recycling operations and two marine
aggregate wharves (see Phase Two, above, Annex 7). Phase Two included Swinden
Quarry, a hard rock quarry near Skipton, North Yorkshire, in the Yorkshire Dales National
Park (see Phase Two, photographs at Annex 6 thereto).
122 Environmental Taxation Law
pay in the form of taxes, over a five-year period, for the quarry to be closed.113
This was a way of attributing a value to the environmental damage by those directly
affected, so these were referred to as the ‘local surveys’. Following this, another
1,000 people, living in 21 postcode areas not located near quarries, were asked what
they would pay to close a quarry in a National Park. This was a way of attributing
a value to the damage by those who were only indirectly affected, so these were
referred to as the ‘national survey’. The results of both local and national surveys
having been processed, national estimates were calculated for the average amount
that people were willing to pay for the environmental benefit of shutting down a
quarry. The national average, though weighted according to the type of output, was
calculated to be £1.80 per tonne.114
Finally, as to the question of whether, with regard to an externality, it is most
appropriate to intervene at a local, national or international level, the Treasury
makes some interesting distinctions. Road traffic congestion is characterised as a
localised problem, best tackled using a road user charging (‘congestion charging’ or
‘cordon pricing’) scheme,115 at a local level. Problems of a national nature only (not
particularised in detail) are best dealt with at the UK level,116 whilst transboundary
problems (such as acid rain) are best dealt with at a European level and global
problems (such as climate change) are best dealt with at an international level.117
5.6 Concluding remarks
Following our discussion in Chapter 4 of the institutional structures within which
environmental levies and subsidies are developed, implemented and enforced,
we have sought to elucidate in the current chapter the technical justifications for
these instruments. Thus, the Treasury, and therefore, UK government, justifies
its green levies and subsidies primarily by reference to its policy on sustainable
development, which is itself designed to implement the environmental commitments
to which the UK is bound by various international treaties.118 We have seen how the
economic arguments for economic instruments as a means of carrying through these
commitments, have achieved an almost unchallengeable status, such that they may be
113 See Phase Two, para. 2.2. The specially-designed questionnaires used a specially-evolved
(stated) contingent valuation method, based on WTP. In relation to the early closure of
the quarry in question, people were generally asked to assume that the site was restored
in keeping with the surrounding landscape, and that the workers found new employment
(see 2002 paper, Box 5.1, p. 19, second para). See, generally, Valuing Environmental
Preferences – Theory and Practice of the Contingent Valuation in the US, EU and
Developing Countries, ed. by Ian J. Bateman and Ken G. Willis (Oxford: Clarendon
Press, 1999).
114 When the aggregates levy was eventually introduced in April 2002, the rate was put at the
more conservative £1.60 per tonne (see para. 13.2 below).
115 See 2002 paper, paras 5.26 and 5.32.
116 Ibid., paras 5.26 and 5.30.
117 Ibid., paras 5.26 and 5.28–5.29.
118 See Chapter 8 below.
Technical Justifications 123
seen to prevail even where the evaluation methods they employ are, to say the least,
controversial. That these arguments also have a part to play in the ongoing review
of taxes dating back before 1997 is illustrated by the ongoing review of landfill tax,
which will be considered in a later chapter.119
The 2002 Treasury paper is a profoundly interesting document, not least because,
despite being separated from the government’s original Statement of Intent on
environmental taxation by almost five years, it is remarkably consistent with
that original Statement. In para. 8.6 of the paper, the Treasury states its aims of
continuing to explore the use of economic instruments to achieve environmental
and sustainable development objectives; of continuing to keep under review the
impact of environmental policy on innovation; and of continuing to engage with
stakeholders120 on the use and design of economic instruments.121 It also states its
intentions of taking the lessons of the UK experience to European and international
discussions on the issues surrounding the use of economic instruments in meeting
environmental challenges.122
What is particularly interesting about the final chapter of the 2002 paper, however,
is that, at the very end, it clearly acknowledges the limitations of the economic
discipline as a basis for policy making, whilst at the same time emphasising the
arguments that the discipline has to offer. In para. 8.4, it is said that ‘[e]conomics
provides a useful framework for assessing the extent and nature of government action
to deal with environmental issues, helping to inform judgments on how to balance
environmental, economic and social impacts. So far as possible [it continues], the
actions that the government takes and the targets that it sets or agrees to need to
reflect the costs and benefits of those actions’.
119 See para. 11.4 below.
120 See above, n.
121 See 2002 paper, p. 45.
122 Ibid.
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Chapter 6
Regulatory Context
6.1 Introduction
The main purpose of the present chapter is to locate the UK’s environmental
levies and their associated economic instruments within the broader context of UK
environmental and market regulation.1 It would be possible to evolve a number of
different structures, more or less theoretical, for such an investigation. Pragmatically,
the one that we have evolved is to identify the range of regulatory instruments used
to address particular environmental concerns, their selection being suggested by
the spheres of operation of the various environmental levies and their associated
economic instruments.
Before turning, in the next chapter, to particular examples of the instruments just
referred to, it will be necessary to introduce a pervasive feature of the regulatory
scene, not only in the UK, but in the rest of the EU also: Integrated Pollution
Prevention and Control (‘IPPC’). Our discussion of this concept, together with that
of its older national forebear, Integrated Pollution Control (‘IPC’), is designed to
form a backdrop to the subsequent examination of the specific regimes relating to
the regulation of waste management,2 the control of air and atmospheric pollution;3
the regulation of air passenger and road freight transport,4 the regulation of mineral
extraction5 and (briefly) the regulation of contaminated land.6
The list just recited of the various regulatory spheres as they have developed in
Western Europe draws attention both to possible overlaps between the categories (for
example, as between air and atmospheric pollution and transport regulation) and to
the need to separate environmental regulation out from market regulation. Both are,
in a sense, forms of economic regulation, depending on how widely the boundaries
of economic science are set. To that extent, to draw a line of demarcation between
the ‘environmental’ and ‘the market’ is artificial.7 Nonetheless, that the dichotomy
1 See, inter alia: Stuart Bell and Donald McGillivray, Environmental Law, 5th edn (London:
Blackstone, 2000); Richard Burnett-Hall, Environmental Law (London: Sweet and
Maxwell, 1995); David Hughes et al., Environmental Law, 4th edn (London: Butterworths
LexisNexis, 2002); John F. McEldowney and Sharron McEldowney, Environmental Law
and Regulation (London: Blackstone, 2001); Susan Wolf and Neil Stanley, Wolf and
Stanley on Environmental Law, 4th edn (London: Cavendish, 2003); Justine Thornton
and Silas Beckwith, Environmental Law, 2nd edn (London: Sweet and Maxwell, 2004);
and Maurice Sunkin, David Ong and Robert Wight, Sourcebook on Environmental Law,
2nd edn (London: Cavendish, 2002).
2 See para. 6.3 below.
3 See para. 6.4 below.
4 See para. 6.5 below.
5 See para. 6.6 below.
6 See para. 6.7 below.
7 See Authors’ Preface above.
126 Environmental Taxation Law
is to be found in the legislative materials under consideration appears to us to be
incontrovertible. This is especially true, for instance, of energy regulation,8 where,
as stated elsewhere, the ‘unbundling’ of formerly nationalised industries, such as gas
and electricity supply, has been accompanied by the parallel but distinct development
of environmental law and policy.9 More recently still, there have been attempts to
graft onto the unbundling process a series of measures to safeguard environmental
interests.10 The problems raised by this afterthought are, of course, a central
preoccupation of the book.
In what follows, we have tended to give the greatest weight to the explanation of
regulatory issues which are either not covered elsewhere in the book or of which some
preliminary understanding is necessary in order to be able to gain some insight into
the strengths and weaknesses of the various levies and subsidies under consideration
later on. In indicating in the present chapter the place of environmental levies and
subsidies in the overall regulatory jigsaw, we have tended simply to cross-refer to the
more detailed explanations of them which appear elsewhere in the study. In order to
highlight the economic instruments, such as the environmental taxes, we have also
adopted the traditional classification of command and control instruments, on the one
hand, and economic instruments on the other. We are, of course, aware of the fact
that, whilst superficially appealing, such a dichotomy may, on close examination,
cease to exist. For instance, waste management licensing is seen as a command and
control instrument, yet the licence fee may be viewed as an economic one, a pure
case of the polluter having to pay. Likewise, an emissions trading system may seem
to typify the concept of the economic instrument, yet no such system will succeed
unless there is built into it a system of sanctions for non-compliance.11
We begin, as mentioned above, with cross-sectoral regulation. After considering IPC
and IPPC, we go on briefly to consider the Environmental Impact Assessment (‘EIA’)
regime and the newer regime for Strategic Environmental Assessment (‘SEA’). Like
much of what follows, the policy inspiration here is a Community-wide one and,
to the extent that these two concepts shift attention back to the process of planning
operations with potentially very significant environmental impacts, they are of the
greatest significance to an important element in the rest of the study. Ironically,
as we shall see, EIA and SEA may actually prove of particular significance in the
8 See Energy Law in Europe: National, EU and International Law and Institutions, ed.
by Martha M. Roggenkamp et al. (Oxford: Oxford University Press, 2001). See also
United Kingdom Oil and Gas Law, ed. by Terence Daintith and Geoffrey Willoughby
(London: Sweet and Maxwell, 1984); Patricia D. Park, Energy Law and the Environment
(London: Taylor and Francis, 2002); and Energy Law and Regulation in the European
Union, ed. by Robert H. Tudway et al. (London: Sweet and Maxwell, 1999).
9 It seems appropriate to deal with UK energy regulation first, since, during the 1990s,
the ‘British model of privatisation’ has been taken up by the European Commission (see
Dieter Helm, Energy, the State and the Market: British Energy Policy since 1979, revised
edn (Oxford: Oxford University Press, 2004), pp. 372–3).
10 See, for example, s.4AB, Gas Act 1986, and s.3B, Electricity Act 1989 (Guidance on
social and environmental matters) and s.33BC, Gas Act 1986, and 41A, Electricity Act
1989 (Promotion of the efficient use by consumers of gas/electricity).
11 See para. 1.4.2.1 above.
Regulatory Context 127
electricity sector, where there is currently some evidence that they are hindering the
development of renewables generation.12
6.2 Integrated Pollution Control, Integrated Pollution Prevention and
Control and Environmental Assessment
6.2.1 Introduction
United Kingdom environmental regulation takes effect within the framework created
by two overarching regulatory regimes: Integrated Pollution Control (‘IPC’) and
Integrated Pollution Prevention and Control (‘IPPC’).
The basis of the IPC regime is Part I of the Environmental Protection Act 1990,
whilst that of IPPC is the Integrated Pollution Prevention and Control Directive,13
as transcribed into the law of England and Wales by the Pollution Prevention and
Control Act 1999 and the Pollution Prevention and Control (England and Wales)
Regulations 2000.14
The IPC regime represents an early attempt to coordinate the control of pollution
by specific regulation of all of the emissions from certain prescribed industrial
processes.15 The objective of IPPC, by contrast, is much wider, the general approach
of the IPPC legislation being to ‘prevent, reduce and (if possible) to eliminate
pollution and environmental impact as a whole’.16 Integrated Pollution Prevention
and Control has enhanced the role of local authorities17 in the prevention and control
of pollution;18 it should have replaced IPC by 2007.
6.2.2 Integrated Pollution Control
Part I of the Environmental Protection Act 1990 creates two systems of pollution
regulation: IPC, now under the control of the Environment Agency,19 and Local
Authority Air Pollution Control (‘LAAPC’). The former was intended to regulate the
most seriously polluting processes, whilst the latter was intended for those processes
which are clearly in need of regulation but which are not so grave as to require
centralised control.
12 See para. 6.2.4 below.
13 Council Directive 96/61/EEC, (1996) OJ L25,7 26 (see para. 12.2.2 below).
14 S.I. 2000 No. 1973. According to Bell and McGillivray, op. cit., the IPPC Directive
was one of the first items of Community environmental legislation to be transposed and
implemented in the devolved UK (ibid., p. 383). See paras 1.3 and 4.2.2 above.
15 For the background, see Royal Commission on Environmental Pollution, Fifth Report on
Air Pollution Control: An Integrated Approach (Cmnd 6731, 1976).
16 Bell and McGillivray, op. cit., p. 386.
17 See para. 4.2.3 above.
18 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I.
2000 No 1973, reg. 8 and Sched. 1 (Part A and Part B Installations within each Section of
the Sched). See also Wolf and Stanley, op. cit., p. 291, for a further explanation.
19 See para. 4.2.1.3(1) above.
128 Environmental Taxation Law
By s.6(1), Environmental Protection Act 1990, no person must carry on a prescribed
process ‘except under an authorisation granted by the enforcing authority and in
accordance with the conditions to which it is subject’. Additionally, by Environmental
Protection Act 1990, s.2(5), the Secretary of State for Environment, Food and Rural
Affairs20 may, by regulations, ‘prescribe any description of substance as a substance
the release of which into the environment is subject to control’ under s.6 of the Act.
A prescribed process is a process21 for the carrying on of which an authorisation is
required by regulations.22 The regulations in question, the Environmental Protection
(Prescribed Processes and Substances) Regulations 1991,23 contain two lists of
processes, ‘A’ and ‘B’, in Sched. 1 thereto, the more seriously polluting processes
falling within List A. Prescribed substances appear within Scheds 4–6, Environmental
Protection (Prescribed Processes and Substances) Regulations 1991. Within Sched. 1,
the prescribed processes are grouped within six chapters, according to sector:
1 fuel production processes, combustion processes and associated processes;24
2 metal production and processing;25
3 mineral industries;26
4 the chemical industry;27
5 waste disposal and recycling;28 and
6 other industries.29
Schedule 4 contains prescribed substances released into the air; Sched. 5 contains
prescribed substances released into water; and Sched. 6 contains prescribed
substances released into land.
The exemptions appearing in the Environmental Protection (Prescribed Processes
and Substances) Regulations 1991, reg. 4, apply to those processes in which the
amount of a prescribed substance released is very small.
Authorisations are covered by Environmental Protection Act 1990, s.6 and Sched.
1. It is a criminal offence to carry on a prescribed process or to discharge a prescribed
substance without prior authorisation.30 This is punishable, on summary conviction,
by a fine not exceeding £20,000 or by imprisonment for a term not exceeding three
months (or both). On conviction on indictment, it is subject to an unlimited fine or to
imprisonment for a term not exceeding two years or to both.31
20 See para. 4.2.1.2(1) above.
21 See Environmental Protection Act 1990, s.1(5).
22 Ibid., s.2(1).
23 S.I. 1991 No. 472, as amended at least eight times.
24 Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I.
1991 No. 472, Sched. 1, ch. 1.
25 Ibid., Sched. 1, ch. 2.
26 Ibid., Sched. 1, ch. 3.
27 Ibid., Sched. 1, ch. 4.
28 Ibid., ch. 5.
29 Ibid., Sched. 1, ch. 6.
30 Environmental Protection Act 1990, s.23(1)(a).
31 Ibid.
Regulatory Context 129
The enforcing authority, as mentioned above, is either the Environment Agency32
or the local authority.33 List A processes are designated for central control, whilst
List B processes are designated for local control.34
Section 7, Environmental Protection Act 1990, deals with the imposing of conditions
on the grant of authorisations. By s.6(3), Environmental Protection Act 1990, on an
application for an authorisation, the enforcing authority shall:
… either grant the authorisation subject to the conditions required or authorised to be
imposed by section 7 … or refuse the application.
In s.7 are stated the considerations that the enforcing authority may take into account
in granting an authorisation and the objectives for which the conditions may be
imposed. Among these objectives is that of ensuring that, in carrying on a prescribed
process, the best available techniques not entailing excessive cost (‘BATNEEC’) will
be used for preventing or reducing the release of prescribed substances.35
The enforcing authority has wide powers, including:
1 varying and revoking authorisations;36
2 serving enforcement notices37 and prohibition notices;38 and
3 power to take reasonable steps to remedy the harm.39
6.2.3 Integrated Pollution Prevention and Control
Section 2, Pollution Prevention and Control Act 1999, empowers, inter alia, the
Secretary of State for Environment, Food and Rural Affairs, to make regulations for
particular purposes, including:
1 establishing standards, objectives or requirements in relation to emissions;40
2 authorising the making of plans for the setting of overall limits, the allocation of
quotas or the progressive improvement of standards or objectives;41 and
3 authorising the making of schemes for the trading or other transfer of quotas so
allocated.42
Most importantly, Sched. 1, Pt 1, para. 4, of the 1999 Act empowers the Secretary
of State to prohibit persons from operating any installations or plant of any specified
32 See para. 4.2.1.3 above.
33 See para. 4.2.3 above.
34 Environmental Protection Act 1990, s.5.
35 Ibid., s.7(2).
36 Ibid., ss.10–12.
37 Ibid., s.13.
38 Ibid., s.14.
39 Ibid., s.27.
40 Pollution Prevention and Control Act 1999, Sched. 1, Pt 1, para. 1(1).
41 Ibid., Sched. 1, Pt 1, para. 1(2).
42 Ibid., Sched. 1, Pt 1, para. 1(3).
130 Environmental Taxation Law
description or otherwise carrying on any activities of any specified description, except
under a permit in force under regulations and in accordance with any conditions to
which the permit is subject.43
The Pollution Prevention and Control Act 1999 also empowers the Secretary of
State for Environment, Food and Rural Affairs to make schemes for fees and charges
in respect of applications for the grant, variation, subsistence, transfer or surrender
of permits or testing substances and regulations may require charges to be so framed
as to cover expenditure.44 Pollution Prevention and Control (England and Wales)
Regulations 200045 represent the exercise of these powers in England and Wales.
The basic provision of Pollution Prevention and Control (England and Wales)
Regulations 2000 is that ‘no person shall operate an installation or mobile plant
except under, and to the extent authorised by, a permit granted by the regulator’.46
An installation is a stationary technical unit where prescribed activities are carried
out and any other location on the same site where any other directly associated
activities are carried out.47 Mobile plant is plant designed to move or to be moved,
whether on roads or otherwise, and which is likewise used to carry out prescribed
activities.48
The descriptions of these activities are immensely detailed, but cover:
1 combustion activities, gasification, liquefaction and refining activities, in the
energy industries;49
2 the production and processing of metals and the surface treating of metals and
plastic materials, in the production and processing of metals;50
3 the production of cement and lime, activities involving asbestos, manufacturing
glass and glass fibre, the production of other mineral fibres, other mineral
activities and ceramic production, in the mineral industries;51
4 in the chemical industry, producing both organic and inorganic chemicals,
chemical fertilisers, plant health products and biocides, pharmaceutical products
and explosives, manufacturing activities involving carbon disulphide or ammonia
and the storage of chemicals in bulk;52
5 the disposal of waste by landfill, as well as the disposal of waste other than by
incineration or landfill, the recovery of waste and the production of fuel from
waste, in the waste management industry;53 and
43 Pollution Prevention and Control Act 1999, Sched. 1, Pt 1, para. 1(4).
44 Ibid., Sched. 1, Pt 1, para. 24.
45 S.I. 2000 No. 1973.
46 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No.
1973, reg. 9(1).
47 Ibid., reg. 2(1).
48 Ibid., reg. 2(1).
49 Ibid., Sched. 1, Pt 1, Ch. 1, Section 1.1.
50 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 2.1–2.3.
51 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 3.1–3.6.
52 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 4.1–4.8.
53 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No.
1973, Sched. 1, Pt 1, Ch. 1, Sections 5.1–5.5.
Regulatory Context 131
6 other activities, that is, paper, pulp and board manufacturing activities; carbon
activities; tar and bitumen activities; coating activities, printing and textile
treatments; the manufacture of dyestuffs, printing ink and coating materials;
timber activities; activities involving rubber; the treatment of animal and
vegetable matter and food industries; and intensive farming.54
When determining the conditions to be attached to a permit, the regulator is obliged
to take account of certain general principles.55 Installations and plant should be
operated in such a way that:
(a) all the appropriate preventative measures are taken against pollution, in particular
through application of the best available techniques [BAT]; and
(b) no significant pollution is caused.56
Regulation 12, Pollution Prevention and Control (England and Wales) Regulations
2000, specifies the conditions that must be included in a permit, and the concept of
best available techniques (‘BAT’) is elaborated in reg. 3. There, ‘best’ is defined as
meaning the most effective techniques in achieving a high general level of protection
of the environment as a whole; ‘a(chǎn)vailable’ means those techniques that have been
developed ‘on a scale that allows implementation in the relevant industrial sector
under economically and technically viable conditions’; and ‘techniques’ includes
‘both the technology used and the way in which the installation is designed, built,
maintained, operated and decommissioned’. Regulation 4 contains particular
provision for the case where the regulator has to decide whether or not a person
is a ‘fit and proper person to carry out a specified waste management activity’.57
A person will not be fit and proper to carry out those activities if, for example, he
has not made adequate financial provision to discharge his obligations under the
permit.58
The IPPC regulator59 has a large number of enforcement powers, including the
power to serve enforcement notices;60 the power to serve a revocation notice,
revoking all or part of the activities authorised by the permit;61 and the power to
serve a suspension notice if it considers that the operation of an installation involves
an imminent risk of serious injury.62 There is also a range of criminal offences
54 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 6.1–6.9.
55 Ibid., reg. 11(1).
56 Ibid., reg. 11(2). There are additional principles in the case of mobile plant (see reg.
11(3)).
57 See point 5 above.
58 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000
No. 1973, reg. 4(3)(c).
59 Who may be either the Environment Agency (see para. 4.2.1.3 above) or the relevant local
authority (see para. 4.2.3 above).
60 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No.
1973, reg. 24.
61 Ibid, reg. 21.
62 Ibid., reg. 25.
132 Environmental Taxation Law
involving permits,63 the maximum penalty on summary conviction being a fine of up
to £20,000 and/or imprisonment for a period of up to six months, with the maximum
penalty on conviction on indictment being an unlimited fine and/or imprisonment for
a period up to five years.64
6.2.4 Environmental Impact Assessment and Strategic Environmental
Assessment
It is important at this stage to note a second overarching set of provisions which
are designed to ensure that, when a public authority is considering plans for public
and private projects, it takes account of their environmental impacts.65 These
provisions originate from the Environmental Impact Assessment Directive (‘the
EIA Directive’), which is examined in some detail in a later chapter of the study,66
the legislative basis of the provisions being s.2(2) of the European Communities
Act 1972. In England and Wales, the EIA Directive has been implemented by the
Town and Country Planning (Environmental Impact Assessment) (England and
Wales) Regulations 1999,67 together with a number of other sets of regulations
which cover projects falling outside the scope of the law on town and country
planning.68
The requirement for an EIA in relation to specific projects has been considered in a
number of important cases in this jurisdiction, including R v. North Yorkshire County
Council, ex parte Brown69 and Berkeley v. Secretary of State for the Environment,
Transport and the Regions (No. 1).70 In the former case, the House of Lords rejected
an argument by the County Council that there had been no necessity for an EIA in a
case where it had simply imposed conditions on a planning permission of indefinite
duration originally granted in 1947 for the working of Wensley Quarry, at Prestonunder-
Scar, in the Yorkshire Dales. The Council had imposed the conditions under
s.22 of the Planning and Compensation Act 1991 and, in support of its argument,
it had contended that s.22 involved merely the detailed regulation of activities for
which the principal consent had already been given in 1947. Clearly unimpressed
with the argument, Lord Hoffmann said:
The procedure created by the Act of 1991 was not merely a detailed regulation of a project
in respect of which the substantial environmental issues had already been considered. The
purpose of the procedure was to give the mineral planning authority [that is, the Council] a
63 Ibid., reg. 32.
64 Ibid., regs 32(2) and 32(3).
65 See Stephen Tromans and Karl Fuller, Environmental Impact Assessment: Law and
Practice (London: LexisNexis Butterworths, 2003).
66 See para. 12.2.4 below.
67 S.I. 1999, S.I. No. 293.
68 For example, the Environmental Assessment (Afforestation) Regulations 1988, S.I. 1988
No. 1207, and the Land Drainage Improvement Works (Assessment of Environmental
Effects) Regulations 1988, S.I. 1988 No. 1217.
69 [2000] 1 AC 397.
70 [2001] 2 AC 603.
Regulatory Context 133
power to assess the likely environmental effects of old mining permissions which had been
granted without, to modern ways of thinking, any serious consideration of the environment
at all.71
Similarly, in the Berkeley case, the House of Lords dismissed the argument put on
behalf of the Secretary of State that, where substantial compliance with the EIA
Directive’s requirements could be demonstrated by reference to public documents,
the fact that no EIA had actually taken place did not invalidate a planning permission.
In dismissing this argument also, Lord Hoffmann said:
My Lords, I do not accept that this paper chase72 can be treated as the equivalent of an
environmental statement73 … The point about the environmental statement contemplated
by the Directive is that it constitutes a single and accessible compilation, produced by
the applicant at the very start of the application process, of the relevant environmental
information and the summary in non-technical language.74
Although both the Brown and the Berkeley cases involved the interpretation of the
predecessor regulations dating from 1988, they each illustrate the strictness with
which the courts approach the question of whether there has been compliance with
the requirements of the Directive.75
Against the background of a transposition of the EIA Directive, which has hardly been
free from difficulty, the ODPM76 consulted in spring 200477 on the implementation
of the Strategic Environmental Assessment (‘SEA’) Directive.78 This was transposed
into UK law, on time, in July 2004, via four separate sets of regulations for each
of the UK’s four countries.79 Attention has recently been focused on SEAs since
they are needed for the development of arrays of coastal wave power devices for
electricity generation. The lack of an SEA for the southwest coast of England has
been a matter of considerable concern to developers (and others) looking to wave
power as a form of renewables generation.80
71 [2000] 1 AC 397, 405.
72 That is, a close reading of the documentation actually submitted in the case.
73 That is, as required by Council Directive 85/337/EEC, (1985) OJ L175 40, Arts 5, 6(2)
and Annex IV. See para. 12.2.4 below.
74 [2001] 2 AC 603, 617.
75 But see the argument on the failure to carry out an EIA in R (on the application of The
Mayor, Citizens of Westminster and others) v. The Mayor of London, [2002] EWHC 2440.
See para. 18.2 below.
76 See para. 4.2.1.2(1) above.
77 See Office of the Deputy Prime Minister, Consultation Document on Implementation of
SEA Directive (2001/42/EC), March 2, 2004 (available from www.odpm.gov.uk).
78 See para. 12.2.4 below.
79 See, for example, for England, Environmental Assessment of Plans and Programmes
Regulations 2004, S.I. 2004 No. 1633. See also para. 1.3 above.
80 See 346 ENDS Report (2003).
134 Environmental Taxation Law
6.3 Waste management regulation
6.3.1 The international and European Union background
United Kingdom waste management regulation operates within the broader context
of public international law and Community law on the regulation of waste. That
broader context is considered in Chapters 8 and 12 below.
6.3.2 Command and control
The regulation of waste management has, until very recently, been dominated by
command and control regulation.81 The key set of provisions appears in Part II of the
Environmental Protection Act 1990, but account must also be taken of the relationship
between Part II, Environmental Protection Act 1990, and both IPC (in Part I of the
same statute) and IPPC (in the Pollution Prevention and Control Act 1999).82
The Environmental Protection Act 1990, ss.44A and 44B, place an obligation on
the Secretary of State for Environment, Food and Rural Affairs to prepare a national
waste strategy for England and Wales. This is currently contained in what was then
the DETR’s83 Waste Strategy 2000 for England and Wales, of May 2000.84 Three
principal targets of the strategy are: to reduce, by 2005, the amount of industrial
and commercial waste sent to landfill to 85 per cent of 1998 levels; to recover value
from 45 per cent of municipal waste by 2010 and to recycle or compost at least 30
per cent of household waste by that date; and to recover value from two-thirds of
municipal waste by 2015, with at least 33 per cent of household waste being recycled
or composted by the same date.
Following concern that the targets in Waste Strategy 2000 would not be met, the
Strategy was reviewed by the Cabinet Office Strategy Unit85 in November 2002
in its now-famous Waste Not, Want Not document.86 The Strategy Unit criticised
Waste Strategy 2000 for giving too little attention to minimising waste (the Strategy
not containing any waste minimisation targets)87 and for failing to create ‘… the
economic and regulatory framework and enough associated policy tools to deliver
tangible improvements in waste minimisation, re-use and recycling’.88 Waste Not,
Want Not made over 30 recommendations for taking forward and monitoring by
Defra.89 The recommendations included raising landfill tax to £35 per tonne for
81 See Duncan Laurence, Waste Regulation Law (London: Butterworths, 1999).
82 See para. 6.2 above.
83 See para. 4.2.1.2(1) above.
84 Department of Environment, Transport and the Regions, Waste Strategy 2000 for England
and Wales (Cm 4693, 2000).
85 See para. 4.2.1.2(1) above.
86 Cabinet Office Strategy Unit, Waste Not, Want Not: A Strategy for Tackling the Waste
Problem in England (London: Cabinet Office Strategy Unit, 2002).
87 Ibid., p. 30.
88 Cabinet Office Strategy Unit, op. cit., p. 30.
89 Ibid., pp. 116–39.
Regulatory Context 135
active waste90 and keeping under review the case for an incineration tax.91 They were
subsequently implemented in the government’s Waste Implementation Programme
(‘WIP’), which began in June 2003.92
6.3.2.1 Environmental Protection Act 1990, Part II
There are three main elements in the Environmental Protection Act 1990:
1 a waste management licensing system;
2 a statutory duty of care in relation to how waste is handled; and
3 a reorganisation of the functions of the regulatory authorities between Waste
Regulation Authorities (‘WRAs’), Waste Disposal Authorities (‘WDAs’) and
Waste Collection Authorities (‘WCAs’).
The WRAs were formerly the County Councils93 but, as a result of amendments made
to the Environmental Protection Act 1990 by the Environment Act 1995, the WRA is
now the Environment Agency.94 Generally speaking, the WDA is the County Council
is a non-metropolitan area and the District Council in a metropolitan area.95 The WDA
has a duty to arrange for the disposal of controlled waste (that is, household, industrial
and commercial waste)96 collected by the WCA in the area in question.97 The WCA
has a duty to arrange for the collection of household waste and of commercial waste
when so requested.98 Although, in certain circumstances, a WCA may charge for the
collection of household waste, the collection of such waste is generally free of charge.
The same is not true of industrial or commercial waste, the collection and disposal of
which is subject to the payment of some reasonable amount.99
Crucial to the whole system, of course, is the definition of ‘waste’ itself. Although
it is possible to restate this definition in brief compass, the definition in practice
gives rise to a range of potentially extremely complex issues. ‘Waste’ is defined in
Environmental Protection Act 1990, s.75(2), as:
90 Ibid., p. 124.
91 Ibid., p. 127.
92 See Department for Environment, Food and Rural Affairs, WIP: One Year On, June 2004,
available from www.defra.gov.uk.
93 See para. 4.2.3 above.
94 See para. 4.2.1.3 above.
95 See para. 4.2.3 above. See also Wolf and Stanley, op. cit., p. 203. The authors would like
to acknowledge a particular debt to this work in this para. 6.3.
96 See Environmental Protection Act 1990, s.75(4), and the Controlled Waste Regulations 1992,
S.I. 1992 No. 588 (see Thanet District Council v. Kent County Council, [1993] Env LR 391).
‘Household waste’ is defined in the Environmental Protection Act 1990, s.75(5); ‘industrial
waste’ is defined in the Environmental Protection Act 1990, s.75(6); and ‘commercial waste’
is defined in the Environmental Protection Act 1990, s.75(7).
97 Ibid., s.51.
98 Ibid., s.45.
99 Ibid., s.45(4).
136 Environmental Taxation Law
… any substance or object in the categories set out in Schedule 2B to this Act which the
holder discards or intends or is required to discard; and for the purposes of this definition
– ‘holder’ means the producer of the waste or the person who is in possession of it; and
‘producer’ means any person whose activities produce waste or any person who carries
out pre-processing, mixing or other operations resulting in a change in the nature or
composition of this waste.100
Environmental Protection Act 1990, Sched. 2B, provides a non-exhaustive list of
items that count as waste (for example, off-specification products, residues from
industrial processes and pollution abatement processes, adulterated materials, etc.)
when they have been discarded.101
Thus, for the purposes of Environmental Protection Act 1990, s.75, in determining
whether an item is ‘waste’, it is crucial to decide whether it has been ‘discarded’.102
What constitutes discarding has been a matter of considerable controversy in the
context of landfill tax,103 since that tax is charged on disposals of material as waste.104
In the context of Environmental Protection Act 1990, the ECJ has held that ‘discard’
has a special meaning that includes both the consignment of waste for disposal and
the consignment of waste to a recovery operation.105 This definition was followed by
Carnwath, J. in Mayer Parry Recycling Ltd v. Environment Agency (No. 1),106 where
it was held that a company, part of whose business involved receiving scrap metal
and dealing with it so that steel manufacturers could use it for making other items,
was managing ‘waste’.107
Besides the concept of ‘controlled waste’, there is also that of ‘special waste’.
Special waste is controlled waste in respect of which the Secretary of State for
Environment, Food and Rural Affairs has made an order under the Environmental
Protection Act 1990, s.62.108 It includes waste that is especially ‘… dangerous or
100 This incorporates the definition in the Waste Framework Directive, Council Directive
75/442/EEC, (1975) OJ L194 39, Art. 1(a). Waste falling within this definition is therefore
often known as ‘Directive Waste’.
101 See para. 12.2.5.2 below.
102 See, for example, J. Cheyne and M. Purdue, ‘Fitting definition to purpose: the search for
a satisfactory definition of waste’, [1995] 7 JEL 149. See also the articles cited at para.
12.2.5.2n below.
103 See para. 15.2 below.
104 See para. 1.4.2.1(1) above.
105 See Criminal proceedings against Euro Tombesi and others, Joined Cases C–304/94,
C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561; Inter-Environnement Wallonie
ASBL v. Region Wallonne, C–129/96, [1998] 1 CMLR 1057; and ARCO and EPON,
Joined Cases C–418–419/97, [2002] QB 646. See further para. 12.2.5.2 below.
106 [1999] Env LR 489. See also Parkwood Landfill Ltd v. C & E Commrs, [2002] STC
1536.
107 With the result that it therefore required the appropriate licences under the regulations
described in (a) below. In Mayer Parry Recycling Ltd v. Environment Agency (No. 1),
Carnwath, J. held that the material continued to be waste until the completion of the
recovery process (as to the position when that process has been completed, see Castle
Cement v. Environment Agency, [2001] EWHC Admin 224 (Stanley Burnton, J.); [2001]
Env LR 46).
108 See Environmental Protection Act 1990, s.75(9).
Regulatory Context 137
difficult to treat, keep or dispose of’ (for example, because it is explosive, flammable
or carcinogenic, etc.).109
The exclusions from the definition of commercial waste in the Environmental
Protection Act 1990, s.75, include waste from any mine or quarry.110
(1) Waste management licensing system
Environmental Protection Act 1990, ss.35–44, contain a framework for the
management of waste. The detail is contained in the Waste Management Licensing
Regulations 1994.111 Both sets of provisions are intended to comply with the Waste
Framework Directive (‘the WFD’).112
Details of the basic provisions of the 1990 Act are as follows:113
a. Section 35(1) gives the following definition of a waste management licence:
… a licence granted by a waste regulation authority114 authorising the treatment, keeping
or disposal of any specified description of controlled waste in or on specified land or the
treatment or disposal of any specified description of controlled waste by means of specified
mobile plant.
Subsections (3) and (4) of s.33, Environmental Protection Act 1990, give the
Secretary of State for Environment, Food and Rural Affairs the power to exempt
certain activities from the licensing system. The activities thus exempted include
those covered by other statutory controls (for example, IPC)115 as well as those
falling within an exhaustive list,116 which includes the temporary storage of
waste, on the site where it is produced, pending its collection.117
b. The licence is granted to the person who is in occupation of the land (that is, to
‘the site operator’) or, in the case of a mobile waste treatment plant, the person
who operates the plant.118
c. The Environment Agency’s circumscribed discretion in relation to the grant of
licences is contained in Environmental Protection Act 1990, s.36. The Agency
must refuse to issue a licence if planning permission is required in relation to
the land and no such planning permission is in force.119 Otherwise, the Agency
109 See Special Waste Regulations 1996, S.I. 1996 No. 972.
110 See Environmental Protection Act 1990, s.75(7), and the Mines and Quarries (Tips) Act
1969.
111 S.I. 1994 No. 1056.
112 See para. 12.2.5.1(1) below.
113 It should be noted, of course, that the grant of a waste management licence does not
obviate the need to comply with town and country planning law (see Hughes, op. cit.,
pp. 423–6).
114 That is, the Environment Agency (see para. 4.3.2(1) above).
115 Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056, reg. 16 (see
below).
116 Ibid., reg. 17 and Sched. 3.
117 Ibid., Sched. 3, para. 41(1).
118 Environmental Protection Act 1990, s.35(2).
119 Ibid., s.36(2).
138 Environmental Taxation Law
must not reject the application if it is satisfied that the applicant is a fit and proper
person, unless:
… it is satisfied that its rejection is necessary for the purpose of preventing–
(a) pollution of the environment;
(b) harm to human health; or
(c) serious detriment to the amenities of the locality …120
d. The grant of a licence may be made subject to such terms and conditions relating
to the activities that the licence authorises and to the precautions to be taken and
works to be carried out.121
e. Section 43, Environmental Protection Act 1990, provides for there to be a right
of appeal from decisions of the Environment Agency to the Secretary of State.
f. By Environmental Protection Act 1990, s.33(1), it is an offence to deposit,
treat, keep or dispose of controlled waste except in accordance with a waste
management licence.122 Breach of the section makes the wrongdoer liable to
imprisonment for up to six months or a fine not exceeding £20,000 or both (on
summary conviction); or to imprisonment for up to two years and/or a fine (on
conviction on indictment).123
g. Fees are payable to the Agency for the grant, modification, transfer, etc., of the
waste management licence.124 This is a practical example of the polluter pays
principle.125
(2) Statutory duty of care as to handling of waste
Section 34 of the Environmental Protection Act 1990, imposes a duty on various
categories of persons (including importers, producers and carriers) to take all such
measures applicable to them in that capacity as are reasonable in the circumstances:
a. ‘to prevent contravention by any other person’ of Environmental Protection Act
1990, s.33;126
b. to ‘prevent the escape of waste from his control or that of any other person’;
and
c. on the transfer of the waste, to secure that the transfer is to an authorised
person or for authorised transport purposes only and to ensure that sufficient
written description of the waste is provided to anyone to whom the waste is
transferred.127
120 Ibid., s.36(3).
121 Ibid., s.35(3).
122 Ibid., s.33(1).
123 Ibid., s.33(8) and (9). The penalties are harsher in relation to special waste (see s.33(9)
and para. 6.3.2.6 below).
124 See Environment Act 1995, s.41, and the Environmental Licences (Suspension and
Revocation) Regulations 1996, S.I. 1996 No. 508.
125 See para. 6.2.3 above.
126 See para. 6.3.2.1(1)(a) above.
127 Environmental Protection Act 1990, s.34(1) (see also Environmental Protection (Duty of
Care) Regulations S.I. 1991 No. 2839).
Regulatory Context 139
The only exception to the duty of care is for occupiers of domestic property with
regard to household waste produced on their property.128
Breach of the duty of care in s.34 is a criminal offence. It is punishable, on summary
conviction, by a fine not exceeding the statutory maximum and, on conviction on
indictment, by a fine.129
6.3.2.2 Integrated Pollution Control
Regulation 16(1)(a) of the Waste Management Licensing Regulations 1994130
provides that the recovery or disposal of waste under an IPC authorisation, where
the activity is, or forms part of, a process designated for central control,131 is exempt
from the need for a waste management licence.
Moreover, no condition can be attached to an IPC authorisation that regulates the
final disposal of directive waste in or on land.132
6.3.2.3 Integrated Pollution Prevention and Control
The IPPC applies to the disposal of waste by incineration,133 by landfill134 or by other
specified means.135 It also applies to the recovery of waste136 and the production of
fuel from waste.137
Prior to June 2002,138 landfill sites were either subject to the Waste Management
Licensing Regulations 1994139 or to the IPPC Regime. If a landfill site fell outside the
wording of the relevant definition in the Pollution Prevention and Control (England
and Wales) Regulations 2000,140 then it would fall within the licensing system of
Part II of the Environmental Protection Act 1990.141
The IPPC regime has recently been extended to all landfill sites pursuant to the
measure discussed in the following para.142
128 Environmental Protection Act 1990, s.34(2).
129 Ibid., s.34(6).
130 S.I. 1994 No. 1056. See para. 6.3.2.1(1)(a) above.
131 That is, under Environmental Protection Act 1990, s.2(4).
132 Ibid., s.28(1).
133 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I.
2000 No. 1973, Sched. 1, Pt 1, Ch. 1, section 5.1.
134 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.2.
135 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.3.
136 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.4.
137 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.5.
138 See the Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559, reg. 1(2).
139 See para. 6.3.2(1)(a) above.
140 See S.I. 2000 No. 1973, Sched. 1, Pt 1, Ch. 1, section 5.2.
141 See para. 6.3.2.1(1)(a) above.
142 See the Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559, reg. 6(1). See
para. 6.3.2.4 below.
140 Environmental Taxation Law
6.3.2.4 Implementation of the Landfill Directive
The Landfill Directive143 aims for a 65 per cent reduction, on the basis of 1995
waste arisings, in the amount of methane producing, biodegradable household and
municipal waste that is disposed of in landfill sites.144 Although the means by which
the Waste and Emissions Trading Act 2003 seeks to achieve these targets are largely
in the form of economic instruments,145 Part 1 of the 2003 Act places a duty on the
Secretary of State for Environment, Food and Rural Affairs to set the maximum
amount of biodegradable municipal waste to be sent to landfill from each of the UK’s
constituent countries.146 The UK, as an EU Member State which sent more than 80
per cent of its collected municipal waste to landfills in 1995, qualifies for the fouryear
derogation from the 2016 target.147
The need to comply with the terms of the Landfill Directive148 has also given rise to
the creation of a special regulatory regime for landfill sites. The regime is contained
in the Landfill (England and Wales) Regulations 2002.149
The 2002 regulations apply to ‘landfills’, the concept of a landfill being defined,
subject to certain exclusions,150 as ‘a(chǎn) waste disposal site for the deposit of the waste
onto or into land’.151 Specifically excluded from the scope of the regulations, among
other things, is ‘the use of suitable inert waste for redevelopment, restoration and
filling-in work or for construction purposes’.152 The regulations operate by modifying
the conditions under which an IPPC permit relating to the disposal of waste in a
landfill (referred to as a ‘landfill permit’)153 may be granted under the Pollution
Prevention and Control (England and Wales) Regulations 2000.154
Besides specifying the conditions to be contained in a landfill permit,155 procedures
for accepting waste at landfills156 and the inspection, control and monitoring of
landfills by the Environment Agency,157 the regulations contain four key sets of
provisions:
143 Council Directive 99/31/EC, (1999) OJ L182 1.
144 See para. 12.2.5.1(2)(b) below.
145 See para. 6.3.3 below.
146 Waste and Emissions Trading Act 2003, s.1.
147 See para. 12.2.5.1(2)(b) below.
148 Council Directive 99/31/EC, (1999) OJ L182 1.
149 S.I. 2002, No. 1559.
150 Ibid., regs 3(4) and 4.
151 Ibid., reg. 3(2). See Blackland Park Exploration Ltd v. Environment Agency, [2003]
EWCA Civ 1795, [2003] All ER (D) 249 (Dec). There, the CA (Simon Brown, Mummery
and Scott Baker, L.JJ.) held that the disposal of hazardous liquid industrial wastes through
a borehole into strata around 1,000 metres below sea level was a deposit ‘into land’ within
the 2002 regulations and that the site was therefore a ‘landfill’.
152 S.I. 2002, No. 1559, reg. 4(b).
153 Ibid., reg. 6(2).
154 S.I. 2000, No. 1973. See para. 6.2.3 above.
155 S.I. 2002, No. 1559, reg. 8.
156 Ibid., reg. 12.
157 Ibid., regs 13 and 14.
Regulatory Context 141
1 when considering the grant of planning permission for a landfill, the relevant
planning authority must take into consideration specific matters relating to its
location which indicate that the landfill ‘does not pose a serious environmental
risk’;158
2 before granting a landfill permit, the Environment Agency must classify the
landfill as a landfill for hazardous waste,159 a landfill for non-hazardous waste160
or a landfill for inert waste161 and must ensure that the classification is given in
the landfill permit;162
3 an absolute ban on the acceptance at landfills of certain types of waste, including
any waste in liquid form (including waste waters but not including sludge);163
infectious hospital and clinical wastes;164 whole tyres (from July 2003);165 and
shredded tyres (from July 2006);166
4 a requirement for the landfill site operator to ensure that the charges it makes
cover the costs of setting up and operating the landfill, of his financial provision
in relation to his obligations under IPPC and the estimated costs of the eventual
closure and after-care of the site.167
The provision summarised at 2 above thus bans co-disposal of hazardous and nonhazardous
waste. Furthermore, in relation to the classifications within the provisions
at 2 above, the site operator168 must generally169 ensure that the landfilled waste has
been subject to prior volume-reducing or safety treatment.170 He must also ensure
that he accepts for landfilling only waste which will not have specified adverse
effects to the environment or human health.171 Finally, if the landfill permit relates
to non-hazardous waste, the operator must landfill only municipal waste, other nonhazardous
waste and stable, non-reactive hazardous waste.172
Besides placing the target-setting duty on the Secretary of State, Part 1 of the Waste
and Emissions Trading Act 2003 requires the appropriate authority for each country
158 Ibid., reg. 5 and Sched. 2.
159 Ibid., reg. 7(2). See 12.2.5.1(3) below.
160 Ibid., reg. 7(3).
161 Ibid., reg. 7(4).
162 Ibid., reg. 7(1).
163 Ibid., reg. 9(1)(a). In Blackland Park Exploration Ltd v. Environment Agency, [2003]
EWCA Civ 1795, [2003] All ER (D) 249 (Dec), Scott Baker, L.J. commented that the
appellant company was said to be the only company in the UK bringing liquid waste onto
a site for disposal by means of an injection well (see judgment, paras 1 and 4).
164 See S.I. 2002, No. 1559, reg. 9(1)(c).
165 Ibid., reg. 9(1)(e).
166 Ibid., reg. 9(1)(f).
167 See S.I. 2002, No. 1559, reg. 11.
168 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I.
2000 No. 1973, reg. 2 (see S.I. 2002, No. 1559, reg. 2).
169 But see S.I. 2002 No. 1559, reg. 10(1).
170 Ibid.
171 S.I. 2002, No. 1559, reg. 10(2) and Sched. 1, paras 1 and 2.
172 Ibid., No. 1559, reg. 10(3).
142 Environmental Taxation Law
of the UK173 to develop a national strategy to reduce the amount of biodegradable
municipal waste sent to landfills.174 In addition, where a local authority is a two-tier
authority,175 the WDA and the WCAs within its area must usually176 develop a joint
strategy for the management of waste from households and similar waste.177 Finally,
although the 2003 Act empowers WDAs to direct WCAs to deliver their waste in a
separated state,178 it also requires the WDA to make payments to the WCA to cover
the cost of doing this.179
6.3.2.5 Measures relating to specific types of waste
Certain categories of waste have their own disposal rules.180 For example, special
provisions apply to the disposal of waste oils;181 to the disposal of polychlorinated
biphenyls (‘PCBs’) and polychlorinated terphenyls (‘PCTs’);182 to the disposal
of waste from the titanium dioxide industry;183 to the agricultural use of sewage
sludge;184 and to the recovery and controlled disposal of batteries and accumulators
which are spent and contain quantities of mercury, cadmium or lead.185
6.3.2.6 Measures relating to hazardous (‘special’) waste
Section 62 of the Environmental Protection Act 1990 provides that, where the
Secretary of State for Environment, Food and Rural Affairs considers that a particular
kind of controlled waste is particularly dangerous or difficult to treat, keep or dispose
of, so that special provision is needed in relation to it, then he must make regulations
173 See para. 4.2.2 above (that is, the Secretary of State in England, the Scottish Ministers
in Scotland, the National Assembly for Wales and the Department of the Environment in
Northern Ireland).
174 Waste and Emissions Trading Act 2003, ss.17–20.
175 See para. 4.2.3 above.
176 Waste and Emissions Trading Act 2003, s.33.
177 Ibid., s.32.
178 Environmental Protection Act 1990, s.48(1A) (as inserted by the Waste and Emissions
Trading Act 2003, s.31(2)).
179 Ibid., s.31(4)).
180 The categories listed here all originate in Community law. See para. 12.2.5.1(2) below.
181 See the Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056 and the
Special Waste Regulations 1996, S.I. 1996 No. 972.
182 See the Environmental Protection Act 1990 (Extension of Section 140) Regulations 1999,
S.I. 1999 No. 396 and the Environmental Protection (Disposal of Polychlorinated Biphenyls
and Other Dangerous Substances) (England and Wales) Regulations, S.I. 2000 No. 1043
(amended by the Environmental Protection (Disposal of Polychlorinated Biphenyls and
Other Dangerous Substances) (England and Wales) (Amendment) Regulations 2001 (S.I.
2001 No. 3359).
183 This is a prescribed process under the Environmental Protection Act 1990, Part 1 (see
para. 6.2.2 above).
184 See the Sludge (Use in Agriculture) Regulations 1989 (as amended), S.I. 1989 No. 1263.
185 See the Batteries and Accumulators (Containing Dangerous Substances) Regulations
1994, S.I. 1994 No. 232.
Regulatory Context 143
for dealing with such ‘special waste’.186 The regulations made under the section are
the Special Waste Regulations 1996,187 as amended.
6.3.2.7 Measures relating to the importation and exportation of waste
Although the Waste Shipment Regulation188 is directly applicable in the UK, it has
been transposed into UK law by the Transfrontier Shipment of Waste Regulations
1994.189
6.3.3 Economic instruments
The main economic instruments in UK waste management regulation have for long
been landfill tax, packaging waste recovery notes (‘PRNs’) and the waste recycling
credits scheme. To these will shortly be added the LATS, a form of tradeable landfill
allowance.190
6.3.3.1 Landfill tax
An outline of the tax has been given at para. 1.4.2.1(1) above.191 It is discussed in
detail in Chapter 15 below.
6.3.3.2 Packaging waste recovery notes (‘PRNs’)
Again, an outline of the role of PRNs has been given above at para. 1.4.2.1(2). There
is a more detailed discussion in Chapter 19.
6.3.3.3 Waste Recycling Credits Scheme
A note on the WRCS has been given at para. 1.4.2.1(3) above. It is not considered
further in this study.
6.3.3.4 Landfill Allowances Trading Scheme (‘the LATS’)
The Landfill Allowances Trading Scheme (‘the LATS’), which is now due to begin in
186 See para. 6.3.2.1 above.
187 S.I. 1996 No. 972.
188 Council Regulation EEC/259/93, (1993) OJ L30 1. See para. 12.2.5.1(4) below.
189 S.I. 1994 No. 1137.
190 See paras 1.4.2.1(4) above and 20.7 and 21.3.2 below.
191 See D.N. Pocklington and R.E. Pocklington, ‘The United Kingdom Landfill Tax
– Externalities and External Influences’, [1998] JPL 529–545; Patricia Park, ‘An
Evaluation of the Landfill Tax Two Years on’, [2000] JPL 3–13; and Inger Brisson and
Jane Powell, ‘The UK Landfill Tax’, in Environmental Policy: Objectives, Instruments
and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000),
pp. 260–80.
144 Environmental Taxation Law
April 2005 in England and Wales,192 is discussed in para. 20.7 below. There is again
an outline of the LATS in para. 1.4.2.1(4) above.
6.3.3.5 The Waste Performance Reward Grant
In January 2004, Defra issued a consultation paper on the introduction, in 2005/2006,
of a Waste Management Performance Reward Grant (‘WPRG’), which is intended to
provide incentives for local authorities to improve their recycling levels.193
6.4 Control of air and atmospheric pollution
6.4.1 The international and European Union background
Issues of air and atmospheric pollution are nothing if not transboundary in their scope.
The measures discussed in this part of the chapter should therefore be understood
within the public international and Community contexts discussed in Chapters 8 and
12 below.
6.4.2 Environmental regulation
If the IPC and IPPC regimes are put to one side,194 then, with two main exceptions,195
and unlike with waste management, the instruments for carrying into effect the UK’s
climate change programme196 are primarily economic ones. That programme is
based on the UK’s commitment under the Kyoto Protocol to reduce its 1990 levels of
all greenhouse gases by 12.5 per cent by 2010.197
The two main exceptions to the predominance of economic instruments in
the area are the command and control regimes for regulating emissions contained
in the Clean Air Act 1993 and the mechanism for ensuring air quality contained in
Part IV of the Environment Act 1995. The former empowers local authorities198
to bring criminal proceedings in respect of a range of prohibited activities involving
the emission of smoke, dust and grit.199 The latter places a duty on the Secretary of
192 But not in Wales and Scotland, where the scheme began on 1 October 2004 (see 358
ENDS Report (2004) 44–45).
193 See Department for Environment, Food and Rural Affairs, Consultation Paper on the
Design of the Waste Performance Reward Grant, 7 January 2004 (available from www.
defra.gov.uk).
194 See paras 6.2.2 and 6.2.3 above.
195 Note should also be taken of the statutory nuisance provisions to be found in the
Environmental Protection Act 1990, Part III (see Wolf and Stanley, op. cit., Ch. 9).
196 See Department of Environment, Transport and the Regions, Climate Change: the UK
Programme, 2000 (Cm 4913, 2000).
197 See Chapter 8 below.
198 See para. 4.2.3 above.
199 See, for example, ss.1 (prohibition of dark smoke from chimneys), 2 (prohibition of dark
smoke from industrial premises), 14 (height of chimneys for furnaces) and 15 (applications
Regulatory Context 145
State for Environment, Food and Rural Affairs200 to prepare, publish and keep under
review a National Air Quality Strategy.201
Setting aside the measures to which reference has just been made, the government’s
climate change policy rests on the combination of four economic instruments:202
1 climate change levy;
2 the UK Emissions Trading Scheme (‘the UK ETS’);
3 the EU Emissions Trading Scheme (‘the EU ETS’); and
4 the Renewables Obligation (‘the RO’).
Each of these have been outlined at the beginning of the study203 and are discussed
,in detail in the rest of the book.204 Both climate change levy and the EU ETS rely
heavily on IPPC concepts.
6.4.3 Energy regulation
6.4.3.1 Electricity
(1) Overview
The electricity supply industry205 in England and Wales206 is regulated by the
Electricity Act 1989, which has been substantially amended by the Utilities Act
2000.207 Besides creating the new regulator, Ofgem,208 Utilities Act 2000 made
the distribution of electricity a separate licensable activity from transmission,209
abolished the concept of public electricity suppliers,210 reformulated the relevant
duties of the Secretary of State for Trade and Industry211 and introduced standard
conditions for the grant of licences in the industry.
for approval of height of chimneys for furnaces). See the discussion of the Clean Air Act
1993 in Wolf and Stanley, op. cit., pp. 335–42.
200 See para. 4.2.1.2(1) above.
201 See Department of Environment, Transport and the Regions, Air Quality Strategy for
England, Wales, Scotland and Northern Ireland, 2000 (Cm 4548, 2000).
202 See Benjamin J. Richardson and Kiri L. Chanwai, ‘Taxing and trading in corporate energy
activities: pioneering UK reforms to address climate change’, (2003) 14(1) ICCLR
18–27.
203 See para. 1.4.2.2 above.
204 See Chapter 14 below (climate change levy); Chapter 20 (the UK ETS); Chapter 28 (the
EU ETS); and paras 6.4.3.1(2)(a) above and 21.5 below (the RO).
205 The use of this term is common but, properly speaking, supply is only one of four elements
in the sector (see para. 2.4.1 above).
206 Ibid. See also Tudway, op. cit., Ch. 25.
207 Unless otherwise indicated, all references to the Electricity Act 1989 are to the Act as
amended by the 2000 Act. See Roggenkamp et al., op. cit., paras 13.177–13.240.
208 See para. 4.2.1.3 above.
209 Both terms are defined in Electricity Act 1989, s.4(4). See also para. 2.4.1 above.
210 Defined in Electricity Act 1989, s.6(9), as originally enacted, as ‘… any person who is
authorised by a licence … to supply electricity … to premises in his authorised area’.
211 See para. 4.2.1.2(1) above.
146 Environmental Taxation Law
The Electricity Act 1989 is divided into three parts: Part I creates, under the
supervision of Ofgem, a regulatory structure for the electricity supply industry. By
s.4(1), the generation, transmission, distribution or supply of electricity is unlawful
unless the activity in question is authorised by an appropriate licence.212 This general
rule is, however, subject to the power given by s.5 to the Secretary of State for Trade
and Industry213 to create exemptions from the rule by secondary legislation. Part II
of the Act deals with the industry’s structure and the privatisation of the parts which
make it up; and Part III provides for measures to ensure the security of electricity
installations, for dealing with civil emergencies and for making government loans in
relation to matters of public security (for example, nuclear reprocessing). In Part I,
ss.32–3, as amended, contain measures relating to the promotion of renewable
sources of energy.214
Further changes to the regulation of the electricity industry are authorised by the
Energy Act 2004, passed on 22 July 2004.215 These will be in three main areas: the
creation of a new body to ensure the decommissioning and clean-up of public sector
civil nuclear sites; the promotion of renewable energy sources; and the creation of a
single wholesale electricity market for Great Britain, to be called ‘BETTA’, which,
although it will replace NETA,216 will be based upon the latter, which itself replaced
the Electricity Pool217 as recently as 2001.
The Electricity Act 1989, as amended by Utilities Act 2000, applies both to England
and Wales and to Scotland.218 In Northern Ireland, the relevant legislation is contained
in the Electricity (Northern Ireland) Order 1992,219 as amended by the Energy
(Northern Ireland) Order 2003.220 The New Electricity Trading Arrangements did not
apply to Scotland or Northern Ireland. The introduction of BETTA under the Energy
Act 2004 will, as mentioned above, extend to Scotland but not to Northern Ireland.
(2) Renewable energy sources
(a) Renewables Obligation (‘RO’)
Section 32, Electricity Act 1989, as amended by Utilities Act 2000, empowers the
Secretary of State to impose by order the so-called ‘Renewables Obligation’ (‘the
RO’) on designated electricity suppliers.221 The RO is considered in more detail
212 The licences held by particular companies in the industry are usefully listed in Utility Week,
The Electricity Supply Handbook 2004, 57th edn (Sutton: Reed Business Information,
2004).
213 See para. 4.2.1.2(1) above.
214 See para. 6.4.3.1(2) below.
215 There had been thought to be some danger of the Bill being lost (see Taylor, Financial
Times, 1 April 2004, p. 4).
216 See para. 2.4.1 above.
217 As described by Tudway, op. cit., ‘[t]he Pool mechanism was a contractual arrangement
between parties to the Pooling and Settlement Agreement, which set wholesale buying
and selling prices for electricity’ (ibid., para. 25–49).
218 Electricity Act 1989, s.113(3).
219 S.I. 1992 No. 231 (N.I. 1).
220 S.I. 2003 No. 419 (N.I. 6).
221 Electricity Act 1989, s.32(1).
Regulatory Context 147
later in the study222 but, since the nature of the mechanisms introduced by it fall for
consideration in the next chapter,223 it will be useful to include here a brief discussion
of the primary legislation which creates the legislative framework for the secondary
legislation to be discussed later. By s.32(3), the RO is that:
… the designated electricity supplier must, before a specified day (or before each of several
specified days, or before a day specified in each year), produce to [the Gas and Electricity
Markets Authority]224 evidence of a specified kind showing –
(a) that it has supplied to customers in Great Britain during a specified period such amount
of electricity generated by using renewable sources as is specified in relation to such a
supplier; or
(b) that another electricity supplier has done so (or that two or more others have done so);
or
(c) that, between them, they have done so.
For the purposes of s.32, renewable sources are defined as sources of energy other
than nuclear fuel or fossil fuel but including waste of which ‘not more than a specified
proportion is waste which is, or is derived from, fossil fuel’.225
Section 32B(1) stipulates that an order under s.32 may provide for Ofgem226
to issue from time to time a so-called ‘Green Certificate’227 to the operator of a
generating station or to an electricity supplier. The production by the supplier of a
Green Certificate (or ‘ROC’) to Ofgem is ‘sufficient evidence’ of the facts certified
for the purposes of s.32(3) above.228 A Green Certificate certifies two matters:
(a) that the generating station or, in the case of a certificate issued to an electricity supplier,
a generating station specified in the certificate, has generated from renewable sources
the amount of electricity stated in the certificate; and
(b) that it has been supplied to customers in Great Britain (or the part of Great Britain
stated in the certificate).
In practice, it has been inferred from s.32(3)(b) above that, once issued, Green
Certificates can be traded between suppliers, since that subsection seems to assume
that a supplier can comply with the RO by producing Green Certificates originally
issued to another supplier.229
222 See para. 21.5 below.
223 See para. 7.3.1 below.
224 See para. 4.2.1.3 above.
225 Electricity Act 1989, s.32(8).
226 The section actually refers to ‘the Authority’, that is, to the Gas and Electricity Markets
Authority (‘GEMA’), whose functions are exercised through Ofgem. See para. 4.2.1.3
above.
227 This is the term used in the heading to s.32B but they are also known as Renewables
Obligation Certificates (‘ROCs’). That section has been amended by Energy Act 2004,
s.116.
228 Electricity Act 1989, s.32B(3).
229 See para. 21.5 below.
148 Environmental Taxation Law
Section 32C states that an order under s.32 may provide that, instead of producing
a Green Certificate/Green Certificates, an electricity supplier may meet its RO,
whether in whole or in part, by making a payment to Ofgem.230 This power is then
backed up by provisions on fixing the amount of the payment,231 as well as a rule on
the application of the revenue generated under s.32C. The rule as to the application
of the revenue thereby received is contained in s.32(3), which provides that Ofgem
‘must pay the amounts received to electricity suppliers in accordance with a system
of allocation specified in the order’. The order in due course made by the Secretary
of State under Electricity Act, ss.32–2C, is the Renewables Obligation Order 2002
(‘ROO 2002’),232 which came into force on 1 April 2002.233
Section 32A(1)(b) states that an order under s.32 may make general provisions
in relation to the RO imposed by the order and, in particular, may specify that only
electricity generated using certain types of renewable source is to count towards
discharging the RO. In ROO 2002, this leads to the creation of the concept of
‘eligible renewable sources’,234 which is made to exclude most hydro generating
stations commissioned before April 2002.235 The reasons for this exclusion, as well
as the other main provisions of ROO 2002 are discussed in detail in a subsequent
chapter.236
The provisions just described apply in England and Wales. In Scotland, the powers
conferred by Electricity Act 1989, ss.32–2C, are exercisable by the Scottish Ministers.
The Renewables Obligation (Scotland) Order 2002237 was made in exercise of these
powers and came into force on 1 April 2002. In Northern Ireland, the Department of
Enterprise, Trade and Investment was given power to impose an RO by the Energy
(Northern Ireland) Order 2003.238 Like the system for England and Wales, each of
the Scotland and Northern Ireland systems envisage the trading of Green Certificates
(in Scotland called ‘SROCs’ and in Northern Ireland called ‘NIROCs’).
The combination of the RO and Green Certificates together replace the previous
combination of Non-Fossil Fuel Orders (‘NFFOs’) and fossil fuel levy (‘FFL’).239
Since some further reference will be made to the nature and purpose both of NFFOs
and of FFL,240 it may be useful briefly to describe the earlier instruments here,
notwithstanding their subsequent abolition.241
230 Electricity Act 1989, s.32C(1), replaced in part by Energy Act 2004, s.115(2).
231 Ibid., s.32C(2), replaced in part by Energy Act 2004, s.115(3).
232 S.I. 2002, No. 914 (as amended by the Renewables Obligation (Amendment) Order 2004,
S.I. 2004 No. 924).
233 S.I. 2002, No. 914, Art. 1(1).
234 Ibid., Art. 8(1).
235 Ibid., Art. 8(2).
236 See para. 21.5 below. See also para. 12.2.6.3(2) below.
237 S.S.I. 2002 No. 163.
238 S.I. 2003 No. 419 (N.I. 6).
239 See Utilities Act 2000, s.66, and Sched. 8.
240 See paras 21.4.4n and 21.6.1 below.
241 The writers are indebted for this explanation to the valuable contemporary annotations
to the Electricity Act 1989 by Patrick McAuslan and John F. McEldowney in [1989] 2
CLSA, pp. 29–52–29–54.
Regulatory Context 149
Section 32, Electricity Act 1989, as originally enacted, empowered the Secretary
of State to order public electricity suppliers242 – that is, by the making of a NFFO
– to ensure that specified proportions of their electricity supplies were acquired
from non-fossil fuel generators. Such generators could include, under the original
provisions, not only water, wind and solar generators,243 but also nuclear ones.244
Between 1990 and 1998, five NFFOs were made,245 each one being followed by a
tendering process for electricity generation contracts in each category specified in
the relevant NFFO.246 Only the earliest of the NFFOs (the so-called ‘NFFO 1’)247
included nuclear generators within the categories of non-fossil fuel generators.
The shift is perhaps explained by a greater emphasis originally being placed upon
diversity (that is, security) of supply rather than upon environmental concerns as
such.248
Fossil fuel levy was imposed under Electricity Act 1989 to subsidise the additional
costs on suppliers which NFFOs created, since it was foreseen that non-fossil fuelgenerated
electricity would tend to be more expensive than electricity generated at
fossil-fuel-powered stations. The now-repealed s.33, Electricity Act 1989, accordingly
empowered the Secretary of State, by regulations, to impose FFL both on suppliers
who were subject to an NFFO and also on other persons who were licensed to
supply electricity within the authorised areas249 of such suppliers.250 Although FFL,
which was payable each month to the Director General of Electricity Supply,251 was
charged on suppliers, the levy was actually borne by electricity consumers, since it
242 A term which is now superseded (see para. 6.4.3.1(1)n above).
243 See Electricity Act 1989, s.32(9) (as originally enacted).
244 This may be gathered from the wording of Electricity Act 1989, ss.32(8) and 32(9) (as
originally enacted).
245 That is, Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990, S.I. 1990
No. 263 (as amended by S.I. 1990 No. 494) and Electricity (Non-Fossil Fuel Sources)
(England and Wales) (No. 2) Order 1990, S.I. 1990 No. 1859 (together referred to as
‘NFFO 1’); Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1991, S.I.
1991 No. 2490 (‘NFFO 2’); Electricity (Non-Fossil Fuel Sources) (England and Wales)
Order 1994, S.I. 1994 No. 3259 (‘NFFO 3’); Electricity (Non-Fossil Fuel Sources)
(England and Wales) Order 1997, S.I. 1997 No. 248 (‘NFFO 4’); and Electricity (Non-
Fossil Fuel Sources) (England and Wales) Order 1998, S.I. 1998 No. 2353 (‘NFFO 5’).
Contracts under NFFOs 1 and 2 have now terminated; those under NFFOs 3–5 will
continue, however, the last contract being due to terminate in 2018. Contracts under
NFFOs 3–5 are in fact replacement contracts, the originals having terminated when NETA
commenced (see Tudway, op. cit., para. 25–54).
246 See, for example, 284 ENDS Report (1998) for the schemes which were awarded contracts
under NFFO 5.
247 That is, Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990, S.I. 1990
No. 263 (as amended) and Electricity (Non-Fossil Fuel Sources) (England and Wales)
(No. 2) Order 1990, S.I. 1990 No. 1859.
248 See McAuslan and McEldowney, op. cit., pp. 29–50–29–51 (‘General Note’).
249 A superseded concept. See Electricity Act 1989, s.6(9) (as originally enacted).
250 See Electricity Act 1989, s.33(1)(a) (as originally enacted). See also the Fossil Fuel Levy
Act 1998.
251 An office which is now abolished (see Utilities Act 2000, s.1(3), and para. 4.2.1.3
above).
150 Environmental Taxation Law
was incorporated in their electricity bills. After deduction of administrative expenses,
the revenue from the levy was distributed each month to public electricity suppliers
in accordance with the regulations made under s.33, Electricity Act 1989.252 Fossil
fuel levy therefore operated as a mechanism for supporting non-fossil fuel-generated
electricity.253
In parallel with the arrangements for England and Wales, three NFFOs were made
for Scotland,254 prior to their replacement, with appropriate savings, by ROO 2002.
Confusingly, the three orders were together known as the ‘Scottish Renewables
Obligation’ (or ‘SRO’).255 As in the UK, FFL had been introduced to compensate the
two companies licensed to generate, transmit, distribute and supply electricity in the
post-privatisation structure.256 Section 66, Utilities Act 2000, which had abolished
FFL in England and Wales, did the same for Scotland.257 In Northern Ireland, prior
to March 1, 2004,258 Northern Ireland Electricity plc was obliged to secure quantities
of generation capacity from renewable energy sources under Art. 35 of the Electricity
(Northern Ireland) Order 1992.259 The concomitant Northern Ireland FFL260 was
abolished by Art. 58 of the Energy (Northern Ireland) Order 2003.
(b) Renewable energy guarantees of origin (‘REGOs’)
The Electricity (Guarantees of Origin of Electricity Produced from Renewable
Energy Sources) Regulations 2003 are designed to transpose into the law of
England and Wales and of Scotland261 the provisions of Art. 5 of the Renewables
Directive.262 Article 5 imposes an obligation on Member States to ensure that the
origin of electricity produced from renewable energy sources can be guaranteed as
such by creating systems for granting guarantees of origin.
252 See the Fossil Fuel Levy Regulations 1990, S.I. 1990 No. 266, reg. 28.
253 Note that Utilities Act 2000, s.67, enables provision to be made for FFL to be continued in
relation to the outstanding contracts entered into under NFFOs (see the Fossil Fuel Levy
(Amendment) Regulations 2001, S.I. 2001 No. 1200 and other post-2000 S.I.s dealing
with FFL).
254 That is, the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1994, S.I. 1994 No.
3275 (S. 190); Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1997, S.I. 1997 No.
799 (S. 76); and Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1999, S.I. 1999
No. 439 (S. 24).
255 See Tudway, op. cit., para. 25–08.
256 That is, Scottish Power plc and Scottish and Southern Electricity plc.
257 Utilities Act 2000 applying, as it does, to England and Wales and Scotland but not to
Northern Ireland.
258 See the Energy (2003 Order) (Commencement No. 2) Order (Northern Ireland) 2004, S.R.
2004 No. 71 (C. 1), Art. 2 and Sched.
259 S.I. 1992 No. 231 (N.I. 1). The 2003 Electricity Order does, however, have saving powers
for existing contracts entered into under the pre-existing powers.
260 Which had been introduced by Art. 36, S.I. 1992 No. 231.
261 See S.I. 2003 No. 2562, reg. 1(2). The equivalent provision for Northern Ireland is
the Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy
Sources) Regulations (Northern Ireland) 2003, S.R. 2003 No. 470.
262 That is, European Parliament and Council Directive 2001/77/EC (see para. 12.2.6.3
below).
Regulatory Context 151
The key provision of the Regulations is to be found in reg. 3, which provides for
guarantees of origin, ‘certifying that the electricity in respect of which the certificate
is issued was electricity produced from renewable energy sources’,263 to be issued by
Ofgem.264 Each renewable energy guarantee of origin (‘REGO’) is issued in respect
of one kilowatt hour of electricity produced from renewable energy sources.265 The
general rule, contained in reg. 4(1), is that the only person who may request Ofgem
to issue a REGO is the producer of the electricity.266 However, where electricity
has been purchased under an arrangement originally made under an NFFO,267 the
only person who may request the issue of a REGO is generally the relevant NFFO
purchaser.268 Moreover, in order to issue a REGO under reg. 4, Ofgem must be
satisfied that the electricity covered by the request was produced from renewable
resources.269 Renewable Energy Guarantees of Origin may be transferred to persons
other than the original maker of the request by amendment to an electronic register
of REGOs to be maintained by Ofgem.270 In circumstances such that access to plants
is denied to, or information is withheld from, the Authority, then it may refuse to
issue REGOs271 and it may also revoke them in certain circumstances.272 Finally,
reg. 9 contains provisions relating to the recognition and non-recognition of REGOs
issued in Northern Ireland and other EU Member States. This reflects the stated aim
of the Renewables Directive as being to promote an increase in the contribution of
renewable energy sources to the production of electricity in the internal market.273
No amendment is made by the Regulations either to ROO 2002274 or to the Climate
Change Levy (General) Regulations 2001.275 It would therefore appear that REGOs
neither provide a means of complying with the RO276 nor do they provide entitlement
to exemption from climate change levy.277
263 S.I. 2003 No. 2562, reg. 2(1).
264 See para. 4.2.1.3 above.
265 S.I. 2003 No. 2562, reg. 6(3). Renewable energy sources are defined as ‘… renewable
non-fossil energy sources, that is, wind, solar, geothermal, wave, tidal, hydropower,
biomass, landfill gas, sewage treatment plant gas and biogases’ (see S.I. 2003 No. 2562,
reg. 2(1)).
266 S.I. 2003 No. 2562, reg. 4(1)(b).
267 See para. 6.4.3.1(2)(a) above.
268 S.I. 2003 No. 2562, reg. 4(1)(a). In Scotland, the reference is to the relevant SRO purchaser
(see para. 6.4.3.1(2)(a) above).
269 See S.I. 2003 No 2562, reg. 6(1).
270 Ibid., reg. 7 and Sched. 2.
271 Ibid., reg. 5.
272 Ibid., reg. 8.
273 See para. 12.2.6.3(2) below.
274 See para. 6.4.3.1(2)(a) above.
275 S.I. 2001 No. 838. See paras 14.1–14.3 below.
276 See para. 6.4.3.1(2)(a) above.
277 See para. 14.4 below.
152 Environmental Taxation Law
(3) Other aspects of electricity regulation
In addition to the regulatory framework discussed above, the UK’s electricity supply
industry is subject to at least four other regulatory regimes: competition law, planning
law, IPC278 and IPPC.279
Competition in the electricity supply industry is regulated both by general UK
competition law and by the specific licensing provisions applicable to the electricity
supply industry discussed above.280 The general provisions are exercisable in relation
to the industry concurrently, but subject to conditions,281 by the Director General of
Fair Trading and by Ofgem.282 These general provisions include the power under
the Fair Trading Act 1973, Part III, to take proceedings in relation to courses of
conduct detrimental to consumers;283 the power to refer monopoly situations to the
Competition Commission;284 and the power to take action in relation to courses of
conduct restricting, distorting or preventing competition.285
So far as planning law is concerned,286 Electricity Act 1989, ss.36 and 37 impose
special conditions on the construction of certain power stations and overhead lines.287
Section 36 currently provides that a generating station with a capacity greater than
50 MW must not be constructed, extended or operated, except in accordance with
a consent granted by the Secretary of State for Trade and Industry.288 Section
37 likewise provides that, subject to certain de minimis exceptions, the consent
of the Secretary of State is likewise required for an overhead line to be installed
or kept installed. Although the power under s.36 has been used to impose the
moratorium on the construction of gas-fired power stations,289 both s.36 and s.37
are coming under increasing scrutiny as presenting obstacles to the development of
renewables generators, specifically wind farms. Under Electricity Act 1989, Sched.
8, notice of applications for consent under ss.36 and 37 must be served on the
local planning authority. If the planning authority objects, then a public inquiry
278 See para. 6.2.2 above.
279 See para. 6.2.3 above.
280 See para. 6.4.3.1(1) above.
281 See Electricity Act 1989, ss.43(4)–43(6A).
282 Ibid., s.43.
283 Ibid., s.43(1).
284 Ibid., s.43(2).
285 Ibid., s.43(3).
286 These issues are well discussed in John Grady, ‘Climate Change and Great Britain’s
Electricity Generation Policy’, [2003] IELTR 105–15, p. 114. See also Jonathan Evans,
‘The Implications of the United Kingdom’s Long-Term Energy Policy for its Renewables
Market’, [2003] IELTR 233–8. It should be noted also that, on 13 May 2004, the Planning
and Compulsory Purchase Act 2004, with the avowed purpose of ‘speeding up the
planning system’, received the Royal Assent, although it is to be brought into effect in
ongoing stages.
287 Other provisions relate to the fuelling of power stations, compulsory acquisition of land
and street works (see the outline in Tudway, op. cit., paras 25–75–25–77). There are also
some relatively little-noted provisions in Electricity Act 1989, s.38 and Sched. 9 on the
preservation of amenity and fisheries.
288 General planning law applies to generating stations with a capacity of less than 50 MW.
289 See Grady, op. cit., p. 114. See also para. 21.4.3 below.
Regulatory Context 153
must be held.290 In relation to objections from persons other than local planning
authorities, the Secretary of State may order the holding of a public inquiry if he
thinks it appropriate to do so.291 Objections have been raised by the Ministry of
Defence, alleging the impact of wind turbines on radar signals and dangers from
the turbines to low-flying aircraft,292 and by the Royal Society for the Protection
of Birds (‘the RSPB’),293 given that the proposed locations of the wind farms are
nearly all in areas of international importance for birds.294 Wind farms also give rise
to concerns over s.37, given that such installations are generally located in remote
areas and that the cost of installing overhead wires is a fraction of that of laying wires
underground.
More generally, the planning of overhead electricity cables as well as of nuclear
power stations, as well as nuclear fuel installations, is subject to the EIA regime
discussed above.295 There have traditionally been few statutory provisions specifically
relating to the decommissioning of nuclear power stations, the matter usually having
been dealt with in site licences granted under the Nuclear Installations Act 1965. The
provisions of Part 1 of the Energy Act 2004 creates a new statutory decommissioning
framework. This is one of a number of reforms to the sector to which it is necessary
to refer next.
Finally, it should, of course be noted that electricity generation is a combustion
activity within the scope of the IPPC regime.296 Likewise, combustion processes are
caught by IPC.297
(4) Regulatory reform in the electricity sector
There are, at the time of writing, two sets of further reforms at various stages of
development: those in the recently passed Energy Act 2004 and, insofar as they are
not dealt with in that Act, certain other measures that are designed to transpose into
UK law the provisions of the Electricity Acceleration Directive (the ‘EAD’).298 It is
290 See Electricity Act 1989, Sched. 8, para. 2(2).
291 Ibid., Sched. 8, para. 3(2).
292 See, for example, Taylor, Financial Times, 1 March 2004, p. 4. But see the case for the
Ministry of Defence presented in the letter from Williams, Financial Times, 5 March
2004, p. 18.
293 See www.rspb.org.uk.
294 See 350 ENDS Report (2004) 10–11. The ENDS correspondent reports that the RSPB
objected to 27 wind farms between 1998 and 2003. It is also reported that the RSPB has
confirmed its opposition to the 1,000MW London Array, proposed by Shell and Powergen,
on the basis that the Thames Estuary ‘supports large numbers of wintering red-throated
divers’ (ibid.).
295 See para. 6.2.4 above.
296 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000
No. 1973, Sched. 1, Section 1.1. See para. 6.2.3 above.
297 See the Environmental Protection (Prescribed Processes and Substances) Regulations
1991, S.I. 1991 No. 472, Sched. 1, Ch. 1.
298 European Parliament and Council Directive 2003/54/EC, (2003) OJ L176 37. The
provisions of the EAD are discussed in detail in a subsequent chapter (see paras 12.2.6.3(1)
and 12.2.6.3(2) below).
154 Environmental Taxation Law
the DTI’s intention to implement the latter by a mixture of statutory instrument under
European Communities Act 1972, s.2(2) and other administrative action.299
The Energy Act 2004 affects the electricity sector in three main areas.300 First, it
provides for the establishment of the Nuclear Decommissioning Authority (‘NDA’),
for the creation of a new Civil Nuclear Police Authority and for the authorisation of
government expenditure in relation to the restructuring of British Energy.301 Next,
the Act provides for a number of matters in relation to renewables generation. These
provisions include measures relating to the development of offshore renewable
energy sources in accordance with the rights conferred on the UK under the 1982
UN Convention on the Law of the Sea (‘the UNCLOS’)302 as well as provisions for
the mutual recognition of NIROCs.303
Finally, the Energy Act 2004 establishes the basis for the creation of a single
wholesale electricity market for the whole of Great Britain (that is, England and Wales
and Scotland but not Northern Ireland), to be called the British Electricity Trading
and Transmission Arrangements (‘BETTA’), based on NETA;304 for a new licensing
system applicable to electricity interconnectors, to bring them under the authority
of Ofgem; and for the Secretary of State to have the power to appoint additional
inspectors in relation to inquiries under Electricity Act 1989, ss.36 and 37.305 The new
licensing system reflects the fact that there has hitherto been no relevant legislation in
Great Britain on the regulation and exemption of interconnectors.
The elements of the EAD which are not covered by the Energy Act 2004 provisions
are, as mentioned above, to be implemented by a combination of statutory instrument
and administrative action. They relate to fuel disclosure,306 dispute settlement and
reporting requirements.307
6.4.3.2 Gas
The counterpart of the Electricity Act 1989 in the context of the gas industry is the
Gas Act 1986.308 Like the 1989 Act, the 1986 Act has, however, been extensively
299 For a detailed review of the changes, see Department of Trade and Industry, Consultation:
Implementation of EU Directive 2003/54 Concerning Common Rules for the Internal
Market in Electricity, February 2, 2004 (available from www.dti.gov.uk/energy).
300 Within these broad heads are some interesting sub-areas, for example, a special insolvency
regime for energy licensees in Chapter 3 of Part 3, following the coal power station
insolvency debacle referred to in para. 21.4.2 below.
301 See Energy Act 2004, Part 1. For the background, see paras 2.4.1 above and 21.4.3
below.
302 See para. 8.3.2 below.
303 Energy Act 2004, Part 2. For NIROCs, see para. 6.4.3.1(2)(a) above.
304 The provisions relating to BETTA originally appeared, in January 2003, in a draft
Electricity (Trading and Transmission) Bill.
305 Energy Act 2004, Part 3.
306 That is, a requirement for electricity suppliers to specify their fuel mix to customers (see
para. 12.2.6.3(1) below).
307 See Department of Trade and Industry, op. cit., para. 1.8, where the changes are
summarised.
308 See Roggenkamp et al., op. cit., paras 13.114–13.166.
Regulatory Context 155
amended by subsequent legislation (in this case, by the Gas Act 1995, as well as by
the Utilities Act 2000). However, the 1986 Act did not consolidate the whole of the
relevant legislation and parts of the Gas Act 1965, as well as the Energy Act 1976
remain in force.309
The gas industry’s regulator has, since the Utilities Act 2000, been Ofgem,310 the
2000 Act having brought the two industries into line with each other in this respect.
It should be noted, however, that, generally speaking, the liberalisation of the gas
industry in Great Britain has preceded that of electricity supply. Although the 2000
Act substituted the new regulator and redefined the duties of the Secretary of State,311
many of the most important liberalisation measures had already been taken in the
Gas Act 1995.
The Gas Act 1986, as amended, is divided into three Parts, only the first of which
is relevant in the present context. This Part contains elements of the regulatory
structure for the industry, which is placed under Ofgem’s supervision. By s.5, the
transportation,312 supply313 or shipment314 of gas is unlawful without the appropriate
licence. However, the storage of gas is still regulated by the Gas Act 1965, whilst
exploration for gas and gas production are subject to their own licensing regime.315
The requirement for a licence for each of transportation, supply and shipment is, as
for electricity, subject to the Secretary of State’s power to grant exemptions under
s.6A, Gas Act 1986. Schedule 2B, which is incorporated by s.8B, Gas Act 1986,
contains the Gas Code, which relates to the rights and obligations of licence holders
and consumers and related matters.
The DTI has identified a number of areas in which legislative action is required
in order for UK law to comply with the provisions of the Gas Acceleration
Directive (the ‘GAD’).316 These include the need for a new licensing system for
gas interconnectors, which appears in the Energy Act 2004, as well as a regulated
TPA system and exemptions for LNG import terminals and storage facilities, to be
effected by modifying the 1986 Act and the Petroleum Act 1998.
The legislation discussed above applies both to England and Wales and to Scotland.317
The gas industry in Northern Ireland is regulated by the provisions of the Gas (Northern
Ireland) Order 1996318 and the Energy (Northern Ireland) Order 2003.319
309 Unlike gas levy, which was provided for by the Gas Levy Act 1981 and abolished by
Finance Act 1998, s.153(2), for 1998–1999 onwards. The levy financed certain aspects of
the denationalisation arrangements introduced by the Gas Act 1986 (see Tudway, op. cit.,
para. 23–43).
310 Utilities Act 2000, s.1.
311 Gas Act 1986, s.4AA.
312 Ibid., s.5(1)(a).
313 Ibid., s.5(1)(b).
314 Ibid., s.5(1)(c).
315 See, for example, Tudway, op. cit., Ch. 23.
316 European Parliament and Council Directive 2003/55/EC, (2003) OJ L176 57. See paras
12.2.6.3(1) and 12.2.6.3(2) below.
317 Gas Act 1995, s.18(4).
318 S.I. 1996 No. 275 (N.I. 2).
319 S.I. 2003 No. 419 (N.I. 6).
156 Environmental Taxation Law
Very similar points apply in relation to competition law issues as obtain in relation
to electricity supply.320 Thus, for instance, s.36A, Gas Act 1986 tracks very closely
s.43 of the Electricity Act 1989 and, likewise, s.41E of the 1986 Act (which deals
with references to the Competition Commission) tracks the wording of s.56C of the
Electricity Act 1989.
The planning of installations, whether on- or offshore for the extraction of natural
gas, of installations for its storage and of gas pipelines is subject to the EIA regime
discussed above.321 Gasification and associated processes are also, of course, subject
to the IPC322 and IPPC regimes.323 Both off- and onshore oil and gas exploration and
production are subject to the environmental controls outlined in the next para. below.
The decommissioning of offshore oil and gas installations is covered by Part I of the
Petroleum Act 1987.
6.4.3.3 Oil
Most of the regulatory framework for the oil industry is contained in the Petroleum
Act 1998 and in delegated legislation made thereunder by the Secretary of State for
Trade and Industry.324
However, clean air legislation confers powers on the Secretary of State for
Transport325 to regulate the composition and content of motor fuels326 and health
and safety at work legislation confers powers on the same Minister in relation to the
transport and storage of petroleum.327
The five Parts of the Petroleum Act 1998 include provisions relating to the ownership
of petroleum328 reserves, the grant of licences to search, bore for and get petroleum,329
the construction and use of submarine pipelines330 and the abandonment of offshore
installations.331 Section 2 of the Act provides that:
320 See para. 6.4.3.2(3) above.
321 See para. 6.2.4 above.
322 See the Environmental Protection (Prescribed Processes and Substances) Regulations
1991, S.I. 1991 No. 472, Sched. 1, Ch. 1.
323 See the Pollution Prevention and Control (England and Wales) Regulations 2000, Sched.
1, Section 1.2. See para. 6.2.3 above.
324 See para. 4.2.1.2(1) above. See Roggenkamp et al., op. cit., paras 13.25–13.94. The
discussion in the text is by reference to offshore (seaward) oil and gas only. For a useful
discussion of the regulation of the onshore (landward) industry, see Hughes, op. cit.,
pp. 402–4.
325 See para. 4.2.1.2(1) above.
326 See Clean Air Act 1993, ss.30(1), 30(3), 32(1) and 63(1).
327 See Health and Safety at Work Act 1974, ss.15, 43, 82 and Sched. 3.
328 The definition of petroleum in Petroleum Act 1998, s.1, emphasises the artificiality of
dealing with it separately from natural gas (see para. 2.4.2 above). So defined, it ‘includes
any mineral oil or relative hydrocarbon and natural gas existing in its natural condition
in strata; but does not include coal or bituminous shales or other stratified deposits from
which oil can be extracted by destructive distillation’.
329 Petroleum Act 1998, Part I.
330 Ibid., Part III.
331 Ibid., Part IV.
Regulatory Context 157
[H]er Majesty has the exclusive right of searching and boring for and getting petroleum
… (including petroleum in Crown Land)332 which for the time being exists in its natural
condition in strata in Great Britain or beneath the territorial sea adjacent to the United
Kingdom.
Subject to petroleum rights being vested in Her Majesty the Queen in this way, the
Secretary of State for Trade and Industry may grant licences ‘to such persons as
he thinks fit’ to ‘search and bore for and get [the] petroleum’ covered by the Act.
Section 4 enjoins the Secretary of State to make regulations relating to applications
for licences, including the model clauses to be incorporated in such licences.333 The
construction and use of submarine pipelines is similarly restricted, s.14 requiring that
any company334 wishing to construct or use a pipeline335 in, under or over the UK’s
territorial sea or continental shelf336 may do so only with the written authorisation
of the Secretary of State.
Oil and gas exploration and production is subject to its own environmental control
regime. Besides oil pollution offences such as that of discharging oil or an oily
mixture into UK territorial waters (which can be committed wherever the pipeline in
question is located),337 environmental protection provisions are incorporated in the
exploration and development licences granted under s.4.338
The planning of oil refineries, of installations for the extraction of petroleum and of
oil pipelines is subject to the EIA regime discussed above.339 Refining mineral oils
and its associated activities are subject to the IPC340 and IPPC regimes.341
The powers delegated as above to the Secretary of State for Transport have recently
been exercised in order to ensure UK law’s compliance with standards contained
in Community law.342 Thus the lead and sulphur content of fuels, as well as their
transport and storage, is regulated by a number of statutory instruments,343 each of
which transpose Directives in these areas.
To these powers, Energy Act 2004, s.124 has added an enabling power for the
Secretary of State to impose renewable transport fuel obligations on particular
332 Defined in Petroleum Act 1998, s.2(3).
333 Petroleum Act 1998, s.4(1)(e). See the Petroleum Licensing (Exploration and Production)
(Seaward and Landward Areas) Regulations 2004, S.I. 2004 No. 352.
334 Authorisations may not be issued to individuals! (See Petroleum Act 1998, s.15(2).)
335 Defined in ibid., s.26.
336 See Continental Shelf Act 1964, s.1(7).
337 See Prevention of Oil Pollution Act 1971, s.2.
338 See the Petroleum Licensing (Exploration and Production) (Seaward and Landward
Areas) Regulations 2004, S.I. 2004 No. 352.
339 See para. 6.2.4 above.
340 See the Environmental Protection (Prescribed Processes and Substances) Regulations
1991, S.I. 1991 No. 472, Sched. 1, Ch. 1.
341 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000
No. 1973, Sched. 1, Section 1.2. See para. 6.2.3 above.
342 See para. 12.2.6.3(5) below.
343 See the Motor Fuel (Composition and Content) Regulations 1999, S.I. 1999 No. 3107;
the Motor Fuel (Composition and Content) (Amendment) Regulations 2003, S.I. 2003
No. 3078; and the Carriage of Dangerous Goods by Road Regulations 1996, S.I. 1996
No. 2095.
158 Environmental Taxation Law
types of transport fuel supplier. Unusually, such Orders have to be approved by an
affirmative vote in the UK Parliament.
6.4.3.4 Coal
Most of the legislation regulating the coal industry dates from the denationalisation
of the industry in the mid-1990s. The main statute is the Coal Industry Act 1994,
which sets out a basic regulatory framework, although this should be read in the
context of the general law of town and country planning.344
The 1994 Act establishes the Coal Authority as the industry’s regulatory body,345
provides for the licensing of coal-mining operations,346 sets out the rights and
obligations of coal mine operators347 and contains various supplementary provisions
relating to matters such as access to information.348 The central idea in the 1994
Act is that, the interests of the British Coal Corporation349 in unworked coal mines
having vested in the Coal Authority,350 the latter has the power to grant coal-mining
licences to persons wishing to conduct mining operations on the land to which the
application relates.351
In addition to the town and country planning law referred to above, the planning of
both underground and open cast coal mines, of fossil fuel storage facilities and coke
ovens are among the items subject to the EIA regime discussed above.352 Finally,
coal production falls within the scope both of the IPC/LAAPC353 and of the IPPC
regime.354
The abandonment of coal mines, with the potential for land contamination355 that
may result, is subject to the notification and other procedures in the Mines (Notice of
Abandonment) Regulations 1998.356
344 Currently (December 2004) the subject of the massive reform referred to at para. 6.4.3.1(3)
above. The impact of planning policy on coal mining is usefully discussed in Hughes, op.
cit., pp. 399–402. Town and country planning is outside the scope of the present volume.
345 Coal Industry Act 1994, Part I. See para. 4.2.1.3 above.
346 Ibid., Part II.
347 Ibid., Part III.
348 Ibid., Part IV.
349 Dissolved on 27 March 2004 (see Coal Industry Act 1994, s.23(2) and the Coal Industry
Act 1994 (Commencement No. 7) and Dissolution of the British Coal Corporation Order
2004, S.I. 2004 No. 144 (C.6)).
350 Coal Industry Act 1994, s.7(3). The vesting date was 31 October 1994, pursuant to Coal
Industry Act 1994, s.7(1).
351 Coal is thus an exception to the general rule of English property law that ‘land’ includes
all mines and minerals beneath it (see Coke on Littleton, para. 4a).
352 See para. 6.2.4 above.
353 See the Environmental Protection (Prescribed Processes and Substances) Regulations
1991, S.I. 1991 No. 472, Sched. 1, Ch. 3. For LAAPC, see para. 6.2.2 above.
354 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I.
2000 No. 1973, Sched. 1, Section 3.5. See para. 6.2.3 above.
355 See para. 6.7 below.
356 S.I. 1998 No. 892.
Regulatory Context 159
6.5 Air passenger and road freight transport regulation
6.5.1 The international and European Union background
Since the environmental issues raised by air transport and by road freight transport
are largely (though not exclusively)357 questions of air and atmospheric pollution,
they have a significant transboundary aspect. Again, the measures discussed in this
part of the chapter should therefore be understood within the public international and
Community contexts discussed in Chapters 8 and 12 below.
6.5.2 Environmental regulation
Given the origins of the environmental aspects of transport policy in policy on air and
atmospheric pollution, the ministerial predilection for economic instruments (both
existing and, as yet, only imaginary) in the transport arena should occasion little
surprise. It is perhaps curious, however, that neither the air transport nor the road
freight transport sector is currently subject to any form of environmental levy.358
That said, there continues to be a seemingly endless discussion of the policy options,
each of which are reviewed elsewhere in this study.359
For the present, such economic instruments as do exist are embodied in excise duty
differentials,360 income tax provisions on company cars and fuel benefits361 and in
the provisions of the Transport Act 2000. This last was the result of the government’s
July 1998 White Paper, A New Deal for Transport: Better for Everyone.362 The Act
ranges over at least four distinct areas, the one with the most obvious environmental
significance appearing in Part III.363 The provisions of Part III give to local
authorities364 powers to implement two important economic instruments: workplace
parking levies and road user charging schemes. Each of these is discussed in detail
in Chapters 17 and 18 below and there is also a brief introductory outline of both
concepts in the opening chapter above.365
357 When, for example, loss of amenity through road traffic congestion is considered.
358 See para. 2.6 above.
359 See paras 2.6 above and 27.3 below (nationwide road-user charging scheme for heavy
lorries); paras 2.6 above and 27.5 below (possibility of allowing airport charges to have
an emissions-related element); and para. 2.6 above and 27.5 below (possibility of bringing
the aviation industry within the scope of the EU ETS).
360 See para. 22.2.1 below.
361 See para. 23.2 below.
362 Cm 3950, 1998.
363 This is, of course, an artificial statement, since the Transport Act 2000’s provisions on local
transport (Part II) and railways (Part IV) also have profound environmental implications.
Part IV establishes the Strategic Rail Authority, sets out its objectives and functions
and generally ‘makes provision for the better regulation of the railway industry’. Part II
requires local transport authorities to prepare and publish local transport plans for ‘safe,
integrated, efficient and economic transport facilities in their areas’ (Explanatory Notes,
paras 10 and 14).
364 See para. 4.2.3 above.
365 See paras 1.4.2.4(1) and (2) above.
160 Environmental Taxation Law
It should be recognised that, in addition to the economic instruments – actual
or projected – just referred to, specific command and control measures deal with
particular environmental issues raised by transport. For example, legislation imposes
requirements on airport operators as to the noise and vibration caused by aircraft366 as
well as on airline operators, with regard to engine emissions and noise certificates.367
Equally, in addition to generally-applicable measures relating to vehicle construction
and use, such as the control of emissions368 and noise,369 there are specific provisions
relating to environmental matters in the licensing of goods vehicle operators.370 More
generally, there is extensive legislation relating to the acquisition and use of land for
the construction of highways371 as well as legislation enabling a highways authority
to make agreements with adjoining landowners to mitigate the injurious effects of
highways by tree-planting, etc.372
6.5.3 Transport regulation
The main statutes regulating the civil aviation industry are the Civil Aviation Act
1982 and the Airports Act 1986, in each case together with the relevant secondary
legislation. Transport Act 2000, Part I, establishes a public-private partnership for the
provision of air traffic services.373
The road haulage industry is regulated both by the Road Traffic Acts and by a
special goods vehicle licensing regime.374 The basic provision of the latter is that,
subject to certain exceptions, an operator’s licence is required in order for any person
to use a goods vehicle on a road, for the carriage of goods for hire or reward, or for
or in connection with any trade or business carried on by him.375
The Civil Aviation Authority (‘the CAA’),376 which may charge for the statutory
functions that it discharges in relation to civil aviation,377 has, since 1971, been
responsible for the operational, economic and technological regulation of the civil
air transport industry.
The operation of airports is subject to the CAA’s licensing system,378 as is the
carryin,g of passengers or cargo for remuneration.379 An airport operator may only
366 See Civil Aviation Act 1982, s.77 and the Air Navigation Order 2000, S.I. 2000 No. 1562,
Art. 108. These provisions mean that the scope for private individuals to bring legal action
over aircraft noise is severely limited.
367 Air Navigation (Environmental Standards) Order 2002, S.I. 2002 No. 798, Art. 8.
368 See Road Vehicles (Construction and Use) Regulations 1986, S.I. 1986 No. 1078, reg.
3(2), Table.
369 Ibid., reg. 97.
370 See para. 6.5.3 below. See Goods Vehicles (Licensing of Operators) Act 1995, s.34.
371 See, generally, Highways Act 1980.
372 See Highways Act 1980, s.253.
373 That is, National Air Traffic Services Ltd (‘NATS’). See Transport Act 2000, Pt I.
374 That is, the Goods Vehicles (Licensing of Operators) Act 1995.
375 Goods Vehicles (Licensing of Operators) Act 1995, s.2(1).
376 See para. 4.2.1.3 above.
377 Civil Aviation Act 1982, s.11(1).
378 See, generally, the Air Navigation Order 2000, S.I. 2000 No. 1562.
379 See the Licensing of Air Carriers Regulations 1992, S.I. 1992 No. 2992, reg. 2.
Regulatory Context 161
make airport charges with the authorisation of the CAA380 and then only when
the airport has, having achieved a certain level of turnover, become subject to the
economic regulation of the CAA.381
6.6 Regulation of mineral extraction
Like transport, issues arising from quarrying are hardly a discrete area of
environmental regulation. However, there is a range of general measures relating to
noise pollution382 and, in enacting the aggregates levy provisions of Finance Act 2001,
the government’s professed aims were to introduce an economic instrument similar
to landfill tax that would reflect the environmental costs of aggregates quarrying, in
terms of noise, dust, traffic, visual impacts, blasting, etc.383 Mineral development is
subject to the general law on town and country planning,384 responsibility therefore
being with local authorities, and may require an EIA to be carried out.385
An outline of aggregates levy appears at para. 1.4.2.3 above and there is a detailed
account in Chapter 13 below.
6.7 Regulation of contaminated land
The historical legacy of contaminated land is dealt with in Environmental Protection
Act 1990, Pt II, and in the Contaminated Land (England) Regulations 2000.386 A
duty is imposed on local authorities387 to inspect their areas to identify contaminated
land,388 details of which are entered on a public register and, although agreement as
to the costs of clean up may be reached between those responsible, local authorities
are empowered to serve remediation notices389 on the appropriate person or
persons,390 the failure to comply with which without reasonable excuse is a criminal
offence.391
380 See Airports Act 1986, s.38(1) and the Civil Aviation Authority (Economic Regulation of
Airports) Regulations 1986, S.I. 1986 No. 1544.
381 See Airports Act 1986, s.37.
382 See, generally, Environmental Protection Act 1990, s 79(1)(g) and (ga); Noise Act 1996;
Control of Pollution Act 1974, ss.60–67.
383 See paras 5.5 above and 11.3.2 below (see also para. 13.1 below).
384 See Mark Stallworthy, Sustainability, Land Use and Environment (London: Cavendish,
2002); Hughes et al., op. cit., Ch. 13.
385 See para. 6.2.4 above.
386 S.I. 2000 No. 227.
387 See para. 4.2.3 above.
388 See the definition in Environmental Protection Act 1990, s.78A(2) as ‘a(chǎn)ny land that appears
to the local authority to be in such a condition, by reason of substances in, on or under the
land, that significant harm is being caused or there is a significant possibility of such harm
being caused or pollution of controlled waters is being, or is likely to be, caused’.
389 Environmental Protection Act 1990, s.78E.
390 Ibid., s.78F(2).
391 Ibid., s.78M.
162 Environmental Taxation Law
392 See Chapter 5 above.
The command and control regulation control regulation in Environmental Protection
Act 1990, Part IIA is backed-up by an economic instrument in the form of a generous
but closely restricted tax deduction, outlined in para. 7.3.4.2 below and detailed in
para. 24.5.1 below.
6.8 Concluding comments
Only the briefest of glances at the present chapter will show the reader how far the
idea of environmental levies and their associated economic instruments has gained
ground in the regulatory landscape of the UK within the last decade.
In seeking to place environmental taxation within the context of environmental
regulation generally, this chapter has highlighted the regulatory nature of the taxes and
other levies under consideration. Such an emphasis is both necessary and appropriate.
An evaluation of the UK’s environmental taxation provisions which was divorced
from their regulatory context would be, at the very least, incomplete. It will be recalled
from earlier in the study392 that the government views environmental levies and
other economic instruments very much in terms of their cumulative effect, that is, as
part of a diet of measures together designed to deliver environmental improvements.
Thus it is important to realise that, in some areas, their significance may be greater
than in others. Hitherto, for example, economic instruments have played a relatively
insignificant role in waste management regulation, where command and control
has dominated. Equally, however, economic instruments dominate the regulation
of air and atmospheric pollution. As mentioned at the beginning, by examining in
this chapter the regulation of the industries whose products fall within the scope of
the various environmental taxes and other economic instruments, we hope to begin
the process of drawing attention to possible anomalies as between the respective
purposes and effects of what we have referred to respectively, and pragmatically, as
market regulation and environmental regulation.
What falls to us next is the task of examining the duality of environmental levies
and other economic instruments. Though spoken of, quite correctly, as regulatory
instruments, environmental levies and subsidies also fall to be considered in their
taxation context. Accordingly, in Chapter 7, we shall begin an examination of the
issues involved in describing and evaluating environmental levies and other economic
instruments in taxation terms.
Chapter 7
Taxation Context
7.1 Introduction
In previous chapters, discussion has been focused on the regulatory qualities of the
UK’s environmental taxes and other economic instruments. Attention is narrowed in
the present chapter to an examination of the nature of these instruments in tax law.
The division of the material is designed to highlight the complimentary but distinct
nature of the two contexts.
The chapter is divided into two main parts. In the earlier of these, we explore the
concepts of ‘taxes’ and ‘tax subsidies’. In the course of the former discussion, we
shall be building on the definition of a tax introduced in Chapter 1 and, by reference
to case-law from different legal traditions, attempting to explain the relationship
between taxes and other, related but distinct, concepts. Thus, we shall be considering
the distinction between a tax and a charge, or fee, for government services, as well
as the relationship between the tax concept and those of tolls, penalties and fines.
The rise of environmental taxation has necessitated the revisiting of these basic
distinctions, none of which have traditionally been seen, from the legal point of
view, as important ones in the UK. Secondly, we introduce the concept, not of a tax,
but of a ‘tax expenditure’, or ‘tax subsidy’, something not so far alluded to in the
book. If the legal concept of a tax is crucial to understanding the significance of the
various environmental levies, then the idea of a tax expenditure is no less important
to understanding what is required, at least in part,1 in order to ‘green’ a tax system.
Such tax expenditures or tax subsidies, if designed to incentivise environmentallyfriendly
behaviour, can properly be characterised as economic instruments for
environmental protection, since they represent a form of financial assistance from
government.2 We shall be particularising them in UK law in Part III, Section B
below.
The second main part of the discussion in the present chapter is the complex task of
analysing the legal nature of the various payments under consideration in the book.
These comprise, not only the environmental levies and environmentally-inspired
subsidies currently at work in the UK tax system, but also items such as payments to
government agencies on the grant of licences. The discussion in the latter part of the
chapter builds on the distinctions drawn in the earlier part, in attempting to confirm
which of the current environmental levies can properly be described as taxes, and
in describing the legal nature of ‘green’ subsidies within the non-environmental tax
codes.3
1 Greening a tax system can, of course, involve bringing items within the tax base, just as it
is taken to refer introducing environmentally-friendly exemptions and reliefs.
2 See para. 1.2.1.5 above.
3 See para. 1.4.3.1 above.
164 Environmental Taxation Law
We turn first to the distinctions between each of charges – or fees – for government
services, taxes, tolls, fines and penalties.
7.2 Taxes and tax subsidies
7.2.1 Taxes distinct from charges (or fees)
Tiley isolates the characteristics of a charge or fee, as distinct from a tax, as
follows:4
1 with a charge, ‘some service must be provided direct to the individual’;5
2 a charge must be related to the service provided, not varied according ‘to some
other criterion … such as the value of that person’s property’ or his ability to
pay;6 and
3 ‘it is no objection that a charge may result in a profit’ to the levying authority,
‘provided only that the profit is a reasonable one’.7
Re Eurig Estate,8 it will be recalled, insists on there being three criteria for identifying
a tax, as distinct from a charge. A levy is a tax if it is: compulsory,9 levied by a public
body and intended for a public purpose.10
These points are made on the basis of Commonwealth authorities. They are much
more precise than either the case-law of the ECJ discussed below on the meaning
of the expression ‘taxation’ as it is used in Art. 90, European Treaty (ex 95),11 or
GATT 1994/WTO jurisprudence on the construction of the GATT 1994 equivalent
of Art. 90, Art. III(2), GATT 1994.12 However, the Commonwealth authorities are
consistent with the proposition a levy will fall outside the scope of Art. 25, European
Treaty (ex 12), which bans customs duties as between EU Member States, only if it
4 See John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 4.
5 Re Tax on Foreign Legations and High Commissioner’s Residence, [1943] SCR 208 (Can)
(Duff, C.J.).
6 Société Centrale d’Hypothesques v. Cité de Quebec, [1961] QLR 661. Thus, in Re Eurig
Estate (1999) 165 DLR (4th) 1 (see para. 1.2.1.1 above), one of the reasons that the
probate fee was held to be a tax was that it varied with the size of the estate, there being
no link between the amount of the fee and the cost of the service for granting letters
probate.
7 Minister of Justice for Dominion of Canada v. Levis City, [1919] AC 505.
8 (1999) 165 DLR (4th) 1.
9 And therefore enforceable by law (see (1999) 165 DLR (4th) 1, para. 17); see also, for
example, Attorney-General of New South Wales v. Homebush Flour Mills Ltd, (1937) 56
CLR 390.
10 (1999) 165 DLR (4th) 1, para. 15. On the public purpose requirement, see Lower Mainland
Dairy Products Sales Adjustment Committee v. Crystal Dairy Ltd, [1933] AC 168,
175–176 (Lord Thankerton); and Lawson v. Interior Tree, Fruit and Vegetable Committee
of Direction, [1931] 2 DLR 193, 197–198 (Duff, J.).
11 See para. 7.2.2.3 below.
12 See para. 8.4.3 below.
Taxation Context 165
can be shown that there was a genuine bargain between the trader and the state, that
is, that the trader receives a specific, identifiable benefit in return for the sum paid,
and that the sum paid is proportionate to the benefit received.13
7.2.2 Taxes defined
In order to further refine the definition of a tax on which the discussion has so far
proceeded, four areas of law fall for consideration:14
1 UK case-law on the concept of a tax;
2 Commonwealth case-law on the concept of a tax;
3 Case law of the ECJ on the meaning of ‘taxation’ as it is used in the European
Treaty; and
4 Jurisprudence of the WTO Dispute Settlement Body and the AB on the meaning
of ‘internal taxes or other internal charges’ as the phrase is used in GATT 1994.
It will be apparent to the reader that these four areas of law have been chosen for
their relevance to the UK, given its status as a member of each of the Commonwealth,
of the EU and of the WTO.15 It should, however, be noted that the scope of the
concept of a tax has been given detailed consideration in many national jurisdictions,
most notably, perhaps, those of the USA and Germany.16 Of the areas listed above, 2
and 3 yield fairly detailed information on the characteristics of a tax, whilst 1 and 4
are, possibly for historical reasons, relatively uninformative.
7.2.2.1 UK case-law on the concept of a tax
In Chapter 1 above, we stated that the UK’s constitutional arrangements have so far
tended to discourage a narrow and prescriptive view of a tax as a legal concept.17
13 See para. 12.3.3.2 below. See Commission v. Italy, C–24/68, [1969] ECR 193; W. Cadsky
SpA v. Instituto Nazionale per il Commercio Esterio, C–63/74, [1975] ECR 281; and Ford
España v. Spain, C–170/88, [1989] ECR 2305.
14 That is, from the UK perspective.
15 See para. 8.4.1 below.
16 Not considered further in this volume, although see, for example, Paul Marchetti,
‘Distinguishing Taxes from Charges in the Case of Privileges’ (1980) 33 NTJ 233–6. It
has recently been reported that the US Supreme Court is about to consider the nature of the
tax concept in US law in a case involving the beef levy (see Waldmeir, Financial Times,
27 September 2004, p. 12). See also, in the context of the term ‘taxes’, as used in the
OECD’s model double taxation convention, Klaus Vogel, Klaus Vogel on Double Taxation
Conventions, 3rd edn (The Hague: Kluwer Law, 1997), pp. 146–8 and 205.
17 See para. 1.2.1.1 above. The Bill of Rights 1689, Art. 4, simply states that: ‘ … levying
Money for or to the Use of the Crown, by Pretence of Prerogative, without Grant of
Parliament, for longer Time, or in other Manner than the same is or shall be granted, is
illegal’. See also 8(2) Hals, para. 228, esp. n3 and the references cited therein; O. Hood
Phillips and Paul Jackson, Constitutional and Administrative Law, ed. by Paul Jackson
and Patricia Leopold, 8th edn (London: Sweet and Maxwell, 2001), paras 3–008–3010;
and E.C.S. Wade and A.W. Bradley, Constitutional and Administrative Law, ed. by A.W.
Bradley and K.D. Ewing, 11th edn (London: Longman, 1993), pp. 366–7.
166 Environmental Taxation Law
Probably for this reason, such English law authorities as actually exist on the nature
of a tax are unsatisfactory.18
Following devolution,19 however, the exact legal meaning of the concept of a tax
will need to be considered before much longer.20 Three well-known cases illustrate
the historically impressionistic approach of English courts to the concept.
1 In Congreve v. Home Office,21 the CA declared unlawful and void the Home
Secretary’s threatened revocation of certain television licences. The CA clearly
assumed that the television licence fee was a form of taxation, although the
judges did not consider the issue in any detail.22
2 Daymond v. South West Water Authority,23 concerned charges for household
sewage and sewerage disposal services. The claimant, whose property was not
connected to the main drainage system, and was situated 400 yards from the
nearest sewer, received a demand for payment of charges for sewerage and
sewage disposal services. He refused to pay the charges and sought a declaration
that the demand was unlawful, since the water authority had no power under the
Water Act 1973, s.30, to demand charges other than those for services performed,
facilities provided or rights made available to him by the authority. The House
of Lords24 held that, where a provision stated only that a statutory body could
demand, take and recover such charges for the services that it performed, then
the body in question could charge only those who availed themselves of its
services. It followed that the body was not empowered to charge the claimant
for services of which he did not avail himself. Whilst emphasising that the
conclusion of the majority was a matter of statutory construction, Viscount
Dilhorne asked:
Is it to be inferred that it was the intention of Parliament that [water authorities] … should
be at liberty to charge anyone they thought fit in Great Britain? That has only to be stated
18 See, for example, Brewster v. Kidgill, (1697) 88 ER 1239 (Holt, C.J.); Baker v. Greenhill,
(1842) 114 ER 463, at 470 (Lord Denman, C.J.); Attorney-General v. Wilts United Dairies
Ltd, (1921) 124 LT 319, 322–323 (Bailhache, J., overruled by CA and HL at [1922] WN
217, 218); Government of India v. Taylor [1955] AC 491; and Aston Cantlow v. Wallbank,
[2001] 3 WLR 1323, para. 40 (Sir Andrew Morrit, V.C.), overruled by HL at [2003] 3
WLR 283 (esp. para. 133) (Lord Scott of Foscote).
19 See para. 1.3 above.
20 On the near-federal nature of the UK, see, for example, Chris Hilson, Regulating Pollution
– A UK and EC Perspective (Oxford: Hart Publishing, 2000), p. 47.
21 [1976] QB 629.
22 The background to the case was interesting. The Home Secretary had announced, on 29
January 1975, that the colour television licence fee would be increased from £12 to £18
on April, 1 that year, and had made an order to that effect under the Wireless Telegraphy
Act 1949, s.2(1). In order to avoid the increase in the fee, some 24,500 licence holders had
applied for new £12 licences, before 1 April and before their existing licences had expired.
The Home Secretary acted in purported exercise of a statutory discretion to revoke these
overlapping licences.
23 [1976] AC 609.
24 Lords Wilberforce and Diplock dissenting.
Taxation Context 167
to be rejected for it is, to my mind, inconceivable that Parliament should have intended to
entrust such an extensive power of taxation to a non-elected body. Is it then to be inferred
that it was intended to give them only power to charge those living in their area and those
who came into it and made use of their services … ? I think that such a limitation must be
implied.25
Lord Kilbrandon took a similar approach:
For my part I do not consider … [the relevant statutory wording] adequate, if any other
meaning is open, to empower an ad hoc nonrepresentative body to impose what is in truth
a tax, namely an impost under the head of charges for services … upon persons who do not
directly receive such advantages.26
3 IRC v. Océ van der Grinten27 concerned withholding tax under the 1980 UK/
Netherlands Double Tax Treaty. The Inland Revenue had appealed against
the Special Commissioner’s28 referral of a double taxation issue to the ECJ.
The UK subsidiary of a Dutch parent company had declared dividends of
£13 million in a particular year when the former UK imputation system (now
abolished) was in force.29 The Revenue argued that, pursuant to the double tax
treaty, the parent was liable to pay tax at 5 per cent on the total of the dividends
distributed, plus the tax credit received on those dividends. The parent argued
that the 5 per cent was a withholding tax and, as such, was forbidden by the
Parent-Subsidiary Directive.30 In agreeing that the case should be referred to
the ECJ,31 Jacob, J. held that the concept of a withholding tax was a global
question of Community law. His Lordship also commented reluctantly, at the
specific request of counsel on both sides, on the issue of whether the 5 per cent
was a ‘tax’ in UK law:
The [tax credit] stems from the distribution of profits by the subsidiary. It is the distribution
of profits by way of dividend which causes the [tax credit] to be given to the parent. And the
amount of the [tax credit] represents part of the profits distributed. So the abatement of the
[tax credit] by the 5 per cent … is in substance a reduction in what the parent gets compared
with what it would get if there were no abatement. Putting it another way, as a result of the
abatement the Crown ends up with more money and the taxpayer less. Most people would
call the difference a ‘tax’ and I do too. Since the ‘tax’ stems from the distribution it seems
equally right to call the deduction a ‘tax on (or in respect of) the distribution’.32
25 [1976] AC 609, 640.
26 [1976] AC 609, 651.
27 [2000] STC 951.
28 See para. 4.2.1.5 above.
29 For the detail of the UK imputation system, inapplicable after 5 April 1999, see, for
example, Chris Whitehouse, Revenue Law – Principles and Practice, 16th edn (London:
Butterworths, 1998), paras 29.62–29.65.
30 Council Directive 90/435/EEC, (1990) OJ L225 6.
31 See Océ van der Grinten v. Commissioners of Inland Revenue, C–58/01. The ECJ does
not, however, shed any light on the issue under consideration here.
32 [2000] STC 951, para. 14.
168 Environmental Taxation Law
The reasons for Jacob, J.’s evident impatience at counsels’ request was presumably
that the concept of a tax had already been considered by the Special Commissioners33
in some detail.
7.2.2.2 Commonwealth case-law on the concept of a tax
Commonwealth case-law, of course, is the source of the definition of a tax upon
which reliance has so far been placed (that is, compulsory, levied by a public
body and intended for a public purpose).34 To these three may be added the fourth
criterion, which determines the lawfulness or otherwise of the tax thus identified.
This fourth criterion, it will be recalled, is that the tax must have been imposed under
the authority of the legislature.35
In Re Eurig Estate itself, the province of Ontario had imposed an ad valorem
probate fee, which varied according to the size of estates. The appellant was the
executor of the estate of her late husband. She applied to the Ontario Court (General
Division) for an order that she be issued letters probate without payment of the
probate fee and for a declaration that the regulation which required that payment
was unlawful. The basis of her argument was that the fee was in reality a tax and
was invalid, either because it was an indirect tax (and thus outside the powers of the
provincial legislature)36 or because, as a direct tax, the constitutional requirements
for its implementation had been violated. Originally unsuccessful before the Ontario
Court, the appellant appealed to the Ontario Court of Appeal, where her appeal was
dismissed. Eventually the case reached the Supreme Court of Canada.
Major, J., for the majority of the Supreme Court,37 applied the three criteria listed
above, in holding that the probate fee was a tax:
1 the fee was compulsory and therefore enforceable by law: although probate was
not the foundation of the executor’s title, but only ‘the authentic evidence of
it’, that authentication was ‘nonetheless a practical and legal necessity in most
cases’.38
2 The fee was levied by a public body, since probate fees in Ontario were levied by
the Ontario Court (General Division).39
3 The fees were intended for a public purpose, since the revenue obtained from
probate fees was ‘used for the public purpose of defraying the costs of court
administration in general … not simply to offset the costs of granting probate’.40
Having held that the probate fee was therefore clearly a tax, Major, J. held that,
although it was a direct tax – and therefore within the competence of the provincial
33 [2000] STC(SC) 127.
34 (1999) 165 DLR (4th) 1. See para. 1.2.1.1 above.
35 (1999) 165 DLR (4th) 1, para. 16.
36 See para. 1.2.1.2 above.
37 Bastarache and Gonthier, JJ. dissented.
38 (1999) 165 DLR (4th) 1, para. 17.
39 Ibid., para. 18.
40 Ibid., para. 20.
Taxation Context 169
legislature41 – it had not been implemented in accordance with the constitutional
requirements for a direct tax.42
To the three characteristics of a tax enumerated in Re Eurig Estate may be added
the following subsidiary points:43
1 A levy is not prevented from being a tax by the fact that raising revenue is not
the government’s main reason for imposing it (see Northern Suburbs Cemetery
Reserve Trust v. Commonwealth).44
2 For a levy to be capable of being a tax, it must be possible to identify ‘the criteria
by reference to which liability to pay the tax is imposed’ and to demonstrate that
the process of applying the criteria is not arbitrary or capricious (see MacCormick
v. Federal Commissioner of Taxation).45
3 The three criteria for the existence of a tax should not be regarded as providing
an exhaustive definition of a tax (see Air Caledonie v. The Commonwealth).46
For example, in relation to the requirement that the levy must be made by a
public body, it has been held that a levy on blank tapes, to be paid to a body ‘set
up by the music industry’ to compensate performers, was nonetheless a tax (see
Australian Tape Manufacturers’ Association v. The Commonwealth).47
7.2.2.3 European Union case-law on the meaning of ‘taxation’
The ECJ has had to consider the meaning of the expression ‘taxation’ as it occurs in
Art. 90, European Treaty (ex 95). Article 90 provides:
No Member State shall impose, directly or indirectly, on the products of other Member
States any internal taxation of any kind in excess of that imposed directly or indirectly on
similar domestic products.
Furthermore, no Member State shall impose on the products of other Member States any
internal taxation of such a nature as to afford indirect protection to other products.
As interpreted by the ECJ, ‘taxation’ in this context is a broad term. For the
purposes of Art. 90, taxation ‘includes not only taxes levied by central government
but any fiscal or parafiscal levy48 imposed by or with the authority of any level of
government, including levies charged by or for quasi-official bodies and allocated to
a specific purpose’.49
41 Ibid., para. 27. See para. 1.2.1.2 above.
42 Ibid., paras 28–37.
43 See Tiley, op. cit., p. 5, to which the summaries in these paragraphs are much indebted.
The test was considered in Airservices Australia v. Canadian Airlines International Ltd,
[1999] HCA 62 and in Luton v. Lessels, [2002] HCA 13.
44 (1993) 176 CLR 555 (High Court of Australia).
45 (1984) 158 CLR 622 (High Court of Australia).
46 (1988) 165 CLR 462, para. 6 (High Court of Australia).
47 (1993) 176 CLR 480 (High Court of Australia).
48 See para. 12.3.3.1 below.
49 See Paul Farmer and Richard Lyal, EC Tax Law (Oxford: Clarendon Press, 1994), p. 46.
170 Environmental Taxation Law
The approach of the ECJ in relation to Art. 90 is illustrated by the following cases:
1. In Deutschmann v. Germany,50 when concluding that the then Arts 12 (now 25)
and 95, European Treaty, were mutually exclusive, the ECJ did not consider
there to be a relevant distinction between taxes and charges for services in the
context of Art. 90, European Treaty (ex 95). Advocate General Gand said:
From the fact that Article 95 appears in a chapter entitled ‘steuerliche Vorschriften’ (‘Fiscal
provisions’) and from its closeness to Article 98, the Federal Republic draws the conclusion
that it only applies to taxes in the strict sense … Fiscal terminology, already uncertain in
the national legal systems, is all the more so when it is transferred to the Common Market
sphere; such an exegesis seems to us to be rather useless and of little help in solving the
problem put to us [that is, as to whether Art. 95 of the European Treaty applied to fees
charged on the grant of import licences].
2 In Iannelli & Volpi v. Meroni,51 the ECJ had to consider two cases involving,
inter alia, Art. 90, European Treaty (ex 95). One case involved subsidies of
newsprint purchased by Italian newspaper publishers, the paper being produced
in Italy with levies being paid by manufacturers and importers of paper and
cardboard. The other was about charges levied in relation to the processing of
citrus concentrates imported to Germany. One of the points that the court made
about the scope of Art. 90, was:
Since Article 95 of the Treaty refers to internal taxation of any kind the fact that a tax or
levy is collected by a body governed by public law other than the State or is collected for
its benefit and is a charge which is special or appropriated for a specific purpose cannot
prevent its falling within the field of application of Article 95 of the Treaty.52
3 Apple and Pear Development Council v. Lewis53 involved a research and
development body established by statutory instrument, which body’s activities
were financed by charges on fruit growers. One issue was whether the charges
were covered by Arts 28 and 29, European Treaty (ex Arts 30 and 34). The ECJ
said:
… the charges, being measures of a fiscal nature or of equivalent effect, fall within the
scope, not of those Articles, but of Articles 9 to 16 and 95 of the Treaty. Since the charge in
question does not apply to imported produce and only affects produce intended for export
in the same way as produce sold on the home market, it does not raise any problem in
relation to the last-mentioned articles either.54
50 C–10/65, [1965] CMLR 259.
51 C–74/76, [1977] 2 CMLR 688. See also AGF Belgium SA v. European Economic
Community, C–191/94, [1996] ECR I–1859; Weyl Beef Products BV v. Commission, Case
T–197/97, [2001] 2 CMLR 22.
52 [1977] 2 CMLR 688, para. 19.
53 C–222/82, [1984] 3 CMLR 733.
54 [1984] 3 CMLR 733, para. 30.
Taxation Context 171
Although unwilling to make fine distinctions between taxes and related concepts for
the purpose of Art. 90, European Treaty, the ECJ has been obliged to distinguish, for
the purposes of Art. 25, European Treaty (ex 12) between taxes and charges having
an effect equivalent to customs duties. Customs duties55 as well as charges having
equivalent effect,56 are of course prohibited as between Member States of the EU, by
Art. 25, European Treaty (ex 12). A charge having an equivalent effect (a ‘CEE’) is
defined in a key passage in the following terms:
Any pecuniary charge, however small and whatever its designation and mode of application,
which is imposed unilaterally on domestic or foreign goods by reason of the fact that they
cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge
having equivalent effect … even if it is not imposed for the benefit of the State, is not
discriminatory or protective in effect and if the product on which the charge is imposed is
not in competition with any domestic product …
It follows from Article [90] … et seq. that the concept of a charge having equivalent
effect does not include taxation which is imposed in the same way within a State on similar
or comparable domestic products, or at least falls, in the absence of such products, within
the framework of general internal taxation …57
A charge may, however, escape Art. 25, if it can be shown that, rather than having an
effect equivalent to a customs duty, the charge is a tax and therefore subject to the
discipline of Art. 90. In Commission v. France,58 a tax, in this context, was defined
as a levy relating to:
… a general system of internal dues applied systematically to categories of products in
accordance with objective criteria irrespective of the origin of the products …59
in circumstances such that there is no identical or similar domestic product.
This is not the only way in which an item may escape Art. 25, however. A levy
will not count as a CEE if either it counts as consideration for a service supplied
by the importing State to the importer60 or it was imposed pursuant to mandatory
requirements of Community Law (that is, it was an administrative charge).61
Given the purpose for which the complementary Arts 90 and 25 fall to be interpreted,
these distinctions are unsurprising. Overall, however, they are consistent with a
number of the subsidiary points about taxes made in the Commonwealth cases, that
is, that:
1 the fact that the levy is allocated to a specific, as opposed to a general, purpose
does not prevent it from being a tax;
55 See, generally, Timothy Lyons, EC Customs Law (Oxford: Oxford University Press,
2001).
56 See Commission v. Italy, C–24/68, [1969] ECR 193 (the ‘statistical levy case’).
57 [1969] ECR 193, paras 9 and 11.
58 C–90/87, [1981] ECR 283.
59 [1981] ECR 283, para. 14.
60 Bresciani v. Amministrazione Italiana delle Finanze, C–87/75, [1976] ECR 129.
61 See Commission v. Germany, C–18/87, [1988] ECR 5427.
172 Environmental Taxation Law
2 a levy may be a tax where it is imposed by, and paid to, a body set up under
statutory powers, rather than directly to the government itself; and
3 it must not be arbitrary or capricious, that is, it must be possible to identify the
criteria by reference to which liability to pay the tax is imposed.62
7.2.2.4 GATT 1994/WTO jurisprudence on the meaning of ‘internal taxes and
other internal charges’
The equivalent provision to Art. 90, European Treaty (ex 95) as regards the trade
relations of EU Member States with third countries, is Art. III(2), GATT 1994.63
Article III, which is considered in more detail later in the book,64 reads (so far as
relevant) as follows:
1. The contracting parties recognize that internal taxes and other internal charges …
affecting the internal sale, offering for sale, purchase, transportation, distribution or use
of products, … should not be applied to imported or domestic products so as to afford
protection to domestic production.
2. The products of the territory of any contracting party imported into the territory of
any other contracting party shall not be subject, directly or indirectly, to internal taxes or
other internal charges of any kind in excess of those applied, directly or indirectly, to like
domestic products. Moreover, no contracting party shall otherwise apply internal taxes
or other internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1.
It will be apparent to the reader that, instead of the expression ‘internal taxation of
any kind’, which is the expression used in the (later) European Treaty, Art. III(2),
GATT 1994,65 refers to ‘internal taxes and other internal charges’. The use of the
word ‘charges’ in Art. III(2), rather than the wider expression ‘levies’, emphasises
the fact that the Art. was not drafted mindful of the classification of taxes and
charges as two different types of ‘levy’.66 Given its purpose,67 it is plain that one
of the main purposes of Art. III(2), however, is to distinguish, not between taxes
and other types of levy, but between internal taxes, on the one hand, and customs
duties, on the other. In short, customs duties, which are subject to the discipline of
GATT 1994, Art. II,68 though clearly taxes,69 are not internal taxes. What makes a
62 Arts 25 (ex 12) and 90 (ex 95), European Treaty, are discussed in detail in Stephen
Weatherill and Paul Beaumont, EU Law, 3rd edn (London: Penguin, 1999), chs 13 and
14; and Farmer and Lyal, op. cit., ch 3.
63 See para. 12.3.3.1(1) below.
64 See para. 8.4.3 below.
65 Originally, Art. III(2), GATT 1947.
66 See para. 1.2 above.
67 See para. 8.4.3 below.
68 Ibid.
69 See Kenneth W. Dam, The GATT: Law and International Economic Organization
(London: University of Chicago Press, 1970), p. 115. As such, they are indirect taxes (see
para. 1.2.1.2 above).
Taxation Context 173
tax an internal tax, and therefore subject to GATT 1994, Art. III(2), rather than GATT
1994, Art. II, is revisited below.70 The distinction is one on which GATT and WTO
institutions seem to have been remarkably reluctant to rule definitively. What is at
least clear is that: (1) the mere fact that it is collected or enforced ‘a(chǎn)t the time or point
of importation’ does not prevent the tax in question from being an internal tax;71 and
(2) that, although described as internal taxes, levies may nonetheless be in reality
import (that is, customs) duties, if:
(a) they are collected at the time of, and as a condition to, the entry of the goods into
the importing country, and (b) they apply exclusively to imported products without being
related in any way to similar charges collected internally on like domestic products.72
7.2.3 Taxes distinct from tolls, penalties and fines
Tolls73 have existed for centuries, both at common law and under statute, in relation
to roads and bridges, street trading, markets, fairs and shipping and navigation. So
far as roads are concerned, the necessary powers for tolls to be charged, whether by
a highway authority or a concessionaire, have for long been taken by legislation.74
Historically, rights to take tolls or dues in relation to the use of a port or harbour
have also been conferred by immemorial usage or grant as well as by statute, tolls in
relation for example, to harbours being required to be reasonable in amount.75 Where
a toll road has been constructed pursuant to an order made under the New Roads and
Street Works Act 1991, the Secretary of State is not required to impose restrictions on
the levels of tolls charged.76 Such distinctions between tolls and taxes as historically
there might have been (that is, as to restrictions on amount and the need for statutory
authority) are not, however, relevant to the projected lorry road user charge, which is
straightforwardly characterised as a tax in the 2002 enabling legislation.77
70 See para. 8.4.3 below.
71 Note Ad Art. III, GATT 1994 (reproduced at World Trade Organization, The Legal
Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations (New York:
Cambridge University Press, 1999), p. 479). See para. 8.4.3n below.
72 GATT 1947 Committee Report from the 1948 Havana Conference, quoted in John H.
Jackson, World Trade and the Law of GATT (Indianapolis: Bobbs-Merrill, 1969), section
12.3 (esp. pp. 280–81), in turn referred to in the same author’s The World Trading System,
2nd edn (Cambridge, MA: MIT Press, 1997), p. 397.
73 The word ‘toll’, or tolnetum, is defined to be a sum of money which is taken in respect of
some benefit’ (see Bramwell and Willes (counsel) in argument, in Adey v. Trinity House,
(1852) 22 LJ QB 3). See also para. 12.2.6.4(2)n below.
74 For example, as in relation to the M6 toll road, north of Birmingham (see para. 27.3n
below), constructed under the New Roads and Street Works Act 1991.
75 See Lord Falmouth v. George (1828) 130 ER 1071 (fishing boats paying a toll for use of
a capstan at Sennen Cove in Cornwall).
76 See Alliance Against the Birmingham Northern Relief Road v. Secretary of State for the
Environment, Transport and the Regions and Midlands Expressway Ltd, [1999] JPL 426.
The Birmingham Northern Relief Road is the M6 toll road referred to above. The legal
background to the construction of the road is examined in the judgment of Latham, J.
77 See Finance Act 2002, s.137(1).
174 Environmental Taxation Law
Civil penalty provisions appear throughout the VAT code78 and have been transposed
into the codes for each of aggregates levy, climate change levy and landfill tax.79
Environmental taxes are closer to civil penalties in terms of the function that they
serve than are fiscal taxes, such as corporation tax and VAT.80 This proposition
seems to be particularly well illustrated by landfill tax. Even at the current main rate,
the level of the tax considerably exceeds the externalities associated with landfill.
At the ultimate rate of £35 per tonne, as currently projected under the landfill tax
escalator,81 the rate of the tax will clearly be a penal one. The significance of this
point is that, unlike taxes, penalties are not deductible in calculating trading profits
under Schedule D, Case I.82 The same point applies to fines that are imposed by the
courts for breaches of offences created by command and control environmental and
health and safety legislation.83
7.2.4 Tax subsidies distinct from taxes
Having distinguished taxes from related but distinct concepts, it is necessary to
describe the various legal concepts that are together categorised as tax subsidies or
‘tax expenditures’.84
As indicated above, tax expenditures are not ‘free-standing’ concepts, such as taxes
and charges, but are rather elements within the structure of taxes themselves. The
concept of the tax expenditure was defined by Willis and Hardwick as:
… an exemption or relief which is not part of the essential structure of the tax in question
but has been introduced into the tax code for some extraneous reason – eg in order to ease
the burden for a particular class of taxpayers, or to provide an incentive to apply income
in a particular way, or perhaps to simplify administration. The term is used to cover, not
merely specific exemptions but also gaps in the charge as a result of which receipts or
benefits which represent or are equivalent to income are not subjected to tax. The choice
of the term ‘tax expenditure’ indicates that, because they are not inherent in the structure
of the tax, these reliefs are equivalent in terms of revenue foregone to direct government
expenditure and should in general be judged by the same criteria.85
Two of the different legal forms that tax expenditures may take (that is, exemptions
and reliefs) have been mentioned already. Within the structure of the various UK
taxes, however, there are a range of other forms that tax expenditures may take.
78 See, for example, ss.59–67, Value Added Tax Act 1994.
79 See para. 16.14 below.
80 See Kalle Määttä, Environmental Taxes – From an Economic Idea to a Legal Institution
(Helsinki: Finnish Lawyers’ Publishing, 1997), pp. 207–10.
81 See para. 15.2 below.
82 See para. 1.4.3.1 above.
83 See Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn
(London: Cavendish, 2003), pp. 60–64.
84 These terms are treated as being synonymous (see, for example, Määttä, op. cit., p. 28).
85 J.R.M. Willis and P.J.W. Hardwick, Tax Expenditures in the United Kingdom (London:
Heinemann, 1978), p. 1. The quotation is limited to income only because Willis and
Hardwick’s study was confined to income tax and CGT.
Taxation Context 175
The distinctions between these various possibilities can be illustrated by reference
to income tax.86
1 Exemptions remove certain items from the scope of the tax altogether (for
example income from personal equity plans87 or certain employee benefits in
kind).88
2 Permitted deductions are deductible in calculating income from particular
sources (for example trading expenses).89 Within this category can be included
the logically necessary concept of capital allowances. Within the UK system,
capital expenditure is not deductible from income, allowance instead being made
for certain categories of such expenditure through the elaborate system of capital
allowances.90
3 Charges on income are deductible in calculating total income from all sources,
though the range of payments capable of qualifying as such is now very narrow
(certain interest payments by individuals are still of this kind).91
4 Personal allowances and reliefs can, in certain cases, be deducted from total
income from all sources (for example the personal allowance).92
5 Income tax reductions give rise to credits against tax (for example the income
tax reduction provided for by the enterprise investment scheme (‘EIS’)).93 This
last form of tax expenditure has become particularly popular with certain OECD
governments.
It should be emphasised that these are the tax expenditures within the income tax
code only; as mentioned above, the legal form that tax expenditures take depends on
the tax code in question.94
86 See para. 1.4.3.1 above. This part of the para. draws heavily on the useful list in CCH Tax
Handbook 2003–04 (Banbury: CCH, 2003), para. 1840.
87 Although no new personal equity plans (‘PEPs’) can now be taken out, existing ones
continue to benefit from provisions allowing the income therefrom to be exempt from
income tax.
88 See Income and Corporation Taxes Act 1988, ss.333 and 333A and regulations thereunder
(although note that no new PEP subscriptions have been permitted since 5 April 1999,
having been replaced by Individual Savings Accounts or ‘ISAs’).
89 See Chapter 24 below.
90 Ibid. Capital allowances are so complex that they are governed by their own statute, that
is, the Capital Allowances Act 2001; in the late 1960s, they were, for a time, replaced by
investment grants, a system which favoured loss-making businesses, such as the (then)
nationalised industries. As discussed in Chapter 24 below, there is a tension in the capital
allowances system between the provision of a highly stylised system of depreciation and
their use as policy incentives.
91 See, for example, Income and Corporation Taxes Act 1988, s.359 (interest on loan to buy
machinery or plant).
92 See Income and Corporation Taxes Act 1988, s.257(1): these have to be distinguished
from the mass of credits and deductions which have been added to the PAYE system since
1997 and which do not relate to tax allowances at all, even though they may be income
based, for example, working family tax credit and student loan repayments.
93 See Income and Corporation Taxes Act 1988, ss.289–312.
94 This legal form is in each case described below.
176 Environmental Taxation Law
Tax expenditures in general have a double significance in the context of the present
study. Within the environmental tax and charging codes,95 they will tend to limit
the effectiveness of the regulatory instrument, and we should therefore expect them
to be difficult, although not impossible, to justify in terms of regulatory principle.
Conversely, it might be expected that tax expenditures within the non-environmental
tax codes96 should relatively easily be justifiable in regulatory terms.
7.3 Status of the main levies and subsidies under consideration
7.3.1 Environmental levies
Within the scope of this book are at least ten extant economic instruments, or
categories thereof, that are of an environmental nature and that involve the making
of payments. Possible payments include the following:
1 payments of aggregates levy;
2 payments of climate change levy;
3 payments of landfill tax;
4 payments of workplace parking levies;
5 payments under road user charging schemes;
6 payments made under the UK ETS;
7 payments made under the RO;
8 payments made under the EU ETS;
9 payments made for licences and permits (for example IPPC permits) under
command and control legislation; and
10 payments of airport landing charges.
There is no doubt that landfill tax, climate change levy and aggregates levy are taxes.
It is unclear whether licensing schemes relating to workplace parking levies or to
road user charging impose taxes or charges; it is thought that taxes are more likely
to arise under the former than under the latter. The payments referred to below under
the UK ETS and RO also seem closer to charges than to taxes. The importance of the
distinction is not yet a constitutional one as it is in the context of the Commonwealth
jurisdictions referred to above. However, it may have a distinction in assessing the
acceptability of the levies in question.
Charges, it will be recalled, involve the provision of a service direct to the individual,
a relationship between the service and the charge and no more than a reasonable
profit accruing to the service provider. Payments of charges are requited, whereas
payments of taxes are not.
Licensing schemes for workplace parking and road user charging schemes each
involve the provision of a service direct to individuals. The service in the former case
is the provision of licences to park a certain num,ber of cars at, or in the vicinity of,
95 See Part III, Section A below.
96 Ibid., Section B below.
Taxation Context 177
particular premises, such licences being granted in favour of occupiers of premises.
In the latter case, the service is the provision of licences for motor vehicles to enter a
certain area at certain times, the registered keeper of the vehicle generally being the
person in whose favour the licence is granted.
In the case of workplace parking levies, vehicles are classified as ‘licensed units’
and the amount payable is based on the charge per unit. Section 186, Transport Act
2000, allows for variations in the charges according to different days or times of day,
different parts of the licensing area, different classes of motor vehicles or different
numbers of licensed units. Although Transport Act 2000, s.171, provides for the basic
elements that must be included in the order establishing the charging scheme, the
local authority is free to determine the levels of charge. There would therefore appear
to be greater scope for the level of the charge to be related to the service provided, as
opposed to extraneous criteria, in the case of road user charging schemes.
The question of whether the profit accruing to the service provider is reasonable
is, of course, a nebulous one. Suffice it to say that Transport Act 2000, Sched. 12,
contains financial provisions common to both types of scheme. The net proceeds
of both types of scheme are found by subtracting the expenses of establishing or
operating the scheme from the gross proceeds;97 net proceeds must be hypothecated
(that is, earmarked)98 such that they can only be spent in support of the authority’s
local transport plan for the first ten years of a scheme’s life;99 and, in accordance
with the general rule that local authorities must spend net proceeds only on things
that offer value for money, they are required to prepare a ten-year general plan for
spending the proceeds.100
The UK ETS has already been outlined.101 The relevant feature of the scheme for
present purposes is that, where participants make more emissions than their targets for
a particular year, it will be necessary for them to purchase extra allowances. Where
there is a failure to do this then, as an agreement participant, it will be necessary
to pay the full rate of the levy, while, as a direct participant, the incentive payment
will be lost and a tighter target will be imposed for the following year. It is thought
that, since the right to retain the specific benefit conferred – that is, either a tax
reduction or an incentive payment – is purchased at a price determined by the market,
such payments are not to be regarded as taxes but are more in the nature of fees or
charges. However, any loss of the incentive payment seems properly characterised as
a penalty, with the loss of the climate change levy reduction resulting in a payment
of the levy (that is, in the payment of tax rather than a penalty).
With the RO, which has again been described above,102 electricity suppliers are
obliged to prove that they have supplied specified quantities of renewable source
electricity to customers in Great Britain within a specified period.103 In order to
97 Transport Act 2000, Sched. 12, para. 2.
98 See para. 11.2 below.
99 Transport Act 2000, Sched. 12, para. 7.
100 Ibid., Sched. 12, paras 8–10.
101 See para. 1.4.2.2(2) above.
102 See para. 1.4.2.2(4) above.
103 See Utilities Act 2000, s.62, and Renewables Obligation Order 2002, S.I. 2002 No. 914,
Sched. 1.
178 Environmental Taxation Law
comply with the RO, suppliers must produce ROCs or Green Certificates to Ofgem.
Where a supplier cannot produce the requisite Green Certificates, it may either pay a
penalty to Ofgem for each MWh it is short of its obligation or purchase ROCs from
other suppliers willing to trade them. Ofgem pays the funds collected in penalties to
suppliers in proportion to the amount of renewable energy they have sourced.104 To
the extent that the supplier has had to pay for Green Certificates, such payments seem
best characterised as fees or charges, since the payment is made directly to avoid the
penalty and its amount is determined by the market place. Payments to Ofgem are, of
course, in the nature of penalties.
Whatever technical issues may be raised by the levies discussed above, it is clear
that each of landfill tax, climate change levy and aggregates levy are taxes. They
are payable to a public body, that is, HM Customs and Excise; they are compulsory,
in the sense that satisfaction of the relevant conditions for liability and the absence
of any exemption or relief gives rise to a liability to pay them, which liability
is backed up by elaborate sanctions; and their proceeds are intended for a public
purpose. This is so, even though part of the revenue raised by the three taxes is, by
various means, hypothecated.105 It will be recalled from the ECJ case-law that the
fact that a levy is allocated to a specific, as opposed to a general, purpose does not
prevent it from being a tax.106 It is also unimportant to the status of these levies
as taxes whether raising revenue is the government’s primary purpose in imposing
them.107
7.3.2 Non-environmental levies
There is no issue as to the status of the UK’s seven main non-environmental taxes
as such.108
7.3.3 Tax subsidies within environmental levies
The nature of the main exemptions within the environmental levies is summarised
below. The exemptions in question are analysed in detail in the relevant paragraphs
of the rest of the study.
1 Landfill tax:109 The exemptions from the tax relate to: disposals of material
removed from water; disposals of materials removed from contaminated land; the
104 Richardson and Chanwai draw attention to the fact that energy supply companies may
pass on the costs of purchasing renewable energy to their customers and refer to the
suggestion in recent retail energy prices that the RO has added 3 per cent to consumers’
electricity bills (see Benjamin J. Richardson and Kiri L. Chanwai, ‘Taxing and Trading in
Corporate Energy Activities: Pioneering UK Reforms to Address Climate Change’ (2003)
14(1) ICCLR 18–27).
105 See paras 11.2.2 and 21.3 below.
106 See para. 7.2.2.3 above.
107 See para. 7.2.2.2 above.
108 See para. 1.4.3.1 above.
109 See para. 1.4.2.1(1) above.
Taxation Context 179
use of inert materials for site restoration; the disposal of inert waste at quarries;
and the disposal of the remains of dead domestic pets.110 The exemptions all
operate by removing the operation in question from the scope of the concept of
the taxable disposal.
Tax rates are differentiated according to whether the waste in question is general
or inert waste.111
2 Climate change levy:112 Excluded from the levy are direct supplies for domestic
or non-business charitable use and any supply made before 1 April 2001.113
Exempted from the levy are: gas supplies for burning in Northern Ireland;114 gas
supplies for burning outside the UK; supplies for use in public transport, on the
railways, or international shipping; supplies to producers of taxable commodities
other than electricity; supplies other than for use as fuel, that is, the electrolytic
processes, steam reformation, dual use functions and non-heating uses specified
in regulations; supplies where the person supplied intends the commodity to be
used as fuel in a recycling process; and supplies of renewable source and good
quality combined heat and power (‘CHP’) electricity.115
Excluded supplies are outside the scope of climate change levy, whereas exempt
supplies are ones that, if not exempted, would have been within the scope of the
levy.
There are reduced rates of tax for horticultural producers installations within
the IPPC regime that have entered into climate change agreements.116
The exemptions and reduced rate provisions were subsidies for which state aid
clearance was required.117
3 Aggregates levy: The exemptions from aggregates levy operate either by
exempting the aggregate itself or by exempting the spoil and other by-products
of a process, that is, an exempt process.
Exempt aggregate includes aggregate consisting wholly or mainly of coal,
lignite, slate or shale and the spoil or waste from an industrial combustion process
or from the smelting or refining of metal.118
Exempt processes include the cutting of any rock to produce stone with one or
more flat surfaces; any process by which certain substances (including anhydrite
and ball clay) are extracted or separated from any aggregate; and any process
for the production of lime or cement, from lime alone or lime and another
substance.119
The levy is charged at a single rate.120
110 See para. 15.3 below.
111 See para. 15.1 below.
112 See para. 1.4.2.2(1) above.
113 See para. 14.3 below.
114 On a temporary basis only (see para. 14.2 below).
115 See para. 14.3 below.
116 See para. 14.1 below.
117 See para. 12.2.7 below.
118 See para. 13.4 below.
119 See para. 13.5 below.
120 See para. 13.2 below.
180 Environmental Taxation Law
4 Workplace parking levies: Transport Act 2000, s.187, grants powers to
set exemptions, reduced rates or limits on workplace parking charges by
regulations.121
5 Road user charging: Transport Act 2000, s.172, provides the power for regulations
to set exemptions from charges, reduced rates or limits on charges which will
apply to all charging schemes. By s.172(2), any charging scheme will be able to
set additional exemptions, reductions or limits as the authority wishes, subject to
approval.
Under the Central London scheme, a discount of 90 per cent of the standard
£5 charge is available to residents living within the congestion charging zone,
and there is also a range of exemptions for particular types of vehicle. Some of
these are of a purely environmental nature (for example for electrically propelled
vehicles) but they are not exclusively so.122
6 The UK Emissions Trading Scheme: Direct participants in the UK ETS are
eligible to receive incentive payments, calculated in accordance with the rules
of the Scheme. Agreement participants are entitled to a reduced rate of tax. Both
mechanisms were in the nature of subsidies, for which state aid clearance was
required.123
7.3.4 Environmental subsidies within non-environmental levies
Below are summarised the main environmental exemptions and reliefs within the
non-environmental tax codes. They are discussed in detail as indicated in the relevant
paras of the rest of the book.
7.3.4.1 Employee taxes
(1) Income tax
a. Exemptions: In general, the earnings of an office or employment, including the
value of any benefits in kind (usually their ‘cash equivalent’), are chargeable to
income tax under the Income Tax (Earnings and Pensions) Act 2003.124 However,
a number of relevant items are outside the scope of, what was, until 5 April 2003,
Schedule E, altogether. These include: the provision for employees of works
bus services; financial or other support for bus services used by employees; the
provision for employees’ use of cycles or cyclists’ safety equipment; payments
made to employees for carrying other employees travelling on business; the
provision of up to six free meals per annum for employees cycling to work; and
the use of works minibuses for certain shopping trips from work.125
Although not a case of exemption, the rules for bringing into charge the ‘cash
equivalent’ of vehicles and fuel are not as favourable as once they were. The
121 There are as yet (December 2004) no such schemes but the first workplace parking levy
scheme is likely to be introduced in Nottingham in April 2005 (see para. 17.1 below).
122 See para. 18.2 below.
123 See para. 12.2.7 below.
124 See para. 1.4.3.1 above.
125 See para. 23.3 below.
Taxation Context 181
amount of the cash equivalent is now based on the car’s carbon dioxide emissions,
no allowance being made for high business mileage or the age of the car.126
b. Permitted deductions: These are very restricted and, significantly, do not include
the expenses of ordinary commuting.127
(2) National insurance contributions
Since the tax base of National insurance contributions (‘NICs’) is the employed
earner’s earnings, albeit in separate legistaion from that applicable to income tax, the
general rule is that a payment in kind, or by way of the provision of services, board
and lodging or other facilities is to be disregarded in the calculation of earnings.128
On this basis, and without more, all of the items within the income tax exemptions
that are not ‘earnings’ for NICs purposes would fall outside the scope of NICs.
However, the position is not as simple as this, since certain items that do not qualify
as ‘earnings’ under the general definition are nonetheless brought within the scope of
NICs. These include non-cash vouchers, the range of exemptions for which is apt not
to include, for example, vouchers provided to employees for use on works buses.129
7.3.4.2 Business taxes
1 Income tax and corporation tax: The scope of capital allowances in respect
of expenditure on machinery and plant covers at least two areas of ‘green’
expenditure: expenditure on cars which are either electrically propelled or have
low carbon dioxide emissions and on energy-saving plant and machinery of
a type specified by the government.130 One hundred per cent allowances are
available in both cases. Additionally, 100 per cent allowances are available
against rental income for the conversion of space above shops into small selfcontained
flats.131
Relief for acquisitions as trading stock, or as capital assets of a trade or a
property business, for expenditure on remedial works on contaminated land, is
also available. Tax relief is available on a notional 150 per cent of expenditure,
which may explain why it is very closely circumscribed.132
2 Value added tax: A 5 per cent VAT rate is available for grant-aided installation in
dwellings of energy saving materials and heating equipment.133
3 Stamp duties: There is an exemption from stamp duty land tax (‘SDLT’) for both
conveyances and transfers and leases of land. This is subject to a value cap for
residential properties but is complete for non-residential ones until 2006.134
126 See para. 23.2 below.
127 See para. 23.1 below.
128 See Social Security (Contributions) Regulations 2001, S.I. 2001 No. 1004, reg. 25 and
Sched. 3, Part II, para. 1.
129 See para. 23.3 below.
130 For details, see paras 21.3.1, 24.3 and 24.4 below.
131 See para. 24.5.2 below.
132 See para. 24.5.1 below.
133 See para. 21.3.1 below.
134 See para. 24.5.3 below.
182 Environmental Taxation Law
7.4 Concluding comments
Throughout the study thus far, the pattern of the overall discussion has been one
of a gradual move from the general to the specific. The material in the present and
previous chapter has been designed to shown how environmental taxes and other
economic instruments can be analysed both in environmental and energy law terms
and in tax terms. Environmental taxation law occupies a difficult terrain across what
in the UK, at least, have traditionally been regarded as entirely distinct areas of law.
Chapter 8
International Aspects
8.1 Introduction
This chapter seeks to complete the conspectus of the contexts of environmental
taxation law by locating the UK’s environmental levies and subsidies within the
framework both of international environmental law and the multilateral rules on the
taxation of international trade.
The discussion unfolds in three main stages, followed by two brief paras dealing with
subsidiary issues. Paragraph 8.2 provides a general introduction for the non-specialist
to the nature and sources of public international law. Some idea of this background
material is necessary for a full appreciation of the topics considered elsewhere in the
chapter, since the principal instrument in both the international environmental and the
international trading contexts is the treaty, or international agreement. A significant part
is played also, however, at least in the environmental context, by more controversial
concepts, such as customary international law and so-called ‘soft law’, including
declarations and recommendations. The principal characteristics of these sources of
law are also delineated in para. 8.2. This background material is of some significance,
in terms of the study as a whole, since it helps to explain the extent and shape of the
environmental and taxation rules applicable within the EU and its Member States.
Such internal EU issues will form the subject matter of Chapter 12 below. The main
theme of the present chapter, however, is the UK’s environmental and taxation ties, via
the law and institutions of the EU, with the world beyond the EU’s borders.
International agreements have, of course, been reached on a number of the most
serious environmental problems, most importantly air and atmospheric pollution.
Chief among these, arguably, is the 1992 United Nations Framework Convention on
Climate Change and its eponymous Kyoto Protocol of 1997. The details of the main
agreements in this sector are explored in para. 8.3, where they are briefly related
to the economic instruments justified in the UK by reference to those agreements.1
Although there is some discussion of the main international agreements concluded
in order to control pollution by waste, this is relatively brief, since these have been
by no means as influential in the creation of the UK’s waste tax as have been the
initiatives of the European Commission. Discussion of these initiatives is accordingly
postponed to the consideration of internal EU issues in Chapter 12 below.
The third main stage of the discussion, contained in para. 8.4, seeks to locate the
UK, together with its existing green levies and subsidies, within the framework of
the 1994 revision of the General Agreement on Tariffs and Trade (‘GATT 1994’). In
doing so, it seeks to elucidate the nature of the relationship between the international
environmental agreements referred to above and the system of multilateral trade
agreements based on GATT 1994. Since UK environmental regulation, as it relates to
1 See Chapter 6 above for details of the UK’s transposition of its international and EU
obligations into domestic law.
184 Environmental Taxation Law
air and atmospheric pollution, has its origins in international environmental law then,
to the extent that regulatory instruments comprise environmental levies and subsidies,
those already in existence must be consistent with the relevant provisions of GATT
1994, while the discussion of those as yet only envisaged must take place with those
provisions in mind. Besides explaining the place of the UK’s existing environmental
taxes and other economic instruments in the environmental and trade contexts, the
present chapter therefore paves the way for the discussion of new directions in these
areas in Part IV of the book.
Prior to summing up on Part II of the book, in Chapter 9, we briefly highlight two
further relevant areas of public international law: those relating to energy and to air
transport. The international aspects of each of these areas are not major themes in Parts
III and IV but they do embody some key factors regarding the possibilities for future
policy directions, especially, in the case of air transport, in relation to international tax
or emissions trading schemes for airlines. The fact that air transport falls outside the
provisions of the Kyoto Protocol is one of the Protocol’s most striking features.
We begin this chapter, however, with a brief examination of the nature and sources of
public international law, with special relevance to examples drawn from international
environmental law and the law of international trade.
8.2 Public international law
8.2.1 Preliminary
Within the scope of public international law2 are the intersecting areas of
international environmental law and world trade law.3 The expression ‘international
environmental law’,4 invariably used but not universally accepted,5 is a convenient
way of describing the whole body of public and private international law relating
to environmental issues,6 much of which originates in a series of UN-sponsored
international agreements. Alongside the international agreements on the environment
is the GATT 1994-based system of multilateral agreements on international trade that
are administered by the World Trade Organization (‘the WTO’).7 The extent, if any,
to which the objectives of the two sets of treaties are reconcilable is one of the great
questions of our time.8 The crux of the legal argument is that, at present, international
2 See, generally, I. Brownlie, Principles of Public International Law, 5th edn (Oxford:
Oxford University Press, 1999).
3 That is, insofar as the latter relates to the rules and institutions of the world trading system,
as opposed to the rules and principles of the conflict of laws in relation, for example, to
international contracts.
4 See Philippe Sands, Principles of International Environmental Law, 2nd edn (Cambridge:
Cambridge University Press, 2003).
5 See, for example, Brownlie, op. cit., ch. 12.
6 See Patricia Birnie and Alan Boyle, International Law and the Environment, 2nd edn
(Oxford: Oxford University Press, 2002), pp. 1–2.
7 See para. 4.4.1 above.
8 The WTO’s position is discussed in Michael Moore, A World Without Walls – Freedom,
Development, Free Trade and Global Governance (Cambridge: Cambridge University
International Aspects 185
policy neither endorses any general environmental exception to the principle of free
trade, nor does it seek to give free trade priority over environmental protection.9
Public international law is usually divided into ‘hard law’ and ‘soft law’ components.
As set out in Art. 38 of the 1945 Statute of the International Court of Justice, the
sources of international law, that is, the ‘hard’ law component, are:
… international conventions, whether general or particular, establishing rules expressly
recognised by the contesting states;10 (b) international custom, as evidence of a general
practice accepted as law; (c) the general principles of law recognised by civilised nations;
(d) subject to the provisions of Article 59,11 judicial decisions and the teachings of the most
highly qualified publicists of the various nations, as subsidiary means for the determination
of rules of law.
None of these forms of hard law is necessarily such as to create rights upon which
private persons can rely, nor can they invariably be used as the basis for legal action
against the state or other public authority, in the way that European legislation
may sometimes be used.12 They do, however, create rules and principles that are
enforceable between one state and another in respect of the relations between them.
It is useful briefly to describe the forms of hard law in turn, although it should
Press, 2003). Moore, a former Prime Minister of New Zealand, was the Director-General
of the WTO from 1999 to 2002. For a somewhat different view, see The Case Against the
Global Economy and for a Turn Toward the Local, ed. by J. Mander and E. Goldsmith
(San Francisco: Sierra Club Books, 1996). The problems of evaluating the arguments on
each side and of the absence of data are summarised in, for example, Gerd Winter, ‘The
GATT and Environmental Protection: Problems of Construction’ (2003) 15 JEL 113–40
(esp. pp. 113–15).
9 Birnie and Boyle, op. cit., p. 698. The chapter of Birnie and Boyle entitled ‘International
Trade and Environmental Protection’ was contributed by Thomas J. Schoenbaum. As
Schoenbaum points out (Birnie and Boyle, ibid.), the preamble to the 1994 Marrakesh
Agreement Establishing the World Trade Organization recognises that expanding the
production of, and trade in, goods and services, must allow for: ‘… the optimal use of the
world’s resources in accordance with the objective of sustainable development, seeking
both to protect and preserve the environment and to enhance the means for doing so
in a manner consistent with their respective needs and concerns at different levels of
economic development …’. See also the Rio Declaration, Principle 12, referred to in para.
8.2.6 below. The bald statement of the legal issue in the text barely does justice to the
range of economic, political and even moral issues surrounding it. For an insight into the
strength of the various arguments, see the websites of the myriad charitable and political
organisations engaged in the debate.
10 The concept of international conventions includes treaties, ‘a(chǎn)cts’, ‘a(chǎn)greements’,
‘covenants’, ‘pacts’, ‘protocols’, etc.
11 It is by virtue of Art. 59 that the decisions of the ICJ have no binding force except as
between the parties and in respect of the case under consideration.
12 Stuart Bell and Donald McGillivray, Ball and Bell on Environmental Law: The Law and
Policy relating to the Protection of the Environment, 5th edn (London: Blackstone Press,
2000), p. 91. For the direct effect of EU law and actions for damages against Member
States, see, for example, Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn
(London: Penguin, 1999), ch. 11.
186 Environmental Taxation Law
perhaps be stressed that, among the five, treaties and custom are the main sources of
international law in general.13
8.2.2 Treaties
Treaties are defined in the 1969 Vienna Convention on the Law of Treaties14 as
‘international agreements concluded between states in written form and governed
by international law, whether embodied in a single instrument or in two or more
related instruments and whatever their particular designation’.15 The basic principle
of the law of treaties is that a treaty cannot be applied until it has been ratified
and come into force.16 The process of ratifying, and hence, of the coming into
force of a treaty, can – unless the two take place at the same time17 – be a slow
and painful one. As an extreme example, the 1997 Kyoto Protocol18 to the 1992
United Nations Framework Convention on Climate Change19 (always referred to
as ‘the Kyoto Protocol’) provided that the Protocol would enter into force on the
ninetieth day after the date on which not less than 55 parties to the 1992 Convention,
including those that accounted in total for at least 55 per cent of the total 1990 carbon
dioxide emissions of those parties, had deposited their instruments of ratification,
acceptance or accession.20 The law and procedure applicable to making, operating
and terminating treaties21 are contained in the 1969 Vienna Convention. The most
recent multilateral environmental agreements (‘MEAs’) have been signed by the EU,
as the relevant regional economic integration organisation.22 This means that both
the EU and its Member States may be parties to the MEA in question. In the case of
the Kyoto Protocol, the burden of the EU’s commitment to an 8 per cent reduction
in greenhouse gas emissions by 2010 is thus shared between the EU Member States
under a so-called ‘burden-sharing agreement’.23
13 Anthony Aust, Modern Treaty Law and Practice (Cambridge: Cambridge University
Press, 2000), p. 10.
14 The 1969 Vienna Convention was drafted by the International Law Commission, a
body established in 1947 by the UN General Assembly, with the object of promoting
the progressive development of international law and its codification (see Aust, op. cit.,
pp. 6–7).
15 1969 Vienna Convention, Art. 2(1)(a).
16 Ibid., Art. 26.
17 Aust, op. cit., p. 75.
18 (1998) 37 ILM 22.
19 (1992) 31 ILM 851.
20 Kyoto Protocol, Art. 25(1).
21 Although the 1969 Vienna Convention does not apply to oral agreements, this does not
affect the legal force of such agreements, ‘or the application to them of any of the rules in
the Convention to which they would be subject under international law independently of
the Convention, such as customary international law’ (see 1969 Vienna Convention, Art.
3 and Aust, op. cit., pp. 7 and 16).
22 See Bell and McGillivray, op. cit., p. 87.
23 See now Council Decision 02/358/EC, (2002) OJ L130 1. Article 4 of the Kyoto Protocol
allowed parties thereto to fulfil their commitments thereunder jointly; EU Member States
accordingly entered into the burden-sharing agreement of 16–17 June 1998 (Doc. 9702/98
International Aspects 187
Recent developments in the interpretation of GATT 1994 have indicated that
GATT 1994 should be interpreted, not in accordance with GATT 1994 interpretation
norms, but with the provisions of Arts 31–33 of the 1969 Vienna Convention.24 The
principles contained in these articles, headed ‘Interpretation of Treaties’, may briefly
be summarised as follows:
1 Article 31(1) provides for the interpretation of treaties ‘in good faith in accordance
with the ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose’; Art. 31(2) then states what the context
comprises; and Art. 31(3) specifies what, together with the context, must be taken
into account, that is: ‘a(chǎn)ny subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;25 any subsequent
practice in the application of the treaty which establishes the agreement of the
parties regarding its interpretation;26 and any relevant rules of international law
applicable in the relations between the parties’.27
2 Article 32 allows recourse to supplementary means of interpretation (including
travaux préparatoires) to confirm the meaning resulting from the application of
Art. 31 or to determine the meaning where interpretation under Art. 31 leaves the
meaning ambiguous or obscure or leads to a manifestly absurd or unreasonable
result.
3 Generally speaking, by Art. 33, a treaty is equally authoritative in each language
in which it has been authenticated.
8.2.3 Customary international law
Customary international law, the second source of hard law referred to in Art. 38 of
the ICJ statute, consists of two elements: ‘(1) a general convergence in the practice of
states from which one can extract a norm (standard of conduct); and (2) opinio juris,
the belief by states that the norm is legally binding on them’.28 Such a definition
needs only to be stated for it to be evident that the ascertainment of the relevant
custom in a particular case is potentially fraught with difficulty, involving, as it
may, both research and the exercise of careful judgment.29 As to (1), the practice of
states is thought to cover any act or statements by a state from which views about
of 19 June 1998, Annex I). The burden-sharing agreement actually allows Greece, Spain,
Iceland, Portugal and Sweden to increase their greenhouse gas emissions, these being
offset by greater than expected reductions in other Member States, notably the UK! (see
Maurice Sunkin, David Ong and Robert Wight, Sourcebook on Environmental Law, 2nd
edn (London: Cavendish, 2002), pp. 99, 143 and 148). See further P.G.G. Davies, ‘Global
warming and the Kyoto Protocol’ (1998) 47 ICLQ 446–61.
24 See Birnie and Boyle, op. cit., p. 704, and paras 8.4.2(2) and 8.4.2(3) below.
25 1969 Vienna Convention, Art. 31(3)(a).
26 Ibid., Art. 31(3)(b).
27 Ibid., Art. 31(3)(c).
28 Aust, op. cit., p. 10. See Malcolm Shaw, International Law, 5th edn (Cambridge:
Cambridge University Press, 2003), pp. 65–92.
29 See Birnie and Boyle, op. cit., p. 16.
188 Environmental Taxation Law
customary law may be inferred30 whilst, as to (2), the belief that the practice is
obligatory by virtue of the existence of a rule of law requiring it, is a subjective
requirement.31 To customary international law may be owed, in the environmental
context, the precautionary principle or ‘precautionary approach’, the polluter pays
principle32 and the preventive principle. Principle 15 of the 1992 Declaration of
the United Nations Conference on Environment and Development, made at the UN
Conference on Environment and Development held in Rio de Janeiro in 1992 (‘the
Rio Declaration’)33 states that:
In order to protect the environment, the precautionary approach shall be widely applied
by states according to their capabilities. Where there are threats of serious or irreversible
damage, lack of full scientific certainty shall not be used as a reason for postponing costeffective
measures to prevent environmental degradation.
In his dissenting opinion in a famous ICJ decision,34 one judge described the
precautionary approach as one that was gaining increasing support as part of the
international law of the environment.35 As to the polluter pays principle, this is
reflected in Principle 16 of the Rio Declaration, which runs as follows:
National authorities should endeavour to promote the internalisation of environmental costs
and the use of economic instruments, taking into account the approach that the polluter
should, in principle, bear the cost of pollution, with due regard to the public interest and
without distorting international trade and investment.
The 1990 International Convention on Oil Pollution Preparedness, Response and Cooperation,
as well as the 1992 Convention on the Transboundary Effects of Industrial
Accidents, referred to the polluter pays principle as ‘… a general principle of international
environmental law’.36 The principle has for long been promoted by the OECD37 and
is specifically referred to in Art. 174(2), European Treaty (ex 130r) as one of the bases
30 See M. Akehurst, ‘Custom as a Source of International Law’ (1974–75) 47 BYIL 1.
31 See Nicaragua v. US, [1986] ICJ Rep. 14, 108–109.
32 See Bell and McGillivray, op. cit., p. 92.
33 UN Doc. A/CONF151/26/Rev. 1, reproduced in Sunkin, Ong and Wight, op. cit., p. 69.
34 Request for an Examination of the Situation in Accordance with Paragraph 63 of the
Court’s Judgment in the 1974 Nuclear Tests case, [1995] ICJ Rep. 288.
35 [1995] ICJ Rep. 288, 342 (Judge Weeramantry).
36 In the US, this has been taken to surprising lengths, under the ‘Carter Act’ (Comprehensive
Environmental Response, Compensation, and Liability Act 1980), for instance resulting
in a UK investment trust, Fleming American Investment Trust plc, which had owned a
factory nearly a century before, in a previous guise, having to contribute towards the
clean-up costs.
37 See, for example, Organisation for Economic Co-operation and Development,
Environmentally-Related Taxes in OECD Countries: Issues and Strategies (Paris: OECD,
2001), p. 16, which contains the OECD’s definition of the polluter pays principle, as
originally expressed by the organisation in 1972. The OECD there emphasises that, in the
context of environmentally related taxation, the principle is a non-subsidisation principle,
‘meaning simply that governments should not as a general rule give subsidies to their
industries for pollution control’ (ibid.).
International Aspects 189
of Community policy on the environment. Finally, the preventive principle, that is, the
prohibition of any activity which actually causes, or will cause, environmental damage
or pollution,38 is reflected in Principle 2 of the Rio Declaration:
States have, in accordance with the Charter of the United Nations and the principles of
international law, the sovereign right to exploit their own resources pursuant to their own
environmental and developmental policies, and the responsibility to ensure that activities
within their jurisdiction or control do not cause damage to the environment of other states
or of areas beyond the limits of national jurisdiction.39
8.2.4 General principles of law
General principles of law recognised by civilised nations are the third source of law
referred to in Art. 38 of the Statute of the ICJ. It is unclear whether the reference
here is to the principles of international law (for example, as to the freedom of the
seas) or simply to the principles of domestic legal systems (for example, as to the
admissibility of evidence in legal proceedings). It appears, however, that this source
is most frequently used, when it is used at all, in order to reason from analogy in
relation, for example, to rules of procedure, evidence and jurisdiction. ‘General
principles of law’ thus have little specific application to environmental issues but are
of general significance in international law.40
8.2.5 Judicial decisions and jurisprudential writing
Finally, Art. 38 of the ICJ statute refers to ‘judicial decisions and the teachings of
the most highly qualified publicists of the various nations, as subsidiary means for
the determination of rules of law’. This is expressly subject to Art. 59 of the ICJ
statute, which provides that the decisions of the ICJ have no binding force, ‘except
as between the parties and in respect of the case under consideration’. Subject to
this qualification, the judicial decisions referred to here are those of the ICJ itself; of
other international courts (including arbitral tribunals);41 of the European Court of
Human Rights;42 of the International Tribunal for the Law of the Sea43 and of the
38 See Sunkin, Ong and Wight, op. cit., p. 49.
39 See also Principle 21 of the 1972 Stockholm Declaration of the United Nations Conference
on the Human Environment, reproduced in Sunkin, Ong and Wight, op. cit., p. 63.
40 See Birnie and Boyle, op. cit., p. 20.
41 See Brownlie, op. cit., pp. 19–24 and Robert Jennings, ‘The Judiciary, International and
National, and the Development of International Law’ (1996) 45 ICLQ 1–12. But see the
comment in Bowett’s Law of International Institutions, ed. by Philippe Sands and Pierre
Klein, 5th edn (London: Sweet and Maxwell, 2001), para. 13–042, where the learned
editors note that: ‘What the Court has not done is refer to judgments of other international
courts, no doubt bearing in mind its position as the “principal judicial organ of the United
Nations”. Whether this approach is tenable over the long term, given the increased
specialisation of various areas of international law, remains unclear’.
42 See para. 4.3.7 above.
43 Set up under the 1982 Law of the Sea Convention, Annex VI (not discussed elsewhere in
this book).
190 Environmental Taxation Law
national courts of particular states.44 With regard to the writings of publicists, besides
including the writings of eminent international lawyers, these may also include
reports of international codification bodies, such as, for example, the International
Law Commission.
8.2.6 Soft law
Besides the various sources of hard law, there is what is usually referred to as ‘soft
law’. The idea behind the terminology is to show that the relevant document is not
law as such but that specific attention must be accorded to it because of the influence
that it exerts on the international scene. Bell and McGillivray draw together a number
of examples of soft law. It is characterised, they say, by the fact that ‘… it contains
general norms rather than specific rules … [and] provides a guide as to how disputes
might be resolved rather than hard-and-fast rules applying to specific situations’.45
Their list of examples consists of the following:
1 declarations;
2 principles;
3 recommendations; and
4 standards.46
Two of these merit some comment in the present context. Besides reflecting the
agreed aspirations of the international community, declarations also contribute to the
creation of customary international law and the consolidation of existing customs. The
Rio Declaration, setting out 27 Principles of international environmental law, which
together constitute the main outlines of the concept of sustainable development,47
is a key example of this form of soft law. Principles 2 (the preventive principle), 15
(the precautionary principle) and 16 (the polluter pays principle) have already been
mentioned. Other Principles of some importance in the present context are Principles
12 and 17. Principle 12 reads as follows:
States should co-operate to promote a supportive and open international economic
system that would lead to economic growth and sustainable development in all countries,
to better address the problems of environmental degradation. Trade policy measures
for environmental purposes should not constitute a means of arbitrary or unjustifiable
discrimination or a disguised restriction on international trade. Unilateral actions to deal
with environmental challenges outside the jurisdiction of the importing country should
be avoided. Environmental measures addressing transboundary or global environmental
problems should, as far as possible, be based on an international consensus.
44 See para. 4.2.1.5 above.
45 Bell and McGillivray, op. cit., p. 94.
46 That is, other than those that do have the force of law, for example, Community regulations
that impose standards (see, for example, John F. McEldowney and Sharron McEldowney,
Environmental Law and Regulation (London: Blackstone Press, 2001), esp. pp. 12–14).
47 See Birnie and Boyle, op. cit., pp. 44–47.
International Aspects 191
Principle 17 provides for environmental impact assessments (‘EIAs’):48
Environmental impact assessment, as a national instrument, shall be undertaken for
proposed activities that are likely to have a significant adverse impact on the environment
and are subject to a decision of a competent national authority.
As to recommendations, also of some significance in the present study are OECD
recommendations on the development of environmental policy. These include the
1991 OECD Council Recommendation on the use of economic instruments in
environmental policy,49 which sought to make a general case for the more consistent
and extended use of economic instruments. Amongst its main exhortations were the
following:
that Member countries:
i. make a greater and more consistent use of economic instruments as a complement or a
substitute to other policy instruments such as regulations, taking into account national
socio-economic conditions;
ii. work towards improving the allocation and efficient use of natural and environmental
resources by means of economic instruments so as to better reflect the social cost of
using these resources;
iii. make effort to reach further agreement at international level on the use of environmental
policy instruments with respect to solving regional or global environmental problems
as well as ensuring sustainable development …
The special importance of such a Council Recommendation is that it is a unanimous
recommendation from OECD member governments to themselves.50
8.3 International environmental law
Having illustrated the main sources of public international law by reference to the
environment and international trade, we now turn to look in somewhat more detail at
MEAs in two sectors: air and atmospheric pollution and the disposal of waste. The
discussion of each of these topics will then be related to the economic instruments
which have been deployed in the UK to assist in the achievement of that country’s
obligations under international law.
48 See paras 6.2.4 above and 12.2.4 below.
49 Recommendation of the Council on the Use of Economic Instruments in Environmental
Policy, 31 January 1991 – C(90)177/Final. See Organisation for Economic Co-operation
and Development, Environmental Policy: How to Apply Economic Instruments (Paris:
OECD, 1991). See para. 1.2.1.5(2) above.
50 See Bowett, op. cit., para. 11–007; also, David Williams, EC Tax Law (Longman: London,
1998), p. 11.
192 Environmental Taxation Law
8.3.1 Air and atmospheric pollution
8.3.1.1 Introduction
Reference has already been made to the 1992 United Nations Framework Convention
on Climate Change, as well as to the 1997 Kyoto Protocol thereto.51 These are
considered in somewhat more detail in the present para., together with (briefly):
1 the 1979 Geneva Convention for the Control of Long-Range Transboundary Air
Pollution (‘the 1979 Geneva Convention’)52 and its related Protocols;
2 the 1985 Vienna Convention for the Protection of the Ozone Layer;53 and
3 the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.54
Before describing the treaty sources of air and atmospheric pollution regulation,
it is important to note the principle of customary international law applied in the
famous Trail Smelter arbitration.55
8.3.1.2 The Trail Smelter arbitration
Still the only example of an international adjudication on transboundary air pollution,
the Trail Smelter arbitration saw the application by the arbitral tribunal of the principle
that:
… no state has the right to use or permit the use of its territory in such a manner as to cause
injury by fumes in or to the territory of another or the properties or persons therein, when
the case is of serious consequence and the injury is established by clear and convincing
evidence.56
The arbitral tribunal had been established to determine whether damage had been
caused in the state of Washington by smoke emissions from a smelter located in
Canada, seven miles from the US border. If it had, then the tribunal had to decide
the level of compensation that had to be paid and the measures that had to be taken
in order to prevent further damage. Having determined the causation question on
scientific evidence, and in reliance on the principle extracted above, the tribunal went
on to lay down a regime for the operation of the smelter in the future, in reliance on
a precursor to the preventive principle.57 The nature of the Trail Smelter principle,
applicable as it is only in claims between states, has meant that it has been of limited
utility,58 although it seems to be a good basis for a general principle that customary
51 See paras 8.1 and 8.2.2 above.
52 (1979) 18 ILM 1442.
53 (1987) 26 ILM 1529.
54 Ibid., 1550. This is generally taken to be a particularly successful agreement.
55 (1939) 33 AJIL 182 and (1941) 35 AJIL 684.
56 (1941) 35 AJIL 684, 716.
57 See para. 8.2.3 above.
58 See Birnie and Boyle, op. cit., p. 505.
International Aspects 193
international law forbids one state from significantly harming another’s environment
through transboundary pollution.
8.3.1.3 The 1992 United Nations Framework Convention on Climate Change
Together with the Convention on Biological Diversity,59 the 1992 United Nations
Framework Convention on Climate Change (‘the Framework Convention’)60
was opened for signature at the United Nations’ Conference on Environment
and Development at Rio de Janeiro in 1992 (the conference known as ‘the Earth
Summit’). Having entered into force in March 1994, the Framework Convention has
now been signed by 166 parties, 188 parties having ratified it, accepted it, approved
it or acceded to it.61 Article 2 of the Framework Convention states its objective as
being the:
… stabilisation of greenhouse gas concentrations in the atmosphere at a level that would
prevent dangerous anthropogenic interference with the climate system. Such a level should
be achieved within a time frame sufficient to allow eco-systems to adapt naturally to
climate change, to ensure that food production is not threatened and to enable economic
development to proceed in a sustainable manner.
Among other things, by Art. 4 of the Framework Convention, the states parties
undertake to:
1 develop, periodically update and publish national inventories of anthropogenic
emissions by sources and removals by sinks of all greenhouse gases not controlled
by the Montreal Protocol;62
2 ‘formulate, implement, publish and regularly update national and, where
appropriate, regional programmes containing measures to mitigate climate
change’;63
3 ‘promote and cooperate in the development, application and diffusion …
of technologies, practices and processes that control, reduce or prevent
anthropogenic emissions’ as above in all relevant sectors, including the energy,
transport, industry, agriculture, forestry and waste management sectors;64
4 ‘promote sustainable management and conservation of all greenhouse gases not
controlled by the Montreal Protocol, including biomass, forests and oceans as
well as other terrestrial, c,oastal and marine eco-systems’;65
59 (1992) 31 ILM 818.
60 (1992) 31 ILM 851.
61 That is, as at 23 September 2004 (see www.unfccc.de/resource/convkp.html). Acceptance
and approval has the same effect as ratification and accession has the same effect
ratification but is not preceded by signature (see Aust, op. cit., p. xxxiii).
62 Framework Convention, Art. 4(1)(a). For the Montreal Protocol, see para. 8.3.1.5
below.
63 Framework Convention, Art. 4(1)(b).
64 Ibid., Art. 4(1)(c).
65 Ibid., Art. 4(1)(d).
194 Environmental Taxation Law
5 so far as feasible for the states parties so to do, to take climate change considerations
into account in policy-making:
… and employ appropriate methods, for example impact assessments, formulated and
determined nationally, with a view to minimising adverse effects on the economy, on
public health and on the quality of the environment, of projects or measures undertaken by
them to mitigate or adapt to climate change; …66
6 promote and cooperate in scientific, technological, technical, socioeconomic and
other research related to the climate system;67 and
7 ‘promote and cooperate in education, training and public awareness related to
climate change and encourage the widest participation in this process’.68
By Art. 4(2) of the Framework Convention, developed country parties, as well as
certain other parties,69 commit themselves to taking the lead in modifying longer-term
trends in anthropogenic emissions consistent with the objective of the Convention
and specifically to ‘a(chǎn)dopt national policies and take corresponding measures on the
mitigation of climate change, by limiting … anthropogenic emissions of greenhouse
gases and protecting and enhancing … greenhouse gas sinks and reservoirs’.70
Under Art. 4(2)(b) of the Framework Convention, the same parties must submit
within six months of the Framework Convention coming into force, and periodically
thereafter, detailed information on the matters referred to above, ‘with the aim of
returning individually or jointly to their 1990 levels these anthropogenic emissions
of carbon dioxide and other greenhouse gases not controlled by the Montreal
Protocol’.71 This information, continues Art. 4(2)(b), will be periodically reviewed
by the Conference of the Parties.
Financial resources to enable the developing country parties to meet their obligations
and to assist them in coping with the effects of climate change are to be provided by
the developed country parties72 under Arts 2(3) and 2(4). By Art. 4(8), the parties
agree to give full consideration to what actions are necessary under the Framework
Convention to assist developing country parties that may be, for example, small
island countries, countries with low-lying coastal areas, countries prone to natural
disasters, etc.
Article 7 establishes the Conference of the Parties as the supreme body of the
Framework Convention, with the function of reviewing its implementation, etc, and
(by Art. 8) a secretariat is to be established, together with a subsidiary body for
scientific and technological advice and a subsidiary body for implementation.73
66 Ibid., Art. 4(1)(f).
67 Ibid., Art. 4(1)(g).
68 Ibid., Art. 4(1)(i).
69 Ibid., Annex I.
70 Ibid., Art. 2(a).
71 Ibid., Art. 2(b).
72 Ibid., Annex II.
73 Ibid., Arts 9 and 10.
International Aspects 195
8.3.1.4 The Kyoto Protocol
The 1997 Kyoto Protocol74 to the Framework Convention, although notoriously not
yet in force,75 sets out the detail of the legally-binding greenhouse gas (‘GHG’)
emissions reduction targets. Article 3 provides, in part:
1. The Parties included in Annex I76 shall, individually or jointly, ensure that their aggregate
anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex
A do not exceed their assigned amounts, calculated pursuant to their quantified emission
limitation and reduction commitments inscribed in Annex B and in accordance with the
provisions of this Article, with a view to reducing their overall emissions of such gases by
at least 5 per cent below 1990 levels in the commitment period 2008 to 2012.
2. Each Party included in Annex I shall, by 2005, have made demonstrable progress in
achieving its commitments under this Protocol …
The GHGs listed in Annex A are six in number:
1 carbon dioxide (CO2);
2 methane (CH4);
3 nitrous oxide (N2O);
4 hydrofluorocarbons (HFCs);
5 perfluorocarbons (PFCs); and
6 sulphur hexafluoride (SF6).
Annex B contains differentiated targets for the Annex I parties with, for example, the
EU having a reduction target of 8 per cent, the US 7 per cent and Japan 6 per cent. In
this connection, it should be noted that, under the burden-sharing agreement referred
to above,77 the EU’s 8 per cent commitment is translated into a commitment on the
part of the UK to reduce its 1990 levels of all greenhouse gases by 12.5 per cent by
2010.78
Besides detailing the targets, however, the Kyoto Protocol also includes provisions
for the parties to use economic instruments to achieve their targets (the so-called
‘Kyoto flexible mechanisms’), including the following:
1 emissions trading schemes;
2 joint implementation (‘JI’); and
3 the Clean Development Mechanism (‘the CDM’).79
74 (1998) 37 ILM 22.
75 That is, as at December 2004. See para. 20.2 below.
76 That is, to the Framework Convention (see para. 8.3.1.3 above). See also para. 4.4.3n
above (Annex I parties).
77 See para. 8.2.2n above.
78 See Chapter 12 below and para. 8.2.2n above.
79 See Scott Barrett, ‘Political Economy of the Kyoto Protocol’, in Environmental Policy:
Objectives, Instruments, and Implementation, ed. by Dieter Helm (Oxford: Oxford
University Press, 2000), pp. 111–41.
196 Environmental Taxation Law
Emissions trading schemes are provided for by Art. 17, which states:
The Conference of the Parties shall define the relevant principles, modalities, rules and
guidelines, in particular for verification, reporting and accountability for emissions trading.
The Parties included in Annex B may participate in emissions trading for the purposes of
fulfilling their commitments under Article 3. Any such trading shall be supplemental to
domestic actions for the purpose of meeting quantified emission limitation and reduction
commitments under that Article.
Joint implementation, provided for by Art. 6, allows the parties listed in Annex I to
the Framework Convention, for the purpose of meeting their commitments under
Art. 3, to:
… transfer to, or acquire from, any other such Party emission reduction units [‘ERUs’]
resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing
anthropogenic removals by sinks of greenhouse gases in any sector of the economy.
The exercise of this power is subject to a number of provisos, including those that any
such project must have the approval of the parties involved and that the acquisition
of ERUs be supplemental to domestic actions for meeting Art. 3 commitments.80
Theoretically at least, such JI projects are a cost-efficient way for global targets
to be achieved since, at the margin, it is cheaper for some countries to abate their
greenhouse gases compared to other countries.81
The CDM, which is defined in Art. 12, has the stated purpose of assisting non-Annex
I parties to achieve sustainable development and to contribute to the Framework
Convention’s ultimate objective,82 whilst also assisting Annex I parties to meet their
commitments under Art. 3.83 This is to be achieved through the method elaborated
in Art. 12(3), by which non-Annex I parties benefit from project activities resulting
in certified emission reductions, that is, ‘credits’, which credits may then be used by
Annex I parties to contribute to compliance with part of their quantified emission
limitation and reduction commitments under Art. 3.
A major source of GHG emissions, of course, is international civil aviation. Of the
six GHGs listed in Annex A to the Kyoto Protocol, the most relevant to aviation is
carbon dioxide. Article 2(2) of the Protocol gives the Annex I parties responsibility
for limiting or reducing GHG emissions from aviation bunker fuels, international
aviation emissions being excluded from the Protocol’s emissions reduction targets.
This is to be achieved by working through the ICAO,84 the relevant UN specialised
agency.
80 Kyoto Protocol, Arts 6(1)(a) and 6(1)(d).
81 See A.D. Ellerman, H.D. Jacoby and A. Decaux, The Effects on Developing Countries
of the Kyoto Protocol and Carbon Dioxide Emissions Trading (Washington DC: World
Bank Policy Research Paper 2019, 2000). See also Zhong Xiang Zhang, ‘Greenhouse Gas
Emissions Trading and the World Trading System’ (1998) 32 JWT 219–39.
82 See para. 8.3.1.3 above.
83 Kyoto Protocol, Art. 12(2).
84 See para. 4.4.3 above.
International Aspects 197
8.3.1.5 Other relevant agreements
It remains briefly to consider the other treaties referred to above, that is, the 1979
Geneva Convention and its related Protocols; the 1985 Vienna Convention for the
Protection of the Ozone Layer;85 and the 1987 Montreal Protocol on Substances that
Deplete the Ozone Layer.86
The 1979 Geneva Convention for the Control of Long-Range Transboundary
Air Pollution (‘the 1979 Geneva Convention’)87 came into force in 1983. It is ‘the
only major regional multilateral agreement devoted to the regulation and control
of transboundary air pollution’,88 and was negotiated through the United Nations
Economic Commission for Europe (‘UNECE’).89 It applies to pollution having
‘a(chǎn)dverse effects in the area under the jurisdiction of another state at such a distance
that it is not generally possible to distinguish the contribution of individual emission
sources or groups of sources’.90 The contracting parties promise only to ‘endeavour
to limit and, as far as possible, gradually reduce and prevent air pollution including
long-range transboundary air pollution’.91 However, each contracting party also
‘… undertakes to develop the best policies and strategies including air quality
management systems, and, as part of them, control measures compatible with
balanced development, in particular by using the best available technology which is
economically feasible and low and non-waste technology’.92 The institutions of the
1979 Geneva Convention comprise an executive body, made up of environmental
advisers to UNECE governments93 and a secretariat provided by the UNECE.94 So
far, five protocols related to the 1979 Geneva Convention have entered into force,95
with three others having been adopted.96
85 (1987) 26 ILM 1529.
86 Ibid., 1550.
87 (1979) 18 ILM 1442.
88 Birnie and Boyle, op. cit., p. 508.
89 See www.unece.org.
90 1979 Geneva Convention, Art. 1(b).
91 Ibid., Art. 2.
92 Ibid., Art. 6.
93 Ibid., Art. 10.
94 Ibid., Art. 11.
95 That is, the 1984 Geneva Protocol on Long-term Financing of the Co-operative Programme
for Monitoring and Evaluation of the Long-Range Transmission of Air Pollutants in
Europe, (1985) 24 ILM 484; the 1985 Helsinki Protocol on the Reduction of Sulphur
Emissions or Their Transboundary Fluxes, (1988) 27 ILM 707; the 1988 Sofia Protocol
Concerning the Control of Emissions of Nitrogen Oxides or Their Transboundary Fluxes,
(1989) 28 ILM 212; the 1991 Geneva Protocol Concerning the Control of Emissions of
Volatile Organic Compounds or Their Transboundary Fluxes, (1992) 31 ILM 568; and the
1994 Oslo Second Protocol on the Further Reduction of Sulphur Emissions, (1994) 33
ILM 1540.
96 The Protocol on Heavy Metals and the Protocol on Persistent Organic Pollutants (see
www.unece.org/env).
198 Environmental Taxation Law
The 1985 Vienna Convention for the Protection of the Ozone Layer97 and its
1987 Montreal Protocol98 were negotiated under the auspices of the United Nations
Environment Programme (‘UNEP’).99 In advance of firm scientific proof as to harm
to the ozone layer caused by chlorofluorocarbons (‘CFCs’), the Convention seeks
to address increasing concerns over the possibility. Parties are to take ‘a(chǎn)ppropriate
measures’, including the adoption of legislation and administrative controls, to
protect human health and the environment ‘… against adverse effects resulting
or likely to result from human activities which modify or are likely to modify the
ozone layer’.100 The 1987 Montreal Protocol to the Convention sets clear targets for
reducing and ultimately eliminating consumption of ozone damaging chemicals.
8.3.1.6 UK domestic law
In order to meet its commitments under the Kyoto Protocol, as translated into the
European context by the EU’s burden-sharing agreement,101 the UK has introduced
three economic instruments: climate change levy, the UK ETS and the Renewables
Obligation (‘RO’), a structure for trading in renewable energy supply obligations.
Climate change levy has been outlined in para. 1.4.2.2(1) above and is discussed in
detail in Chapter 14 below. The UK ETS was introduced in para. 1.4.2.2(2) above and
is discussed in detail in Chapter 20 below. The RO was outlined in paras 1.4.2.2(4)
and 6.4.3.1(2)(a) above and is discussed in para. 21.5 below. The EU ETS, also
having Kyoto-based objectives, has been outlined at para. 1.4.2.2(3) above and is
discussed in detail in Chapter 28 below.
8.3.2 International transportation and dumping of waste
The regulation of waste by international agreement has concentrated on two principal
aspects:
1 the transport of, and trade in, waste between countries; and
2 the disposal of waste outside national jurisdictions, that is, on the high seas.102
In addition, whilst the definition of the concept of waste in EU law is a relatively
wide one, public international law on waste concentrates on hazardous waste.
The reasons for these emphases are not hard to discern: sensitivities concerning
national sovereignty and the problems of opportunities for arbitrage. As to the
former, any treaty designed to regulate the transport and disposal of waste within the
jurisdictions of states would constrain unacceptably the freedom of action of national
governments.103 As to arbitrage, costs of waste disposal rose with the tightening of
97 (1987) 26 ILM 1529.
98 (1987) 26 ILM 1550.
99 See www.unep.org.
100 1985 Vienna Convention, Art. 2 (see para. 12.2.6.2 below).
101 See para. 8.3.1.4 above.
102 See Sunkin, Ong and Wight, op. cit., p. 343.
103 Ibid., p. 344.
International Aspects 199
disposal regulation in the US and Europe. The result of this was that hazardous wastes
were historically either dumped at sea or exported to less developed countries where,
because of lower standards, disposal costs were less.104 International measures taken
to address these problems lie outside the scope of the present study. Since, however,
they would be a relevant element in assessing the feasibility of some form of global
economic instrument, a brief indication of their nature and scope is justifiable here.
There are four key measures:105
1 the 1972 Convention on the Prevention of Marine Pollution by Dumping of
Wastes and Other Matter (‘the London Dumping Convention’);106
2 the 1989 Basel Convention on the Control of Trans-boundary Movements of
Hazardous Wastes and their Disposal (‘the 1989 Basel Convention’);107
3 the 1999 Basel Protocol on Liability and Compensation for Damage Resulting
from Trans-boundary Movements of Hazardous Wastes and their Disposal (‘the
Basel Protocol’);108 and
4 the 1991 Bamako Convention.109
Revised in 1993, the London Dumping Convention (‘the LDC’) will eventually be
replaced by a 1996 Protocol, although the latter is not yet in force.110 The LDC operates
within the general principles laid down in the 1982 UN Convention on the Law of
the Sea (‘the UNCLOS’). Under the LDC, the states parties are obliged to take all
practicable steps to prevent the pollution of the sea by the dumping of waste and other
hazardous matter, such dumping being prohibited or regulated according to which of
three lists a particular substance belongs. Besides the UNCLOS and the LDC, there
are a number of agreements relating to specific regions, that is, to the North Sea, the
Baltic, the North East Atlantic, the Mediterranean and the South Pacific.
The 1989 Basel Convention, although not accepted by African states, attempts to
establish a global regime for the control of international trade in hazardous and other
wastes.111 It confirms the sovereign right to ban imports, whether on a unilateral,
bilateral or regional basis, but the exercise of this right must be notified to the other
parties through the Convention’s Secretariat;112 it promotes disposal at source and
104 See Bell and McGillivray, op. cit., p. 467.
105 But note also (not discussed in the text) the 1989 Lomé IV Convention made between the
EU and a group of African, Caribbean and Pacific countries (prohibits export of hazardous
wastes from the EU to these countries) and the 1991 and 1994 Decisions by OECD
Member States prohibiting trade in hazardous wastes, whether for disposal or recycling
and/or recovery, between themselves and non-OECD countries (OECD Decisions I/22
(1992) and II/12 (1994)).
106 (1972) 11 ILM 1294.
107 (1989) 28 ILM 657.
108 Reproduced in Sunkin, Ong and Wight, op. cit., pp. 369–80. Not yet in force. Described
in Birnie and Boyle, op. cit., pp. 435–6.
109 (1991) 30 ILM 775.
110 See Birnie and Boyle, op. cit., p. 420.
111 1989 Basel Convention, Art. 1.
112 Ibid., Preamble and Art. 4(1)(a).
200 Environmental Taxation Law
embodies the principle of minimising the generation of hazardous waste;113 and,
most significantly, in the conduct of international trade in hazardous wastes, the 1989
Basel Convention requires the prior, informed and written consent of both transit
and import states.114 The Basel Protocol, adopted in 1999 but not yet in force,115
provides for liability (strict and otherwise) for environmental damage arising from
international trade in hazardous wastes.
As mentioned above, African states did not accept the 1989 Basel Convention.
Rather than being parties to a compromise between regarding trade in waste as an
emerging market opportunity or a growing environmental threat, they decided, in the
Bamako Convention, to ban imports of hazardous wastes into Africa from non-parties
altogether,116 and to regulate trade in waste among African states themselves.
Whilst none of the above is of direct relevance to the existing pattern of economic
instruments in UK waste regulation,117 it may become relevant if moves for global
regulation of waste disposal using economic instruments118 gather momentum.
Noting the problems surrounding international waste regulation mentioned above,
however, it is not surprising that ‘soft’ forms of public international law have had
a part to play in the international regulation of waste disposal. In this connection,
the influence of the OECD has been decisive. Reference has already been made to
the 1991 OECD Council Recommendation on the use of economic instruments in
environmental policy.119 Specifically in relation to waste management, it made five
recommendations, covering financing (user) charges, emission charges, product
charges and deposit-refund systems.120
8.4 International trade law
The legal implications of the intersection of the various types of agreement discussed
above, of their consequent implementation and reflection in national policies and their
relationship with the regulation of world trade, are extremely complex.121 This part
113 1989 Basel Convention, Art. 4.
114 Ibid., Arts 4 and 6.
115 See S.D. Murphy, ‘Prospective Liability Regimes for the Transboundary Movement of
Hazardous Wastes’ (1994) 88 AJIL 24–75.
116 Bamako Convention, Art. 4(1). The prohibition is confined to non-parties to the Bamako
Convention and membership of the Convention is restricted to Member States of the
Organisation of African Unity (‘OAU’), since March 2001 the African Union (not
discussed elsewhere in this book).
117 See para. 6.3 above.
118 Such as the Austrian waste tax.
119 See para. 8.2.6 above.
120 OECD Council Recommendation C(90)177/Final, January 31, 1991, paras 41–45 (see
para. 1.2.1.5 above).
121 See Ole Kristian Fauchald, Environmental Taxes and Trade Discrimination (London:
Kluwer Law International, 1998). For a brief, although extremely useful account, see
Michael J. Trebilcock and Robert Howse, The Regulation of International Trade, 2nd edn
(London: Routledge, 1999), ch. 15. The classic account of GATT 1994/WTO in English
is John H. Jackson’s The World Trading System, 2nd edn (Cambridge, MA: MIT Press,
International Aspects 201
of the chapter cannot, of course, attempt an exhaustive analysis of this conjunction.
The aim of this next main part of the chapter is a much more modest one: it is simply
to show why and how, as an EU Member State, the UK’s environmental taxes and
other economic instruments, introduced pursuant to the international agreements
discussed above, are subject to the discipline of GATT 1994122 and its associated
Uruguay Round agreements.123
As a preliminary to that discussion, a brief overview of the most relevant GATT
1994 articles may be useful. Besides reminding the reader of the outlines of world
trade law, these should also be useful in drawing attention to the close correspondence
between the GATT discipline and the rules for intra-EU trade contained in the
European Treaty.124
a. GATT 1994, Art. I, provides for general most-favoured nation treatment;
b. GATT 1994, Art. II, provides for schedules of concessions (or ‘bindings’) with
regard to customs duty rates and the freezing of rates of other duties and charges.
Article II has some significance in the context of environmental levies and is
considered in greater detail below;
c. GATT 1994, Art. III, bans protective and discriminatory internal tax and
protective quantitive regulations. Article III is deeply significant in the context
of environmental taxes and is subjected to detailed analysis below. Similar
prohibitions, as Lyons points out,125 are to be found in Arts 90 and 28, European
Treaty (ex 95 and 30);126
d. GATT 1994, Art. VI ‘permits the imposition of anti-dumping and countervailing
duties’, a possibility with which the basic EC measures are consistent. Again, this
is of potential significance in relation to economic instruments and is considered
below;
e. GATT 1994, Art. XVI, contains provisions limiting state subsidies, which are
again mirrored in the European Treaty (see Arts 87 and 88 (ex 92 and 93));127
and
f. GATT 1994, Art. XX, contains general exceptions to GATT, including those
which are sometimes described as the ‘environmental exceptions’, although it
1997), although, possibly since it predates many of the developments discussed in para.
8.4.2 below, it somewhat understates environmental issues in the context of the system it
describes.
122 See Kirsten Borgsmidt, ‘Ecotaxes in the Framework of Community Law’ [1999] EELR
270–81.
123 GATT 1994 and its associated Uruguay Round agreements, as well as decisions of the
Appellate Body from 1996 onwards, are available from the WTO website, that is, www.
wto.org. For a hard copy version of the agreements, see World Trade Organization, The
Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations (New
York: Cambridge University Press, 1999).
124 Grateful acknowledgement is made to a similar survey in Timothy Lyons’s EC Customs
Law (Oxford: Oxford University Press, 2001), p. 14, to which the present paragraph is
indebted.
125 See Lyons, op. cit., p. 14.
126 See paras 12.3.3.1 below and 12.4 below.
127 See para. 12.2.7 below.
202 Environmental Taxation Law
should be noted that the term ‘environment’ does not appear. The relevance of
Art. XX to the present area is both obvious and intricate and is revisited in detail
below.
The discussion in para. 8.4 begins by examining how the GATT 1994 rules constrain
the freedom of action of member countries, including Member States of the EU,
with regard to fiscal policy (see para. 8.4.1 below). Paragraph 8.4.2 then considers
in detail the so-called ‘environmental exceptions’ to GATT 1994 that are contained
in Art. XX. Article XX is the focus of a developing jurisprudence, the significance
of which to the international development of environmental taxes is widely-agreed
to be absolutely crucial.128 The analysis of the case law on Art. XX is then followed
by a detailed examination (in para. 8.4.3 below) of Arts II and III, GATT 1994, and
the possibility of the incorporation in the design of environmental taxes the concept
of the border tax adjustment. Together with para. 8.4.4, on GATT 1994 anti-subsidy
rules, para. 8.4.3 provides a context for the examination of the shape of the UK’s
environmental levies and subsidies in para. 8.4.5.
8.4.1 Restrictions on fiscal policy under GATT 1994
The necessity for such of the UK’s tax law rules as touch upon international trade to
comply with the relevant rules of GATT 1994 derives both from the UK’s membership
of the EU and from the UK’s and the EU’s membership of the WTO.
When the European Economic Community Treaty (the Treaty of Rome)
was concluded in 1957, the EEC’s founding members were already bound by
GATT 1947.129 What is now Art. 131, European Treaty,130 espoused objectives
corresponding closely to those of GATT 1947, and Art. 307, European Treaty (ex
234) provided that rights and obligations arising from agreements concluded before
January 1958 between one or more Member States, on the one hand, and one or more
non-Member States (that is, ‘third countries’), on the other, were not to be affected
by the provisions of the EEC Treaty. Even though the Community was not a GATT
1947 contracting party, the ECJ subsequently held that the Community was bound by
GATT 1947 by a process of substitution for the Member States.131 In International
128 See, for example, Geert van Calster, ‘Topsy-Turvy: the European Court of Justice and
Border (Energy) Tax Adjustments – Should The World Trade Organization follow suit?’,
in Critical Issues in Environmental Taxation, ed. by Janet Milne et al. (Richmond:
Richmond Law and Tax, c.2003), pp. 311–41 esp. pp. 332–5.
129 See the Preamble to GATT 1947. In 1957, there were six Member States of the EEC:
France, the Federal Republic of Germany, Italy, the Netherlands, Belgium and Luxembourg
(see, for example, Weatherill and Beaumont, op. cit., pp. 1–5 for the early history of the
EEC). Four of the six had been original signatories to GATT 1947, whilst Italy had signed
GATT 1947 in 1950 and West Germany in 1951 (see www.wto.org/english/thewto_e/
gattmem_e.htm).
130 Articles 131–135, European Treaty (ex 110–15), set out the EU’s (incomplete) common
commercial policy (‘the CCP’).
131 See Dominic McGoldrick, International Relations Law of the European Union (London:
Longman, 1997), pp. 194–5.
International Aspects 203
Fruit Company NV v. Produktschap voor Groenten en Fruit,132 the ECJ reached the
conclusion that ‘… in so far as, under the EEC Treaty, the Community has assumed
competences previously exercised by the member-States in the sphere of application
of [GATT 1947] …, the provisions of [GATT 1947] … have the effect of binding the
Community’.133
The ECJ began by noting that, ‘… at the time of concluding the Treaty instituting the
European Economic Community, the member-States were bound by the undertakings
of [GATT 1947]’.134 It then inferred from the EEC Treaty, and especially from Arts 131
(ex 110) and 307 (ex 234), European Treaty, a desire on the part of the Member States
to abide by the terms of GATT 1947.135 Referring to the Community’s assumption
of the functions inherent in its tariff and trade policy, the Court said that this marked
the Member States’ readiness to bind the Community by the obligations which they
had contracted under GATT 1947.136 Finally, and especially since the establishment
of the common customs tariff (‘the CCT’),137 ‘… the Community, acting through
its institutions, … [had] appeared as a participant in the tariff negotiations and as a
party to the agreements … concluded within the framework of [GATT 1947] …’.138
The International Fruit case illustrates, therefore, that, although Member States
remained parties to GATT 1947, the EU took on the principal role in conducting the
relationship between the Member States and the other contracting parties.
The position just summarised was subsequently developed following the EU’s
becoming an original member of the WTO in 1995.139 In Re the Uruguay Round
Treaties,140 the ECJ explained in detail the competences of each of the EU and
its Member States in relation to the WTO agreement, which had been signed in
Marrakesh in April 1994.141 The Court interpreted Art. 133, European Treaty (ex
113) as according competence to the EU to conclude multilateral agreements on
trade in goods, to the exclusion of its Member States, the EU and its Member States
having joint competence, subject to certain exceptions,142 in relation to trade in
services (under the General Agreement on Trade in Services (‘GATS’)) as well as
trade-related aspects of intellectual property rights (under the TRIPS agreement).143
132 C–21–24/72, [1975] 2 CMLR 1 (decision, December 1972).
133 [1975] 2 CMLR 1, para. 18.
134 Ibid., para. 10.
135 Ibid., paras 12 and 13.
136 Ibid., paras 14 and 15.
137 That is, on 1 July 1968. For a valuable discussion of the CCT, see Timothy Lyons, op. cit.,
esp. (in the present context) pp. 58–60.
138 [1975] 2 CMLR 1, paras 16 and 17.
139 See Asif Qureshi, The World Trade Organization (Manchester: Manchester University
Press, 1996), pp. 164–91. For further details, see the WTO website: www.wto.org.
140 Opinion 1/94, [1995] 1 CMLR 205.
141 The Uruguay Round of GATT 1947 was concluded in December 1993, the WTO
Agreement being signed in April 1994 in Marrakesh.
142 That is, those provisions of GATS and TRIPS that relate to cross-frontier supplies of
services (‘GATS’) and the means of enforcement of intellectual property rights (‘TRIPS’),
each of which fell within Art. 133, European Treaty (ex 113) and therefore the exclusive
competence of the EU.
143 That is, Trade-Related Aspects of Intellectual Property Rights.
204 Environmental Taxation Law
It followed that when, following the conclusion of the Uruguay Round, not only the
EU but also its Member States,144 had signed the WTO agreement, incorporating
GATT 1994, GATS and TRIPS, the latter should not (in the Court’s opinion) have
done so. Indeed, the fact that Arts 131–135, European Treaty (ex 110–15), relating
to the common commercial policy (‘the CCP’), deny individual Member States any
freedom of action in relation to GATT 1947/GATT 1994 has been reaffirmed in a
succession of ECJ decisions.145
On its accession to the EU in 1973, the UK’s trade policy was thus already subject
to the rules of GATT 1947. Following the signature of the WTO agreement in 1994,
by the EU and its Member States, that policy is now constrained by their membership
of the WTO.146 The restraints placed on the EU and its Member States by GATT
1994, Williams tells us, are fundamental, being ‘… a form of basic law to that
constitution’.147 As a member of the WTO, the EU has a duty to ensure that the UK,
as an EU Member State, complies with the requirements of GATT 1994. As will be
seen in Chapter 12, the rules of the European Treaty mirror the rules of GATT in
many respects.148 Nonetheless, the obligation of the UK as an EU Member State to
comply with the EU’s international obligations is independent of, and separate from,
the duties imposed on it as a result of the creation of the single market.149
Thus, in the design and implementation of the UK’s environmental taxes, it is
necessary for policy makers to keep in mind the potential legal implications of the
UK’s and the EU’s membership of the WTO and the subjection of its tax law to the
discipline of GATT 1994.
144 Of which there were at that time only 12.
145 See, for example, Re OECD Local Costs Standard, Opinion 1/75, [1975] ECR 1355;
International Fruit Company NV v. Produktschap voor Groenten en Fruit, C–21–24/72,
discussed in the text above; Diamantarbeiders v. Indiamex, C–37–38/73, [1973] ECR
1600, Donckerwolcke, C–41/76, [1976] ECR 1921. See the discussion in Stefano Inama
and Edwin Vermulst, Customs and Trade Laws of the European Community (The Hague:
Kluwer Law International, 1999), para. 1.1. For a qualification to the point made in the
text, see Inama and Vermulst, op. cit., para. 1.3.5.
146 See David Williams, EC Tax Law (Longman: London, 1998), p. 9.
147 Williams, op. cit., p. 10.
148 This similarity was an important part of the ECJ’s reasoning in International Fruit
Company NV v. Produktschap voor Groenten en Fruit, C–21–24/72, discussed in the
text above. In referring to the Members States’ desire to abide by the terms of GATT
1947, the Court said that the Members States’ readiness ‘… to respect the undertakings
of the General Agreement results as much from the provisions of the EEC Treaty itself
as from the declarations made by the member-States when they presented the Treaty to
the Contracting Parties of the General Agreement in accordance with Article XXIV of the
latter’ ([1975] 2 CMLR 1, para. 12). See, further, Lyons, op. cit., pp. 11–20.
149 Williams, op. cit., p. 71. Thus, Art. 90, European Treaty (ex 95), which applies to intra-
Community trade, is both similar to, and crucially different from, Art. III, GATT 1994
(see below in this chapter and para. 12.3 below).
International Aspects 205
8.4.2 Environmental exceptions to GATT 1994 restrictions
Before considering in detail the WTO provisions of most relevance to environmental
taxes and other economic instruments (that is, those on customs duties, internal taxes
and subsidies), it is useful to refer to the general exceptions to the GATT discipline,
contained in GATT 1994, Art. XX (‘General Exceptions’). Interestingly, the terms
‘environment’ and ‘environmental’ do not appear; instead, the relevant wording runs
as follows:
Subject to the requirement that such measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries where the
same conditions prevail, or a disguised restriction on international trade, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any contracting
party of measures:150
…
(b) necessary to protect human, animal or plant life or health;
…
(g) relating to the conservation of exhaustible natural resources if such measures are made
effective in conjunction with restrictions on domestic production or consumption; …
Four general points might be made about this wording:151
1 clearly, it does not suggest any straightforward means of reconciling the tensions
between free trade and environmental protection referred to above;
2 the burden of demonstrating that one of the exceptions in Art. XX is applicable
in a particular case falls upon the party seeking to use it as a defence;152 mainly
because Art. XX is construed strictly, the burden has not often been discharged;
3 Article XX, GATT 1994, is the subject of a developing jurisprudence, which
may see some resolution of the international environmental law/world trade law
tension referred to in para. 8.2.1 above; and
4 If Art. XX, GATT 1994 applies, then it disapplies the relevant GATT 1994 rule,
for example, Art. III or Art. VI.
Three cases help to particularise the point made in 2 above.153 They represent a
developing jurisprudence, so 1 below must be read subject to 2 and 3.
1 In Restrictions on Imports of Tuna154 (‘the Tuna-Dolphin I case’), the US had
imposed restrictions on imports of yellowfin tuna because of concerns that they
150 This introductory wording is referred to as ‘the chapeau’ of the Article.
151 For a fuller treatment, see, for example, Birnie and Boyle, op. cit., pp. 701–2.
152 See Canada – Administration of the Foreign Investment Review Act, GATT, BISD 30
Supp 140 (1984), para. 5.20.
153 Each decision is notoriously long, if not complex. Great assistance has been derived in
the following summaries from the summaries in Trebilcock and Howse, op. cit., ch. 15;
Birnie and Boyle, op. cit., pp. 701–14; and Bell and McGillivray, op. cit., pp. 105–8.
154 (1991) 30 ILM 1598.
206 Environmental Taxation Law
were caught using methods dangerous to dolphins, a protected species under the
US Marine Mammal Protection Act. A GATT dispute settlement panel upheld
Mexico’s complaint that this violated GATT 1947, Art. XI(1) and rejected
a justification based on Art. III, GATT 1947.155 The panel also held that the
exemptions in GATT 1947, Arts XX(b) and XX(g) did not apply. In relation to
Art. XX(b), the panel held that ‘necessary’ did not simply mean ‘needed’ but that
no other reasonable alternative existed,156 whilst, under Art. XX(g), it held that
‘relating to’ and ‘in conjunction with’ meant ‘primarily aimed at’.157 Since the
restrictions were imposed to force other countries to change their environmental
policies, they were not ‘necessary’, within Art. XX(b), nor were they ‘primarily
aimed at’ conserving exhaustible natural resources. The decision in the Tuna-
Dolphin I case was not, however, adopted by the GATT Council.158
Note that the dispute settlement panel accepted that dolphins were an
‘exhaustible natural resource’ within Art. XX(g), GATT 1947.
2 Standards for Reformulated and Conventional Gasoline159 (‘the US Gasoline
Standards decision’) concerned the reformulated and conventional gasoline
programmes created under the US Clean Air Act 1990. Under both programmes,
changes were required in the composition of gasoline sold to consumers, with
1990 being used as the baseline year. The US Environmental Protection Agency
(‘EPA’) distinguished, in their baseline establishment rules, between foreign and
domestic producers and refiners. Domestic refiners were allowed to establish
individual 1990 baselines, whilst foreign refiners had to use instead the EPA’s
statutory baselines. The WTO Appellate Body (‘the AB’) held that the scheme
was caught by the chapeau of Art. XX as ‘unjustifiable discrimination’ and a
‘disguised restriction on international trade’.160 In so doing, the AB applied a
two-stage test:
In order that the justifying protection of Article XX may be extended to it, the measure at
issue must not only come under one or another of the particular exceptions – paragraphs
(a) to (j) – listed under Article XX; it must also satisfy the requirements imposed by the
opening clauses of Article XX. The analysis is, in other words, two-tiered: first, provisional
justification by reason of characterization of the measure under Article XX(g); second,
further appraisal of the same measure under the introductory clauses [that is, the chapeau]
of Article XX.161
The AB held that the second clause of Art. XX(g) appeared to ‘… refer to
governmental measures like the baseline establishment rules being promulgated
155 See para. 8.4.3 below for a full treatment of Art. III, GATT 1994.
156 (1991) 30 ILM 1598, para. 5.28.
157 Ibid., para. 5.31.
158 The reasoning in Tuna-Dolphin I was also followed by the panel in Restrictions on Imports
of Tuna, (1994) 33 ILM 839 (the Tuna-Dolphin II case), which was again not adopted by
the GATT Council.
159 (1996) 35 ILM 603 (see Birnie and Boyle, op. cit., p. 701).
160 (1996) 35 ILM 603, 633.
161 Ibid., 626.
International Aspects 207
or brought into effect together with restrictions on domestic production or
consumption of natural resources … The clause is a requirement of evenhandedness
in the imposition of restrictions, in the name of conservation,
upon the production or consumption of exhaustible natural resources’.162
Furthermore, when considered in the light of the introductory clauses of Art. XX,
it was clear that the baseline establishment rules involved arbitrary or unjustified
discrimination. The US had failed adequately to explore means of mitigating the
administrative problems that it had relied on in imposing the statutory baselines
on foreign refiners; it had also failed to count the costs for foreign refiners of
denying them individual baselines.163
Note that the wide view of ‘exhaustible natural resources’ taken by the dispute
settlement panel in the Tuna-Dolphin I case was accepted by the AB, the latter
agreeing that ‘clean air’ was an exhaustible natural resource within Art. XX(g).164
Furthermore, the AB found that the baseline establishment rules related to the
conservation of natural resources,165 given their primary aim, and having regard
to their purpose and effect.166
3 Finally, in Import Prohibition of Certain Shrimp and Shrimp Products,167 (‘the
Shrimp-Turtle case’), a national US measure required countries exporting shrimp
to the US to show either that their fishing environments did not pose a threat of
the incidental taking of sea turtles168 in the course of shrimp harvesting, or that
their fishing industry was regulated to standards comparable to those in force in
the US. Countries exporting to the US to which either possibility applied were so
certified; those to which neither possibility applied were banned from exporting
shrimp to the US. Applying the two-tiered test in the US Gasoline Standards
decision, the AB held that the measure was not justified under Art. XX, GATT
1994. Although the measure qualified for provisional justification under Art.
XX(g), it failed to meet the requirements of the chapeau thereto.169
a. In finding that the measure was provisionally justified under Art. XX(g), the
AB took a similarly wide view of exhaustible natural resources as had been
162 Ibid., 624–5.
163 Ibid., 632. The panel observed that: ‘There was more than one alternative course of action
available to the United States in promulgating regulations implementing the … [Clean
Air Act]. These included the imposition of statutory baselines without differentiation as
between domestic and imported gasoline. This approach, if properly implemented, could
have avoided any discrimination at all. Among the other options open to the United States
was to make available individual baselines to foreign refiners as well as domestic refiners’
(see (1996) 35 ILM 603, 629).
164 See (1996) 35 ILM 603, 613–14, the Panel already having accepted this point also.
165 See the opening words of Art. XX(g).
166 (1996) 35 ILM 603, 623.
167 (1999) 38 ILM 118.
168 Five species of sea turtles fell within the regulations: loggerhead (Caretta caretta),
Kemp’s ridley (Lepidochelys kempi), green (Chelonia mydas), leatherback (Dermochelys
coriacea) and hawksbill (Eretmochelys imbricata).
169 See para. 8.4.2 above.
208 Environmental Taxation Law
taken in the two previous decisions. It rejected an argument put forward
by India, Pakistan and Thailand as joint appellees that ‘exhaustible natural
resources’ referred to finite resources such as minerals, rather than biological
or renewable resources, the AB noting that living species were capable of
depletion, exhaustion and extinction.170 Referring to the UNCLOS,171 to the
Convention on Biological Diversity,172 to the Rio Declaration173 and to other
international environmental agreements,174 it found that the relevant species
of sea turtle were ‘exhaustible’ because they were recognised as endangered
species.175 In referring to these instruments, the AB was following the
general rule in the 1969 Vienna Convention, Art. 31(3), allowing account
to be taken of relevant rules of international law applicable in the relations
between the parties.176
As regards the remaining requirements for the measure to fall within Art.
XX(g), the AB found that the measure related to177 the conservation of
exhaustible natural resources:
Focusing on the design of the measure here at stake, it appears to us that … [it] is not
disproportionately wide in its scope and reach in relation to the policy objective of
protection and conservation of sea turtle species. The means are, in principle, reasonably
related to the ends.178
Finally, the AB found that the measure was an ‘even-handed’ one, the
measure being made effective in conjunction with restrictions on domestic
production or consumption.179
b. Although the AB was satisfied as to the provisional justification for the
measure under Art. XX(g), it then went on to find that the measure failed
to meet the requirements of the chapeau to Art. XX. The chapeau, it will
be recalled, makes the application of the General Exceptions in Art. XX
subject to the requirement that the measure in question must not be applied
‘… in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail’.
170 (1999) 38 ILM 118, para. 128.
171 See para. 8.3.2 above.
172 See para. 8.3.1.3 above.
173 See para. 8.2.3 above.
174 Including, not mentioned elsewhere in this chapter, the 1973 Washington Convention
on International Trade in Endangered Species of Wild Fauna and Flora, (1973) 12 ILM
1085 and the 1979 Bonn Convention on the Conservation of Migratory Species of Wild
Animals, (1980) 19 ILM 15.
175 (1999) 38 ILM 118, para. 132. Bell and McGillivray, op. cit., pp. 107–8, regard it as
significant that the sea turtles’ exhaustibility depended on the fact that they were already
recognised as endangered, not because action was required to prevent endangering them.
176 See para. 8.2.2 (point 1) above and Birnie and Boyle, op. cit., p. 704.
177 See the opening words of Art. XX(g), GATT 1994.
178 (1999) 38 ILM 118, para. 141.
179 Ibid., paras 143–4: see the second part of Art. XX(g), GATT 1994.
International Aspects 209
The AB concluded that the measure in question was rigid and inflexible;180
that the certification processes followed by the US were ‘singularly informal
and casual’, to the point that they could result in the negation of rights of WTO
members;181 and that the measure lacked transparency and fairness.182 For
all three reasons, the measure amounted to arbitrary discrimination between
countries where the same conditions prevailed.183
Besides being arbitrary, the measure constituted a means of unjustifiable
discrimination:
i. The measure lacked flexibility, since the US inquired only into whether
exporting country used TEDs (that is, ‘turtle excluder devices’) not
whether they authorised comparable methods;184
ii. the measure also had the effect of banning imports of shrimp to the US
which had been caught using TEDs, where the shrimp had originated in
the waters of countries not certified under the measure;185
iii. thirdly, the US had failed to engage the appellees, as well as other
countries exporting shrimp to the US, ‘… in serious, across-the-board
negotiations with the objective of concluding bilateral or multilateral
agreements for the protection and conservation of sea turtles, before
enforcing the import prohibition against the shrimp exports of those
other [WTO] Members’.186 Among other things, the US had failed to
take account of Principle 12 of the Rio Declaration.187 Finally,
iv. the US had made differing levels of effort in transferring the TED
technology to other countries. Far greater efforts had been made to
transfer the technology to 14 wider Caribbean/western Atlantic countries
than to other exporting countries, including the appellees.188
In the light of the above decisions, it may well be the case that Art. XX, GATT
1994 will come to play a greater role in rendering certain types of environmental tax
lawful which would otherwise fall foul of its discipline. The most obvious candidate
would be a carbon tax, which, as a direct tax, is not, on present learning, capable of
incorporating a BTA,189 even on environmental grounds.
8.4.3 GATT 1994 provisions on customs duties and internal taxes
Articles II and III, GATT 1994, distinguish between customs duties and import
charges, on the one hand, and internal taxes and charges, on the other. The distinction
180 Ibid., para. 177.
181 Ibid., para. 181.
182, Ibid., para. 183.
183 Ibid., para. 184.
184 Ibid., para. 164.
185 Ibid., para. 165.
186 (1999) 38 ILM 118, para. 166.
187 See para. 8.2.6 above.
188 (1999) 38 ILM 118, para. 175.
189 See para. 1.2.1.2 above.
210 Environmental Taxation Law
forms the basis of two different sets of rules. Article III is of the greater relevance
in the present context, since it allows the imposition of levies that are indirect –
as opposed to direct190 – on domestic and imported products alike. Such blanket
imposition is necessary in the case of environmental levies, as with other levies, to
guarantee both the competitiveness of domestic products as well as the ‘tax base’ of
the environmental levy in question.
In relation to customs duties and import charges, Art. II(1)(a), GATT 1994, requires
WTO members to accord to the commerce of other members a treatment no less
favourable than that provided for in the agreed schedules of concessions annexed to
the WTO agreement. Thus, Art. II(1)(b), GATT 1994, reads:
The products described in … the Schedule relating to any contracting party, which are
the products of territories of other contracting parties, shall, on their importation into the
territory to which the Schedule relates, and subject to the terms, conditions or qualifications
set forth in that Schedule, be exempt from ordinary customs duties in excess of those set
forth and provided therein.191
The obligation contained in Art. II(1) is generally referred to as the ‘tariff-concession
obligation’, the tariff commitments of each country or regional trading organisation in
the schedules to the WTO agreement being referred to as ‘bindings’ or ‘concessions’.
These schedules range from the voluminous, in the cases of the EU and the US, to
the relatively brief, in the case of less developed countries.192 In accordance with
the CCP provisions of the European Treaty discussed above, Member States of the
EU are represented at the WTO by the European Commission,193 which has the sole
right to speak for its Member States at virtually all WTO meetings, including tariff
negotiations.194 Furthermore, just as the European Treaty bans Member States from
unilaterally imposing customs duties on goods from third countries,195 so also does
it outlaw charges having equivalent effect to customs duties on imports from nonmember
countries.196
So far as internal taxes and charges are concerned,197 Art. III, GATT 1994 subjects
them to the so-called ‘national treatment obligation’. Article III(1) articulates the
general policy goal that internal taxes and charges ‘… should not be applied to
imported or domestic products so as to afford protection to domestic production’.198
Referring to the goal mentioned in Art. III(1), Art. III(2) then goes on to require that:
190 Ibid.
191 GATT 1994, Art. II(1)(b).
192 The maximum tariffs are contained in Part I of each country’s or customs territory’s fourpart
goods schedule (see www.wto.org).
193 See para. 4.3.2 above.
194 For further details, see Williams, op. cit., pp. 62–4.
195 Sociaal Fonds voor de Diamantarbeiders v. SA Ch Brachfeld & Sons and Chougal
Diamond Co, C–2/69 and 3/69, [1969] ECR 211.
196 Aprile Srl, in Liquidation v. Amministrazione Delle Finanze dello Stato, C–125/94, [1995]
ECR I–2919, para. 34.
197 See para. 7.2.2.4 above.
198 Besides internal taxes and charges, GATT 1994, Art. III(1) refers to ‘laws, regulations and
requirements’.
International Aspects 211
The products of the territory of any contracting party imported into the territory of any
other contracting party shall not be subject, directly or indirectly, to internal taxes or
other internal charges of any kind in excess of those applied, directly or indirectly, to like
domestic products. Moreover, no contracting party shall otherwise apply internal taxes
or other internal charges to imported or domestic products in a manner contrary to the
principles set forth in [Art. III(1)].
Exceptions to the national treatment obligation are limited, and are set out in Art.
III(8). They consist of an exception for government purchases,199 as well as one for
the payment of subsidies exclusively to domestic producers.200 These are in addition
to the general exceptions in GATT 1994, Art. XX referred to above. It is plain from
Art. III, GATT 1994, that the design of new internal taxes and charges in WTO
member countries must comply with the national treatment obligation.
Turning back to Art. II(2)(a), GATT 1994, we find it stated that the provisions of Art.
II (which covers customs duties and import charges) do not prevent WTO members
from imposing at any time on the importation of any product ‘a(chǎn) charge equivalent
to an internal tax, in respect of the like domestic product, or in respect of an article
from which the imported product has been manufactured or produced, whether in
whole or in part’.201 However, Art. II(2)(a) also says that any such charge must be
imposed consistently with the provisions of Art. III(2).202 When taken together, it is
apparent from the wording of Arts II and III that the distinction between a customs
duty and an internal tax or other charge does not depend on when or where the
levy in question is imposed.203 Instead, it depends on whether the levy on imported
products is also borne by like domestic products. If it is, then the levy falls within
Art. III; if it is not, then the levy falls within Art. II.204 In other words, an internal
tax or charge, provided it complied with Art. III(2), could be applied at the border
with the third country. Subject to the application of the border tax adjustment (‘BTA’)
rules, Art. III(2) is not prima facie infringed, therefore, by an internal tax or other
charge, imposed by an EU/WTO member, which is designed simply to ensure parity
of tax treatment between domestic products and third country products and which is
imposed at the border.
Whilst the BTA concept is a simple one to articulate, its application to environmental
taxes involves a number of difficult questions.205 Briefly, a BTA is designed to put
199 GATT 1994, Art. III(8)(a).
200 Ibid., Art. III(8)(b).
201 This division is then underlined by a note to GATT 1994, Art. III in Annex I, which states
that ‘… [a]ny internal tax or other internal charge … which applies to an imported product
and to the like domestic product and is collected or enforced in the case of the imported
product at the time or point of importation, is nevertheless to be regarded as an internal
tax or other internal charge … and is accordingly subject to the provisions of Article III’.
202 See above in this para.
203 Birnie and Boyle, op. cit., p. 729.
204 See WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax
Adjustment (WT/CTE/W/47), para. 55.
205 See 1.2.1.2 above. See also Paul Demaret and Raoul Stewardson, ‘Border Tax Adjustments
under GATT and European Law and General Implications for Environmental Taxes’
(1998) 28 JWT 5–65.
212 Environmental Taxation Law
into effect the general principle of international indirect taxation206 that goods should
be taxed where they are used or consumed.207 The definition of a BTA used by the
WTO was originally used by the OECD and defines a BTA as:
… any fiscal [measure] which put[s] into effect, in whole or in part, the destination principle
(that is, which enable[s] exported products to be relieved of some or all of the tax charged
in the exporting country in respect of similar domestic products sold to consumers on the
home market and which enable imported products sold to consumers to be charged with
some or all of the tax charged in the importing country in respect of similar domestic
products).208
The phenomenon of BTAs is assumed throughout GATT 1994, not only in Arts II and
III, but also, as will be seen, in Art. XVI, GATT 1994.209 It rests in turn on a second
assumption that is made in GATT 1994, that is, that of the distinction between direct
and indirect taxes.210 As explained at the beginning of the book, only indirect taxes
are eligible for BTA.211 Thus, only internal indirect taxes imposed by an EU/WTO
member state, which are designed to ensure parity of tax treatment between domestic
products and third country products (whether or not they are imposed at the border),
are capable of satisfying GATT 1994 requirements.
The availability of BTA for environmental taxes, under GATT/WTO rules, is a
major technical consideration in their design. The idea of a carbon tax, as mentioned
above, has famously been controversial in this context. How the UK’s environmental
levies have sought to address the technical challenge involved is considered below.
8.4.4 GATT 1994 anti-subsidy rules
The WTO’s anti-subsidy rules are to be found in GATT 1994, Arts VI (anti-dumping
and countervailing duties) and XVI (subsidies), as well as in the 1994 WTO Agreement
on Subsidies and Countervailing Measures (‘the Subsidies Agreement’).212 Here, no
less than in the Art. III context, the distinction between direct and indirect taxes,213
and the consequent availability of BTA, are crucial technical questions.
Article VI, GATT 1994, permits WTO members to deal with the problem of
dumping, that is, the introduction of the products of one country into the commerce
206 See para. 1.2.1.2 above.
207 Ibid.
208 WT/CTE/W/47, para. 28.
209 The 1970 WTO Working Party on Border Tax Adjustments agreed that the main provisions
of GATT relating to BTA codified practices that existed in commercial treaties when it was
drafted (see WTO Secretariat, Taxes and Charges for Environmental Purposes – Border
Tax Adjustment (WT/CTE/W/47), para. 29).
210 See para. 1.2.1.2 above.
211 WT/CTE/W/47, para. 33–35. See para. 1.2.1.2 above.
212 See, generally, Konstantinos Adamantopoulos and Marìa J. Pereyra-Friedrichsen, EU
Anti-Subsidy Law and Practice (Bembridge: Palladian, 2001), and A. Leigh Hancher,
Tom Ottervanger and Piet Jan Slot, EC State Aids, 2nd edn (London: Sweet and Maxwell,
1999), ch. 5.
213 See para. 1.2.1.2 above.
International Aspects 213
of another country at less than the normal value of the products, by the imposition of
countervailing duties. Article XVI, GATT 1994, deals with the related, but distinct,
phenomenon of subsidisation by Governments of exporting countries; it is divided
into a Section A, entitled ‘Subsidies in General’, and a Section B, headed ‘Additional
Provisions on Export Subsidies’. Article XVI(A)(1) obliges WTO members to
notify to the Ministerial Conference the granting or maintaining of ‘… any subsidy,
including any form of income or price support, which operates directly or indirectly
to increase exports of any product from, or to reduce imports of any product into,
its territory’. Article XVI(B)(4) bans the direct or indirect grant of ‘… any form of
subsidy on the export of any product other than a primary product which subsidy
results in the sale of such product for export at a price lower than the comparable
price charged for the like product to buyers in the domestic market’.
The Subsidies Agreement, which dates from the Uruguay Round, deals with two
major areas: the regulation of subsidies that impact on international trade and advice
to WTO members on the best ways of protecting their domestic industries from those
subsidies.214 The Subsidies Agreement is incorporated in Community law via the
1997 Council Regulation on Protection against Subsidized Imports from Countries
not Members of the European Community (usually referred to as ‘the Basic
Regulation’ or ‘the Countervailing Duty Regulation’).215 The Basic Regulation is
intended to provide greater transparency and effectiveness in the application by the
European Community of the rules laid down in the Subsidies Agreement, as regards
subsidised imports into the EU. It does not affect the virtually identical obligations
of the EU and its Member States under the Subsidies Agreement, which continues to
govern claims by third countries in respect of governmental subsidies in the EU as a
whole or any of its Member States.216
In practice, these provisions have presented far fewer problems for environmental
taxes than have those of Art. III, GATT 1994. The Interpretative Note Ad Article
XVI, GATT 1994 makes it plain that:
The exemption of an exported product from duties or taxes borne by the like product when
destined for domestic consumption, or the remission of such duties or taxes in amounts not
in excess of those which have accrued, shall not be deemed to be a subsidy.
Moreover, Art. VI(4), GATT 1994, states that the exemption of exported products
from taxes borne by like domestic products, as well as the refund of such taxes,
cannot be subject to anti-dumping or countervailing duties. The principles of Arts VI
and XVI are then underlined in the footnote to Art. 1.1 of the Subsidies Agreement,
which reads:
In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI)
and the provisions of Annexes I through III of this Agreement, the exemption of an
214 See Raymond Luja, ‘WTO Agreements versus the EC Fiscal Aid Regime: Impact on
Direct Taxation’ (1999) 27 Intertax 207–25, esp. pp. 207–11.
215 Council Regulation EC/2026/97, (1997) OJ L288 1.
216 The granting of subsidies by EU Member States to their national industries is dealt with by
the state aid rules (see Arts 87–89, European Treaty (ex 92–94)), insofar as such subsidies
affect trade between Member States (see para. 12.2.7 below).
214 Environmental Taxation Law
exported product from duties or taxes borne by the like product when destined for domestic
consumption, or the remission of such duties or taxes in amounts not in excess of those
which have accrued, shall not be deemed to be a subsidy.
Thus, when designing environmental taxes or, indeed, other economic instruments, it
is necessary for the UK to take into account the anti-subsidy rules.
8.4.5 UK environmental levies and subsidies in the GATT 1994 context
8.4.5.1 GATT 1994 aspects of the UK’s environmental taxes
The design of each of aggregates levy and of climate change levy is conceptually
somewhat similar. One area in which this conceptual similarity is apparent is the
attempted assimilation of the international dimension of each tax to the discipline
both of GATT 1994 and of the European Treaty.217
Aggregates levy and climate change levy are unusual among the existing UK
environmental levies, as having a cross-border dimension. Although conceived within
the GATT 1994/European Treaty discipline, landfill tax is designed in such a way as
to obviate the need for dealing specifically with cross-border issues. A substantially
similar point might obviously be made about the concepts of workplace parking
levies and road user charging schemes. Landfill tax, it will be recalled, is charged
on a disposal of material as waste by way of landfill at a landfill site.218 By Finance
Act 1996, s.66, a site is a landfill site at any given time if one of five alternative
types of licence is in force in relation to the land, which authorises disposals on the
land.219 Since a landfill site, as so defined, must necessarily be within the UK,220
there is no need within the landfill tax code for any special provisions relating to the
taxation of imports of waste from, and exports of waste to, other Member States of
the EU or to third countries.221 Moreover, the structure of rates and exemptions does
not differentiate between waste generated within the UK or outside it. Given these
design features of the tax, there would therefore seem to be no issue in relation to any
of the arts of GATT 1994 discussed above.
However, by contrast with the landfill tax code, each of the aggregates levy and
climate change levy codes contain provisions relating to imports and exports of the
products in question. As such, certain aspects of each may be difficult to justify
under the GATT 1994 discipline, although the true position is unclear. On one view,
the structure of the taxes means that, in the absence of special factors, no GATT
1994 issue is likely to arise, irrespective of Art. XX. This view is based on a close
reading of the respective tax codes in the light of the GATT 1994 provisions. It can
be summarised as follows.
217 See Chapter 12 below.
218 See paras 1.4.2.1(1) above and 15.2 below.
219 See para. 15.2 below.
220 Generally, this is a landfill permit (see para. 6.3.2.4 above).
221 Such international trade in waste is in any event restricted by the requirements of the
1989 Basel Convention, the European Waste Shipment Regulation and other international
agreements (see paras 8.3.2 above and 12.2.5.1(4) below).
International Aspects 215
The aggregates levy provisions relating to the importation of aggregates appear
in Finance Act 2001, ss.16(2) and 19(1). Together, these two subsections impose a
charge to aggregates levy whenever taxable aggregate is subjected to commercial
exploitation in the UK, such exploitation being made to include the two situations
envisaged in s.19(1), that is, when:
…
(b) …[taxable aggregate] becomes subject to an agreement to supply it to any person; [or]
(c) it is used for construction purposes …
Whatever the other ambiguities of the wording of s.19 may be,222 a number of
points seem clear, no less from the section itself, as from the structure of the tax
as a whole. First of all, it is apparent that, when applied to imports of aggregates,
the levy is an internal tax within Art. III, GATT 1994, rather than a customs duty
or charge with equivalent effect under GATT 1994, Art. II. This is because the
concept of subjecting taxable aggregate to commercial exploitation in the UK makes
no distinction between aggregate originating within the UK or that originating
outside it. The tax is charged on imported and domestic products alike. Secondly,
it seems unlikely that aggregate imported into the UK from a third country would
be subject, even indirectly, to a charge to the levy in excess of the amount applied
to domestically-produced aggregate. Thirdly, aggregates levy is clearly an indirect
tax,223 in respect of which the BTA built into its structure is designed to ensure parity
of treatment between domestic aggregate and third country aggregate.224 As to the
second of these factors, unlikely as it may be that there is any indirect discrimination,
it is not inconceivable that, whilst the tax appears on its face to be non-discriminatory,
various circumstances in the market place or elsewhere might have the effect in a
particular case of ‘tilting the scales against the imported product’.225
A similar conclusion, as regards the treatment of imports of taxable commodities
from third countries, seems possible in the case of climate change levy. With climate
change levy, all supplies of taxable commodities which are not excluded or exempt
from the levy count as taxable supplies,226 irrespective of whether the supplier is
resident in the UK.227 In the absence of special factors, climate change levy is thus
again a tax borne by domestic and imported like products alike, and lawful under
GATT 1994 as an internal indirect tax for ensuring parity of tax treatment between
domestic and third country products.228
222 See paras 13.2 and 13.3 below.
223 See para. 1.4.2.3 above.
224 See para. 12.4 below.
225 See Jackson, op. cit., p. 216.
226 Finance Act 2001, Sched. 6, para. 2(2).
227 For the definition of ‘resident in the UK’ for these purposes, see Finance Act 2000, Sched.
6, para. 156, discussed at para. 16.7n below.
228 Under Finance Act 2000, Sched. 6, para. 40(2), the person liable to account for the
levy charged on the supply is the person to whom the supply is made. Where either of
these requirements is missing, then Customs have wide powers to appoint a resident
tax representative (see para. 16.7 below). For the formalities associated with imports of
216 Environmental Taxation Law
As regards the treatment of exports within the aggregates levy code, Finance Act
2001, s.30(1)(a), provides for the making of relevant regulations for the purpose of
conferring entitlement to tax credits on the exportation of aggregate ‘in the form
of aggregate’. The relevant regulations accordingly appear in the Aggregates Levy
(General) Regulations 2002,229 reg. 13:
(1) This regulation applies to a person who has commercially exploited taxable
aggregate and who has accounted for the aggregates levy chargeable on that commercial
exploitation.
(2) Such a person is entitled to a tax credit in respect of any aggregates levy accounted for
in respect of that commercial exploitation where the taxable aggregate in question –
(a) is exported or removed from the United Kingdom without further processing;
…230
There is judicial authority for the proposition that this provision is cast in terms of
a tax credit, rather than an exemption, to reflect the fact that it cannot be ascertained
whether aggregate otherwise taxable is in fact exempt until it is known what has
happened to the aggregate in question.231 In any event, it would seem plain from the
provisions just discussed that there is no unlawful subsidy under GATT 1994, since
the effect of the tax credit is merely to remit taxes in amounts not exceeding those
that have accrued.232 Moreover, the remission on exportation of duties and taxes
borne by a like product when destined for domestic consumption does not entitle a
third country to impose anti-dumping or countervailing duties.233
Within the climate change levy code, the exportation of commodities is covered
by the wording of Finance Act 2000, Sched. 6, para. 11. This provides that, where
a taxable commodity234 is caused to be exported from the UK, then the supply is
exempt from the levy, provided that the recipient has previously notified the supplier
that he intends to cause the relevant commodity to be exported from the UK and has
taxable commodities, see HM Customs and Excise Notice CCL 1, Climate Change Levy
(March 2002), pp. 13–14 (available from www.hmce.gov.uk).
229 S.I. 2002 No. 671. See para. 16.9 below.
230 See also HM Customs and Excise Notice AGL 1, Aggregates Levy (March 2003), pp. 21–
2 for the formalities (available from www.hmce.gov.uk).
231 See R (on the application of British Aggregates Associates and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51, para. 29 (Moses, J.). See paras 12.1,
12.3.3.1 below.
232 See para. 8.4.4 above.
233 Ibid.
234 Finance Act 2000, Sched. 6, para. 3 (see para. 14.1 below). It should be noted that, although
a distinction between goods and services is not part of the structure of climate change
levy, the commodities which fall within its scope are also subject to customs duties as
goods under the CCT (for the categories into which they fall, see the ‘TARIC’ web-pages
on the EU website, www.europa.eu.int). This is consistent with the classification of the
supply of any form of power, heat, refrigeration or ventilation as a supply of goods in the
VAT legislation (see Value Added Tax Act 1994, Sched. 4, para. 3). TARIC, it should be
noted, is the single register representing the collected tariffs on goods imported into, and
exported from, the EU (see Williams, op. cit., p. 62n).
International Aspects 217
no intention of causing it to be brought back into the UK thereafter.235 Again, so far
as third countries are concerned, there would seem to be no unlawful subsidy, since
the exemption is expressly permitted by GATT 1994 provisions on subsidies and
countervailing duties.236
On the basis of the foregoing, and in the absence of special factors, there would
appear to be little possibility for conflict between the GATT 1994 provisions and
those of the domestic legislation. However, it is instructive to reflect on certain other
features of the two taxes, insofar as they relate to imports, in the light of possible
bases for green taxes generally.237 As we noted much earlier in this study,238 the
OECD distinguishes between three possible forms of environmental tax or charge:
those based on the emission of pollutants, including (in the case of air) noise, into
various media (‘emission taxes’); those based on the cost of collective treatment
of effluent or waste (‘user taxes’); and those based on products (including raw
materials, intermediate or final products) that are harmful to the environment when
used in production processes (‘product taxes’).239 There is clearly an environmental
link between the first and third of these and, indeed, the OECD acknowledges that
‘product … taxes can act as a substitute for emission … taxes when charging directly
for emissions is not feasible’.240 Since the scope of landfill tax is geographically
limited, the fact that it appears to be a hybrid of an emissions tax and a user tax241
does not seem to raise any issue. However, the other two green taxes discussed above,
not being geographically limited, appear to give cause for some concern, if only at
the margins. This is because both climate change levy and aggregates levy may be
regarded as a hybrid of an emissions tax and a product tax. The reason why this is
significant is that, whilst BTA is lawful for taxes on products under GATT 1994, Art.
III(2), it is not lawful to apply it to taxes on emissions, since such taxes are regarded
within GATT 1994 as a tax on the producer.242 Both points are well made by a close
reading of Arts II(2)(a) and III, GATT 1994. Article II(2)(a), the outline of which has
already been mentioned, provides:
Nothing in this Article shall prevent any contracting party from imposing at any time on
the importation of any product … [authors’ emphases] a charge equivalent to an internal
tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the
like domestic product or in respect of an article from which the imported product has been
manufactured or produced in whole or in part.
235 See HM Customs and Excise Notice CCL 1, Climate Change Levy, above, p. 10, and HM
Customs and Excise Notice CCL1/3, Reliefs and Special Treatments for Taxable Supplies
(available from www.hmce.gov.uk).
236 See para. 8.4.4 above.
237 See Chapter 5 above.
238 See para. 1.2.1.5(2) above.
239 See OECD Council Recommendation C(90)177/Final, paras 2–4. See also para. 1.2.1.5(2)
above.
240 OECD Council Recommendation C(90)177/Final, para. 4.
241 See para. 1.2.1.5(2) above.
242 See Birnie and Boyle, op. cit., p. 730.
218 Environmental Taxation Law
If each of the taxes is properly seen as a product tax, then the two articles are clearly
not infringed. However, if they are properly seen as taxes on emissions, that is, on
resource use, then they fall foul of Art. II(2)(a).243 The position is, in the view of the
present writers, unclear.244
8.4.5.2 GATT 1994 aspects of UK tax subsidies
In Chapter 7, when examining the taxation, as opposed to the regulatory, context of
the UK’s green levies and subsidies, we divided the discussion of subsidies into tax
subsidies within the environmental levies and environmental subsidies within the
non-environmental taxes.245
Tax subsidies within the green levies were characterised as having been introduced
into the structure of the levy in question for reasons, not of regulatory efficiency, but of
sectoral competitiveness. By contrast, green subsidies within the non-environmental
tax codes were characterised as having been introduced into the structure of the tax
for reasons of regulatory efficiency.
For present purposes, it is proposed to treat the two types of subsidy together, whilst
noting their difference of function. The question here is whether, in either case, the
subsidies in question are such as to infringe the relevant provisions of the Subsidies
Agreement.246 In common with the rest of the discussion in the present chapter, the
analysis is intended to be read not simply in connection with existing subsidies, upon
which it does not purport to offer a conclusive view, but also with those that have
already been, or may yet be, proposed.247
The Subsidies Agreement begins by defining the concept of a ‘subsidy’,248 with
‘specificity’249 as the fundamental condition of actionability. It then divides subsidies
into three categories, each of which is subject to different rules:
1 prohibited subsidies;250
2 actionable subsidies;251 and
3 non-actionable subsidies.252
243 A related, but different, problem does not however seem to arise with climate change levy,
although it might have done with a more traditionally-conceived carbon tax. If a tax were
to be imposed on energy consumed in the production process of a product, then it would be
extremely doubtful whether the tax would be lawful under art II(2)(a), GATT 1994. Article
II(2)(a) permits the imposition of a tax under Art. III, GATT 1994, only on an article ‘from
which’, that is, not ‘with the help of which’, the ‘imported and the like domestic product
were produced’ (see Birnie and Boyle, op. cit., p. 731). See para. 1.2.1.4n above.
244 See, generally, WT/CTE/W/47, above.
245 See paras 8.3.3 and 8.3.4 above.
246 See para. 8.4.4 above.
247 See Chapter 27 below.
248 Subsidies Agreement, Art. 1.
249 Ibid., Art. 2.
250 Ibid., Art. 3.
251 Ibid., Art. 5.
252 Ibid., Art. 8.
International Aspects 219
For the purposes of the Subsidies Agreement, a subsidy includes a financial
contribution by a government or public body within the territory of a WTO member
where, among other things, ‘government revenue that is otherwise due is foregone
or not collected (for example, fiscal incentives such as tax credits)’.253 However, a
benefit must thereby be conferred.254
Article 2 of the Subsidies Agreement distinguishes specific subsidies from those
which are non-specific. Non-specific subsidies are ones which are generally available
to all enterprises or industries in the WTO member country. Specific subsidies are
those access to which is, formally or in fact, confined to certain specific enterprises,
industries, groups of enterprises or industries, or to enterprises in a specific
geographical region.255 Only specific subsidies are actionable under the Subsidies
Agreement.256
Where a subsidy is prohibited, the complaining WTO member may seek the
removal of the subsidy through the WTO dispute settlement mechanism, a
procedure which may result in its being authorised to take appropriate, proportionate
countermeasures.257 There is no need for the complaining member to demonstrate
adverse effects. Prohibited subsidies include the following:
(e) The full or partial exemption, remission or deferral specifically related to exports,
of direct taxes or social welfare charges paid or payable by industrial or commercial
enterprises.
(f) The allowance of special deductions directly related to exports or export performance,
over and above those granted in respect to production for domestic consumption, in the
calculation of the base on which direct taxes are charged.
(g) The exemption or remission, in respect of the production and distribution of exported
products, of indirect taxes in excess of those levied in respect of the production and
distribution of like products when sold for domestic consumption.258
If a subsidy, rather than being prohibited, is one which is actionable, the WTO
complaining member must follow a very similar procedure to the one just described.259
However, the complaining member must obviously demonstrate that the conditions
for actionability are made out. These are that the subsidy in question has adverse
effects consisting of injury to the complaining member’s domestic industry, the
nullification or impairment of benefits under GATT 1994, or serious prejudice to its
interests.260 It follows from this that, even if a subsidy is actionable, it will not have
a relevant adverse effect on international trade if its economic effects are confined
253 Ibid., Art. 1, esp. Art. 1.1(a)(1).
254 Ibid., Art. 14, which excludes certain items from the scope of a ‘benefit’.
255 This neat summary of the intricacies of Art. 2, Subsidies Agreement, is adopted from
Hencher et al., op. cit., para. 5–012.
256 Subsidies Agreement, Art. 8.1(a).
257 Ibid., Art. 4, esp. Art. 4.8–4.12.
258 Ibid., Annex I, paras (e)–(g).
259 Ibid., Art. 7.
260 Ibid., Art. 5.
220 Environmental Taxation Law
within national borders.261 The procedure in relation to an actionable subsidy may
again result in the complaining WTO member being authorised to take proportionate
countermeasures.262
Finally, if a subsidy is non-actionable, then it cannot be challenged under the dispute
settlement procedure, provided however that it has been duly notified in advance to
the WTO’s Committee on Subsidies and Countervailing Measures.263 Non-actionable
subsidies are ones which are either non-specific or specific but meet the conditions of
Art. 8 of the Subsidies Agreement. Article 8 comprises three categories:
1 assistance for certain research activities, subject to stringent conditions;
2 assistance to disadvantaged regions within the territory of a Member given pursuant
to a general framework of regional development and non-specific (within the meaning
of Article 2) within eligible regions … [subject to the satisfaction of detailed criteria];
…264
3 assistance to promote adaptation of existing facilities to new environmental requirements
imposed by law and/or regulations which result in greater constraints and financial
burdens on firms … [subject to the satisfaction of detailed criteria].265
Under Arts 10–23 of the Subsidies Agreement, read in conjunction with GATT
1994, Art. VI, WTO members may impose countervailing duties in conjunction with
invoking the dispute settlement mechanism in cases of prohibited and actionable
subsidies, although not subsidies that are not actionable.266
From the foregoing, it is apparent that, as regards all of the tax subsidies identified
in Chapter 7 above:
1 all are subsidies within Art. 2 of the Subsidies Agreement;
2 if access to any of them is, formally or in fact, confined to certain specific
enterprises, industries, groups of enterprises or industries, or enterprises in a
specific geographic region, then they are specific subsidies;
3 one of them appear to be prohibited subsidies;
4 any specific subsidies that have a relevant adverse effect beyond the borders of
the UK will entitle a complaining WTO member (for example, the EU, via the
European Commission) to take steps under the dispute settlement mechanism;
and
5 any that are specific but non-actionable will be incapable of challenge by the EU
or any other WTO member.
261 See Hancher et al., op. cit., para. 5–013.
262 Subsidies Agreement, Art. 7.
263 Ibid., Art. 25.
264 Ibid., Art. 8.2(b).
265 Ibid., Art. 8.2(c).
266 Ibid., note 35 (Art. 10).
International Aspects 221
8.5 International air transport law
We referred at the beginning of the chapter to the need to allude, if only briefly, to
international agreements governing air transport. This is in order to provide a context
for the discussion in Chapter 27 below267 of proposals to introduce new economic
instruments in relation to the noise and carbon emissions externalities caused by air
transport. The key multilateral treaty, as mentioned in Chapter 4 above, is the 1944
Chicago Convention on International Civil Aviation,268 as amended and clarified by
subsequent policy guidance issued by the International Civil Aviation Organization
(‘the ICAO’).269 The UK, in common with most other developed countries, including
the EU Member States,270 is a party to the Chicago Convention.
The Chicago Convention is significant in the context of the present book for two
reasons. One of these, of course, is the exclusion already mentioned of international
aviation emissions from the scope of the 1997 Kyoto Protocol targets.271 The other
is that Art. 24 (a) of the Chicago Convention provides that:
Fuel, lubricating oils, spare parts, regular equipment and aircraft stores on board an aircraft
of a contracting State, on arrival in the territory of another contracting State and retained
on board on leaving the territory of that state shall be exempt from customs duty, inspection
fees or similar national or local duties and charges.
The subsequent ICAO policy guidance referred to above strongly recommends that
‘a(chǎn)ny environmental levies on air transport which States may introduce should be
in the form of charges rather than taxes272 and that the funds collected should be
applied in the first instance to mitigating the environmental impact of aircraft engine
emissions’; that there should be no fiscal purpose to the charges; that such charges
should be related to costs; and that they should not discriminate against air transport
as compared with other transportation modes.273
Although the Chicago Convention is the fundamental multilateral agreement on
civil aviation, it should be noted that there is also a network of bilateral agreements,
made between pairs of states and based on the UK/US ‘Bermuda II’ agreements,
and having the chief purpose of shielding national airlines from competition.274
Such bilateral agreements reflect the ICAO’s traditional policy guidance275 of
267 See para. 29.8 below.
268 International Civil Aviation Organization Doc. 7300/8, Convention on International Civil
Aviation, 8th edn (Montreal: ICAO, 2000), available from www.icao.int. See also para.
4.4.3 above.
269 See, especially, International Civil Organization Doc. 8632, ICAO’s Policies on Taxation
in the Field of International Air Transport, 3rd edn (Montreal: ICAO, 2000) and ICAO
Council Resolution on Environmental Charges and Taxes, 9 December 1996 (available
from www.icao.int).
270 Before enlargement in 2004.
271 See para. 8.3.1.4 above.
272 See para. 7.2.1 above.
273 See 1996 Council Resolution, paras 4 and 5.
274 See Rosa Greaves, EC Transport Law (Harlow: Pearson Education, 2000), pp. 65–7.
275 See International Civil Organization Doc. 8632, above.
222 Environmental Taxation Law
recommending ‘the reciprocal exemption from all taxes levied on fuel taken on board
by aircraft in connection with international air services, …, and also … [the reduction
or elimination of] taxes related to the sale or use of international air transport’.276
8.6 International energy law
The Energy Charter Treaty (‘the ECT’)277 is, in origin, the most recent of the
multilateral agreements referred to in this chapter, having been opened for signature
at Lisbon in December 1994.278 Its purpose is to ‘establish a legal framework in order
to promote long-term co-operation in the energy field, based on complementarities
and mutual benefit …’.279 Although the scope of the ECT is limited to one sector,
it creates a range of legal obligations and rights within the energy sector relating to
investment and trade, while also creating a number of rights and obligations which
relate to the environment. The ECT is an extremely innovative document, making
explicit reference to the philosophy of economic liberalism, while also holding out
the possibility of at least in part having direct effect in signatory countries.280
The basic tenor of the ECT investment provisions, which appear in Part III thereof,
is to ensure that investors receive a basic minimum standard of fair treatment from
the contracting parties. These include a commitment to accord to the investments of
investors ‘fair and equitable treatment’.281 By Art. 13, a contracting party may not
nationalise or expropriate the investment of another contracting party, except subject
to certain conditions, one of which is the payment of ‘prompt, adequate and effective
compensation’. In the present context, Art. 13, which deals with expropriation, has a
twofold importance. First, it certainly covers windfall and other confiscatory taxation,
such the windfall tax imposed on the UK’s privatised utilities in 1997.282 Secondly,
it might, according to Waelde, cover expropriation by exorbitant environmental
276 See 1996 Council Resolution, recital d.
277 See para. 4.4.4 above. The text of the Energy Charter Treaty is available from the website
referred to in that para.
278 This paragraph is heavily indebted to Energy Law in Europe: National, EU and
International Law and Institutions, ed. by M. Roggenkamp et al. (Oxford: Oxford
University Press, 2001), ch. 4 (authored by Craig Bamberger, Jan Linehan and Thomas
Waelde).
279 Energy Charter Treaty, Art. 2.
280 See the painstaking examination of the Energy Charter Treaty’s provisions in Thomas
Waelde, ‘International Investment under the 1994 Energy Charter Treaty’ (1995) 29 JWT
5–72.
281 Energy Charter Treaty, Art. 10.
282 See para. 2.4 above. The windfall tax was created by Finance (No.2) Act 1997, ss.1–5
and Scheds 1–2. The problem was that most of the original allottees had sold out and
so the ‘clawback’ was against investors who had not received the alleged ‘benefit’.
See Dieter Helm, Energy, the State and the Market: British Energy Policy since 1979,
revised edn (Oxford: Oxford University Press, 2004), pp. 288–90, and Thomas Waelde,
‘Renegotiating Previous Governments’ Privatisation Deals: The 1997 UK Windfall Tax
on Utilities and International Law’ (1997) 2 Journal of the Centre for Energy, Petroleum
and Mineral Law and Policy (available from www.dundee.ac.u/cepmlp).
International Aspects 223
regulation.283 However, Art. 13 must be read subject to Art. 21 on taxation, which
provides that nothing in the ECT creates rights or imposes obligations with regard
to the domestic tax laws of the contracting parties and, if there is any inconsistency
between Arts 13 and 21, Art. 21 is to prevail.
The ECT’s trade provisions, which are set out in Art. 29 of the ECT, are designed,
in essence, to bring the trade of contracting parties who are not parties to GATT 1994
into line with the provisions of GATT 1947.284 As regards environmental matters, Art.
19, ECT, contains merely hortatory commitments of good environmental practice.
It is a pity that it is not possible here, for reasons of space, to go into greater detail
on the ECT; it has been described as ‘a(chǎn)rguably the most innovative of the modern
international economic treaties’.285 The ECT:
… breaks away from the pattern of multilateral trade agreements by making Governments
directly accountable to aggrieved investors before non-national tribunals for important
duties specified in the [ECT]. It also pushes the concept of state responsibility further
than in traditional international law by formulating a concept of State responsibility for
regulating private enterprises.286
8.7 Concluding remarks
This chapter has covered two main sets of multilateral agreements in detail: the
MEAs, mainly UN-sponsored, which cover matters of international environmental
law, and the GATT 1994-based system of multilateral trade agreements administered
by the World Trade Organization. In addition, we have briefly considered the
interaction of each of these two main sets of agreements with the sectorally-specific
multilateral agreements on international aviation law (most importantly the 1944
Chicago Convention on International Civil Aviation) and international energy law
(as embodied in the 1994 Energy Charter Treaty).
The heart of the discussion in the present chapter has been the problem of reconciling
the objectives of international trade law with those of international environmental law.
In the EU as a whole, as we shall see,287 meeting the GHG emissions reduction targets
in the Kyoto Protocol has meant, inter alia, the introduction of the EU Emissions
Trading Scheme (‘the EU ETS’), which specifically envisages the linking of the EU
ETS with the Kyoto flexible mechanisms of JI and the CDM from 2008. The EU ETS
is more easily assimilated to GATT 1994 than would be an EU-wide carbon/energy tax,
given the problems that the latter presents for the GATT 1994 concept of the BTA.288
283 See Thomas Waelde, ‘Sustainable Development and the 1994 Energy Charter Treaty:
Between Pseudo-Action and the Management of Environmental Investment Risk’, in
International Economic Law with a Human Face, ed. by Freidl Weiss, Erik Denters and
Paul de Waart (The Hague: Kluwer Law International, 1998), pp. 223–70.
284 See Roggenkamp et al., op. cit., pp. 188–9.
285 Ibid., p. 208.
286 Ibid. See Energy Charter Treaty, Arts 7(6) and 22.
287 See Chapter 28 below.
288 See para. 1.2.1.2 above.
224 Environmental Taxation Law
The UK, for its part, has decided to meet its own emissions reduction targets through
three economic instruments, that is, the RO, the UK ETS and climate change levy.
The last of these avoids the problems associated with the BTA by being structured as
a product, rather than an emissions, tax.
Setting aside the three instruments just referred to, the two other main environmental
taxes have also clearly been designed with the GATT 1994 discipline in mind.
Aggregates levy, although obviously not inspired by Kyoto, sacrifices adherence to
the possibility, under GATT 1994, of rebating exports. Landfill tax, whose scope does
not extend to imports and exports of waste, neatly sidesteps technical considerations
under GATT 1994 altogether.
The key question for the present is whether it would be possible to design a
future environmental tax which was lawful, not because it satisfied general GATT
1994 norms, but because it was held to be exonerated from the general GATT 1994
discipline by Art. XX.
One of the most problematic aspects of Kyoto is the exclusion from its scope of
aircraft emissions. The ECT may act as a ‘brake’ on increases in rates of energy
taxes
Chapter 9
Conclusions on Part II
We began this part by alluding to the intricate web of departmental involvement in
the design and implementation of the UK’s environmental taxes and other economic
instruments. In fact, as has also been explained, the range of relevant institutional
actors at the central government level is even wider than this would suggest, since
it includes advisory bodies, such as the Advisory Committee on Business and the
Environment (‘ACBE’) and non-departmental public bodies and agencies, such as
Ofgem and the Environment Agency. In summary, the involvement of the various
departments, bodies and agencies of central government in the instruments under
discussion in the book is as follows.
The biggest of the environmental taxes, climate change levy, has been, subject to
one particular aspect,1 designed, implemented and administered by HM Customs and
Excise. Customs is responsible for registering holders of electricity supply licences,
that is, the privatised utilities and, in the case of a non-resident supplier, the consumer,
as the persons liable to account for the tax. The Department is also responsible for
making the credits and repayments referred to in Chapter 16 below.2 Furthermore,
Customs is empowered to enter and search premises for, as well as to copy and
remove, documents, as well as to take samples. Customs’ wide-ranging powers in
relation to the levy also include those of charging interest on overdue tax, imposing
civil penalties for incorrect returns and taking criminal proceedings in cases of
fraudulent evasion of the tax. Their enforcement powers include arrest, distress and
diligence and the provision of security. The existence of each of these powers, which
are discussed in detail in Chapter 16 below, underline the oft-made point that economic
instruments are not necessarily any less exhaustive of administrative time and effort
than are the more traditional command and control ones. They also underscore the
importance to economic instruments of ‘backstop’ penalty regimes. The mechanism
by which Customs is held to account is a combination of Parliamentary scrutiny (via
the various Select Committees)3 and scrutiny by the courts (via judicial review).4
Although, as will been seen in Chapter 21 below, there have been a range of Select
Committee reports relating, among other things, to the operation of climate change
levy, there has, to the authors’ knowledge, been not a single judicial review case
involving Customs’ administration of the levy.
It was ment,ioned in Part I of the book that a key characteristic of climate change
levy is its operation in combination with three other economic instruments, that is, the
UK Emissions Trading Scheme (‘the UK ETS’), the EU Emissions Trading Scheme
(‘the EU ETS’) and the Renewables Obligation (‘the RO’). Unlike the levy, however,
1 See below in this chapter.
2 See para. 16.9 below.
3 See para. 4.2.1.1(3) above.
4 See para. 4.2.1.5 above.
226 Environmental Taxation Law
various aspects of these instruments are managed by various different departments,
public bodies and agencies. Furthermore, the exception to Customs’ control of
climate change levy administration referred to above consists of the responsibility
of Defra for the administration of the system of climate change agreements.5 Of
the three other instruments, Defra is responsible for administering the UK ETS and
for the production of the UK’s national allocation plan (‘NAP’) under the EU ETS.
Interestingly, however, the regulator of the EU ETS, in relation to installations located
in England and Wales, will be, not Defra, but instead the Environment Agency.6
Finally, Ofgem is responsible for monitoring the operation of the RO and for issuing
the Green Certificates which are used as a way of demonstrating compliance with
it. Each of the Environment Agency and Ofgem are accountable, in the sense of
having to give an account of their activities in an annual report.7 In addition, they
are subject, of course, to Select Committee scrutiny and to judicial review. As to the
latter, it is perhaps rather surprising, in view of the astonishing complexity of the
climate change agreement system, that there have been no reported judicial review
proceedings relating to it. This is especially so when it is considered that, as was
pointed out in the Standing Committee debates on Finance Bill 2000, the effect of
the climate change agreement system was to give the Secretary of State a discretion
to fix the rate of the levy as between different businesses.8 What is truly surprising,
given the enormous complexity both of the levy and its interaction with its associated
economic instruments, is that is the least-litigated of the UK’s environmental taxes.
There have, in fact, to the authors’ knowledge, been no reported cases involving the
levy.
By contrast with the intricate regime surrounding climate change levy, aggregates
levy is, has already been mentioned, a self-standing economic instrument. The sole
regulatory authority for the tax is therefore HM Customs and Excise. The peculiarities
of the tax mean that Customs has some unusually wide powers, however, in relation
to registration for the tax. These include a power to determine the boundaries of
a site, which is a point discussed in Chapter 16 below.9 This is in addition to the
provision for joint and several liability to the tax from among a class.10 As with
climate change levy, Customs is also tasked with dealing with tax credits and
repayments of tax.11 Customs is also empowered, as for climate change levy, to enter
and search premises for documents and samples. Again, Customs’ powers in relation
to aggregates levy include those of charging interest on overdue tax, imposing civil
penalties for incorrect returns and taking criminal proceedings where appropriate.
Their enforcement powers for the levy again include arrest, distress and diligence
and the provision of security. In a contrast with climate change levy, however,
Customs did fall prey to an – albeit unsuccessful – judicial review action in relation
5 See paras 1.4.2.2(1) and 4.2.1.2(1) above.
6 See para. 28.4 below.
7 See para. 21.5 below.
8 HC, Standing Committee H, 8th Sitting, 18 May 2000, c.2.30 pm.
9 See para. 16.2 below.
10 Ibid.
11 See para. 16.9 below.
Conclusions on Part II 227
to aggregates levy.12 There has also been litigation on Customs’ exercise of their
power to exclude registrables from registration.13
Like aggregates levy, landfill tax has, until very recently, been a self-standing
environmental tax. However, as discussed below, the need to comply with the
Landfill Directive has shifted the policy emphasis away from the internalisation of
externalities, to the need to meet the targets laid down in the Directive.14 With this
shift has come an attempt to coordinate the tax with other economic instruments, in
the form of packaging waste recovery notes (‘PRNs’) and the Landfill Allowances
Trading Scheme (‘the LATS’). Thus, whilst Customs remains in charge of landfill
tax, the responsibility for the design and implementation of economic instruments in
waste management as a whole lies with the Environment Agency, as regards PRNs,
and, as regards the LATS, with a combination of Defra and (so far as England at
least is concerned) local authorities, via their WDAs.15 The same comments as to
the accountability and responsibilities of Customs apply in relation to landfill tax as
in relation to the other taxes referred to above. It is striking that, despite its relative
longevity, none of the litigation on landfill tax16 has involved judicial review. All
the reported cases have been tax disputes between Customs, on the one hand, and
the taxpayer on the other. This may be because the legislation creating the tax –
that is, Finance Act 1996 – contains fewer provisions conferring a discretion on the
Commissioners.
We have already commented on the UK’s quasi-federal structure. Its significance in
relation to the material discussed above in this Part II is that of fixing the appropriate
level of fiscal intervention. There was some discussion of this point in Chapter
5 above, in the context of the technical justifications for the instruments under
discussion. Indeed, on reflection, it is rather strange that, having referred to the fact
some environmental problems (for example climate change), are best dealt with at
an international level, the 2002 Treasury paper does not take account of the unilateral
action typified by each of the UK ETS and climate change levy.17 In seeking to address
possibly the largest environmental issue of all, that is, the emissions responsible for
global warming, on a unilateral basis, each of these two instruments may be said, in
Steven Sorrell’s words, to have turned ‘a(chǎn)n early start into a false one’.18 At the same
time, it must be stressed that the problem is the political one of acceptance, easier to
achieve unilaterally, perhaps, than on an EU basis, a point that is vividly illustrated
by the EU carbon/energy tax proposal19 and which may yet have consequences for
12 That is, R (on the application of British Aggregates Association and Others) v. C & E
Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51 (see para. 11.3.2 below).
13 See para. 13.2 below.
14 See para. 6.3.2.4 above.
15 See para. 1.4.2.1(4) above.
16 See para. 15.3 below.
17 See para. 5.5 above.
18 See Steve Sorrell, ‘Turning and Early Start into a False Start: Implications of the EU
Emissions Trading Directive for the UK Climate Change Levy and Climate Change
Agreements’, in Organisation for Economic Co-operation and Development, Greenhouse
Gas Emissions Trading and Project-based Mechanisms (Paris: OECD, 2004), pp. 129–51.
19 See para. 28.1n below.
228 Environmental Taxation Law
the EU ETS. However, just as some environmental problems are best dealt with at the
international level, so also are others best dealt with locally or regionally. The current
inability of the devolved administrations in the UK to levy environmental taxes
comparable to those levied, for example, in Spain, will no doubt for this reason come
under greater scrutiny in the future. Equally, the same issue may arise in relation to
local authorities, although their general failure to exercise the environmental taxation
powers contained in the Transport Act 2000 (that is, in relation to the imposition of
workplace parking levies and congestion charging)20 does not suggest that, at least in
the absence of a more general overhaul of local government finance, this is presently
a particularly fruitful line of inquiry.
If the level of governance at which environmental levies are sought to be imposed
is one factor affecting their political acceptability, so also is their status as taxes.
In Chapters 6 and 7 above, for the purposes of explaining the relationship between
environmental taxes and other types of environmental regulation, we looked in turn
at the regulatory context and taxation context of environmental levies. It goes without
saying that this separation is in a way artificial. However, it will also have been
clear that, even where regulation is command and control based, in fixing standards,
the range of possible payments, for example, for licences, is still considerable and
encompasses payments which might fairly be regarded as taxes. That is why Chapter
7 has taken some time to separate out taxes, properly so called, from concepts which
may at first appear similar but which are crucially different.
The question of whether a particular payment under a regulatory regime is a tax has
a double significance for the rest of the book. The first is that, as a tax, a payment is
susceptible to fairly well-established criteria for separating out taxes which are well
designed from those which are not. Of course, some allowance is necessary in this
context for the nature of the taxes under discussion as environmental, rather than as
fiscal, taxes. These are matters to which we shall allude in Chapter 29. However,
evaluation is not the only significance of designating particular payments as taxes
and thereby segregating them from concepts which may at first appear similar. There
is also an analytical and legal reason. This is that the nature of a payment as a tax and,
in the cases mentioned at the beginning of the book, its allocation to one or other of
the categories of ‘direct’ or ‘indirect’ taxes,21 has a universal significance in the law
of constitutions and in the law of treaties. We have already hinted at the potential
significance of a precise definition of a tax in the devolution of powers to the regions
of the UK. However, it also has a significance for the issues discussed in Chapter 8;
not, perhaps, for the use of the term in GATT 1994 but certainly for the pricing of air
transport and the ban in the 1944 Chicago Convention on taxes on aircraft fuel.22 We
shall return to this issue in Chapter 27.
20 See para. 1.4.2.4 above.
21 See para. 1.2.1.2 above.
22 See paras 8.5 above and 12.2.6.4(3) below.
PART III
PRACTICE
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Chapter 10
Introduction to Part III
In Part II, we examined the institutional, theoretical and regulatory contexts in which
the UK has evolved its policies on environmental taxes and their associated economic
instruments. In this Part, we examine the practical operation of each instrument, both
in terms of an analysis of the legal shape that they have ultimately taken and in terms
of the findings of Parliamentary Select Committees on the way in which they have
thus far operated.
The discussion in Part III is split into two Sections, the earlier (A) dealing with
the UK’s environmental taxes and their associated economic instruments, the latter
(B) covering the ‘greening’ of the UK tax system. Such a division of the material is
sanctioned, for example, by the approach of the OECD in successive reports.1
Within Section A of Part III, we have made a fivefold division of the material.
Division 1 of Section A consists of two chapters, the earlier (Chapter 11) dealing with
the process by which each of the post-1997 environmental taxes came to be designed
and implemented, as well as the process in which the pre-1997 tax, landfill tax, has
been monitored. We have not included an account of the design and implementation
of the UK ETS in Chapter 11, thinking it more natural for that history to be traced in
the Chapter which deals with the UK ETS.2 Likewise, the design and implementation
of the EU ETS is analysed as part of the general discussion of the EU ETS in Chapter
28 below.3 Chapter 12, the later part of Division 1, is devoted to analysis of those
areas of Community law which have had the most immediate impact on the design
and implementation of the UK’s environmental taxes and their associated economic
instruments.
Section A, Division 2, is devoted to the detailed analysis of the tax codes relating
to each of aggregates levy, climate change levy and landfill tax. These three taxes
have broadly similar administrative structures, so it was decided to deal with these
together, in Chapter 16.
The third Division of Part III, Section A, is devoted to the two local levies
introduced in earlier chapters, that is, workplace parking levies and road user
charging schemes.
The environmental tax or charge, especially the Pigouvian tax,4 is the archetype
of the economic instrument. However, as has been often stated, each of landfill tax
and climate change levy operate as one of a combination of economic instruments.
These other economic instruments are the subject matter of Division 4 of Part III.
Thus, packaging waste recovery notes (‘PRNs’) are discussed in Chapter 19, while
1 See, for example, Organisation for Economic Co-operation and Development,
Environmental Taxes and Green Tax Reform (Paris: OECD, 1997).
2 See para. 20.2 below.
3 See para. 28.2 below.
4 See para. 5.4 above.
232 Environmental Taxation Law
the Landfill Allowances Trading Scheme (‘the LATS’) is discussed in para. 20.7.
Each of these operate in conjunction with landfill tax. The UK Emissions Trading
Scheme (‘the UK ETS’), which is discussed in Chapter 20, operates in conjunction
with climate change levy and with the Renewables Obligation (‘the RO’), the detail
of which has already been considered in Chapter 6 above.5 As from January 2005,
these three instruments will operate alongside the EU ETS, the detailed discussion of
which is allocated to a separate chapter in Part IV.6
Whilst much has been written about the theoretical possibilities presented by
environmental taxes and other economic instruments, data on how they have
operated in practice, especially in relation to their broader regulatory context, is
altogether much scarcer. In the UK, a valuable source of information are the reports
of Parliamentary Select Committees, and these are analysed, so far as they relate
to the instruments under discussion, in Chapter 21. Although Select Committee
evaluation of the various instruments has tended to concentrate on their efficiency
and effectiveness in relation to their avowed environmental goals, this is not the only
aspect on which it is possible to comment in the light of experience. We return to
some of the possible criticisms in Chapter 29 below. One of the key justifications for
environmental taxes, however, has been their potential for delivering the so-called
‘employment double dividend’. How this has translated into reality in the UK over
the last seven years or so is also discussed in Chapter 21.
Section B of Part III, by far the shorter of the two Sections, is devoted to nonenvironmental
levies and to the measures taken so far by the UK government, both to
remove hidden subsidies within those levies which tend to encourage environmentallyunfriendly
behaviour, and to introduce tax incentives for more environmentallyfriendly
behaviour. We have made a three-way partition of the material, the second
and third of which, employee taxation (Chapter 23) and business taxation (Chapter
24) are essentially self-explanatory. Excise duties, relating, as they do, to motor
vehicles, are not susceptible to quite so straightforward a thematic allocation and
have therefore been considered separately, in Chapter 22. The elements of these
three chapters are predictable enough and, whilst they are mainly concerned with the
statutory removal of subsidies and the provision of incentives, they are not entirely
confined to this territory. An important issue also covered in Chapters 23 and 24, one
to which brief reference was made in Chapter 1 above, is that of the interaction of
environmental levies with non-environmental ones.
5 See para. 6.4.3.1(2) above.
6 See Chapter 28 below.
PART III, SECTION A
ENVIRONMENTAL LEVIES AND
OTHER ECONOMIC INSTRUMENTS
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Division 1
General
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Chapter 11
Design and Implementation
11.1 Introduction
The key HM Treasury policy document, from 2002, on the use of economic instruments
in environmental regulation,1 has already been discussed in some detail in a previous
chapter.2 One topic that has not yet been discussed in detail, however, is the outline
of the process of policy development which is presented in the 2002 paper. Chapter
7 of the 2002 paper is devoted to providing illustrations of the process by which
policy has been developed in relation to environmental taxes and other economic
instruments. The sole purpose of the present chapter is to examine the discussion in
the 2002 paper by reference to the stages by which the UK’s environmental taxes
have passed into law. Its concern, in other words, is to demonstrate how the economic
theories discussed in an earlier chapter of the book3 have actually been translated
into practice.
The discussion in the present chapter is divided into three main parts. Paragraph
11.2 offers an overview of the design and implementation process deployed when
new regulation, in whatever form, is proposed. This is based on the concept of the
‘regulatory impact assessment’ (the ‘RIA’). Regulatory impact assessment, which is
not to be confused with environmental impact assessment (‘EIA’),4 is the process by
which a government department compares the benefits of regulatory proposals with
their costs, on the basis that, if the latter are thought to be excessive in relation to the
former, the proposals in question should be abandoned.5 Subsequently, in para. 11.3,
we trace the policy development process in relation to the design and implementation
of the two post-1997 environmental taxes, that is, climate change levy and aggregates
levy.6
The story of landfill tax is rather different from the other two taxes, given that, when
the present government came to power in 1997, the tax was already in existence.7
What has instead happened with landfill tax, is that an ongoing process of review and
legislative amendment has taken place that has seen the original policy objectives of
the tax transformed from the relatively modest one, of internalising the externalities
caused by the landfilling of waste, to its enlistment in the much more ambitious
1 HM Treasury, Tax and the Environment: Using Economic Instruments (London: HMSO,
2002). This is referred to below as ‘the 2002 Treasury paper’ or, simply, ‘the paper’.
2 See Chapter 5 above.
3 Ibid.
4 See para. 6.2.4 above and para. 12.2.4 below.
5 See Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart
Publishing, 2000), p. 49.
6 This is derived in part from Jeremy de Souza and John Snape, ‘Environmental Tax
Proposals: Analysis and Evaluation’ (2000) ELR 74–101.
7 See para. 15.1 below.
238 Environmental Taxation Law
project of meeting the targets imposed by the Landfill Directive.8 This process of
reorienting the objectives of the tax is traced in paragraph 11.4 below.
We restrict the coverage in this chapter to the development of the three environmental
taxes referred to above. The background to the design and implementation of the
seven other main economic instruments is, however, discussed in various places
elsewhere in the book.9
11.2 Regulatory impact assessment
11.2.1 Overview
The explanation of the development process in the 2002 paper is cast in terms of
a general description of the stages of the RIA, with outline accounts of how that
process was in fact followed through in relation to the design and implementation
of each of aggregates levy and climate change levy.10 These outline accounts are
elaborated in the discussion below.
Regulatory impact assessment replaced the previous Conservative Government’s
two separate ‘compliance cost assessment’11 and ‘regulatory appraisal’ procedures.12
Although a unified process, the inspiration behind RIA is essentially the same as
those earlier procedures, however,13 since it is ‘a(chǎn)n assessment of the impact of policy
options in terms of the costs, benefits and risks of a proposal’.14 In accordance,
therefore, with RIA procedures in the field, the stages involved in the development
and implementation of environmental taxes and other economic instruments are
described in the 2002 paper as follows:15
8 See para. 6.3.2.4 above and para. 12.2.5.1(2)(b) below.
9 See paras 19.1 below (background to PRNs); 20.7 below (background to the LATS);
20.2 below (background to the UK ETS); 28.2 (background to the EU ETS); 21.5
(background to the RO); 17.1 (workplace parking levies); and 18.1 (road user charging
schemes).
10 The 2002 paper also contains a summary of the pesticides tax consultation, which is
discussed in para. 21.9.5 below, and which has not as yet (December 2004) resulted in a
pesticides tax being imposed.
11 See Department of Trade and Industry, Checking the Cost of Regulation: A Guide to
Compliance Cost Assessment (London: HMSO, 1996).
12 See Cabinet Office Deregulation Unit, Regulation in the Balance: A Guide to Regulatory
Appraisal Incorporating Risk Assessment (London: Cabinet Office, 1996).
13 See Cabinet Office, Better Policy Making: A Guide to Regulatory Impact Assessment,
2003.
14 See Better Policy Making: A Guide to Regulatory Impact Assessment, para. 1.1. In August
1998, the Prime Minister, the Rt Hon. Tony Blair, MP, ‘a(chǎn)nnounced that no policy proposal
which has an impact on business, charities or voluntary bodies, should be considered by
Ministers without an RIA being carried out’ (ibid., para. 1.2). See para. 4.2.1.2(1) above.
15 In the chapter below, press releases and other documents issued during the development
and implementation process have been referenced where possible to Simon’s Weekly Tax
Intelligence (‘SWTI’), as a ready source of reference. Reports of Parliamentary debates in
Hansard are available on the web from 1989 onwards, at www.parliament.uk.
Design and Implementation 239
1 the establishment of the long-term goal or environmental objective for the
economic instrument in question;
2 the institution of a long consultation period;
3 an announcement by an ‘early signal’ that the government is minded to intervene,
or further intervene, in the market;
4 the active collection of evidence;
5 an announcement, again by an ‘early signal’, of the government’s choice of
economic instrument;
6 the consideration of how best to use the revenue raised;
7 a willingness to consider voluntary alternatives;16
8 the easing of the adjustment to the new instrument by introducing other fiscal
measures which facilitate investment in new technology;
9 the provision of compensation and relief for the groups most seriously affected
by the instrument;
10 a commitment to ongoing monitoring and evaluation of the instrument;
11 a commitment to future policy flexibility; and
12 a commitment, if possible, to working internationally.17
It should be emphasised that the 12 stages listed above can, and indeed do, run in
parallel: stage 3 above, for instance, leaves scope for additional discussion with
interested parties18 on the possibilities for voluntary arrangements as an alternative
to a tax (see stage 7 above).19
11.2.2 Hypothecation and recycling of revenues
Stage 6 above had been a matter of considerable debate prior to the introduction in
2001 and 2002, respectively, of climate change levy and aggregates levy, part of the
revenue from each of which has been ‘earmarked’ or ‘hypothecated’ for particular
purposes since the introduction of each respective tax. This was because HM
Treasury, in common with finance ministries generally in developed countries, had
traditionally resisted the notion of the earmarking of taxes.20 Hypothecated taxes were
very much the exception in the UK’s taxation landscape.21 Even the LTCS (the tax
rebate which had operated since 1996 in conjunction with landfill tax)22 represented
what O’Riordan characterised as a clever ruse ‘to accommodate the “sustainability
reality” of quasi-hypothecation to the “other world” reality of Treasury-speak that
hypothecation has not taken place’.23
16 See 2002 paper, ch. 6.
17 Ibid., Table 7.1 (first column), pp. 42–3.
18 The government’s term is ‘stakeholders’ (see the Foreword to the 2002 paper by The Rt
Hon. Gordon Brown, MP, Chancellor of the Exchequer). See para. 4.2.1.2(2) above.
19 See 2002 paper, para. 7.5.
20 See Martin Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979
(Cambridge: Cambridge University Press, 2002), pp. 6 and 35.
21 Notoriously so, after the case of the road fund tax of the 1920s (see para. 21.2 below).
22 See para. 21.3.2 below.
23 See Timothy O’Riordan, ‘Editorial Introduction to the Hypothecation Debate’, in
Ecotaxation, ed. by Timothy O’Riordan (London: Earthscan, 1997), pp. 37–44, p. 40.
240 Environmental Taxation Law
11.3 Design and implementation of the two post-1997 taxes
11.3.1 Climate change levy
The 2002 Treasury paper24 traces the proposals for climate change levy back to the
March 1998 report of the Advisory Committee on Business and the Environment
(‘ACBE’).25 This decided in favour of a policy framework over the long term within
which, without harming competitiveness, businesses in the UK could produce carbon
savings. However, as Helm points out,26 the idea of a carbon tax – as opposed to an
energy tax – was much older, and economic instruments had been advocated in a
Government White Paper as long ago as 1990.27
Subsequently, in his March 1998 Budget speech, the Chancellor of the Exchequer,
the Rt Hon. Gordon Brown MP, announced that Sir Colin Marshall, then the
chairman of British Airways and President of the CBI,28 would head ‘a(chǎn) Government
review into economic instruments to improve the industrial and commercial use of
energy’.29 If, as has subsequently been claimed, this announcement was the prelude
to a merely ‘paper’ exercise, then the manner in which it was expressed – in terms
of energy consumption, rather than carbon emissions – may well suggest a foregone
conclusion.30 Nonetheless, Marshall forthwith invited all interested parties to submit
their views, before 1 August 1998, on how industry and commerce could best contribute
to tackling climate change. He also met a wide range of what the government refers
to as ‘stakeholder groups’ to discuss the issues involved.31 Finally, with the support
of a task force of senior civil servants from HM Treasury, the former DETR,32 from
the DTI33 and from Customs,34 he published a 64-page report in November of the
Hypothecation can take a number of subtly different forms (ibid., pp. 45–51, referring to
Charging for Government: User Charges and Earmarked Taxes in Principle and Practice,
ed. by R.E. Wagner (London and New York: Routledge, 1991) and M. Wilkinson, ‘Paying
for Public Spending: Is There a Role for Earmarked Taxes?’ (1994) 15 FS 119–35.
24 See 2002 paper, Table 7.1.
25 Advisory Committee on Business and the Environment, Climate Change: A Strategic
Issue for Business, March 1998 (London: Department of Transport, Environment and the
Regions, 1998). See para. 4.2.1.4 above.
26 See Dieter Helm, Energy, the State, and the Market: British Energy Policy since 1979,
revised edition (Oxford: Oxford University Press, 2004), p. 354.
27 See Department of the Environment, This Common Inheritance: Britain’s Environmental
Strategy, 1990 (Cmnd 1200, 1990), pp. 271–8.
28 Sir Colin had become Lord Marshall of Knightsbridge by the time of the publication of his
report in November 1998. As Helm points out, ‘Marshall had not been previously known
for his environmental expertise, but he did have wide industrial experience, and therefore
could be regarded as better able to ‘sell’ an unpopular tax to industry’ (see Helm, op. cit.,
p. 354).
29 Hansard HC, 17 March 1998, cols 1108–9.
30 See Helm, op. cit., pp. 354–5.
31 See 2002 paper, para. 7.26.
32 See para. 4.2.1.2(1) above.
33 Ibid.
34 See para. 4.2.1.2(2) above.
Design and Implementation 241
same year.35 The evidence collected in this period of just over four months, and set
forth in the Marshall Report, seems to represent the extent of the consultation and
active evidence collection involved in the production of the Marshall Report. A total
of around 140 individuals, companies and other organisations had responded to the
original request for views.36
The Marshall Report concluded that ‘the leading option for a tax would appear to be
a downstream tax on the final use of energy by industrial and commercial consumers’,
rather than an upstream carbon tax on energy suppliers, with the rates of tax reflecting
‘a(chǎn)t least in broad terms’ the carbon content of different fuels.37 However, Marshall
cautioned that the design of any tax should ensure that combined heat and power
(‘CHP’) was not disadvantaged and that the tax should aim, wherever possible, ‘to
increase incentives for the take-up of renewable sources of energy’.38 The report
also recommended the full ‘recycling’ of tax revenues to business, possibly through
carbon trust-type schemes, and that any measures taken should be ‘subject to detailed
consultation about their design’.39
When the Chancellor made his Budget speech in March 1999, he confirmed that
the government had decided to implement Marshall’s recommendations from April
2001.40 The Chancellor also announced that the levy would be brought in, after
further consultation with the industry, on a revenue-neutral basis, with ‘no overall
increase in the burden of taxation on business’.41 To this end, the introduction of the
levy would be accompanied by a reduction in the main rate of employers’ NICs42
from 12.2 per cent to 11.7 per cent.43
The Chancellor’s announcement was followed by a further period of consultation
with various interested parties, during which the Rt Hon. Patricia Hewitt, at that
time the Financial Secretary to the Treasury,44 was asked to make a statement in the
House of Commons,45 on 24 June 1999, on the climate change levy generally. The
Minister described in broad terms the purpose of the levy, briefly explained why the
government expected the levy to involve no increase in the overall burden of tax on
business, and recognised a need for the government to give special consideration to
the position of energy-intensive industries. The purpose of the levy was to encourage
energy efficiency in business, which in turn would enable the government to meet
its target for reducing greenhouse gas emissions laid down by the Kyoto Protocol.46
There would be no increase in the overall burden of tax on business, since the revenue
35 Lord Marshall, Economic Instruments and the Business Use of Energy (London: HM
Treasury, 1998).
36 Ibid., Table A.3, p. 34.
37 Ibid., p. 21.
38 Ibid., p. 3.
39 Ibid., p. 2.
40 See 2002 paper, para. 7.27.
41 See Hansard HC, 9 March 1999, col. 181.
42 See para. 1.4.3.1 above.
43 See Hansard HC, 9 March 1999, col. 181.
44 See para. 4.2.1.2(2) above.
45 See para. 4.2.1.1(1) above.
46 As modified by the EU burden-sharing agreement (see para. 8.3.1.4 above).
242 Environmental Taxation Law
raised by the levy would fund a 0.5 per cent cut in the main rate of employer’s
NICs. The position of energy-intensive industries would be reflected in lower rates
of levy for those energy intensive sectors which agreed targets with the government
for improving the efficiency of their energy consumption.47
Mrs Hewitt had revealed the fact that negotiations between the government and
representatives of energy-intensive industry sectors were already ongoing when she
made her Parliamentary statement on 24 June 1999. On 27 July 1999, a matter of
some four weeks later, the Treasury announced that three Ministers, including Mrs
Hewitt, had met representatives of these sectors.48 Mrs Hewitt stressed that it was the
Government’s wish to co-operate, not only with industry, but with other interested
parties, in order to make sure that the “environmental effectiveness” of the projected
climate change levy was maximised, while attempting to ensure that the levy did not
compromise the competitiveness of industry. In the same announcement, Mrs Hewitt
indicated that the exemption for coal and gas used in chemical reactions would be
extended to electricity, following representations on the point.49
In his Pre-Budget Statement of 9 November 1999,50 the Chancellor of the
Exchequer announced further structural amendments to climate change levy. These
amendments had two main strands, one of which was the introduction of climate
change agreements51 and the measures needed to implement them.52 The other
strand was described as a recognition of the need to increase the environmental
effectiveness of the levy. This was to be achieved in two ways: by the exemption
from the levy of electricity generated from renewable sources of energy and good
quality CHP stations;53 and by the creation of a further bolster to the levy in the
form of the introduction, from the tax year 2001/2002,54 of enhanced income tax
and corporation tax relief for expenditure on energy-saving investments.55 The 2002
Treasury paper referred to above sees the exemptions for renewable source and CHP
electricity56 as evidence of the government’s willingness to compensate sectors that
would otherwise have been particularly badly affected by the introduction of the
47 See House of Commons Written Answers, vol. 110, cols 461, 462, 24 June 1999. On the
same occasion, Mrs Hewitt gave a somewhat elliptical explanation for the imposition of
the levy on CHPs, as originally envisaged (see para. 14.4 below).
48 HM Treasury Press Release, 27 July 1999 (reproduced in [1999] SWTI 1348). The Rt
Hon. Michael Meacher, MP, the Environment Minister, and Mr John Battle, MP, the Trade
and Industry Minister, were the other ministers involved.
49 [1999] SWTI 1348, 1349.
50 See Hansard HC, 9 March 1999, col. 889.
51 See para. 1.4.2.2(1) above and para. 14.6 below.
52 See HM Treasury Press Release, 9 November 1999 (reproduced in [1999] SWTI 1818).
53 As envisaged at the time, ‘renewable energy sources’ would included solar power, wind,
wave and tide and hydroelectricity; solid renewables, such as wood, straw and waste;
and gaseous renewables such as landfill and sewage gas (see HM Customs and Excise,
Budget 99: A Climate Change Levy – A Consultation Document (HM Customs and Excise:
London, 1999), p. 4).
54 That is, from April 2001.
55 See HM Treasury Press Release, 9 November 1999 (reproduced in [1999] SWTI 1816).
56 The exemptions were enacted as Finance Act 2000, Sched. 6, paras 15 and 19 (see paras
14.4 and 14.5 below).
Design and Implementation 243
levy and underscores the point by stating that the levy was designed to be revenueneutral
and that it was not designed to apply to the domestic sector because of issues
of fuel poverty.57 Likewise, the same document sees the enhanced income tax and
corporation tax relief, in the form of generous capital allowances, as evidence of the
government’s commitment to support investment in new technology in order to ease
adjustment to the levy. These measures were eventually enacted, to coincide with the
introduction of the levy, in the Finance Act 2001.58
Published with the 1999 Pre-Budget Report was a detailed description of the design
of climate change levy.59 Useful though this description was, practitioners had to
wait until 26 November 1999 for Customs to publish drafts of the clauses creating
the levy, designed to be included in Finance Bill 2000.60 On 11 November 1999,
as the draft clauses were being awaited, Mr Stephen Timms MP, the new Financial
Secretary to the Treasury, had emphasised that any expectations that particular sectors
or firms had, for being exempted from the levy, would be disappointed.61 Just before
Christmas 1999, it was confirmed that the Secretary of State and representatives of
energy-intensive sectors had reached climate change agreements.62
Climate change levy passed into law in the Finance Act 2000, although it was
expressly provided that any supply made before 1 April 2001 was excluded from its
scope.63 Thereafter, although the rates of the levy have been reviewed annually as
part of the Budget process, they have so far remained unchanged.64 The impact of
the levy is being monitored by Customs, with details of the environmental outcomes
being published, not only in pre-Budget report documentation but that relating to the
Budgets themselves.65 The government’s commitment to future policy flexibility,
with the climate change levy is reflected, says the 2002 Treasury paper, in two
developments that have occurred since its introduction in April 2001: the introduction
of the general exemption for electricity produced in good quality CHP stations66 or
from coal mine methane67 and from certain secondary recycling processes;68 and
the introduction of the UK ETS in April 2002,69 with its link to the levy via climate
change agreements.70
57 See 2002 paper, Table 7.1.
58 See Capital Allowances Act 2001, ss.45A–45C, as inserted by Finance Act 2001, s.65,
and Sched. 17, para. 2.
59 Reproduced in [1999] SWTI 1794–1798.
60 See House of Commons Written Answers, vol. 339, col. 255, 26 November 1999.
61 Ibid., vol. 337, col. 768, 11 November 1999.
62 See Brown, Financial Times, 22 December 1999, p. 3.
63 Finance Act 2000, Sched. 6, para. 10.
64 See 2002 paper, Table 7.1. The levy rates as finally enacted are given in paras 14.1 and
14.2 below.
65 2002 paper, Table 7.1.
66 Finance Act 2002, s.123(1), inserting new para. 20A in Sched. 6, Finance Act 2000.
67 Ibid., s.126, inserting new paragraph 19(4A) in Sched. 6, Finance Act 2000.
68 Business Brief 18/02, Climate change levy – new exemption for certain recycling
processes, 8 July 2002.
69 See para. 1.4.2.2(2) above.
70 See 2002 paper, Table 7.1. See para. 14.6 below.
244 Environmental Taxation Law
11.3.2 Aggregates levy
Whereas the goal of climate change levy has an international significance, that of
aggregates levy is much more specific, possibly even parochial. Also, whereas climate
change levy is one of three economic instruments designed to tackle climate change,
aggregates levy is the key regulatory instrument in relation to mineral extraction.71
With some linguistic imprecision, the 2002 Treasury paper describes the goal of
aggregates levy as being ‘to tackle the environmental costs of aggregate extraction
including noise, dust, visual intrusion and biodiversity loss’.72 At the same time, the
government has stressed that it is essential that there continues to be an adequate
supply of aggregates.73
The government approached the issue of whether or not to create, as it was originally
called, an ‘a(chǎn)ggregates tax’, with considerable dedication, if not zeal.74 In his very first
Budget speech, barely eight weeks after the current government was first returned in
1997, the Chancellor announced that he was considering the imposition of a tax on
aggregates extraction, together with one on water pollution:75
The extraction of aggregates – including stone, sand and gravel – involves significant
environmental costs and damage to the landscape, which may go beyond that recognised
in the scope and level of the landfill tax. Too little is also being done to discourage water
pollution. The environmental case for charges on polluters needs to be examined carefully.
After a period of consultation, I will return with any proposals in those two areas in my
next Budget.76
This was the early signal that intervention in the market for primary aggregates was
likely, although it is not identified as such in the 2002 paper.77 The DETR accordingly
commissioned a research project from London Economics78 which, beginning in
September 1997, undertook an investigation of the environmental costs and benefits
of the supply of aggregates.79
The London Economics report was published by the DETR in April 1998.80 It
indicated, as many had expected that it would, that aggregates extraction had
considerable environmental costs which were not already subject to regulation.81 It
also identified a number of areas in which further work would be necessary, since it
had only been possible to take a small sample of sites and the work, which involved
71 The other being town and country planning regulation.
72 See para. 5.3 above, quoting 2002 paper, Table 7.1, p. 42.
73 See, for example, HM Treasury, Pre-Budget Report 1998, 3 November 1998, para. 5.60.
74 See para. 13.1 below.
75 See para. 21.9 below.
76 The aggregates tax proposals obviously progressed; the water tax proposals did not (see
para. 21.9 below).
77 See 2002 paper, Table 7.1, p. 42.
78 A private sector specialist economics consultancy (see www.londecon.co.uk).
79 See Phase Two, para. 1.1.
80 That is, The Environmental Costs and Benefits of the Supply of Aggregates, above.
81 That is, mainly the town and country planning legislation (see para. 6.6 above).
Design and Implementation 245
a fairly novel methodology, had been carried out in a relatively short time.82 The
DETR therefore asked David Pearce83 and Susana Mourato, of University College,
London, to review the work (which became ‘Phase One’ of the research) and to
identify possible improvements to it. Although they did suggest a number of ways
of improving the methodology, in June 1998 Pearce and Mourato concluded that,
given Phase One’s objectives, the methodology was appropriate.84 The government
then commissioned further research from London Economics, the nature and scope
of which has been discussed in an earlier chapter.85 The results of this research,
referred to above as ‘Phase Two’, were accordingly published, again by the DETR,
on 9 March 1999.86 The work undertaken consisted of a combination of:
1 an assessment of local impacts through a survey of just under 10,000 people
within five miles of ‘representative’ sites, interpreted as involving an average
environmental cost of 70p per tonne; and
2 a separate national survey of public attitudes to measure the cost of quarrying in
areas designated for special protection from development, for example, National
Parks and Areas of Outstanding Natural Beauty, interpreted as involving external
costs of £6 per tonne.
The DETR concluded that ‘the costs of quarrying Britain’s construction aggregates
– in terms of local and national environment – are significant’, putting the annual
cost at £250m.
This considerable amount of work was designed to establish the long-term goal
of a prospective tax and, as mentioned in the 2002 paper, was part of the process of
evidence collection.
Meanwhile, in June 1998, Customs had issued a consultation paper on a potential
aggregates tax, proposing a conceptually similar tax to landfill tax, which would be
charged on a volume basis and applied at the point of first sale, use or transfer of the
material away from the site of extraction.87 This was the beginning of a consultation
period that was eventually to last for the best part of two years, no doubt justifying
the 2002 paper in its claim that there was an extensive consultation with the industry
from 1998 onwards.88 Five months later, the Quarry Products Association (‘the
QPA’)89 offered an alternative to a tax in the form of a set of voluntary measures. The
82 That is, something over seven months.
83 According to Helm, op. cit., p. 346n, David Pearce had been a significant influence on This
Common Inheritance (see para. 11.3.1n above) and especially its advocacy of economic
instruments.
84 See Environmental Costs and Benefits of the Supply of Aggregates: A Review of the
London Economics Report (see para. 5.5n above).
85 Ibid.
86 The DETR said that this research was ‘one factor’ to be taken into account by the
Chancellor of the Exchequer.
87 See HM Customs and Excise, Consultation on a Proposed Aggregates Tax, 15 June
1998.
88 See 2002 paper, Table 7.1, p. 42.
89 See para. 2.5 above.
246 Environmental Taxation Law
Chancellor referred both to the offer of voluntary measures and to the consultation
process in his Pre-Budget Report of 3 November 1998, reiterating that, in the light of
the responses to the consultation and of the proposals made by the aggregates industry,
the government was still considering the imposition of a tax.90 At this stage, however,
the Pre-Budget Report simply confirmed that Ministers had offered to consider the
industry’s proposals for some alternative to the imposition of a tax. Whatever these
proposals were, they would, however, ‘have to amount to a deliverable package of
measures which would permanently secure equivalent or greater benefits than a
tax’.91 Nonetheless, the Pre-Budget Report referred with approval to the fact that the
industry had latterly taken certain steps to curtail its activities in the National Parks,
and indicated that there might be scope to build on that positive approach in dealing
with the remaining environmental impacts of the industry’s activities.92
This somewhat conciliatory approach was still in evidence on Budget Day 199993
when, referring to the publication of the Phase Two report,94 the Economic Secretary
to the Treasury,95 said:
… [B]efore coming to a final decision on whether to proceed with a tax, the Government
would first like to pursue the possibility of an enhanced voluntary package of environmental
improvements with the industry. Should the industry not be able to commit to an acceptably
improved offer, or fail to deliver an agreed package of voluntary measures, the Government
would [sic] introduce a tax.96
The Economic Secretary accordingly announced that Ministers would be meeting
representatives of the quarrying industry to begin these negotiations. In the
atmosphere of all this co-operation, it was therefore somewhat surprising when, in
April 1999, Customs issued a summary of the responses to its June 1998 consultation,
together with a set of draft legislative provisions.97 Undeterred, the QPA submitted
a revised package of voluntary measures in July 1999, but these again proved to be
unacceptable to the government. In the Pre-Budget Report of November 1999, the
Chancellor looked for more:
The Quarry Products Association submitted a revised package of voluntary environmental
measures to the Government in July. The Government welcomed this package, which
shows some improvement on their original package, notably in the areas of aggregates
transport and air quality. In particular there is an extra £20 million a year from seven major
companies to promote and develop recycling. But this continues to fall short of what is
necessary to match the overall environmental and economic effects of a tax on primary
90 See Pre-Budget Report 1998, para. 1.33.
91 Ibid., para. 5.63.
92 Ibid.
93 That is, 9 March 1999.
94 See above in this para.
95 See para. 4.2.1.2(2) above.
96 See HM Treasury News Release HMT 8, Reducing the Environmental Impact of
Quarrying, 9 March 1999.
97 Customs and Excise News Release, 30 April 1999, reproduced in [1999] SWTI 859,
881.
Design and Implementation 247
aggregates. So the Government is minded to introduce a tax in the next Budget unless the
industry can further improve on this package.98
For one reason or another, the QPA failed subsequently to improve on their July 1999
package. The relevant part of the 2000 Budget Report reads as follows:
Since the [1999] Pre-Budget Report, there have been further discussions about the content
of the industry’s voluntary package. But the industry has made delivery of the voluntary
package conditional on undertakings from the Government on procurement policy which
were unacceptable. The Government has therefore decided to introduce an aggregates
levy99 which will come into effect from April 2002.100
The 2,002 paper is adamant that the consultation process that had ended so
unsuccessfully for the industry is evidence of the government’s willingness to
consider a voluntary approach to the problem of environmental damage caused by
aggregates extraction.101 The postponement of the commencement of the levy for
another two years from the date on which its introduction was announced constituted,
according to the 2002 paper, an early signal of the choice of economic instrument,
comparable to the way in which climate change levy had been announced in the 1999
Budget, for implementation in 2001.102
The outline of the tax offered in the 2000 Budget Report shows how much
importance the government attached to the ideas of recycling revenue,103 of making
a commitment to supporting new technology to ease adjustment and of compensating
the groups who would be hardest hit by the tax:104
To further the Government’s aim of shifting the burden of taxation from ‘goods’ to ‘bads’
the revenues from the levy will be fully recycled to the business community through a
0.1 percentage point reduction in employers’ NICs and a new Sustainability Fund. The
Government will be consulting shortly on how this fund can best be used to deliver local
environmental improvements.105
Accordingly, in June 2000, Customs issued draft clauses for comment, and, in August
2000, the government consulted on the best uses for the sustainability fund which it
was proposing to sent up with the benefit of receipts from the tax. In the Pre-Budget
98 See Stability and Steady Growth For Britain, 1999 (Cm 4479, 1999), para. 6.95. Despite
the ominous tone of the Pre-Budget Report, the quarrying industry remained confident
that an aggregates tax would not be introduced, after all (see, for example, Daniel Lyons
and Richard Mackender, ‘The Environment and the Pre-Budget Report’, TJ, 29 November
1999, pp. 11–12).
99 Note the change of name (see para. 13.1 below).
100 HM Treasury, Budget Report 2000, 21 March 2000, para. 6.90.
101 See 2002 paper, Table 7.1, p. 42.
102 Ibid., Table 7.1, p. 42.
103 A point which is reflected in the relevant statutory provisions also (see Finance Act 2001,
s.44).
104 See 2002 paper, Table 7.1, p. 42.
105 HM Treasury, Budget Report 2000, 21 March 2000, para. 6.94.
248 Environmental Taxation Law
Report of November 2000, the Chancellor announced that the government would
allocate £35 million to the aggregates levy sustainability fund (‘ALSF’), and that it
would be introduced in April 2002, along with the levy itself.
In July 2000, the QPA, having failed to stop the levy, had submitted a proposal for
reductions in tax rates if the industry reached defined environmental standards. In
the 2001 Budget, the Chancellor announced that he was interested in principle in the
idea of a differentiated rate of tax,106 a point which might be taken to substantiate the
claim made in the 2002 paper that rates of tax would be reviewed annually, as part
of the Budget process.
The levy duly began operation on 1 April 2002, pursuant to the Treasury power
contained in Finance Act 2001107 to provide for its commencement date by statutory
instrument.108 An application by the British Aggregates Association109 for judicial
review of the legislation, based, among other things, on alleged breaches of
Community law and of the European Convention on Human Rights, was dismissed
by Moses, J. on 19 April 2002.110
11.4 Review of landfill tax
When the present government came to power in May 1997, landfill tax had already
been in operation for seven months.111 The goals of the tax, as originally articulated,
were:
– [t]o ensure that landfill waste disposal is properly priced, which will promote greater
efficiency in the waste-management market and in the economy as a whole; and
– To apply the ‘polluter-pays’ principle and promote a more sustainable approach to waste
management in which we produce less waste, and reuse or recover value from more
waste.112
As reformulated in the 2002 paper, the tax’s goals are ‘to internalise the environmental
costs of landfill’, exemplified by methane emissions, nuisance and groundwater
106 HM Treasury, Budget 2001: Investing for the Long Term – Building Opportunity and
Prosperity for All, 7 March 2001 (see [2001] SWTI 475, 479).
107 See Finance Act 2001, s.16(6).
108 Finance Act 2001, Section 16, (Appointed Day) Order 2002, S.I. 2002 No. 809.
109 See para. 2.5 above.
110 See R (on the application of British Aggregates Association and Others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51. See paras 12.1, 12.3.3.1 and 12.3.5
below.
111 See Jane Powell and Amelia Craighill, ‘The UK Landfill Tax’, in O’Riordan, op. cit.,
pp. 304–18; Bob Davies and Michael Doble, ‘The Development and Implementation of
a Landfill Tax in the UK’, in Organisation for Economic Co-operation and Development,
Addressing the Economics of Waste (Paris: OECD, 2004), pp. 63–80; and Inger Brisson, ‘The
UK Landfill Tax’, in Environmental Policy: Objectives, Instruments, and Implementation,
ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 260–80.
112 See HM Customs and Excise, ‘Landfill Tax’, A Consultation Paper, 1995, quoted in
Powell and Craighill, op. cit., p. 307.
Design and Implementation 249
pollution; to give better price signals for alternatives to landfill; and to assist meeting
waste targets in the most efficient way.113 The last of these marks a significant shift
in policy, since, in order to ‘steer’ behaviour, the level of the tax will be vastly in
excess of the externalities which it was originally introduced to address.114 The tax
was originally, and continues to be, chargeable on taxable disposals of material as
waste, by way of landfill, at landfill sites.115
The 2002 Treasury paper places some emphasis on the fact that, despite116 landfill
tax’s origins as a creation of the previous administration, the government continues
to review, gather evidence and consult117 on the operation of the tax.118 The paper
also stresses that, not only is revenue from the tax recycled, via the landfill tax credit
scheme (that is, the LTCS),119 but that the rates of the tax are reviewed annually as
part of the Budget process and, specifically, as part of the Prime Minister’s Strategy
Unit120 report on waste policy.121 In relation to the former, it draws attention to the
consultation launched in April 2002 on changes to the LTCS, especially on its funding
priorities and on the way in which it is itself funded.122 The consultation resulted in the
changes to the LTCS made in April 2003, although these were of course subsequent
to the publication of the Treasury paper itself.123 The Chancellor’s announcement
in the 1999 Budget Report of the escalator in the rates of tax with effect from April
2000124 is taken in the Treasury paper as an example of an early signal of the choice
of an economic instrument, in this case to deal with the obligations imposed by
the Landfill Directive.125 A similar point might also be made of the second stage
of the escalator, that is, the announcement in the 2002 Pre-Budget Report of the
increase (‘revenue neutral to business as a whole’) in the rate of landfill tax to £35,
by instalments of at least £3 per annum, starting in 2005.126 Davies and Doble have
the following comment:
From a starting point of seeking to internalise externalities and incentivize sustainable waste
management, policy considerations have changed the focus … [the increases in the rate of
113 See para. 5.3 above.
114 See Davies and Doble, op. cit., p. 78.
115 See para. 1.4.2.1(1) above and para. 15.2 below.
116 Or perhaps ‘because of’.
117 The first consultation on the tax instituted by the government began as early as January
1998 (see 2002 paper, Table 7.1, p. 42).
118 See 2002 paper, Table 7.1, p. 42.
119 See para. 4.2.1.2(2)n above.
120 See para. 4.2.1.2(1) above.
121 See 2002 paper, Table 7.1, p. 43.
122 See HM Treasury News Release 35/02, Consultation on Landfill Tax Credit Scheme
Published, 17 April 2002.
123 See the Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605. See also para.
21.3.2 below.
124 The 2002 paper misattributes this to the 1999 Pre-Budget Report (see Table 7.1, p. 42),
whereas it was actually announced eight months earlier in the 1999 Budget itself (see Pre-
Budget Report 1999, para. 6.86). See also para. 15.1 below.
125 See para. 6.3.2.4 above and para. 12.2.5.1(2)(b) below.
126 See Pre-Budget Report 2002, para. 7.51 (see [2002] SWTI 1562, 1577).
250 Environmental Taxation Law
tax] … have been driven by an acceptance that landfill tax must be increased to achieve
behavioural change, through closing the cost gap on methods of diversion from landfill and
ultimately to contribute to the incentive to achieve diversion to meet EU Landfill Directive
targets on municipal waste.127
It is difficult to avoid the conclusion that landfill tax rates are such as to suggest
that the tax is, or will be, more in the nature of an environmental penalty than an
environmental tax. Such is the extent of the policy change that has resulted from the
ongoing review referred to above.
11.5 Concluding comments
It will be appreciated from the discussion in this chapter that, whilst certainly taxes as
traditionally understood,128 the UK’s three main environmental taxes have features
which set them apart from most other taxes.
The key unusual feature which is common to all of them is their potential for
steering behaviour129 but there is also the hypothecation or, in the case of landfill
tax, quasi-hypothecation, of the revenue raised by them.
What is striking about the application of the RIA approach to designing and
implementing aggregates levy and climate change levy is that has introduced an
element of bargaining into the decision as to whether to introduce new environmental
taxes. The relative bargaining strengths of the governmental and industrial actors may,
however, mean that taxes are more likely to be imposed on some sectors of industry
than on others. The quarrymen’s trade association was, after all, conspicuously less
successful in negotiating the imposition of aggregates levy than were the energyintensive
sectors of industry in negotiating the introduction of climate change levy.
Finally, the soon-to-be penal levels of landfill tax raise the question of whether
the tax stands to be transformed from a tax to a penalty. It is certainly no longer a
Pigouvian tax,130 properly so-called. This may conceivably be important, since taxes
are usually deductible in the calculation of profits for the purposes of income tax and
corporation tax, whereas fines are not.131 In any event, there has certainly been a
considerable shift in the policy which landfill tax is being used to advance since its
introduction in 1996.
127 Davies and Doble, op. cit., p. 77.
128 See Chapter 7 above.
129 Which, since they are consciously designed so to do, means that they do not, apparently,
infringe the neutrality principle (see John Tiley, Revenue Law, 4th edn (Oxford: Hart
Publishing, 2000), p. 11. See para. 1.2.1.5(2) above.
130 See para. 5.4n above.
131 See McKnight v. Sheppard, [1999] STC 669.
Chapter 12
Community Law Aspects
12.1 Introduction
This chapter seeks to examine how the design of the UK’s environmental levies and
subsidies is shaped by its status as a Member State of the EU. In practice, this may be
the single most significant constraint on the design and implementation of the UK’s
environmental taxes and other economic instruments.
Throughout the study, and whatever the particular context in which we have
sought to locate the UK’s environmental taxes and other economic instruments, the
rules and institutions of Community law have never been far away. In Chapter 4,
we indicated how the ECJ has a role to play in determining the compatibility of
UK tax law with the European Treaty.1 In Chapter 4 also, as part of our analysis of
the institutional framework of the UK’s environmental taxes and other economic
instruments, we described those Community institutions with some responsibility
or other for environmental law and policy and for tax law and policy.2 The UK’s
obligations as an EU Member State underlay the technical justifications for the green
levies and subsidies discussed in Chapter 5. The overview of UK environmental and
market regulation offered in Chapter 6 stressed the Community origins of much of
the material, whilst reserving discussion of its detail until now.3 In Chapter 7, we
reviewed the insights provided by the jurisprudence of the ECJ into the concept of a
tax, as distinct from related concepts.4 Finally, in Chapter 8, we considered the impact
of international environmental law and international trade law on the environmental
taxation law of the UK as an EU Member State. The arrangement of the material in
the present chapter reflects the principal concerns of these earlier chapters.
The current chapter is divided into two main parts. Of these, the more extensive
is paragraph 12.2, which begins by examining those aspects of Community
environmental law that have shaped the domestic environmental regulation discussed
in Chapter 6 above. These are the Integrated Pollution Prevention and Control (‘IPPC’)
regime; the Community’s Environmental Action Programmes; and Community
procedures for evaluating the likely environmental impacts of certain construction
projects. The first of these provides a convenient basis for much UK domestic
legislation (including climate change levy), while the second, in setting out the main
environmental priorities of the Community, supplies the technical justification for
both Community and domestic legislation in specific areas.5 Subsequent parts of
12.2 are devoted, respectively, to Community waste management regulation and to
1 See para. 4.3.7 above.
2 See para. 4.3 above.
3 See Chapter 6 above, generally, esp. paras 6.2.1, 6.3.1 and 6.4.1.
4 See para. 7.2.2.3 above.
5 See paras 12.2.1–12.2.3 below.
252 Environmental Taxation Law
Community regulation of air and atmospheric pollution.6 An important element of
the former is the definition of ‘waste’, as used in the Waste Framework Directive
(‘the WFD’).7 That definition had formerly been seen as being entirely separate from
the one applicable for landfill tax; a discussion of the WFD definition has, however,
been included, following a recent decision of the Court of Appeal which seems to
recognise the possibility of a link between the definition of ‘waste’ for landfill tax
purposes and the objectives of the WFD.8 The discussion of air and atmospheric
pollution control includes an overview both of Community energy law and of
Community transport law.9 Each of these overviews is necessary, not only for the
environmental aspects of energy and transport law, but also for the implications of
the structures thereby created for both the design of UK environmental taxes and
environmental instruments and the prospects for their ultimate success or failure.10
Since both environmental and energy policy usually involve the outlay of state
resources, paragraph 12.2 ends with a brief discussion of the significance of state
aids, both in combating air and atmospheric pollution and in the energy and transport
sectors more generally.11
The latter part of the present chapter12 mainly concerns the impact of Community
tax law rules on the development of the UK’s environmental taxes and economic
instruments. The discussion unfolds, of course, against the background of the fiscal
veto13 and the essentially ‘national’ character of the instruments covered in the present
study. After an overview of the relevant issues, the discussion examines the division
of taxing powers between the Community and the Member States;14 the ban on fiscal
barriers to trade, including the prohibition on discriminatory internal taxation15 and the
prohibition on customs duties and, more importantly here, charges having equivalent
effect.16 Woven into the discussion in paragraph 12.3 are discussions of the cases
in which various national attempts at creating green levies have received judicial
attention. Most often, the relevant tribunal has been the ECJ but, as has already been
mentioned,17 the validity of the UK’s aggregates levy in terms of Community law
has been tested and upheld before a UK national court18 and the relevant aspects of
this decision are incorporated into the discussion as appropriate. Paragraph 12.3 ends
6 See P.G.G. Davies, European Union Environmental Law (Aldershot: Ashgate, 2004), chs
7 and 8.
7 Council Directive 75/442/EEC, (1975) OJ L194 39.
8 See Parkwood Landfill Ltd v. Customs and Excise Commissioners, [2002] STC 1536. See
also paras. 6.3.2.1 above and 15.3 below.
9 See paras. 12.2.6.3 and 12.2.6.4 below. This mirrors the discussion of UK energy and
transport law and policy in paras. 6.4 and 6.5 above.
10 See Chapter 21 below.
11 See para. 12.2.7 below.
12 See para. 12.3 below.
13 See para. 4.3.1 (point 1) above.
14 See para. 12.3.2 below.
15 See para. 12.3.3.1 below.
16 See para. 12.3.3.2 below.
17 See para. 8.4.5.1 above.
18 In R (on the application of British Aggregates Associates and Others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51. See para. 12.3.3.1 below.
Community Law Aspects 253
with a discussion of recent measures to harmonise excise duties on fuel products19
and a review of the application of the law on state aids, as introduced earlier in the
chapter, to the specific context of environmental levies and subsidies.20
The final part of the chapter briefly discusses a hypothetical issue for environmental
levies, in the context of the Community rules on free movement of goods in Arts 28–
31, European Treaty (ex 30, 34, 36 and 37).21 Partly in view of the relative familiarity
of those rules, partly also because of the hypothetical nature of the issue there
discussed and partly because of the overall length of the chapter, the explanation of
the relevant Treaty Arts and case law in that part has been kept to the bare minimum
necessary to elucidate the issue concerned.
Evidently, the inclusion of such a wide range of material has not made for a concise
chapter. The writers are firmly of the view, however, that, it is not possible to assess the
true significance of the levies and subsidies that form the subject matter of the present
study without an appreciation of their European regulatory and taxation context.
12.2 Regulatory aspects
12.2.1 General
Community environmental law constitutes a regional regime of international
environmental law which, since 1 May 2004, has applied directly to 25 European
countries.22 By Art. 2 of the European Treaty, the Community is tasked, among other
things, with promoting ‘… a harmonious, balanced and sustainable development of
economic activities … [as well as] … a high level of protection and improvement
of the quality of the environment’, Art. 3(1)(l) stipulating that the activities of the
Community are to include ‘a(chǎn) policy in the sphere of the environment’.23
The listing of a high level of protection and improvement of the quality of the
environment as an independent goal in Art. 2, rather than as an incidental requirement
of economic growth, was an achievement of the Treaty of Amsterdam which,
although it was signed in 1997, only came into effect on 1 May 1999.24 Provisions on
environmental protection had first appeared in the European Treaty as a result of the
amendments made to it by the 1986 Single European Act (‘the SEA 1986’) but this
had not deterred the Community from adopting environmental legislation under the
Treaty powers conferred on the Council for the harmonisation of laws affecting the
establishment or functioning of the common market,25 and under the powers, also
19 See para. 12.3.4 below.
20 See para. 12.3.5 below.
21 See para. 12.4 below.
22 See Philippe Sands, Principles of International Environmental Law, 2nd edn (Cambridge:
Cambridge University Press, 2003), p. 733; Joanne Scott, EC Environmental Law
(London: Longman, 1998); and European Environmental Law, ed. by Ludwig Kramer
(Aldershot: Ashgate/Dartmouth, 2003).
23 The expression ‘the environment’ is not, however, defined. See para. 1.2.1.5(1) above.
24 See Paul Craig and Gráinne de Búrca, EU Law: Text, Cases and Materials, 3rd edn
(Oxford: Oxford University Press, 2003), pp. 29–42, esp. pp. 30 and 32.
25 That is, Art. 94, European Treaty (ex 100).
254 Environmental Taxation Law
conferred by the Treaty on the Council, for adopting measures necessary for attaining
one of the Treaty objectives but for which the Treaty had not provided the necessary
powers.26 Amsterdam also saw the inclusion of a new article, now Art. 6, European
Treaty (ex 3c), of a requirement that ‘[e]nvironmental protection requirements …
be integrated into the definition and implementation of … Community policies and
activities …, in particular with a view to promoting sustainable development’. Thus,
as we shall see, Community policy on both energy and transport has a strongly
‘environmental’ dimension.
In its current form, Art. 174(1), European Treaty (ex 130r) states that the Community
policy on the environment must contribute to the pursuit of four objectives:
– preserving, protecting and improving the quality of the environment;
– protecting human health;
– prudent and rational utilisation of natural resources; [and]
– promoting measures at international level to deal with regional or worldwide
environmental problems.27
Article 174(2) elaborates these four objectives by stating that Community policy
on the environment is to ‘… aim at a high level of protection taking into account
the diversity of situations in the various regions of the Community’. Accordingly,
continues Art. 174(2), Community environmental policy is to be based on the
precautionary principle, the preventive principle, the proximity principle and the
polluter pays principle.28 The application of the precautionary principle to Community
policy on the environment was yet another achievement of the Amsterdam Treaty,29
although the inclusion of the other three principles dated back to the SEA 1986.30
Article 174(3) provides that Community action on the environment must take account
of available scientific and technical data, environmental conditions in the various
regions of the Community, the potential benefits and costs of action or lack of action
and the economic and social development of the Community as a whole and the
balanced development of its regions.
By Art. 175, European Treaty (ex 130s), decisions on any action to be taken by
the Council to achieve the four objectives in Art. 174(1) are usually to be taken
by qualified majority voting.31 One of the exceptions to this, of course, is where
the decision relates to a provision primarily of a fiscal nature, in which case the
decision must be unanimous.32 Art. 176, European Treaty (ex 130t) specifically
allows Member States to maintain or introduce more stringent protective measures,
provided they are compatible with the Treaty and notified to the Commission.
26 That is, ibid., Art. 308 (ex 235).
27 See the commentary on the four objectives in Maurice Sunkin, David Ong and
Robert Wight, Sourcebook on Environmental Law, 2nd edn (London: Cavendish, 2002),
pp. 18–27.
28 See para. 8.2.6 above. The proximity principle is also known as ‘the rectification-at-source
principle’.
29 See Sands, op. cit., p. 271.
30 Ibid., p.743.
31 Ibid., Art. 175(1).
32 Ibid., Art. 175(2). See para. 4.3.1 (point 1) above.
Community Law Aspects 255
Unlike the common commercial policy,33 the common agricultural and fisheries
policy34 and the common transport policy,35 environmental policy as provided for
by Arts 174–176 is not the exclusive policy of the Community. Thus, the Community
and the Member States enjoy a shared competence in relation to environmental
regulation. However, it should be noted that, under Art. 95, European Treaty (ex 100a),
the Council may, by qualified majority,36 adopt measures for the approximation of
provisions relating to the establishment and functioning of the internal market. Such
proposals may, of course, concern environmental protection.37
12.2.2 Integrated Pollution Prevention and Control (‘IPPC’)
The Integrated Pollution Prevention and Control Directive (‘the IPPC Directive’)38
was adopted in 1996, on the basis of what is now Art. 175, European Treaty (ex
130s). Member States were given a period of three years in which to implement
its provisions, its transcription into the law of England and Wales being effected
by the Pollution Prevention and Control Act 1999 and the Pollution Prevention and
Control (England and Wales) Regulations 2000.39 Both of these measures have been
discussed in detail in Chapter 6 and our concern here is only with the IPPC Directive
itself,40 although it is perhaps worth remembering the point made there that, inter
alia, the IPPC regime has been taken to form the regulatory basis both of climate
change levy and the EU ETS.
Article 1 of the IPPC Directive states the Directive’s purpose as being to reduce
emissions from industrial activities into the air, water and land, including waste,
in order to achieve a high level of protection of the environment taken as a whole.
By Art. 3 of the IPPC Directive, Member States are required to take the necessary
measures to make sure that the competent authorities ensure that installations41 are
operated in such a way that:
1 all appropriate preventive measures against pollution are taken, especially
through the application of best available techniques (‘BATs’);
2 no significant pollution is caused;
3 waste production is avoided or, where waste is produced, it is recovered or
disposed of in such a way as to avoid or reduce environmental impact where
recovery is not possible;
33 Ibid., Art. 3(1)(b).
34 Ibid., Art. 3(1)(e).
35 Ibid., Art. 3(1)(f). See para. 12.2.6.4 below.
36 That is, under Art. 251, European Treaty (ex 189b).
37 Art. 95(3), European Treaty (ex 100a).
38 Council Directive 96/61/EC, (1996) OJ L257 26.
39 S.I. 2000 No. 1973.
40 See para. 6.2.3 above.
41 Defined as ‘a(chǎn) stationary technical unit where one or more activities [covered by the IPPC
Directive] … are carried out, and any other directly associated activities which have a
technical connection with the activities carried out on that site and which could have an
effect on emissions and pollution’ (see the IPPC Directive, Art. 2(3)).
256 Environmental Taxation Law
4 energy is used efficiently;
5 necessary measures are taken to avoid accidents and limit their consequences;
and
6 on definitive cessation of activities, necessary measures are taken to avoid any
pollution risk and to return the site of operation to a satisfactory state.
The installations that fall within the IPPC regime are listed in Annex I to the Directive.
They include installations in the energy industries,42 industries involved in the
production and processing of metals, the mineral industry,43 the chemical industry
and the waste management industry.44 The purpose of the Directive is to be achieved
by the competent authorities in Member States issuing permits to the operators of
installations carrying out the targeted activities.45 Permits must contain conditions
guaranteeing that the installation complies with the requirements of the Directive and
must otherwise be refused.46
The BAT concept is specifically defined in Art. 2(11) of the IPPC Directive.
‘Best’ means ‘most effective in achieving a high general level of protection of the
environment as a whole’; ‘a(chǎn)vailable’ refers to techniques:
… developed on a scale which allows implementation in the relevant industrial sector,
under economically and technically viable conditions, taking into consideration the costs
and advantages, whether or not the techniques are used or produced inside the Member
State in question, as long as they are reasonably accessible to the operator …47
Finally, ‘techniques’ includes ‘both the technology used and the way in which the
installation is designed, built, maintained, operated and decommissioned’.48
As originally conceived by the EC Commission, the IPPC Directive had been
intended to ensure ‘integrated permitting’ for industrial processes but, following
objections from certain Member States, the emphasis shifted to the preventative
nature of the control mechanism and away from integrating the permitting system.49
It is to be amended following the passage of the EU Emissions Trading Directive
(‘the EU ETS Directive’).50
42 That is, certain combustion installations; mineral oil and gas refineries; coke ovens; and
coal gasification and liquefaction plants.
43 That is, installations for producing cement clinker.
44 That is, installations for the disposal or recovery of hazardous waste; for the incineration
of municipal waste; and for the disposal of non-hazardous waste.
45 See Arts 4 and 5, IPPC Directive.
46 See Art. 8, IPPC Directive.
47 Ibid., Art. 2(11).
48 Ibid.
49 See Stuart Bell and Donald McGillivray, Environmental Law, 5th edn (London:
Blackstone, 2000), p. 380.
50 See Sands, op. cit., p. 754n and Chapter 28 below.
Community Law Aspects 257
12.2.3 Environmental Action Programmes
A phenomenon of no less importance to the EU aspects of environmental regulation
than the primary and secondary European legislation discussed in this chapter are
the six EU Environmental Action Programmes launched to date.51 Proposed by
the Commission52 and approved by the Council,53 they chart the development of
Community policy on the environment over a 30-year period since 1973. The policy
initiatives contained in the Programmes, together with the tools for their realisation
(such as the increased use of economic instruments) have not only shaped Community
environmental policy but have proved influential on the wider international stage.54
The current Sixth Environmental Action Programme, with its central themes of
sustainable development and the integration of environmental policies, had a long
gestation period, finally being adopted by the European Parliament55 and Council in
July 2002.56 The Programme pays special attention to four priority areas for action:
1 tackling climate change by stabilising ‘the atmospheric concentrations of
greenhouse gases at a level that will not cause unnatural variations of the earth’s
climate’. The key priority for the sixth Programme is thus the ratification and
implementation of the Kyoto Protocol to reduce greenhouse gas emissions by 8
per cent from 1990 levels by 2008–2012;57
2 protecting nature and biodiversity, with a view to protecting and restoring the
functioning of natural systems and halting the loss of biodiversity by 2010;
3 achieving a quality of environment where the levels of man-made contaminants
do not give rise to significant impacts on or risks to human health; and
4 ensuring sustainable use of natural resources and management of wastes by
ensuring that ‘the consumption of renewable and non-renewable resources does
not exceed the carrying capacity of the environment’.
The Programme considers the EU’s 8 per cent commitment to the reduction of
greenhouse gases as being a first step to a 70 per cent cut (see 1 above). Objective
3 includes a commitment to ensuring by 2020 that chemicals are produced only in
ways that do not have a significant negative impact on health and the environment.
The objective of ensuring sustainable use of natural resources, etc. (see 4 above)
includes the objective of producing 22 per cent of electricity from renewable sources
by 2010.
51 The first Programme was for the period 1973–1976; the second was for the period 1977–
1981; the third was for the period 1982–1986; the fourth was for the period 1987–1993;
and the fifth was for the period 1993–1997, subsequently extended (see Sunkin, Ong and
Wight, op. cit., p. 28). Details of the Sixth Programme are given in the text.
52 See para. 4.3.2 above.
53 See para. 4.3.1 above.
54 See Sands, op. cit., pp. 753–4.
55 See para. 4.3.3 above.
56 Decision 1600/02/EC, (2002) OJ L242 1.
57 See paras 8.2.2n and 8.3.1.4 above.
258 Environmental Taxation Law
The Programme also identifies a number of international priorities (for example,
achieving mutual supportiveness between trade and environmental needs, including
the sustainability impact assessment of multilateral trade agreements)58 and the
implementation of Community environmental law and policy in the ten new Member
States.
12.2.4 Environmental Impact Assessment and Strategic Environmental
Assessment
Areas in which EU law and policies continue to prove influential on the wider
international stage are those of Environmental Impact Assessment (‘EIA’) and
Strategic Environmental Assessment (‘SEA’).59 These concern the necessity of
evaluating the likely environmental impacts of projects for the construction of,
for example, thermal and nuclear power stations, waste disposal installations and,
crucially, projects for the construction of renewables generators.60 For the purposes
of the present study, it is only necessary to sketch the broad outlines of each one.
The Directive on the Assessment of the Effects of Certain Public and Private Projects
on the Environment (‘the EIA Directive’)61 ‘was [says Sands] the first international
instrument to provide details on the nature and scope of environmental assessment,
its use, and participation rights in the process’.62 The Directive on the Assessment
of Certain Plans and Programmes on the Environment (‘the SEA Directive’)63 is,
also, again according to Sands, ‘the first international instrument to impose binding
obligations, requiring member states to ensure that “an environmental assessment
is carried out of certain plans and programmes which are likely to have significant
effects on the environment”’.64 The EIA Directive was to be transcribed into the laws
of Member States by 3 July 198865 and the SEA Directive was so transcribed into
UK by the deadline of 21 July 2004.66
Under the EIA Directive, where public and private projects are likely to have
significant environmental effects, an Environmental Impact Assessment (‘EIA’)
is required,67 as part of the process of which the developer must supply specified
information, consult with the relevant authorities, provide information to, and
58 The environmental aspects of world trade regulation are, of course, among the most
pressing of contemporary issues (see para. 8.2.1 above).
59 See Sands, op. cit., pp. 807–813 and Sunkin, Ong and Wight, op. cit., pp. 777–82. Dealt
with in the UK context in para. 6.2.4 above.
60 See para. 21.5 below.
61 Council Directive 85/337/EEC, (1985) OJ L175 40, subsequently heavily amended.
62 See Sands, op. cit., p. 807. Sands also says, however, that EIAs emerged internationally
after the 1972 Stockholm Declaration of the United Nations Conference on the Human
Environment (see para. 8.2.3n above) and that they were first established in the domestic
law of the US under the National Environmental Protection Act of 1972 (see Sands, op.
cit., p. 800).
63 Council Directive 01/42/EC, (2001) OJ L197 30.
64 See Sands, op. cit., p. 812.
65 Council Directive 85/337/EEC, Art. 13.
66 Council Directive 01/42/EC, Art. 1.
67 Council Directive 85/337/EEC, Arts 1(1) and 2(1).
Community Law Aspects 259
consult with, the public, and provide information to other Member States likely to be
affected.68 The projects covered are divided into 12 categories, which include ones
in the extractive industry, the energy industry and the mineral industry.69 There are
certain exceptions for, for example, projects serving national defence purposes.70
The SEA Directive is aimed at the plans and programmes producing the projects
covered by the EIA Directive. It applies to plans and programmes prepared for
10 specific sectors, including energy, transport, waste management and town and
country planning or land use.71 In essence, Member States must assess any plans or
programmes72 that contain a framework for future development consents and which
are likely to have significant environmental effects.73 The idea of the SEA Directive
is that, as required by Art. 6, European Treaty (ex 3c)74 and, as envisaged by the
Sixth Environmental Action Programme,75 environmental considerations will be
integrated ever more firmly into the policy-making of the Member States.
The EIA Directive was implemented in England and Wales by the Town and Country
Planning (Environmental Impact Assessment) (England and Wales) Regulations
1999,76 as well as by the other measures already discussed in Chapter 6 above.77
The implementation of the SEA Directive was effected by secondary legislation on
which the ODPM78 consulted in spring 2004.79 As discussed in Chapter 6 above, the
absence of an SEA has already been controversial in relation to the deployment of
arrays of wave power devices off the coast of South West England.80
12.2.5 Waste management
12.2.5.1 General
Community law and policy on waste management is contained in a 1990 Community
Strategy for Waste Management81 and in legislation of four kinds: (1) a framework
68 Ibid., Arts 5–10.
69 Council Directive 85/337/EEC, Annex II.
70 Ibid., Art. 1(4).
71 Council Directive 01/42/EC, Art. 3.
72 Defined to mean all plans and programmes subject to preparation and/or adoption by an
authority at national, regional or local level or which are prepared by an authority for
adoption, through a legislative procedure by Parliament or government and which are
required by legislative, regulatory or administrative provisions (see Art. 2(a), Directive
01/42/EC).
73 See Sunkin, Ong and Wight, op. cit., p. 781.
74 See para. 12.2.1 above.
75 See para. 12.2.3 above.
76 S.I. 1999 No. 293.
77 See para. 6.2.4 above.
78 See para. 4.2.1.2(1) above.
79 See the Environmental Assessment of Plans and Programmes Regulations 2004, S.I. 2004
No. 1633 (see ‘Strategic assessment guidance to planners at odds with EC views’, 346
ENDS Report (2003)).
80 See para. 6.2.4 above.
81 Council Resolution of 7 May 1990 on Waste Policy, (1990) OJ C122 2.
260 Environmental Taxation Law
directive on waste management regulation within the Community; (2) various
directives on the disposal of specific wastes; (3) a specific directive on the management
of hazardous waste; and (4) a regulation on the shipment of waste.82 There are also
Community measures prohibiting the disposal of certain wastes into the marine
environment83 and measures limiting the emission into the atmosphere of particular
waste gases.84
The Community Strategy for Waste Management was reviewed by the Commission
in 1996, who, in a Communication of July that year,85 formulated a hierarchy of
preferred ways of dealing with waste, first preference being given to waste prevention,
increased recovery being next favoured and safe disposal being the least-favoured
option. In addition to promoting reuse and recycling of waste, the Communication
promotes the increased use of economic instruments, along with rules for restricting
the use of dangerous substances in products, lifecycle analyses and eco-audits and
means of increasing consumer awareness, such as eco-labelling. Although the Council
greeted the Communication favourably, the Parliament expressed its dissatisfaction
with the progress of Community waste policy and called (unsuccessfully) on the
then Environment Commissioner to produce a new Action Programme on waste
management.86
Before discussing the four kinds of legislation referred to above, it is necessary to
refer briefly to the fact that waste management is specifically within the scope of
the IPPC Directive, already discussed.87 Without prejudice to specific provisions
of other directives on waste management,88 the installations in respect of which
Member States are enjoined to introduce an IPPC permit system include the waste
management installations listed in para. 5 of Annex 1 to the IPPC Directive. These
are installations for the disposal or recovery of hazardous waste89 with a capacity
exceeding 10 tonnes per day;90 installations for the incineration of municipal waste,
provided their capacity exceeds three tonnes per hour;91 installations for the disposal
of non-hazardous waste, with a capacity exceeding 50 tonnes per day;92 and landfills
receiving more than 10 tonnes per day or with a total capacity exceeding 25,000
82 See Sands, op. cit., pp. 786–92, from which the fourfold classification is taken; see also
Sunkin, Ong and Wight, op. cit., pp. 380–418.
83 As to which the reader is referred, for example, to Sands, op. cit., pp. 768–83.
84 See para. 12.2.6 below.
85 COM (1996) 399 final.
86 See the account in Sunkin, Ong and Wight, op. cit., p. 389.
87 See para. 12.2.2 above.
88 That is, Council Directive 75/442/EEC (the Waste Framework Directive), Art. 11, and
Council Directive 91/689/EEC (the Directive on Hazardous Waste), Art. 3. See below in
this para. for further details of these Directives, including OJ references thereto.
89 As defined, not only in Council Directive 75/442/EEC, but also in Council Directive
91/689/EEC (see above) and in Council Directive 75/439/EEC, (1975) OJ L194 23.
90 See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.1.
91 Ibid., Annex I, para. 5.2.
92 That is, as defined in Council Directive 75/442/EEC (that is, the Waste Framework
Directive). See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.3.
Community Law Aspects 261
tonnes, excluding landfills of inert waste.93 The transcription of these requirements
into UK law has already been discussed in Chapter 6 above.94
The Directive has been transcribed into UK law by Part I of the Waste and Emissions
Trading Act 2003 and by the Landfill (England and Wales) Regulations 2002, each of
which have been discussed in Chapter 6 above.95
(1) Framework of waste management regulation
The Waste Framework Directive (‘the WFD’)96 directs Member States to take
appropriate measures to encourage ‘the prevention or reduction of waste production
and its harmfulness’;97 to encourage ‘the recovery of waste by recycling, re-use,
reclamation, etc.;98 and to encourage the use of waste as energy.99 The definition of
the concept of waste which is used in the WFD, that is, that of specified substances
that the owner discards, or intends to discard or is required to discard, is potentially
of some importance in the context of the present study and is considered further
below.100
The objectives of preventing and reducing waste production and its harmfulness
are to be attained by three means in particular, namely: the development of clean
technologies, which are ‘more sparing in their use of natural resources’ than older
ones; the development of products whose manufacture, use and disposal are such
as to minimise waste; and ‘the development of appropriate techniques for the final
disposal of dangerous substances contained in waste’.101
Article 4 of the WFD enjoins Member States to take measures necessary to ensure
that waste is disposed of or recovered without endangering human health and without
harming the environment and to prohibit the abandonment, dumping or uncontrolled
disposal of waste. Subsequently, in Art. 5(1), they are required to take appropriate
measures (taking account of BATNEEC) to create ‘a(chǎn)n integrated and adequate
network of disposal installations’, to enable the Community to become self-sufficient
in waste disposal. Article 5(2) provides that such waste disposal networks must
enable waste to be disposed of in one of the nearest appropriate installations and by
means of the most appropriate methods, so as to ensure ‘a(chǎn) high level of protection
for the environment and public health’.102 By Art. 7, the competent authorities in the
Member States are required to draw up waste management plans and are permitted
93 See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.4.
94 See paras 6.2.3 and 6.3.2.3 above.
95 See para. 6.3.2(4) above. See also para. 20.7 below (the LATS).
96 Council Directive 75/442/EEC, (1975) OJ L194 39. See Sands, op. cit., pp. 787–9; also
Sunkin, Ong and Wight, op. cit., pp. 383–4.
97 Council Directive 75/442/EEC, Art. 3(1)(a).
98 Ibid., Art. 3(1)(b).
99 Ibid.
100 See para. 12.2.5.2 below.
101 Council Directive 75/442/EEC, Art. 3(1)(a).
102 But see Chemische Afvalstoffen Dusseldorp BV and Others v. Minister van Volkshuisvesting,
Ruimtelijke Ordening en Milieubeheer, C–203/96, [1998] 3 CMLR 873, 912 (para 30),
where the ECJ held that the principles of self sufficiency and proximity did not apply to
waste for recovery.
262 Environmental Taxation Law
to take such measures as are necessary to prevent the movement of waste except in
accordance with those plans. The current national waste strategy for England and
Wales appears in Waste Strategy 2000: England and Wales.103
The WFD also contains provisions requiring undertakings carrying out disposal
or recovery operations104 to obtain a permit from the competent authority;105
requiring collectors, transporters and those arranging for the disposal of waste to be
registered;106 and providing that the polluter pays principle107 means that the holder
of the waste (that is, its producer or the person in possession of it)108 must bear the
cost of disposing of it.109
(2) Disposal of specific wastes
As mentioned above, special disposal rules apply to specific categories of waste.110
Thus, legislation has been adopted relating, for example, to the disposal of waste
oils;111 to the disposal of polychlorinated biphenyls (‘PCBs’) and polychlorinated
terphenyls (‘PCTs’);112 to waste from the titanium dioxide industry;113 to sewage
sludge;114 and to the recovery and controlled disposal of spent batteries and
accumulators, which contain quantities of mercury, cadmium or lead.115 The UK
measures implementing the directives on these matters have already been referred to
in Chapter 6 above.116 Two directives in specific areas are of particular importance in
the context of the present study, however, that is, the Packaging and Packaging Waste
Directive;117 and the Landfill Directive.118
(a) Packaging and packaging waste
The Packaging and Packaging Waste Directive, which was adopted in response to the
ECJ’s decision in the Danish Bottles case,119 has two main objectives: (a) to provide
103 See para. 6.3.2 above.
104 See para. 12.2.5.2 below, the disposal and recovery operations in question being specified
in Annexes IIA and IIB to the Directive.
105 Council Directive 75/442/EEC, Arts 9 and 10.
106 Ibid., Art. 12.
107 See para. 8.2.3 above.
108 Council Directive 75/442/EEC, Art. 1(c).
109 Ibid., Art. 15.
110 See Sands, op. cit., pp. 791–2; also Sunkin, Ong and Wight, pp. 384–8.
111 Directive on the Disposal of Waste Oils, Council Directive 75/439/EEC, (1975) OJ L194
23.
112 Directive on the Disposal of Polychlorinated Biphenyls and Polychlorinated Terphenyls,
Council Directive 96/59/EC, (1996) OJ L243 31.
113 Directive on Waste from the Titanium Dioxide Industry, Council Directive 92/112/EEC,
(1992) OJ L409 11.
114 Directive on Sewage Sludge, Council Directive 86/278/EEC, (1986) OJ L181 6.
115 Directive on Batteries and Accumulators, Council Directive 91/157/EEC, (1991) OJ L78
38.
116 See paras 6.3.2.5–6.3.2.6 above.
117 European Parliament and Council Directive 94/62/EC, (1994) OJ L365 10.
118 Council Directive 99/31/EC (1999) OJ L182 1.
119 Commission v. Denmark, C–302/86, [1989] 1 CMLR 619 (see para. 12.4 below).
Community Law Aspects 263
a high level of environmental protection by harmonising national measures on the
management of packaging and packaging waste; and (b) to ensure the functioning
of the internal market by avoiding obstacles to trade.120 Since June 1996, Member
States have been obliged to take measures to ensure that systems are set up to provide
for:
a. the return and/or collection of used packaging and/or packaging waste from the
consumer, other final user, or from the ,waste stream in order to channel it to the most
appropriate waste management alternatives;
b. the reuse or recovery including re-cycling of the packaging and/or packaging waste
collected …121
In addition, there are obligations on Member States to take preventative measures,122
including the imposition of a requirement that packaging may be marketed only if it
complies with requirements set out in the Directive,123 as well as set specific recovery
and recycling targets which must be reached within time periods laid down in the
Directive.124 By Art. 4(1) of the Directive, preventative measures may include the
creation of national programmes to prevent the formation of packaging waste.125
The Directive covers primary, secondary and tertiary packaging, applying (as it
does) to packaging usually acquired by the purchaser (primary); packaging removed
by the retailer near the point of sale (secondary); and packaging designed to enable
transportation and handling (tertiary).126
The Directive was transcribed into UK law by the Producer Responsibility
Obligations (Packaging Waste) Regulations 1997,127 introduced in Chapter 6
above128 and examined in detail in Chapter 19 below.
(b) Waste sent to landfill
Article 1 of the Landfill Directive states that its aim is to provide for, ‘by way of
stringent operational and technical requirements’, the prevention or, so far as possible,
for the reduction of the negative environmental effects of the ‘landfilling of waste,
during the whole lifecycle of the landfill’. A landfill is defined in Art. 2(g) as a ‘waste
disposal site for the deposit of waste onto land or underground’ but the definition
excludes certain unloading and storage facilities. Landfill sites already in operation
at the time of transposition of the Directive must comply with its terms by 2009.129
120 European Parliament and Council Directive 94/62/EC, Art. 1(1). For the implementation
of the Directive in UK law, see Chapter 19 below, passim.
121 European Parliament and Council Directive 94/62/EC, Art. 7(1)(a).
122 Ibid., Art. 4.
123 Ibid., Art. 9(1).
124 Ibid., Art. 5.
125 In the UK, the programme appears in Waste Strategy 2000: England and Wales (see para.
6.3.2 above).
126 European Parliament and Council Directive 94/62/EC, Art. 3(1).
127 S.I. 1997 No. 648.
128 See para. 6.3.3.2 above.
129 See Council Directive 1999/31/EC (1999) OJ L182 1, Art. 14, from which this date is
derived.
264 Environmental Taxation Law
Member States must apply the Directive to landfill as defined in Art. 2(g).130 Article
4 requires each landfill to be classified as to whether it is for hazardous waste, for
non-hazardous waste or for inert waste. By Art. 5(1), Member States must set up
national strategies for the reduction of biodegradable waste going to landfills. Article
5(2) fixes the targets, based on 1995 arisings, as: a reduction of 25 per cent by 2006;
of 50 per cent by 2009; and of 65 per cent by 2016.
Biodegradable waste is defined in Art. 2(m) as ‘a(chǎn)ny waste that is capable of
undergoing anaerobic or aerobic decomposition, such as food and garden waste, and
paper and paperboard’. Such national strategies should include recycling, composting,
biogas production and materials or energy recovery131 and, by Arts 7–9, competent
authorities are to issue permits for operating landfill sites, the conditions of issue
of which are to ensure compliance with the Directive. The costs involved in setting
up, operating, closing and caring for landfill sites thereafter must, as far as possible,
be covered by the price charged by the site operator for the disposal of waste in the
site132 and Member States must not only control and monitor site operations133 but
also provide for site closure and after-care procedures.134 As to the last of these, by
Art. 13(c), ‘a(chǎn)fter a landfill has been definitely closed, the operator shall be responsible
for its maintenance, monitoring and control in the after-care phase for as long as may
be required by the competent authority, taking into account the time during which the
landfill could present hazards’.
The Directive has been transcribed into UK law by Part I of the Waste and Emissions
Trading Act 2003, which has been discussed in Chapter 6 above.135
(3) Disposal of hazardous waste
The Directive on Hazardous Waste,136 which repealed Council Directive 78/319/
EEC on toxic and dangerous wastes,137 applies to the wastes featuring on a list to be
drawn up by the Commission and which is subject to periodic review as well as to
any other waste considered by a Member State to possess certain properties.138
The definition of hazardous waste is thus a complex one and recognises that
some waste only becomes hazardous in certain circumstances.139 The objective of
the Directive is ‘to approximate the laws of the Member States on the controlled
management of hazardous waste’140 but it does not apply to domestic waste.141 The
competent authorities in each of the Member States are enjoined to draw up, ‘either
130 Council Directive 1999/31/EC.
131 Ibid., Art. 5(1).
132 Ibid., Art. 10.
133 Ibid., Art. 12.
134 Ibid., Art. 13.
135 See para. 6.3.2 above and para. 20.7 below (the LATS).
136 Council Directive 91/689/EEC, (1991) OJ L377 20.
137 (1978) OJ L84 43. Certain of the provisions of the 1978 directive are incorporated into the
1991 Directive by reference (see Sands, op. cit., pp. 789–91).
138 As to which, see Council Directive 91/689/EEC, Annex III.
139 See Sunkin, Ong and Wight, p. 385.
140 Council Directive 91/689/EEC, Art. 1(1).
141 Ibid., Art. 1(5).
Community Law Aspects 265
separately or in the framework of their general waste management plans, plans for
the management of hazardous waste and shall make these plans public …’.142
By incorporating references to Council Directive 78/319/EEC, Art. 4 of the
Directive143 requires those who produce and transport hazardous waste to maintain
detailed records, to be retained for at least three years, as to the nature of the waste.
Furthermore, under Art. 2, Member States are required to take ‘the necessary measures
to require that on every site where tipping (discharge) of hazardous waste takes place
the waste is recorded and identified’;144 to take the necessary measures to ensure
that, except in prescribed circumstances,145 different categories of hazardous waste
are not mixed with each other nor with non-hazardous waste;146 and Member States
must supply to the Commission details of establishments and undertakings carrying
out the disposal or recovery of hazardous waste on behalf of third parties.147 By Art.
5, Member States are required to take ‘the necessary measures to ensure that, in the
course of collection, transport and temporary storage, waste is properly packaged and
labelled in accordance with the international and Community standards in force’.
The implementation of the Directive into UK law has been effected by the Special
Waste Regulations 1996,148 discussed in Chapter 6 above.149
(4) Shipment of waste
Council Regulation on the Shipment of Waste (‘the Waste Shipment Regulation’)150
covers shipments of waste between Member States, shipments of waste within
Member States and waste exports to, and waste imports from, third countries.151
Generally speaking, waste may be shipped between Member States for disposal
or recovery, subject to prior notification, authorisation and possible conditions,
although the rules and procedures differ according to whether disposal or recovery
is involved.152
So far as shipments within Member States are concerned, Member States are
simply required to establish an appropriate system for the supervision and control of
waste shipments which takes account of the need for coherence with the Community
system.153
142 Ibid., Art. 6(1). See Commission v. United Kingdom, C–35/00, [2002] ECR I–953, and
Commission v. Italy, C–466/99, [2002] ECR I–851. The UK’s plan is contained in Waste
Strategy 2000: England and Wales (see para. 6.3.2 above).
143 That is, Council Directive 91/689/EEC.
144 Ibid., Art. 2(1).
145 Ibid., Art. 2(3).
146 Ibid., Art. 2(2).
147 Ibid., Art. 8(3).
148 S.I. 1996 No. 972 (as amended).
149 See para. 6.3.2(6) above.
150 Council Regulation 259/93/EEC, (1993) OJ L30 1.
151 See Sands, op. cit., pp. 699–703 and Sunkin, Ong and Wight, op. cit., pp. 386–7. See also
the Transfrontier Shipment of Waste Regulations 1994, S.I. 1994 No. 1137. As to the legal
effects of Regulations, see Craig and de Búrca, op. cit., pp. 189–93.
152 Council Regulation EEC/259/93, Arts 3–8.
153 Ibid., Art. 13.
266 Environmental Taxation Law
With regard to exports to third countries,154 exports to ACP countries are simply
banned.155 As regards non-ACP third countries, exports of waste for disposal are
prohibited, except where the country of destination is an EFTA country which is
also party to the 1989 Basel Convention.156 In this case, although both the EFTA
country and the Member State of origin has the option of imposing a ban,157 exports
are generally permitted, subject to notification and authorisation.158 As to exports for
recovery, these are prohibited, except where the country of destination falls into one
of three categories: (a) it is a country to which the OECD Council Decision on the
control of the transfrontier movements of wastes for recovery operations applies;159
(b) it is a party to the 1989 Basel Convention or an agreement thereunder; or (c) it
is another country, which is a party to a compatible pre-existing bilateral agreement
with the Member State in question.160
Finally, waste imports from third countries are again divided between those for
disposal and those for recovery. Imports of waste for disposal are banned except
when they are: (a) from EFTA countries which are also parties to the 1989 Basel
Convention (b) from other countries which are parties to the Convention; or (c)
from countries with which certain bilateral agreements have been concluded
between the EC/its Member States.161 In each of these three situations, there is
a system of notification and authorisation.162 As regards imports of waste for
recovery, these are again prohibited, except where they are from countries to which
the OECD Council Decision applies163 or from other countries which fall into
one or other of two other categories: (a) countries which are also parties to the
1989 Basel Convention or agreements thereunder;164 or (b) countries with which
certain bilateral agreements have been concluded between the EU/its Member
States.165 Somewhat differing control procedures are applicable to each of these
non-prohibited categories.166
12.2.5.2 The concept of waste
Characteristic of Community law on waste are the problems that have arisen from
the way in which waste is defined in the WFD. For obvious reasons, these problems,
154 See para. 8.3.2 above.
155 Council Regulation EEC/259/93, Art. 18(1). But note that a Member State may return to
an ACP country processed waste which that country has chosen to have processed in the
EC (see Council Regulation EEC/259/93, Art. 18(2)).
156 Council Regulation EEC/259/93, Art. 14(1).
157 Ibid., Art. 14(2).
158 Ibid., Art. 15.
159 See para. 8.3.2 above.
160 See (as to all three possibilities) Council Regulation EEC/259/93, Art. 16.
161 Ibid., Art. 19(1).
162 Ibid., Art. 20.
163 Ibid., Art. 21(1)(a).
164 Council Regulation EEC/259/93, Art. 21(1)(b).
165 Ibid.
166 Ibid., Art. 22.
Community Law Aspects 267
which have generated a considerable academic literature,167 also underlie the very
similar questions arising both from the transcription of the WFD into domestic law,
as discussed in Chapter 6 above,168 and from the interpretative problems arising in
relation to landfill tax, especially as to the situations in which material is disposed of
as waste, to be discussed in Chapter 15 below.169 Having been slow to accept it, the
Court of Appeal has now acknowledged the existence of a possible link between the
objectives of the WFD and the definition of waste for landfill tax purposes.170 The
Directives referred to above adopt the same definition of waste as that used in the
WFD itself.171
The definition of ‘waste’ in Art. 1 of the WFD consists of two elements.172 The first
is ‘a(chǎn)ny substance or object … which the holder discards or intends or is required to
discard’.173 The second is that the substance or object in question must fall into the
categories contained in Annex I to the WFD.174 Annex I lists 16 categories of substances
and objects (including residues,175 off-specification products,176 date-expired
products,177 unusable parts,178 adulterated materials,179 etc.) and concludes, rather
unhelpfully, with a sweeping-up clause which refers to ‘[a]ny materials, substances or
products which are not contained in the [preceding] … categories’.180 The definition
in Art. 1 is then supplemented by a provision requiring the Commission to draw up a
list, to be reviewed periodically, of wastes belonging to the categories listed in Annex
I to the WFD.181 The list is known as the European Waste Catalogue (‘the EWC’)182
and, whilst it is useful for fleshing-out the definition, the ECJ has stressed in Criminal
proceedings against Euro Tombesi and Others,183 that ‘the fact that a substance is
mentioned in … [the EWC] does not mean that it is waste in all circumstances. An
entry is only relevant when the definition of waste has been satisfied’.184
167 See, for example, Stephen Tromans, ‘EC Waste Law – A Complete Mess?’ (2001) 13 JEL
133–56 and Ilona Cheyne, ‘The Definition of Waste in EC law’ (2002) 14 JEL 61–73. The
latter contains a survey of the relevant literature at n2 thereto.
168 See para. 6.3.2.1 above.
169 See para. 15.2 below.
170 See David Pocklington, ‘Industry Soundings’, (2003) 15(3) ELM 207–9, 208. See also
para. 6.3.2(1) above.
171 See, for example, Council Directive 91/689/EEC, Art. 1(3) (Directive on Hazardous
Waste); Council Regulation EEC/259/93, Art. 2(a) (the Waste Shipment Regulation); and
Council Directive 99/31/EC, Art. 2(a) (the Landfill Directive).
172 See the analysis by Cheyne, op. cit., p. 64.
173 See Council Directive 75/442/EEC, Art. 1(a).
174 Ibid., Art. 1(a).
175 Ibid., Annex I, paras Q1, Q8, Q9, Q10 and Q11.
176 Ibid., Annex I, para. Q2.
177 Ibid., Annex I, para. Q3.
178 Ibid., Annex I, para. Q6.
179 Ibid., Annex I, para. Q12.
180 See Council Directive 75/442/EEC, Annex I, para. Q16.
181 Ibid., Art. 1(a).
182 See Commission Decision 00/532/EC, (2000) OJ L226 3.
183 See Joined Cases C–304/94, C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561.
184 [1997] ECR I–3561, I–3589.
268 Environmental Taxation Law
What is not clear from the WFD is whether the disposal operations listed in Annex
IIA thereto or the ‘operations which may lead to recovery’ listed in Annex IIB to
the WFD are also situations in which substances and objects are ‘discarded’. The
disposal operations listed in Annex IIA include tipping above or under ground (for
example, landfill),185 release of solid waste into a water body other than the sea186
and incineration, whether on land or at sea.187 The operations which may lead to
recovery listed in Annex IIB include solvent reclamation or regeneration,188 recycling
or reclamation,189 oil re-refining or other re-uses of oil190 and use principally as a fuel
or other means to generate energy.191 Cheyne argues that the essential characteristic
of all of the 16 categories in Annex I to the WFD is that the objects and substances
within them are not identified according to the amount of environmental damage that
they might inflict, but with regard to the likelihood of their holders wishing to get
rid of them.192 The common implication in all of the 16 categories in Annex I is the
idea of discarding of the substance or object in question, which makes it all the more
surprising that there is no specific definition of the word ‘discard’, even though it is
expressly used in Art. 1(a) of the WFD.
The ECJ has now considered these questions in a series of important decisions.193
1 In the co-joined cases Criminal proceedings against Euro Tombesi and Others,194
the ECJ held that the concept of waste ‘is not to be understood as excluding
substances and objects that are capable of economic reutilisation, even if the
relevant materials may be the subject of a transaction or quoted on public or
private commercial lists’.195
The joined cases involved six defendants who had been charged with various
offences under Italian law, concerning the unauthorised transportation of waste
scrap metal, the unauthorised discharge of marble rubble, the unauthorised
burning of toxic waste, etc. In each case, the national courts essentially sought
to ascertain, under Art. 234, European Treaty (ex 177), whether the concept of
waste referred to in the WFD, and thus the Waste Shipment Regulation196 and
185 See Council Directive 75/442/EEC, Annex IIA, para. D1.
186 Ibid., Annex IIA, para. D6.
187 Ibid., Annex IIA, paras D10 and D11.
188 Ibid., Annex IIB, para. R1.
189 Ibid., Annex IIB, paras R2–R4.
190 Ibid., Annex IIB, para. R8.
191 Ibid., Annex IIB, para. R9.
192 See Cheyne, op. cit., p. 64.
193 Other important cases, not discussed below, are as follows: Criminal proceedings against
Vessoso and Zanetti, C–206–207/88, [1990] ECR I–1461; Zanetti and Others, C–359/88,
[1990] ECR I–1509; Commission v. Germany, C–422/92, [1995] ECR I–1097; Lirussi
and Bizzaro, C–175,177/98, [2001] ECR I–6881. See also the UK cases discussed at para.
6.3.2.1 above.
194 Joined Cases C–304/94, C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561.
Judgment was actually given in the cases on 25 June 1997.
195 See Sands, op. cit., p. 788n; [1997] ECR I–3561, 3602 (paras 54 and 55).
196 That is, Council Regulation 259/93/EEC. See para. 12.2.5.1(4) above.
Community Law Aspects 269
the Directive on Hazardous Waste,197 must be taken to exclude substances or
objects capable of economic re-use.198 In answering the question in the negative,
the ECJ further particularised matters as follows:
In particular, a deactivation process intended merely to render waste harmless, landfill
tipping in hollows or embankments and waste incineration constitute disposal or recovery
operations falling within the scope of the … Community rules. The fact that a substance
is classified as a re-usable residue without its characteristics or purpose being defined is
irrelevant in that regard. The same applies to the grinding of a waste substance.199
2 In Inter-Environnement Wallonie ASBL v. Region Wallonne,200 the ECJ underlined
the approach that it had taken in Euro Tombesi.201
The ECJ held that the scope of the term ‘waste’ turned on the meaning of the term
‘discard’;202 that ‘discard’ included both disposal and recovery of a substance
or object;203 that the concept of waste did not in principle exclude ‘a(chǎn)ny kind
of residue, industrial by-product or other substance’ arising from a production
process;204 that, besides applying to the disposal and recovery of waste by
specialist undertakings, the WFD also applied ‘to disposal and recovery of waste
by the undertaking which produced them, at the place of production’;205 and
that, even though substances directly or indirectly forming part of an industrial
process might constitute waste, there was nonetheless a distinction between waste
recovery and the normal industrial treatment of non-waste products, however
difficult to draw that distinction might be.206
The foregoing issues had arisen in the context of a reference to the ECJ by the
Belgian Conseil d’Etat under Art. 234, European Treaty (ex 177), in which Inter-
Environnement Wallonie had asked the Belgian court to annul a decree of the
Walloon Regional Council purporting to exempt from a permit system for waste
installations those installations which formed an integral part of an industrial
production process, on the basis that the decree conflicted with the Community
law on waste.
3 In the joined cases ARCO and EPON,207 the ECJ confirmed that the definition
of waste turned on the meaning of ‘discard’,208 a term which was not to be
197 That is, Council Directive 91/689/EEC. See para. 12.2.5.1(3) above.
198 See [1997] ECR I–3561, 3599 (para 41).
199 See [1997] ECR I–3561, 3602–3603 (paras 54 and 55).
200 Case C–129/96, [1998] 1 CMLR 1057.
201 See para. 12.2.5.2 (point 1) above.
202 [1998] 1 CMLR 1057, 1082 (para 26).
203 Ibid. (para 27).
204 Ibid. (para 28).
205 Ibid. (para 29).
206 [1998] 1 CMLR 1057, 1083 (paras 32–34).
207 ARCO Chemie Nederland Ltd and Others v. Minister van Volkshuisvesting, Ruimtelijke
Ordening en Milieubeheer, Vereniging Dorpsbelang Hees and Others v. Directeur van
de Dienst Milieu en Water Van de Provincie Gelderland, C–418–419/97, [2002] QB 646.
Judgment was actually given on 15 June 2000 (see [2002] QB 646, 671).
208 [2002] QB 646, 677 (paras 36 and 46).
270 Environmental Taxation Law
interpreted restrictively;209 that ‘discard’ included in particular the disposal
and recovery of a substance or object;210 and that the question of whether a
particular substance or object was waste had to be decided in the light of all
the circumstances, regard being had to the aim of the WFD and the need not to
undermine its effectiveness.211
In ARCO, a Dutch company planned to ship ‘LUWA-bottoms’, a by-product of
one of its manufacturing processes, to Belgium, for use in cement manufacture.
The relevant authority had granted permission on the basis that the substance
was ‘waste’ within the terms of the Waste Shipment Regulation.212 In EPON,
the competent Dutch authority had granted an application by EPON, a Dutch
electricity generating company, for authorisation to use pulverised wood chips
from the construction industry as fuel in one of its power stations. The national
court doubted whether each of the LUWA-bottoms and the wood chips were
raw materials or waste and referred two questions for a preliminary ruling
to the ECJ. In reaching the decision summarised above, the ECJ set out the
circumstances that have to be considered in deciding whether an object or
substance which undergoes the operations set out in Annexes IIA and IIB is
waste:
a. it may, but does not necessarily, follow from the fact that disposal or recovery
methods are described in Annexes IIA and IIB that any substance treated by
one of those methods is to be regarded as waste;213 and
b. other factors that may constitute evidence that a substance has been discarded
but which are not conclusive on the point are the facts that:
i. the substance in question is ‘commonly regarded as waste;’214
ii. use as fuel is ‘a(chǎn) common method of recovering waste’;215
iii. the substance is a production residue, that is, ‘a(chǎn) product not in itself
sought for use as fuel’;216
iv. the substance is a residue ‘for which no use other than disposal can be
envisaged’;217 and
v. the substance is a residue ‘whose composition is not suitable for the use
made of it or where special precautions must be taken when it is used
owing to the environmentally hazardous nature of its composition’.218
c. However, the fact that a substance is the result of a complete recovery
operation for the purpose of Annex IIB to the WFD does not necessarily
exclude that substance from classification as waste.219
209 Ibid., 676 (para 40).
210 Ibid., 677 (para 47).
211 Ibid., 680 (para 73).
212 That is, Council Regulation 259/93/EEC. See para. 12.2.5.1(4) above.
213 That is, because it has been discarded. See [2002] QB 646, 677 (para 49).
214 [2002] QB 646, 680 (para 73).
215 Ibid.
216 Ibid., 681 (para 84).
217 Ibid. (para 86).
218 Ibid. (para 87).
219 Ibid., 682 (paras 94–95).
Community Law Aspects 271
d. Finally, the concept of waste ‘is not to be understood as excluding substances
and objects which are capable of being recovered as fuel in an environmentally
responsible manner and without substantial treatment’.220
4 The recent decision of the ECJ in Criminal proceedings against Paul van de
Walle and others221 has again reiterated the point that the term ‘discard’ should
not be interpreted restrictively. In emphasising the point, the Court drew attention
to the fact that category Q4 in Annex I to the WFD refers to ‘materials spilled,
lost or having undergone other mishap, including any materials, equipment, etc.,
contaminated as result of the mishap’.222
What had happened was that, because of defects in a petrol station’s storage
tanks, hydrocarbon oil had leaked into the ground. Despite the accidental nature
of the spillage, the ECJ held that the defendant had ‘discarded’ the oil, since,
although the leakage was involuntary:
It is clear that accidentally spilled hydrocarbons which cause soil and groundwater
contamination are not a product which can be re-used without processing. Their marketing
is very uncertain and, even if it were possible, implies preliminary operations would be
uneconomical for their holder. Those hydrocarbons are therefore substances which the
holder did not intend to produce and which he discards, albeit involuntarily, at the time of
the production or distribution operations which relate to them.223
On the basis that the oil had been discarded, it was next a question of whether the
contaminated earth was ‘waste’ within the provisions of the WFD. Disregarding
distinctions based, for example, on whether the earth had been excavated, the
ECJ held that, since the oil could not be separated from the soil, the soil itself had
become waste:
That is the only interpretation which ensures compliance with the aims of protecting the
natural environment and prohibiting the abandonment of waste pursued by the Directive.
It is fully in accord with the aim of the Directive and heading Q4 of Annex I thereto,
which, as pointed out, mentions any materials, equipment, etc., contaminated as a result of
[materials spilled, lost or having undergone other mishap] among the substances or objects
which may be regarded as waste.224
Under the WFD, and in the circumstances of the case, the independent manager
of the station was the ‘holder’ of the waste, since he had stocked the oil when
it had become waste and had therefore to be treated as having produced it.225
However, if the leakage been attributable to some contractual breach by Texaco,
the lessee of the station, then Texaco might instead be regarded as the holder.226
220 Ibid., 679 (para 65).
221 Case C–1/03 (7 September 2004).
222 Ibid. (para 43).
223 Ibid. (para 47).
224 Ibid. (para 52).
225 Ibid. (para 59).
226 Ibid. (para 60).
272 Environmental Taxation Law
It has been pointed out by Macrory that a consequence of the decision in Van de
Walle might be to render the UK’s contaminated land rules otiose.227
12.2.6 Control of air and atmospheric pollution
12.2.6.1 General
The discussion in paragraph 12.2.5 completes our survey of Community waste
management regulation. Despite the intractable problems surrounding the definition
of ‘waste’, a feature of Community law and policy on waste management is that it
forms an identifiable body of law, gathered mainly around the WFD. With Community
law and policies relating to air and atmospheric pollution, the position is somewhat
different. Easy appreciation of the corpus of Community regulation relating to air
and atmospheric pollution is hampered partly by the piecemeal nature of regulatory
development in the area and partly by its relationship with Community regulation of
the energy and transport sectors. The following discussion begins with an overview
of Community regulation on air and atmospheric pollution.228 Thereafter, it focuses
on those aspects of Community energy law and policy that have implications for the
control of atmospheric pollution.
12.2.6.2 Pollution of air and atmosphere
Introduced in 1996, the Air Quality Framework Directive (‘the AQFD’)229 lays down
the basis for common objectives on ambient air quality in order to prevent harmful
effects on the environment and on human health. In due course, the AQFD will be
supplemented by a dozen ‘daughter’ directives, at least three of which have already
been adopted.230 On 8 March 1999, the Commission published its European Climate
Change Programme (‘the ECCP’),231 which was intended to initiate a new community
approach to the implementation of the Kyoto Protocol. In addition, Directive 2001/81/
EC, on National Emissions Ceilings for Certain Atmospheric Pollutants, which aims
to lay down a strategy for combating acidification, eutrophication and photochemical
air pollutants, has been adopted.232
227 See 356 ENDS Report (2004) 44 (see also para. 6.7 above).
228 See Sands, op. cit., pp. 336–9, 755–8; Sunkin, Ong and Wight, op. cit., pp. 142–71; and
Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn (London:
Cavendish, 2003), pp. 344–6.
229 Council Directive 92/62/EC, (1996) OJ L296 55. See para. 21.5 below. This is singled
out by HM Treasury in Tax and the Environment: Using Economic Instruments (London:
HMSO, 2002), p. 33, as an example of good regulation.
230 That is, Directive 1999/30/EC, (1999) OJ L163 41 (limitation of values for sulphur
dioxide, nitrogen dioxide, oxides of nitrogen and particulates and lead in the ambient air)
(see para. 22.4 below); Directive 00/69/EC, (2000) OJ L313 12 (limitation of values for
benzene and carbon monoxide in the ambient air); and Directive 02/3/EC (2002) OJ L67
14 (limitation of values for ozone in the ambient air).
231 COM(00) 88 final, available from www.europa.eu.int. See also 322 ENDS Report
(2001).
232 Council Directive 92/62/EC, (2001) OJ L309 22. See para. 22.4 below.
Community Law Aspects 273
Aside from attempts to create a unified approach to controlling air and atmospheric
pollution, there a number of other initiatives, in origin somewhat older, which are
directed either at controlling emissions from specific pollution sources or setting air
quality standards generally (that is, irrespective of the pollution source). Examples
of the former are the 2001 Large Combustion Plant Directive,233 which replaces the
Large Combustion Plant Directive of 1988,234 and the vehicle emissions standards
discussed below;235 an example of the latter is the current Regulation banning the
sale and use of most ozone depleting substances, including CFCs and HCFCs.236
The latter is designed to enable the Community to meet its obligations under the
1985 Vienna Convention for the Protection of the Ozone Layer and its 1987 Montreal
Protocol.237
The Large Combustion Plant Directive should now, of course, be read in conjunction
with the IPPC Directive.238 The measures implementing the provisions just discussed
in UK law are discussed in Chapter 6 above.239
12.2.6.3 Energy law and policy
(1) Introduction
There is only brief mention of energy in the European Treaty itself.240 However, two
directives, each adopted under the co-decision procedure,241 contain common rules
for the electricity and gas industries:242
a. European Parliament and Council Directive 2003/54/EC Concerning Common
Rules for the Internal Market in Electricity (‘the Electricity Acceleration
Directive’ or ‘EAD’);243 and
b. European Parliament and Council Directive 2003/55/EC Concerning Common
Rules for the Internal Market in Natural Gas (‘the Gas Acceleration Directive’ or
‘GAD’).244
In addition, a new regulation, again adopted under the co-decision procedure, is
concerned with increasing cross-border trade in electricity. This is Regulation
EC/1228/2003 on Conditions for Access to the Network for Cross-Border Exchanges
233 Directive 01/80/EC, (2001) OJ L309 1. See Sands, op. cit., pp. 336–9.
234 Council Directive 88/609/EEC, (1988) OJ L336 1. See para. 22.4 below.
235 See para. 12.2.6.4(2) below.
236 Council Regulation 2037/2000/EC, (2000) OJ L244 1.
237 See para. 8.3.1.5 above.
238 See para. 12.2.2 above.
239 See para. 6.4 above.
240 That is, Arts 3(1)(u) and 154 (ex 129b), European Treaty.
241 See para. 4.3.3 above.
242 See Peter Cameron, Competition in Energy Markets (Oxford: Oxford University Press,
2002); Carlos Ocana et al., Competition in Energy Markets (OECD/IEA, 2001); and
Completing the Internal Energy Market, COM (01) 125 final.
243 03/54/EC, (2003) OJ L176 37.
244 (2003) OJ L176 57.
274 Environmental Taxation Law
in Electricity.245 Finally, the production of electricity from renewable energy
sources is promoted by European Parliament and Council Directive 2001/77/EC
(‘the Renewables Directive’),246 with electricity production from combined heat
and power being covered by European Parliament and Council Directive 2004/8/EC
(‘the Cogeneration Directive’).247
The EAD and GAD have comparable market-opening objectives. The overall
objective of the EAD is to provide for common rules for the generation, transmission
and distribution of electricity, whilst that of the GAD is to provide for common
rules for the transmission, distribution, supply and storage of natural gas. The
Directives repeal248 the 1996 Electricity Directive249 and the 1998 Gas Directive250
respectively, although they retain the most important features of their predecessors.
The background to the policy development process culminating in the adoption of
the Acceleration Directives is the opening up of energy markets to competition, a
process which has already been discussed above.251 Specifically, the Acceleration
Directives were designed to improve on the provisions of the 1996 and 1998
Directives with regard to the pace and level of market-opening and guarantees as
to fair and non-discriminatory network access. Although most Member States had
in fact opened their markets further than required by the 1996 and 1998 Directives,
market distortions remained because of those that had not done so; moreover, there
continue to be wide variations between Member States as to standards for third party
access (‘TPA’).252 Whilst market opening is one of the main objectives of each of the
EAD and the GAD, both Directives also imposes public service obligations (‘PSOs’)
and measures for consumer protection.253 These include the obligation to impose
adequate safeguards to protect vulnerable customers;254 the obligation to ensure
that electricity supplies disclose details of energy sources in bills and promotional
materials;255 and the implementation of appropriate measures, including economic
incentives, to achieve environmental protection.256
Prior to considering the four instruments in more detail, it is useful to refer briefly
to Community law and policy on the most controversial of means of electricitygeneration:
nuclear power.257 Whilst nuclear generation is not in itself a central
245 (2003) OJ L176 1.
246 (2001) OJ L283 33.
247 (2004) OJ L52 50.
248 In relation to the EAD, with effect from 1 July 2004 (see Directive 03/54/EC, Art. 29).
In relation to the GAD, also with effect from 1 July 2004 (see Directive 03/55/EC,
Art. 32(2)).
249 European Parliament and Council Directive 96/92/EC, (1996) OJ L27 20.
250 European Parliament and Council Directive 98/30/EC, (1998) OJ L204 2.
251 See para. 2.4 above.
252 See Cameron, op. cit., para. 8.11.
253 See Directive 03/54/EC, Art. 3 and Directive 03/55/EC, Art. 3.
254 See Directive 03/54/EC, Art. 3(5) and Directive 03/55/EC, Art. 3(3).
255 Ibid., Art. 3(6). This provides for cross-border transfers at ‘cost’. See also www.
electricitylabels.com.
256 Ibid., Art. 3(7) and 03/55/EC, Art. 3(4).
257 See Cameron, op. cit., paras 2.13–2.16.
Community Law Aspects 275
concern of the present study, and although it does not count as a renewable energy
source,258 factors such as the operating costs of nuclear reactors, as well as the costs
of their decommissioning, explain many of the policy choices which governments
have made in relation to nuclear power and the environment.259 The creation of a
common market in nuclear ores and fuels was a prime aim of the 1957 Euratom
Treaty260 and, to this end, Art. 2 thereof committed the Community, among other
things, to the promotion of research and the dissemination of technical information;
to the establishment of uniform safety standards; to the facilitation of investment; to
ensuring a regular and equitable supply of ores and nuclear fuels; and, internationally,
to fostering progress in the peaceful uses of nuclear energy.261 Additionally, by Art.
30, Euratom Treaty, basic standards were to be laid down for the protection of workers’
health and that of the general public against dangers arising from ionising radiations.
With nuclear power accounting for about a third of the EU’s electricity-generating
capacity, there is currently much concern about ensuring security of supply and the
EC Commission has recently launched a package of measures on the protection of
the environment from radioactive waste.262
Apart from electricity and gas, some consideration is given in what follows to coal
and hydrocarbons and hydrocarbon-based fuels. The emphasis throughout is on
explaining market structures. Except as regards state aids, which receive relatively
detailed discussion,263 Community competition law is not separately discussed. The
reader should note, however, that, generally speaking,264 Community energy markets
are subject to general Community competition law rules.265 In relation to both gas
and electricity, the thrust of the Commission’s competition policy has been ‘to
prevent private arrangements or practices that restrict the emergence of competition
or that foreclose national markets against new entrants’.266
258 See Directive 01/77/EC, Art. 2(a).
259 See paras 21.4.4, 21.5 and 21.6 below.
260 See para. 4.3 above.
261 The Euratom Treaty was designed to reduce the dependence of European Countries
on energy imports from the regions affected by the 1956 Suez crisis, at the same time
countering the dominance at that time of the USSR and the US in nuclear power (see
Cameron, op. cit., para. 2.14).
262 See Christiane Trüe, ‘Legislative Competences of Euratom and the European Community
in the Energy Sector: the Nuclear Package of the Commission’, (2003) 28 EL Rev 664–
85.
263 See para. 12.2.7 below.
264 There is, however, Council Directive 90/377/EEC, (1990) OJ L185 16 concerning a
community procedure to improve the transparency of gas and electricity prices charged
to industrial end-users. This has survived the EAD and GAD (unlike the Transit Directive
(Council Directive 90/547/EEC, (1990) OJ L313 30), which has been repealed with effect
from 1 July 2004 (see Directive 03/54/EC, Art. 29)).
265 As to which, see, for example, Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn
(London: Penguin), chs 22–25; and Craig and de Búrca, op. cit., chs 21–25.
266 Cameron, op. cit., para. 7.67.
276 Environmental Taxation Law
(2) Electricity
The EAD envisages a fully open internal electricity market, with customers free to
choose their suppliers and all suppliers free to deliver to their customers.267 It lays
down common rules in three areas of the electricity industry: generation, transmission
and distribution.
The generation, or production,268 of electricity is covered by Art. 6, EAD, which
provides that an authorisation, as opposed to a tendering, procedure is to be the norm
for the construction of new generating capacity. The authorisation procedure, which
must be ‘conducted in accordance with objective, transparent and non discriminatory
criteria’, may, among other things, lay down criteria relating to the protection of the
environment.269
Transmission, which is defined as ‘the transport of electricity on the extra highvoltage
and high-voltage interconnected system with a view to its delivery to final
customers or to distributors, but not including supply’,270 is dealt with in Arts 8–12,
EAD. Article 8 provides for the designation and supervision of Transmission System
Operators (‘TSOs’), who are responsible for operating, ensuring the maintenance
of and, if necessary, for developing a Member State’s transmission system and its
interconnections with other systems. By Art. 11(3), EAD, a Member State may
require the TSO, ‘… when dispatching generating installations, to give priority to
generating installations using renewable energy sources271 or waste or producing
combined heat and power’. Dispatching is not relevant to the UK, as has been
discussed in Chapters 2 and 6272 above.
The operation of the distribution system is dealt with in Arts 13–17, EAD.
‘Distribution’ is defined as ‘… the transport of electricity on high-voltage, medium
voltage and low voltage distribution systems with a view to its delivery to customers,
but not including supply’.273 Member States generally have a single TSO and several
distribution system operators (‘DSOs’).274 The designation and supervision of DSOs
is required by Art. 13.
Each of the activities referred to above is regulated in the UK by the Electricity
Act 1989, as amended.275 Although further liberalisation measures are currently
proposed,276 the UK electricity market was already the most liberalised in Europe,
even before the EAD’s adoption.277
267 Directive 03/54/EC, recital 4.
268 Ibid., Art. 2(1).
269 Ibid., Art. 6(2)(c).
270 Ibid., Art. 2(3).
271 Defined as ‘renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal,
hydropower, biomass, landfill gas, sewage treatment plant gas and biogases) …’ (see
Directive 03/54/EC, Art. 2(30)).
272 See para. 6.4 above.
273 See Directive 03/54/EC, Art. 2(5).
274 See Cameron, op. cit., para. 4.17.
275 See para. 6.4 above.
276 That is, through the introduction of BETTA in Part 3 of the Energy Act 2004 (see para. 6.4
above).
277 See, for example, Cameron, op. cit., paras 1.19, 4.116 and 5.86; IEA, op. cit., pp. 37–43.
Community Law Aspects 277
The crucial central provision of the EAD is the removal of two of the three types of
TPA to the transmission and distribution networks as contained in the now repealed
1996 Directive. Access to the transmission and distribution networks is now to be
based simply on published tariffs, applicable to all eligible customers objectively and
without discrimination between users of the systems.278 This is regulated TPA,279
which allows producers, on the one hand, and eligible customers, on the other, to
contract with each other direct for electricity supply on the basis of the published
tariffs. This should encourage access to the market by new entrants on the basis that
non-discriminatory access is possible.280 Eligible customers are:281
a. before 1 July 2004, customers falling within specified market-opening percentages
and permitted by Member States as being eligible to participate in the opening of
the market;282
b. from 1 July 2004, at the latest, all non-household customers;283 and
c. from 1 July 2007, all customers.284
Customers are defined to mean both wholesale and final customers of electricity,285
the former referring to those who purchase electricity for resale,286 the latter
referring to those who purchase it for their own use.287 The basis on which the UK
has interpreted the concept of eligible customers has already been discussed in an
earlier chapter.288 Regulated TPA is already the basis for network access in the UK.
The expressed purpose of the Renewables Directive289 is the promotion of
an increase in the contribution of renewable energy sources to the production of
electricity in the internal market.290 By Art. 3 of the Renewables Directive, each
Member State is to set national indicative targets for consumption of electricity
produced from renewable energy sources, taking into account the reference values
set out in the Directive and ensuring compatibility with obligations under the Kyoto
Protocol.291
‘Renewable energy sources’ are defined as ‘renewable non-fossil energy sources
(wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage
treatment plant gas and biogases)’.292 The definition thereby excludes nuclear
278 Directive 03/54/EC, Art. 20(1).
279 See Cameron, op. cit., paras 4.24 and 8.12.
280 Ibid., para. 8.11.
281 See Directive 03/54/EC, Arts 2(12) and 21(1).
282 Ibid., Art. 21(1)(a).
283 Ibid., Art. 21(1)(b), that is, purchasers of electricity other than for their own household
use, including producers and wholesale customers (see Directive 03/55/EC, Art. 2(11)).
284 Directive 03/54/EC, Art. 21(1)(c).
285 Ibid., Art. 2(7).
286 Ibid., Art. 2(8).
287 Ibid., Art. 2(9).
288 See para. 12.2.6.3(1) above.
289 Ibid.
290 Directive 01/77/EC, Art. 1.
291 Directive 01/77/EC, Art. 3(2).
292 Ibid., Art. 2(a).
278 Environmental Taxation Law
power from the definition of renewables. Since Member States are obliged only to
take ‘a(chǎn)ppropriate steps’ to meet the indicative targets, failure to meet those targets
is not by itself a breach of the terms of the Directive. However, Art. 3(4) of the
Directive reserves to the Commission the right to set mandatory targets. Article 5 of
the Directive requires Member States to ensure that the origin of electricity produced
from renewable energy sources can be guaranteed as such by creating systems for
granting guarantees of origin. Article 6(1) of the Directive then requires Member
States to review their existing rules on the construction and operation of renewable
power plants with a view to reducing the regulatory and non-regulatory barriers to
renewables production.
The remaining provisions of the Renewables Directive concern transmission and
distribution issues (that is, ‘grid’ issues). For instance, Art. 7(1) of the Directive
requires Member States to take the necessary measures to ensure that TSOs and
DSOs in their territory ‘guarantee’ the transmission and distribution of electricity
produced from renewable energy sources. This same provision also allows Member
States to afford renewables generators priority access to the transmission and
distribution systems.
In the UK, the government has decided that 10 per cent of electricity supplies
should come from renewable sources by 2010.293 However, there has been until
recently no system for guaranteeing the ‘renewable’ origin of electricity supplies and
the UK transmission and distribution system is not structured in such a way as to
enable renewables generators to be accorded priority.294
If the purpose of the Renewables Directive is the promotion of renewable source
electricity in the internal market, the professed objective of the Cogeneration
Directive is ‘to increase energy efficiency and improve security of supply by creating
a framework for promotion and development of high efficiency cogeneration of heat
and power based on useful heat demand and primary energy savings in the internal
energy market’.295 ‘Cogeneration’ is defined in Art. 3(a) of the Cogeneration Directive
as ‘the simultaneous generation in one process of thermal energy and electrical
and/or mechanical energy’, a definition which covers the following cogeneration
technologies:
(a) combined cycle gas turbine with heat recovery;
(b) steam backpressure turbine;
(c) steam condensing extraction turbine;
(d) gas turbine with heat recovery;
(e) internal combustion engine;
(f) microturbines;
(g) stirling engines;
(h) fuel cells;
(i) steam engines;
(j) organic Rankine cycles;
293 See para. 6.4 above.
294 See paras 2.4 and 6.4.3.1(2)(b) above and paras 21.5.4–21.5.6 below.
295 Directive 04/8/EC, Art. 1.
Community Law Aspects 279
(k) any other type of technology or combination thereof falling under the definition laid
down in Article 3(a).296
Article 6 of the Cogeneration Directive requires Member States both to analyse
national potential for high-efficiency cogeneration and to monitor periodically
their progress towards increasing the proportion of their electricity produced from
this source,297 while Art. 5 requires Member States to institute, as for renewable
source electricity, a system of guarantees of origin, for the purpose of ensuring
that electricity generated from high-efficiency cogeneration can be guaranteed as
such.298 Such a system of guarantees mu,st be instituted within six months following
the Commission’s establishment of ‘harmonised efficiency reference values for
separate production of electricity and heat’.299 Additionally, obligations on both the
Commission and on Member States to report on the progress of the matters covered
by the Directive are imposed by Arts 10 and 11, while Art. 8 requires Member States
both to ensure that TSOs and DSOs in their territory ‘guarantee’ the transmission
and distribution of electricity produced from high-efficiency cogeneration,300 and,
until the cogeneration producer becomes an eligible customer under Art. 21(1) of
the EAD,301 to ensure the due publication of tariffs for the purchase of electricity ‘to
back-up or top-up electricity generation’.302
Regulation EC/1228/2003 on Conditions for Access to the Network for Cross-Border
Exchanges in Electricity is directed towards the further development of cross-border
trade in electricity, whose level is currently rather modest. To this end, the Regulation
establishes a compensation mechanism for cross-border flows of electricity; for the
setting of harmonised principles on cross-border transmission charges; and for the
allocation of available capacities of interconnections between national transmission
systems.303 Article 7 of the Regulation permits new electricity interconnectors to be
exempt from TPA and from the regulatory control of tariffs.
In general terms, the UK presently complies with the three measures discussed
above. Such legislative changes as are necessary, in relation to a regulatory and
exemption regime for new interconnectors, have been made through the Energy Act
2004.304
(3) Gas
The Gas Acceleration Directive is rather similar to the EAD. Like the EAD, the
GAD looks forward to a fully open internal market.305 Reflecting the differences
296 Ibid., Annex I.
297 Ibid., Art. 6(1).
298 Ibid., Art. 5(1).
299 Ibid., Art. 4(1).
300 Ibid., Art. 8(1).
301 See above.
302 Ibid., Art. 8(2).
303 Regulation EC/1228/2003, Art. 1. See Cameron, op. cit., paras 8.17–8.21; IEA, op. cit.,
p. 43.
304 See para. 6.4.3.1(4) above.
305 Directive 03/55/EC, recital 4.
280 Environmental Taxation Law
between the structures of the gas and electricity industries,306 however, it establishes
common rules in four areas: transmission, distribution, supply and storage.307
Within the scope of natural gas, for the purposes of the GAD, is liquefied natural
gas (‘LNG’), biogas308 and gas from biomass,309 plus any other type of gas that
can technically and safely be injected into, and transported through, the natural gas
system.310
Gas transmission, storage and LNG is dealt with in Arts 7–10, GAD. Transmission
is itself defined as ‘the transport of natural gas through a high pressure pipeline
network … with a view to its delivery to customers, but not including supply’.311
As with electricity, there is provision for the designation of TSOs,312 who are tasked
with various duties including the operation, maintenance and development, under
economic conditions, of secure, reliable and efficient transmission, storage and/or
LNG facilities,313 due regard being paid to the environment.314
The distribution and supply of gas forms the subject matter of Arts 11–15, GAD.
‘Distribution’ is itself defined as ‘the transport of natural gas through local or
regional pipeline networks with a view to its delivery to customers, but not including
supply’.315 The provisions on distribution and supply are in substance very similar
to those covering transmission, storage and LNG. As with the EAD, the designation
and supervision of DSOs is required.316
As in the case of the EAD, the central provisions of the GAD are those that relate
to market access. Access to transmission, distribution and LNG facilities is again to
be based simply on published tariffs, applicable to all eligible customers objectively
and without discrimination between users of the systems.317 Again, the model is
306 See para. 2.4 above.
307 Directive 03/55/EC, Art. 1(1). Unlike the EAD, the GAD does not provide for common
rules for operations relating to gas production although, like the EAD, it does contain
rules for the granting of licences for the construction of natural gas facilities, including
facilities for production, transmission, distribution and storage (see Directive 03/55/EC,
Art. 4). Production itself is dealt with separately in the Hydrocarbons Licensing Directive
(see para. 12.2.6.3(5) below).
308 That is, ‘gas formed by anaerobic digestion of organic materials, for example, whey or
sewage sludge’ (Porteous).
309 That is, ‘the mass of living organisms forming a prescribed population in a given area of
the earth’s surface’ (Porteous).
310 Directive 03/55/EC, Art. 1(2).
311 Ibid., Art. 2(3). ‘Supply’ is defined as the sale, including resale, of natural gas, including
LNG, to customers (see Directive 03/55/EC, Art. 2(7)).
312 Directive 03/55/EC, Art. 7.
313 LNG facilities are defined in Directive 03/55/EC, Art. 2(11), as terminals used for the
liquefaction of natural gas, or the importation, offloading and re-gasification of LNG,
including ancillary services and temporary storage necessary for the re-gasification
process and subsequent delivery to the transmission system but not including those parts
of LNG terminals used for storage.
314 Directive 03/55/EC, Art. 8(1).
315 Ibid., Art. 2(5).
316 That is, by Directive 03/55/EC, Art. 11.
317 Ibid., Art. 18(1).
Community Law Aspects 281
regulated TPA,318 which allows producers, on the one hand, and eligible customers,
on the other, to contract with each other direct for electricity supply on the basis of
the published tariffs. Eligible customers are defined in exactly the same way as for
purposes of the EAD, that is:319
a. before 1 July 2004, customers falling within specified market-opening percentages
and permitted by Member States as being eligible to participate in the opening of
the market;320
b. from 1 July 2004, at the latest, all non-household customers;321 and
c. from 1 July 2007, all customers.322
Parallel with the EAD, in the GAD, customers are defined to mean both wholesale
and final customers of natural gas and natural gas undertakings that purchase
natural gas,323 the former referring to those who purchase natural gas for resale
(other than TSOs and DSOs),324 final customers being those who purchase it for
their own use.325 The basis on which the UK has interpreted the concept of eligible
customers for the purpose of the gas markets has already been discussed in an earlier
chapter.326 Regulated TPA is already the basis for network access in the UK and the
DTI considers that, whilst the UK is in broad compliance with the provisions of the
GAD, certain further measures needed to be taken.327
(4) Coal
The European coal industry was formerly subject to the system of regulated
competition provided for by the 1951 European Coal and Steel Community Treaty
(‘the ECSC Treaty’).328 Since July 2002, however, the industry has been brought
within the provisions of the European Treaty, although it has the benefit of a special
set of rules on state aid.329 At the time of the expiration of the ECSC Treaty, on 23
July 2002, the Commission reported that, within the countries which formed the
then 15 Member States, coal output was down to 83 million tons, as against 485
million tons in 1953.330 However, as the Commission also reported, the ten accession
countries also have big, and not yet fully restructured, coal industries.
318 See Cameron, op. cit., paras 4.88 and 8.13.
319 See Directive 03/55/EC, Arts 2(28) and 23(1).
320 Ibid., Art. 23(1)(a).
321 Ibid., Art. 23(1)(b), that is, purchasers of natural gas other than for their own household
use (see Directive 03/55/EC, Art. 2(26)).
322 Ibid., Art. 23(1)(c).
323 Ibid., Art. 2(24).
324 Ibid., Art. 2(29).
325 Ibid., Art. 2(27).
326 See para. 6.4 above.
327 See para. 6.4.3.2 above.
328 See Cameron, op. cit., paras 2.11–2.12.
329 See para. 12.2.7.3 below.
330 Press Release IP/02/898, Fifty Years at the Service of Peace and Prosperity: The European
Coal and Steel Community (ECSC) Treaty Expires, Brussels, 19 June 2002.
282 Environmental Taxation Law
(5) Oil
The sourcing, composition, storage and distribution of both hydrocarbon oils and
hydrocarbon-based motor fuels is highly regulated within the Community.331
European Parliament and Council Directive 94/22/EC (‘the Hydrocarbons Licensing
Directive’)332 contains the rules relating to authorisations for exploring for and
extracting both oil and natural gas.333 The three main objectives of the Hydrocarbons
Licensing Directive are to ensure that all entities possessing the necessary capabilities
can gain access to authorisations; to ensure that ‘a(chǎn)uthorisations are granted according
to objective published criteria’; and to ensure that all entities taking part in the
authorisation procedure know in advance the conditions under which authorisations
are to be granted.334
Standards for the composition, storage and distribution of motor fuel are contained
in various directives. Both the lead content and the sulphur content of fuels is
regulated. Lead content is subject to the Fuel Quality Directive335 and sulphur
content to the Sulphur Content Directive.336 Subject to derogations, the Fuel Quality
Directive banned leaded petrol from the market from 1 January 2000337 and made
provision for progressive improvements in the environmental quality of unleaded
petrol and diesel fuel. The Sulphur Content Directive, which amended Council
Directive 93/12/EEC on the Sulphur Content of Certain Liquid Fuels,338 provides
for a gradual reduction in the sulphur content of liquid fuels ‘to reduce the harmful
effects of [sulphur dioxide] … emissions on man and the environment’.339
Directive 94/63/EC340 contains standards for the storage of petrol and its distribution
from terminals to service stations. Such standards are concerned with controlling
volatile organic compound emissions. The transposition of the Directives referred to
above into UK law has been referred to in Chapter 6 above.341
12.2.6.4 Transport law and policy
(1) Introduction
The legislative basis of the Community’s common transport policy (‘the CTP’) is
contained in Arts 70–80, European Treaty (ex 74–84).342 Article 70 states only that
331 Only the briefest indication of the scope of this regulation is given here. See, further,
Patricia D. Park, Energy Law and the Environment (London: Taylor and Francis, 2002),
ch. 5.
332 (1994) OJ L164 3.
333 See para. 12.2.6.3(3)n above.
334 See Cameron, op. cit., para. 3.38.
335 European Parliament and Council Directive 98/70/EC, as amended, (1998) OJ L350 58.
336 Council Directive 1999/32/EC, as amended, (1999) OJ L121 13.
337 Directive 98/70/EC, Art. 3(1).
338 (1993) OJ L74 81.
339 Council Directive 1999/32/EC, Art. 1(1).
340 (1994) OJ L365 24.
341 See para. 6.4 above.
342 Although ‘a(chǎn) common policy in the sphere of transport’ is referred to in Art. 3(1)(f),
European Treaty.
Community Law Aspects 283
the objectives of the Treaty are to be pursued by the Member States ‘within the
framework of a common transport policy’, however.343
Without stating the goals of the CTP, Art. 71 nonetheless provides that measures
taken for the purpose of implementing Art. 70 are to be enacted under the co-decision
procedure.344 Article 72 then prevents the introduction of, or any increase in,
discriminatory measures without the unanimous approval of the Council. Article 73,
to be discussed below,345 deals with state aids in relation to transport, while Art. 74,
which relates to the method and extent to which Member States may intervene in the
commercial activities of carriers, requires account to be taken of carriers’ economic
circumstances where measures are taken in relation to transport rates and conditions.
Article 78 specifically allows state aid in the transport sphere in respect of parts of
Germany to reflect the economic disadvantages caused by the division of Germany
after the Second World War.
Article 75, which reflects the principles of Arts 23–31, European Treaty (ex 9, 10,
12, 28, 29, 30, 34, 36 and 37),346 provides for the abolition of discrimination in rates
and conditions for the transportation of goods. Article 76 continues this theme by
reflecting the anti-discrimination provision of Art. 12, European Treaty (ex 6) and
banning Member States from imposing transport rates and conditions that favour
particular undertakings or industries, except in accordance with authorisation from
the Commission.
In an echo of Art. 25, European Treaty (ex 12),347 Art. 77 is designed to ensure that
charges or dues in addition to the transport rates in respect of the crossing of frontiers
do not exceed a reasonable level after taking into account the costs thereby actually
incurred.
Finally, while Art. 79 provides for the setting-up of an advisory Committee on
transport to be attached to the Commission, Art. 80(1) expressly states that the
provisions of Arts 70–80 are to apply to transport by rail, road and inland waterway.
Article 80(2) provides that it is for the Council, acting by qualified majority, to decide
whether, to what extent and by what procedure, appropriate provisions may be laid
down for sea and air transport. It should be noted, however, that Art. 80(2) does not
prevent the application of the general rules of the European Treaty to transport by
sea and by air.348
In subsequent chapters of the present study, road and air transport are of the greatest
relevance and it is to those areas that we now turn. In each area, there is a wealth of
secondary legislation, in the form of regulations and directives. Moreover, the reader
should be aware that, in 2001, the Commission published a White Paper making some
60 specific proposals of measures to be taken at Community level under the CTP.349
343 Notably, in a relatively under-explored area, see Rosa Greaves, EC Transport Law
(Harlow: Pearson Education, 2000).
344 See para. 4.3.3 above.
345 See para. 12.2.7.4 below.
346 See para. 12.4 below.
347 See para. 12.3.3.2 below.
348 See Greaves, op. cit., p. 22.
349 Commission of the European Communities, European Transport Policy for 2010: Time
to Decide (Luxembourg: Office for Official Publications of the European Communities,
2001).
284 Environmental Taxation Law
Policy preoccupations of the Commission revealed by the White Paper include
the promotion of clean urban transport;350 intermodal transport (that is, integrated
transport chains);351 and transport infrastructure charging policy.352 We shall return
to the last of these in paragraph (2) below.
It is important to stress the same point here, in relation to competition, as was made
in relation to energy above. The Community’s competition rules apply to transport,
just as to other economic sectors; the only aspect of those rules that there will be an
opportunity to refer to in what follows is that of state aid.353
(2) Road freight transport
Secondary legislation on road transport may be grouped into six areas:354
a. market access and pricing relating to goods;
b. market access and pricing in relation to passengers;
c. fiscal harmonisation;
d. social legislation;
e. technology, safety and environment; and
f. transport of dangerous goods.
Whilst noting the broad contours of legislation in each of categories a., b., d. and f.,
we are concerned most closely here, of course, with categories c. and e. As to market
access and pricing, (see a. and b. above), Community law and policy has chiefly
been concerned with three areas: with removing restrictions (that is, quotas) on the
provision of transport services between Member States; with the right of a nonresident
undertaking to provide transport services within a Member State; and with
access to the occupation of a transport service operator.355 The main items of social
legislation on road transport (see d. above) are Council Regulation 3820/85/EEC on
the Harmonisation of Certain Social Legislation relating to Road Transport356 and
European Parliament and Council Directive 2002/15/EC on the Organisation of the
Working Time of Persons Performing Mobile Road Transport Activities.357 As to f.
(that is, the transport of dangerous goods), the main provision is Council Directive
94/55/EC,358 which transposes international law on the transport of dangerous goods
into Community law.
350 See www.europa.eu.int/comm/energy. Also, White Paper, pp. 81–4.
351 See www.europa.eu.int/comm/transport. Also, White Paper, pp. 41–7 and Greaves, op.
cit., p. 125.
352 See www.europa.eu.int/comm/transport. Also, White Paper, pp. 88ff., and Greaves, op.
cit., pp. 125–30.
353 The reader is referred to the materials cited in para. 12.2.6.4(1)n above; also, in this
context, to Greaves, op. cit., ch 7.
354 These are the six divisions used in the ABC of the Road Transport Acquis, available from
www.europa.eu.int/comm/transport.
355 See Greaves, op. cit., ch 3.
356 (1985) OJ L370 1.
357 (2002) OJ L80 35.
358 (1994) OJ L319 7.
Community Law Aspects 285
Secondary legislation on technology and safety in relation to road transport (see
e. above) covers matters such as information on road accident statistics;359 driver
training,360 driving licences;361 vehicle speed limitation devices;362 and vehicle
recording equipment (that is, tachographs).363
Meanwhile, certain environmental aspects of road transport have been covered in
a series of measures relating to sound and air pollution from vehicles.364 Prominent
among these measures is a 1970 directive, which continues to be amended
regularly,365 and which establishes mandatory technical standards for emissions of
carbon monoxide, unburnt hydrocarbons, nitrogen oxides and particulates from both
petrol- and diesel-engined cars.366 The Council, which is committed to implementing
a research and development programme for the marketing of clean vehicles and
fuels,367 has been authorised to adopt legislation for the stabilisation and reduction
of emissions of carbon dioxide and other GHGs from motor cars and to introduce
tax incentives for certain types of vehicle.368 Additionally, the Commission’s Auto/
Oil II Programme is aiming for considerable improvements by 2010 in urban air
quality,369 the Commission also having entered into environmental agreements with
associations such as the Korean Automobile Manufacturers Association (‘KAMA’),
the Japanese Automobile Manufacturers Association (‘JAMA’) and the European
Automobile Manufacturers Association (‘ACEA’)370 for the reduction of carbon
dioxide emissions from cars.371 Emissions from diesel engines propelling road
vehicles are dealt with in Council Directives 72/306/EEC372 and 88/77/EEC,373
while polluting emissions from engines powered by NG and LPG are covered by
Directive 99/96/EC.374 Directive 99/96/EC introduces the concept of Enhanced
Environmentally Friendly Vehicles, while Directive 96/1/EC375 permits Member
States to introduce tax incentives for vehicles that satisfy certain conditions. Finally,
Council Directive 70/157/EEC,376 as amended, approximates the legislation of
359 Council Decision 93/704/EC, (1993) OJ L329 63.
360 Council Directive 76/914/EEC, (1976) OJ L357 36.
361 Council Directive 91/439/EEC, (1991) OJ L237 1.
362 Council Directive 92/6/EEC, (1992) OJ L57 27.
363 Council Regulation EEC/3821/85, (1985) OJ L370 8, amended by Council Regulation
EC/2135/98, (1998) OJ L274 1.
364 See Sands, op. cit., pp. 758–9.
365 See the list of amending measures in Sands, op. cit., p. 758n. It includes Council Directive
91/441/EC, (1991) OJ L242 1; Council Directive 93/59/EC, (1993) OJ L186 21; Council
Directive 94/12/EC, (1994) OJ L100 42; and Directive 01/1/EC, (2001) OJ L35 34.
366 Council Directive 70/220/EEC, (1970) OJ L76 1.
367 Council Directive 91/441/EEC, amending Council Directive 70/220/EEC.
368 Council Directive 89/458/EEC, (1989) OJ L226 3, amending Council Directive 70/220/
EEC.
369 COM (00) 626 final (see Prelex link in Documents section of www.europa.eu.int).
370 See COM (1996) 561 and COM (1998) 495.
371 See Sands, op. cit., p. 759.
372 (1972) OJ L190 20.
373 (1988) OJ L36 33.
374 (2000) OJ L44 1.
375 (1996) OJ L40 1.
376 (1970) OJ L42 16.
286 Environmental Taxation Law
Member States covering noise levels from motor vehicles. The implementation of
these measures in UK law has already been discussed in Chapter 6 above.377
In addition to certain measures discussed below, which relate to the harmonisation
of excise duties on fuel,378 at least one significant measure has been enacted in
relation to the fiscal harmonisation of road transport (see c. above). This is European
Parliament and Council Directive 1999/62/EC on the Charging of Heavy Goods
Vehicles for Use of Certain Infrastructure.379 The Directive seeks to reduce the
differences between systems of road taxes and charges applicable within Member
States; to take better account of the principles of fair and efficient road pricing; and
to move further towards the principle of territoriality in charging for road use. It
therefore covers, not only vehicle excise duties, but also tolls and user charges.380
By Art. 2(d), the scope of the Directive is restricted to goods vehicles having a
maximum permissible gross laden weight of at least 12 tonnes. Although Art. 4 of
the Directive allows each Member State to fix its own procedures for levying and
collecting the vehicle excise duties381 to which it applies, Art. 5 provides that, as
regards vehicles registered in the Member States, such duties are to be charged
only by the Member State of registration. Annex I to the Directive fixes, subject
to the derogations, reduced rates and exemptions in Art. 6, the minimum rates of
vehicle excise duty to be applied by Member States. Tolls and user charges may
be imposed only on users of motorways and similar multi-lane roads, on users of
bridges, on users of tunnels and on users of mountain passes.382 Art. 7(4) prohibits
tolls and user charges from discriminating, whether directly or indirectly, on the
basis of the haulier’s nationality or the origin or the destination of the vehicle.
By Art. 7(5), Member States are enjoined to ensure that tolls and user charges
are collected in such a way as to cause as little hindrance as possible to ‘the free
flow of traffic’ and to avoid any mandatory checks at the internal borders of the
Community. Under Art. 7(7) of the Directive, Member States are to fix user charges
at a level not exceeding the maximum rates laid down in Annex II thereto, while
user-charge rates are to be in proportion to the duration of the use made of the
infrastructure.383 Articles 7(9) and 7(10) of the Directive set out the rules for
determining user charges and for relating weighted average tolls to the costs of
constructing, operating and developing the relevant infrastructure, etc.384 Finally,
Art. 9(2) permits the earmarking of tolls and user charges, allowing Member States
to attribute to environmental protection and the balanced development of transport
networks a percentage of the amount of the user charge or toll, provide that the
amount in either case is calculated in accordance with Arts 7(7) and 7(9) of the
Directive.
377 See para. 6.4 above.
378 See para. 12.3.4 below.
379 (1999) OJ L187 42.
380 See para. 7.2.3 above.
381 The duties falling within the scope of the RCD are listed for each Member State in Art. 3,
Directive 99/62/EC.
382 Directive 99/62/EC, Art. 7(2). ‘Tolls’ are defined, ibid., Art. 20.
383 Ibid., Art. 7(8).
384 See para. 7.2.3 above.
Community Law Aspects 287
The UK’s vehicle excise duty regime is discussed in Chapter 22 below; the UK
Government currently intends to introduce road-user charging for lorries by 2006;385
and the Commission has signalled its intention to amend Directive 1999/62/EC so as
to align national systems of tolls and user charges for infrastructure use.386
(3) Air passenger transport
The secondary Community legislation on air transport may be divided into
10 categories,387 six of which are not relevant in the present context, that is, the
procurement of air traffic-management equipment and systems; air safety; air security;
the protection of passengers; working conditions of employees; and a ‘sweep-up’
category of (mainly administrative) measures.388 The remaining four are as follows:
a. market access and pricing;
b. state aids;
c. competition rules; and
d. the environment.
For present purposes, the most relevant categories are a. and d. above, although
at least a brief indication of the relevant aspects of Community state aid and
competition law is necessary to enable the significance of a. and d. fully to be
appreciated. State aid issues, which are part of Community competition law, are
discussed below;389 the competition rules referred to at c. above seek to apply the
general rules of Community competition law to the specifics of the air transport
sector. Thus, although since 1 May 2004, infringement proceedings under Arts 81
and 82, European Treaty (ex Arts 85 and 86) have been subject to new procedures of
general application,390 there is an exemption from the scope of Art. 81(1) in relation
to certain agreements, decisions and concerted practices in the transport sphere, in
so far as their sole object and effect is to achieve technical improvements or cooperation.
391 Furthermore, by Council Regulation EEC/3976/87,392 among the types
of agreements, decisions and concerted practices to which the Commission has the
power to apply Art. 81(3), European Treaty (block exemptions), are those having as
their object the planning and co-ordinating of airline schedules and joint operations
on new less busy scheduled air services.393
385 See para. 27.3 below.
386 See COM(03) 488 (see Prelex link in Documents section of www.europa.eu.int).
387 These are the ten divisions used in the ‘Legislation’ section of the ‘Air Transport’ part of
the Energy and Transport Directorate-General’s website (see www.europa.eu.int/comm/
transport).
388 See Greaves, op. cit., passim.
389 See para. 12.2.7.4 below.
390 See Council Regulation EC/1/2003, (2003) OJ L1 1, Arts 39 and 41, repealing Council
Regulation EEC/3975/87, Arts 3–19 and Council Regulation EEC/3976/87, Art. 6.
391 See Council Regulation EEC/3975/87, (1987) OJ L374 1, Art. 2(1).
392 (1987) OJ L374 9.
393 See Council Regulation EEC/3976/87, as amended by Council Regulation EEC/2411/92,
Art. 1(2) (1992) OJ L240 19.
288 Environmental Taxation Law
In relation to a. above, air transport raises problems which, although different
from those raised by road transport, are no less intractable. As noted in an earlier
chapter,394 the international regulatory background to Community policy in the
area is a complex of national law, the 1944 Chicago Convention and a network of
bilateral conventions on routes, tariffs, etc. At least since 1987, Community policy
has been to work towards the establishment of a genuine internal market in civil
aviation, one in which such bilateral agreements are abolished and which is subject
to general EU competition law rules.395 Thus, Council Regulation EEC/2408/92 on
Access for Community Air Carriers to Intra-Community Air Routes,396 has afforded
full market access to intra-Community air services by Community air carriers.
This market-opening process has been facilitated by Council Regulation EC/95/93,
on Common Rules for the Allocation of Slots at Community Airports,397 and by
Council Regulation EEC/2409/92 on Fares and Rates for Air Services.398 Regulation
EEC/2408/92 allows Community undertakings to operate as air carriers anywhere
in the Community, regardless of nationality; Regulation EC/95/93 requires Member
States to decide on the need for allocating slots399 according to capacity analyses
(but not, significantly, by auction);400 and Regulation EEC/2409/92, in conjunction
with Community competition law generally, regulates fares and rates for air transport
services.
The environmental effects of air transport have been a pressing concern of
the Commission in recent years (see d. above). In its 1999 Communication, Air
Transport and the Environment: Towards Meeting the Challenges of Sustainable
Development,401 the Commission set out the four main ‘pillars’ for integrating
environmental concerns into air transport policy, that is: improving technical
environmental standards on noise and gaseous emissions; strengthening economic
and market incentives; assisting airports in their environmental endeavours and
advancing long-term technology improvements. Although the contribution of aircraft
both to air and atmospheric pollution and to climate change is considerable, to date
Community measures have concentrated on aircraft noise. Thus, Council Directive
80/51/EEC placed restrictions on noise emissions from subsonic aircraft;402 Council
Directive 89/629/EEC403 banned the registration of so-called ‘Chapter 2 aircraft’;404
and Council Directive 92/14/EEC405 provided for the gradual withdrawal of such
394 See para. 8.5 above.
395 Greaves, op. cit., p. 67.
396 (1992) OJ L240 8.
397 (1993) OJ L14 1.
398 (1992) OJ L240 15.
399 A ‘slot’ is defined as ‘the scheduled time of arrival or departure available or allocated
to an aircraft movement on a specific date at an airport coordinated under the terms of
Regulation EEC/2408/92’ (see Art. 2(a) thereof).
400 See para. 27.5 below.
401 COM (99) 640.
402 (1980) OJ L18 26.
403 (1989) OJ L363 27.
404 That is, Chapter 2 of Annex 16 to the 1944 Chicago Convention (see para. 8.5 above).
405 (1992) OJ L76 21.
Community Law Aspects 289
aircraft from operation in the EU by April 2002. Furthermore, European Parliament
and Council Directive 2002/30/EC406 has embodied in Community law the
International Civil Aviation Organisation (‘ICAO’)’s407 Resolution A33–7 on the
use of a ‘balanced approach’ to the management of noise around airports.408 Finally,
this last Directive takes effect against the background of a more general framework
for limiting noise contained in European Parliament and Council Directive 2002/49/
EC,409 which has the aim of defining a common approach that is intended to
avoid, prevent or reduce, on a prioritised basis, the harmful effects of exposure to
environmental noise. For the UK provisions, see para. 6.5 above.
12.2.7 State aids
12.2.7.1 General
State subsidy, whether or not on professedly environmental grounds, has long been
used to manage economies.410 Subsidy, that is, a cost or loss of revenue to the public
authority and a benefit to recipients, is the essence of state aids.411 Although state
aids are not forbidden under Community law, they are subject to its discipline, which
means that they must not be applied so as to discriminate on grounds of nationality
or so as to lead to unlawful barriers to trade. Community state aid rules form part of
the competition law of the Community. Writing in 2000, Ehlermann and Atanasiu
summed up the significance of Community state aid law thus:
The control of state aids is a unique feature of EU competition policy. No similar control
system exists in any of the Member States or in any federal state outside the EU. This model
has, nonetheless, an increasing influence beyond the borders of the Community: its rules
have been ‘exported’ to the European Economic Area, and, more recently, to the Central
and Eastern European countries (CEECs) which are candidates for EU membership.412
EU state aid rules and oversight practice have also influenced the evolution of the subsidy
discipline imposed at the level of the GATT and the WTO.413
Articles 88 and 89, European Treaty (ex 93 and 94) create a procedure whereby
Member States must keep the Commission informed of state aids, so that the
406 (2002) OJ L85 40.
407 See para. 8.5 above.
408 Directive 02/30/EC also repeals the so-called ‘Hushkit’ Regulation (that is, Regulation
EC/925/99, (1999) OJ L 115 1), as to which, see Greaves, op. cit., p. 117.
409 (2002) OJ L189 12.
410 See Weatherill and Beaumont, op. cit., pp. 1018–29; A. Leigh Hancher, Tom Ottervanger
and Piet Jan Slot, EC State Aids, 2nd edn (London: Sweet and Maxwell, 1999); and Andrew
Evans, European Community Law of State Aid (Oxford: Clarendon Press, 1997).
411 See Evans, op. cit., p. 27.
412 The passage was obviously written prior to the accessions of May 2004.
413 See the Introduction to the European Competition Law Annual 1999: Selected Issues in
the Field of State Aid, ed. by Claus-Dieter Ehlermann and Michelle Everson (Oxford:
Hart Publishing, 2001), p. xxi.
290 Environmental Taxation Law
Commission can assess whether they are consistent with Community law.414 Art.
88(3) imposes a positive duty on Member States to notify the Commission of any
plans to grant or alter state aid and Art. 88(1) obliges the Commission to keep all
state aid existing in member States under constant review. The Commission is
charged with proposing to Member States any appropriate measures required by the
development or functioning of the common market. In appropriate circumstances
and, having followed the procedure in Art. 88(2), the Commission can require the
Member State in question to alter or abolish the aid within a specified time, as well as
to recover the aid in question (for example, where aid has been implemented without
notification).415
Article 87(1), European Treaty (ex 92(1)) contains the basic substantive rule of
state aid law and provides that:
Save as otherwise provided in this Treaty, any aid granted by a Member State or through
State resources in any form whatsoever which distorts or threatens to distort competition
by favouring certain undertakings or the production of certain goods shall, insofar as it
affects trade between Member States, be incompatible with the common market.
Article 87(2) then lists three categories of state aid that are compatible with the
common market, while Art. 87(3) lists five categories of aid that may be compatible
with it. The former (obligatory) categories, subject to certain conditions, are; aid with
a social character; aid to combat natural disasters; and aid to compensate certain areas
of Germany for the economic disadvantages caused by the division of the country.
The latter (permissive) categories include the following:
a. aid to promote the economic development of areas where the standard of living is
abnormally low or where there is serious underemployment;
b. aid to promote the execution of an important project of common European interest or to
remedy a serious disturbance in the economy of a Member State;
c. aid to facilitate the development of certain economic activities or of certain economic
areas, where such aid does not adversely affect trading conditions to an extent contrary
to the common interest;
d. aid to promote culture and heritage conservation where such aid does not affect trading
conditions and competition in the Community to an extent that is contrary to the common
interest; and
e. such other categories of aid as may be specified by decision of the Council acting by a
qualified majority on a proposal from the Commission.
State aid is conventionally divided into sectoral and horizontal aid; the former relates
to particular industries, the latter cuts across individual sectors. Of the permissive
categories listed above, the most relevant in the present context are b. and c., since
414 The detailed rules for the application of Art. 88, European Treaty (ex 93) are contained in
Council Regulation EC/659/99, (1999) OJ L83 1 (see Hancher, Ottervanger and Slot, op.
cit., ch 19).
415 Only unlawful state aid may be recovered, as to which, see Hancher, Ottervanger and Slot,
op. cit., paras 20–003–20–008.
Community Law Aspects 291
these will usually be the Treaty Articles under which the Commission will consider
a state aid clearance application on the grounds discussed in one or other of the next
three paras.
12.2.7.2 State aid for environmental protection
In a case where the proffered justification for granting state aid is an environmental
one, the Commission will follow its published Guidelines in exercising its
discretion.416 The basis of the discretion is generally Art. 87(3)(c) but the discretion
may instead be exercised under Art. 87(3)(b) in an appropriate case.417 The
Guidelines demonstrate the Commission’s adherence to the injunction in Art. 6,
European Treaty (ex 3c), to integrate environmental protection requirements into
the implementation of Community policies.418 The Commission’s approach in the
Guidelines consists in determining whether, and under what conditions, state aid
might be regarded as necessary to ensure environmental protection and sustainable
development, without having disproportionate effects on competition and economic
growth.419
The UK’s environmental taxes, including the exemptions and reliefs which they
embody, together with its economic instruments for environmental protection, are
the subject of a number of Commission decisions on state aid. Most of these have
concerned climate change levy420 and its associated economic instruments, the UK
ETS421 and the RO,422 but the special Northern Ireland aggregates levy provisions
have also been the subject of Commission scrutiny.423
12.2.7.3 State aid in the energy industries
Following the initial liberalisation of the electricity market by the 1996 Electricity
416 Community Guidelines on State Aid for Environmental Protection, (2001) OJ C37 1.
See Hancher, Ottervanger and Slot, op. cit., paras 17–011–17–020 and Evans, op. cit.,
pp. 357–74.
417 Guidelines, paras 72 and 73.
418 See para. 12.2.1 above.
419 Guidelines, para. 5.
420 See Decision N 123/2000, Climate Change Levy (28 March 2001); Decision N 660/
A/2000, Exemption from Climate Change Levy for Natural Gas in Northern Ireland (18
July 2001); Decision C 18 and C19/2001, Climate Change Levy (EC and ECSC) (3 April
2002); Decision N 539/2002, Climate Change Levy Exemption for Electricity Exports of
Good Quality CHP (5 March 2003); and Decision C 12/2003 (ex N 778/2002), Climate
Change Levy Exemption for Coal Mine Methane (17 September 2003). Aspects of the
levy were also the subject of state aid decisions under the ECSC (not listed).
421 See Decision N 416/2001, Emission Trading Scheme (November 28, 2001); and Decision
N 104/B/2002, Emission Trading Scheme – Modification to Commission Decision State
Aid N 416/2001 of 28 November 2001 (12 March 2002).
422 See Decision N 504/2000, Renewables Obligation and Capital Grants for Renewable
Technologies (28 November 2001).
423 See Decision N 863/2001, Aggregates Levy (24 April 2002); and Decision N 2/2004,
Aggregates Levy – Northern Ireland Exemption (7 May 2004). See para. 13.3 below.
292 Environmental Taxation Law
Directive,424 the main area in which state aid issues arise is that of stranded costs.425
Schemes for the recovery of such costs through compensatory levies are capable of
qualifying as state aid426 and the Commission deals with such schemes under Art.
87(3)(c), European Treaty, in accordance with a 2001 Communication.427 However,
this methodology is not applicable to state aid granted to support renewables
generation; there remains considerable scope for tension between the development of
a new competitive framework for the granting of state aids to renewables generators
and the environmental provisions of the European Treaty.428
The question of state aid to the coal industry is dealt with under its own regime,429
which is designed to ensure security of supply.430
State aids to support the environmental objective of energy conservation are
dealt with in the environmental Guidelines discussed in para. 12.2.7.2 above. The
Commission specifically acknowledges that the use of green taxes may offset
the adverse economic effects of state aid in the form of tax reliefs and
exemptions.431
12.2.7.4 State aid in the air passenger and road freight transport sectors432
Pursuant to a Council Decision of 1965,433 Regulation 1191/69/EEC434 provided
that Member States could require road transport operators, to continue to operate
424 See para. 12.2.6.3(1) above.
425 That is, costs incurred by electricity utilities prior to market liberalisation, in order to
meet customer or governmental needs, and which liberalisation has made uncommercial.
Synonymous with the term ‘stranded assets’ (see Cameron, op. cit., p. lvii).
426 See Cameron, op. cit., paras 7.99–7.115. The Commission approved the fossil fuel levy
and non-fossil fuel levy under what is now Art. 87(3)(b) (see Hancher, Ottervanger and
Slot, op. cit., paras 3–020 and paras 21.4.4 and 21.5 below).
427 See Commission Communication Relating to the Methodology for Analysing State Aid
Linked to Stranded Costs (not referenced), July 2001, available from www.europa.eu.int.
See also Commission Decision 99/791/EC, (1999) OJ L319 1 (Northern Ireland Electricity
plc and Premier Power, discussed at Cameron, op. cit., para. 7.103).
428 See Cameron, op. cit., para. 7.116, which includes a discussion of an ECJ decision
revealing something of the tension referred to in the text, that is, PreussenElektra AG v.
Schleswag AG (Windpark Reussenköge III GmbH and Another, Intervening), C–379/98,
[2001] 2 CMLR 36. See van Calster, op. cit., para. 8.4n above.
429 See Council Regulation EC/1407/02, (2002) OJ L205 1.
430 See Decision N 4/2002, State aid to coal production for the period 1 January 2002 to 23
July 2002 (21 January 2003).
431 See Community Guidelines on State Aid for Environmental Protection, (2001) OJ C37 1.
See also para. 12.3.5 below.
432 See Greaves, op. cit., pp. 144–5; Hancher, Ottervanger and Slot, op. cit., ch 14; and Evans,
op. cit., para. 5.7.
433 This was Council Decision 65/271, (1965) 88 JO 1500 (no longer in force), which
provided for a legislative programme to harmonise national rules affecting competition in
the inland transport sector.
434 (1969) OJ L156 1.
Community Law Aspects 293
unprofitable services, by way of a PSO,435 provided that they compensated the
undertakings in question for the financial burden thus incurred. Such aids are
expressly declared by Art. 73, European Treaty (ex 77), to be compatible with the
Treaty.436
In considering state aid applications in relation to the air transport sector, under Art.
87(3), European Treaty, the Commission follows its 1994 Guidelines,437 introduced
in the wake of four major grants in favour of national airlines, that is, Aer Lingus,
TAP, Air France and Olympic.438 The two main concerns of the Guidelines are
stated to be the completion of the internal market for air transport and the increase of
transparency in the notification and decision-making processes.439
12.3 Taxation aspects
12.3.1 General
The Commission has long advocated the use of economic instruments (including
environmental levies) in environmental protection. This is shown not only, for
example, by the advocacy of such instruments in the Community Strategy for Waste
Management, already discussed,440 but in the Commission’s 1997 Communication
on the use of environmental taxes and charges (‘the 1997 Commission
Communication’).441 Whether the ECJ shares this enthusiasm is perhaps to be
doubted.442 For instance, in 2001, the ECJ struck down a Belgian flat rate municipal
435 Regulation 1191/69, Art. 2(1).
436 Council Regulation EEC/1107/70, (1970) L130 1, much amended, contains the procedures
applicable to such aid.
437 Application of Articles 92 and 93 [now 87 and 88] of the European Treaty and Article 61
of the EEA Agreement to State Aids in the Aviation Sector, (1994) OJ 350 7.
438 See Hancher, Ottervanger and Slot, op. cit., paras 14–044–14–068.
439 See 1994 Guidelines, paras 7 and 8. See also Rosa Greaves, ‘Judicial Review of
Commission State Aid Decisions in Air Transport’, in Judicial Review in European Union
Law (The Hague: Kluwer, 2000), ch. 39.
440 See paras 12.2.5.1 above.
441 See Commission Communication, Environmental Taxes and Charges in the Single
Market, COM (97) 9 final, (1997) OJ C224 6 (see para. 1.2.1.5(2) above) and, generally,
Paul Farmer and Richard Lyal, EC Tax Law (Oxford: Clarendon Press, 1994); David
Williams, EC Tax Law (London: Longman, 1998); Alexander Easson, Taxation in the
European Community (London: Athlone Press, 1993); B. Terra and P. Wattel, European
Tax Law (Amsterdam: Kluwer, 1993); and D. Berlin, Droit Fiscal Communautaire (Paris:
Presse Universitaire Francaise, 1988).
442 A point cogently argued by Amparo Grau Ruiz and Pedro Herrera in an as yet
unpublished paper, entitled ‘The Polluting Side of Economic Freedoms: is the ECJ
against Environmental Taxes?’, given at the International Seminar on Energy Taxation
and Sustainable Development held in Madrid on 2 and 3 October 2003. The authors are
most grateful to Drs Grau Ruiz and Herrera for making available to them the slides from
that paper.
294 Environmental Taxation Law
tax on all satellite dishes in a particular municipality, on the ground that it infringed
Art. 49, European Treaty (ex Art. 59) by restricting the freedom to receive satellite
television broadcasts and by conferring an unfair advantage on the internal Belgian
broadcasting market.443
12.3.2 Attribution of taxation powers
Like environmental policy, taxation policy is not within the exclusive competence
of the Community.444 This means that, again as with environmental law, Member
States remain competent in the taxation field.445
By Art. 93, European Treaty (ex 99), the Council,446 acting unanimously on a
proposal from the Commission447 and after consulting the European Parliament448
and ECOSOC,449 is mandated to ‘a(chǎn)dopt provisions for the harmonisation of legislation
concerning turnover taxes, excise duties and other forms of indirect taxation to the
extent that such harmonisation is necessary to ensure the establishment and the
functioning of the internal market’. Whilst this might at first seem to give the green
light, among other things, to the creation of Community-wide environmental taxes,
the fact that the Council’s duty is specifically related to the establishment of the
internal market by 31 December 1992,450 means that it is at least arguable that it is
now spent.451 More importantly, however, Art. 93 embodies the general principle of
the fiscal veto,452 which is reflected in Art. 175(2)(a), European Treaty (ex 130s),
relating to environmental provisions primarily of a fiscal nature.453
Article 93 relates specifically to the harmonisation of indirect taxation and
environmental taxes, generally speaking, are indirect taxes.454 To the extent that
there is a basis for the harmonisation of direct taxation,455 however, this is to be
discerned in Art. 94, European Treaty (ex 100) which again tasks the Council, acting
unanimously on a proposal from the Commission and after consulting the European
Parliament and ECOSOC, with issuing directives for the ‘a(chǎn)pproximation of such
laws, regulations or administrative provisions of the Member States as directly
443 See De Coster v. College des Bourgmestre et Echevins de Watermael-Boitsfort , C–17/00,
[2002] 1 CMLR 12.
444 See para. 12.2.1 above.
445 See Kirsten Borgsmidt, ‘Ecotaxes in the Framework of Community Law’ [1999] EELR
270–281. The writers would like to acknowledge a particular debt of gratitude to this
work in the preparation of para. 12.3.
446 See para. 4.3.1 above.
447 See para. 4.3.2 above.
448 See para. 4.3.3 above.
449 See para. 4.3.4 above.
450 See Art. 14, European Treaty (ex 7a).
451 See Williams, op. cit., p. 34n.
452 See Art. 95(2), European Treaty (ex 100a).
453 See para. 4.3.1 (point 1) above.
454 See para. 1.2.1.2 above. An exception to this is, of course, the differential against
environmentally-unfriendly cars in the income tax provisions for the taxation of the
provision of company cars (see para. 23.2 below).
455 See para. 1.2.1.2 above.
Community Law Aspects 295
affect the establishment or functioning of the common market’.456 The requirement
,of unanimity which is present here, as in Art. 93, means that Art. 94 is again of
somewhat limited significance and, in the absence of unanimity, in no way detracts
from the competence of Member States to legislate in the taxation field.
The overall effect of Arts 93 and 94, are, of course, twofold, that is: (1) that any
Community-wide environmental tax would require the unanimous support of Member
States; and (2) that Member States are free to create their own environmental taxes,
provided that they do not conflict with other provisions of the Treaty.457 It is now
necessary to turn to these other Treaty provisions.
12.3.3 Fiscal barriers to trade
12.3.3.1 Discriminatory internal taxation
(1) Generally
Barriers to trade of a fiscal, as distinct from a general, nature are covered by Art. 90,
European Treaty (ex 95).458 Art. 90 reads as follows:
No Member State shall impose, directly or indirectly, on the products of other Member
States any internal taxation of any kind in excess of that imposed directly or indirectly on
similar domestic products.
Furthermore, no Member State shall impose on the products of other Member States any
internal taxation of such a nature as to afford indirect protection to other products.
The Article is, of course, a national treatment obligation, and, as such, it is the close
equivalent, in relation to intra-EU trade, of Art. III(2), GATT 1994,459 which is
applicable to trade between EU Member States and third countries. Like Art. III(2),
Art. 90 applies to internal taxation, rather than to customs duties.460 It will be noted
also that, unlike in relation to non-fiscal barriers to trade,461 the national treatment
obligation in Art. 90 admits of no exceptions, not even (or, perhaps, not surprisingly!)
environmental ones.
456 See Asscher v. Staatsecretaris van Financien, C–107/64, [1996] STC 1025, 1033 (para. 53),
‘[Article 93] of the Treaty explicitly gives the Council powers of harmonisation in the field
of indirect taxation alone. Laws relating to direct taxation may be harmonised … under [Art
94] … of the Treaty by the Member States acting unanimously, where they directly affect
the establishment or functioning of the Common Market … ’ (Advocate General Leger).
457 For example, the regionally-imposed levy of one euro per day between 2002 and 2003 on
holiday makers in the Balearic Islands (see B. Arino, ‘Sustainable Tourism and Taxes: an
Insight into the Balearic Eco-Tax’ (2002) 11 EELR 114–19).
458 For a detailed consideration, see Farmer and Lyal, op. cit., pp. 46–77.
459 See para. 8.4.3 above.
460 In R (on the application of British Aggregates Association and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51, aggregates levy was held to be part of
a system of internal taxation and, as such, fell to be considered under Art. 90, European
Treaty, rather than as a charge equivalent to a customs duty under Art. 25 thereof (see
para. 12.3.3.2 below).
461 See para. 12.4 below.
296 Environmental Taxation Law
(2) The two rules of Article 90, European Treaty (ex 95)
Article 90 contains two rules: a ban on tax discrimination against ‘similar [nondomestic]
products’ (first paragraph) and, in the second paragraph, a ban on tax
discrimination that results in indirect protection.462
In the context of the first rule,463 the ECJ has held that the mere fact that two
products contain the same raw materials (in the particular case, alcohol) is not
enough to make them ‘similar products’ for the purposes of the first rule. Similar
products are those that ‘… at the same stage of production or marketing, have similar
characteristics and meet the same needs from the point of view of consumers’.464 As
Borgsmidt points out, this is a very broad reading of the first rule, since it means that
‘similar products’ are not those which are identical but those which have a similar
and comparable use, due regard being had to consumer habits in the Community as a
whole and not merely in the Member State under consideration.465
As to the second rule,466 this may apply where, even though the ‘other products’ are
not similar in the sense of the first rule, they have sufficient characteristics in common
that they are an alternative choice for consumers in some circumstances.467
(3) Graduated schemes of taxation
Particular problems may arise in relation to Art. 90 where a Member State uses a
graduated scheme of taxation, either for goods in general or for a specific product.468
The ECJ has mapped out the circumstances in which differentiation between products
is permitted in a line of cases,469 two of which are as follows:
a. In Chemial Farmaceutici v. DAF SpA,470 Italy had imposed a higher tax on
synthetic ethyl alcohol than on ethyl alcohol of agricultural origin, even though
the two products could be used interchangeably. The purpose of the differential
was to favour the agricultural manufacture of ethyl alcohol and to restrain its
synthetic production (that is, the processing of ethylene471 into alcohol), since
ethylene could be used for economically more important purposes. The result
462 See Borgsmidt, op. cit., p. 278.
463 See Farmer and Lyal, op. cit., pp. 57–65.
464 See Rewe v. Hauptzollamt Landau/Pfalz, C–45/75, [1976] ECR 181, 194 (para 12).
465 See Cogis v. Amministrazione delle Finanze dello Stato, C–216/81, [1982] ECR 2701;
Commission v. Denmark, C–206/84, [1986] ECR 833; and Commission v. Italy, C–184/85,
[1987] ECR 2013. There is a rough parallel between this test and the test used for product
substitutability in the competition rules of Arts 81 and 82, European Treaty (ex 85 and 86)
(see Farmer and Lyal, op. cit., p. 59).
466 See Farmer and Lyal, op. cit., pp. 65–76.
467 See Commission v. UK, C–170/78, [1980] ECR 417 (wine and beer).
468 See Farmer and Lyal, op. cit., pp. 69–76.
469 See Amministrazione delle Finanze dello Stato v. Essevi and Salengo, C–142–143/80,
[1981] ECR 1413; Commission v. Italy, C–200/85, [1986] ECR 3953; Commission v.
France, C–196/85, [1987] ECR 1597; and Bergandi v. Directeur Général des Impôts,
C–252/86, [1988] ECR 1343.
470 C–140/79, [1981] ECR 1; see also Vinal SpA v. Orbat SpA, C–46/80, [1981] ECR 77.
471 That is, a petroleum derivative.
Community Law Aspects 297
was that only imported synthetic alcohol was subject to the tax, since domestic
production of synthetic alcohol was uneconomic. The ECJ held that the tax was
not discriminatory since, although imports were hampered by it, so too was
domestic production. In the course of its judgment, the Court said:
… As the Court has stated on many occasions … in its present stage of development
Community law does not restrict the freedom of each Member State to lay down tax
arrangements which differentiate between certain products on the basis of objective criteria,
such as the nature of the raw materials used or the production process employed. Such
differentiation is compatible with Community law if it pursues economic policy objectives
which are themselves compatible with the requirements of the Treaty and its secondary law
and if the detailed rules are such as to avoid any form of discrimination, direct or indirect,
in regard to imports from other Member States or any form of protection of competing
domestic products.472
On this basis, it seems that, given that environmental protection is a legitimate
objective,473 a differential in tax rates for environmental reasons should be lawful
for the purposes of Art. 90.
b. In Outokumpu Oy,474 the Finnish government had imposed an excise duty on
electricity, the rate of which depended on the method of production. Other
features of the duty were as follows:
i. the duty applied only to electricity of domestic origin, not to imported
electricity;
ii. the rate of duty was less on electricity produced by water power than on
electricity produced by nuclear power;
iii. no duty was charged on electricity produced by certain other methods;
iv. although the duty charged on imported electricity was lower than the highest
duty on electricity produced in Finland, it was higher than the lowest rate of
duty charged on electricity produced in Finland; and
v. duty was charged on imported electricity without regard to the method of its
production.
The ECJ held that the duty was incompatible with Community law, although it
stressed that, provided that a duty differential was based on objective criteria, it was
lawful for Member States to tax the same or similar products differentially. Art.
90 did not prevent differential tax rates based on environmental considerations,
provided that the tax in question did not discriminate against imports. However,
in the instant case:
… [t]he first paragraph of Article [90] of the EC Treaty precludes an excise duty which
forms part of a national system of taxation on sources of energy from being levied on
electricity of domestic origin at rates which vary according to its method of production
472 See [1981] 3 CMLR 350, 361 (para 14).
473 See Borgsmidt, op. cit., p. 278.
474 Case C–213/96, [1998] ECR I–1777.
298 Environmental Taxation Law
while being levied on imported electricity, whatever its method of production, at a flat rate
which, although lower than the highest rate applicable to electricity of domestic origin,
leads, if only in certain cases, to higher taxation being imposed on imported electricity.475
In the light of the wording of Arts 93 and 94, the effect of Art. 90 is therefore that any
national environmental tax must not discriminate against goods from other Member
States whether on environmental or any other grounds.476 Equally, however, provided
that such a tax is non-discriminatory, it is not prohibited by Art. 90.
(4) Parafiscal charges477
A second set of problems may arise in relation to Art. 90 when the application of
revenues raised by levies has a discriminatory effect.478 These problems, which arise
in relation to certain types of earmarking, are obviously important to environmental
levies because of the strong arguments, already discussed, for the hypothecation or
earmarking of the proceeds of such levies.479
Where all or part of the revenue of a Member State from a particular levy is used
to resource one of that state’s own industries, then, depending on the circumstances,
there may be a breach either of Art. 90 or of Art. 25, European Treaty (ex 12).480 In
Compagnie Commerciale de l’Ouest and Others v. Receveur Principal des Douanes
de la Pallice Port,481 a reference under Article 234, European Treaty (ex 177),
the ECJ held that Art. 90 applies to the situation where the revenue raised from a
particular tax is used for the benefit of domestic products only, in circumstances
such that the advantages accruing to the domestic product offset the charge borne by
domestic products in part only. Where such advantages fully offset the charge borne
by the domestic product, then Art. 25 applies.482 In the cases under consideration,
importers and distributors of petroleum products had challenged the legality of a
parafiscal charge levied in France on the putting into circulation of certain petroleum
products, irrespective of whether those products were domestic or imported. The
charge had been introduced to fund an Energy Savings Agency, which had then
applied the money to finance measures purportedly to encourage and achieve energysavings
as well as the use of under-utilised energy resources.
(5) Article 90, European Treaty (ex 95) and environmental taxes
From the point of view of new green taxes, the danger with the first rule in Art.
90 is, of course, that the current interpretation of the term ‘similar products’ will
mean that products are considered to be similar, even where they raise quite different
environmental issues. This issue is specifically addressed in the 1997 Commission
Communication, where it is stated that those involved in the design of green levies
475 [1998] ECR I–1777 (para 41). See van Calster, op. cit., para. 8.4n above.
476 See Borgsmidt, op. cit., p. 274.
477 Broadly, species of ‘hypothecated’ levies. See para. 11.2.2 above.
478 See Weatherill and Beaumont, op. cit., pp. 475–6, and Borgsmidt, op. cit., p. 280.
479 See para. 11.2.2 above.
480 Ibid.
481 C–78–83/90, [1994] 2 CMLR 425.
482 See para. 12.4 below.
Community Law Aspects 299
should consider:
… whether goods with the same function but with different environmental properties due
to the content or differences in production methods could be regarded as being different
goods.483
Although the cases in which national taxes’ compatibility with Art. 90 has been
considered leave open the possibility of a differentiated tax for environmental
reasons, it is clear that imported products must not be subject to higher rates of tax
than domestic ones.484 In this connection, as Borgsmidt points out, ‘[n]ew production
methods and control thereof may not be available in the country of origin.485 In R (on
the application of British Aggregates Association and others) v. C & E Commrs,486
the applicants, the quarry operators’ trade association,487 applied for permission to
move for judicial review of the aggregates levy legislation.488 Moses, J. held that
there was no breach of Art. 90 merely because the levy had some protective effect, in
the sense that, had it not been imposed on imports, it might have encouraged them;489
its purpose was environmental rather than protectionist. Moreover, the fact that the
revenue raised by the levy benefited people living in the UK and provided no benefit
to importers conferred no specific benefit at all on domestic products or producers;
the mere existence of the Aggregates Levy Sustainability Fund (‘ALSF’)490 and the
NIC reduction491 did not partially offset the levy borne by the domestic production
of aggregate.492
The possibility that the earmarking of the proceeds from a tax might fall foul of
Art. 90 in situations where the liability to tax of those benefited is reduced, although
not eliminated, has obvious resonances for environmental taxes.493 The avowed
environmental purpose of such levies is clearly not sufficient, however, to prevent
Art. 90 from applying in an appropriate case.494
(6) Article 92, European Treaty (ex 98)
Finally, a little-noted provision appears in Art. 92, European Treaty (ex 98).495 This
allows the Council to take limited action where export or import distortions arise
from levies that are not indirect taxes. In R (on the application of British Aggregates
483 COM (97) 9 final, para. 21.
484 See, for example, Schöttle & Söhne OHG v. Finanzamt Freudenstadt, C–20/76, [1977] 2
CMLR 98.
485 See Borgsmidt, op. cit., p. 279.
486 [2002] EWHC 926 (Admin), [2002] 2 CMLR 51.
487 See para. 2.5 above.
488 See paras 4.2.1.5 above and 13.1 below.
489 [2002] 2 CMLR 51, para. 56. See also para. 8.4.5.1 above.
490 See para. 4.2.1.2(1)n above and 21.3.1(b) below.
491 See para. 21.2 below.
492 [2002] 2 CMLR 51, paras 57 and 58.
493 See para. 11.2.2 above.
494 See Borgsmidt, op. cit., pp. 280–81.
495 See Farmer and Lyall, op. cit., pp. 81–2; Williams, op. cit., p. 33.
300 Environmental Taxation Law
Association and others) v. Customs and Excise Commissioners,496 the applicants
argued that the aggregates levy breached Art. 92, on the basis that it was a direct,
rather than an indirect tax. Moses, J. rejected this submission: ‘… the mechanism for
achieving the purpose of the levy, namely by passing the levy on to a consumer of the
aggregate, does, as it seems to me, provide a powerful indication that the levy is an
indirect tax. The fact that in some cases the levy will not be passed on does not turn
it into a direct tax any more than in the case of an excise duty on wine’.497
12.3.3.2 Prohibition on customs duties and on charges having equivalent effect
(‘CEEs’)
If the national treatment obligation of Art. III(2), GATT 1994 is mirrored in Art. 90,
European Treaty (ex 95) so also, subject to one vital qualification, is Art. II(2), GATT
1994 mirrored in Art. 25, European Treaty (ex 12).498 The vital qualification, of
course, is that customs duties are prohibited between Member States, the Community
being based on a customs union.499 Article 25 provides that:
Customs duties on imports and exports and charges having equivalent effect shall be
prohibited between Member States. This prohibition shall also apply to customs duties of
a fiscal nature.
The definition of a charge having equivalent effect (a ‘CEE’) has already been
considered in Chapter 7 above.500
The key point, from the point of view of environmental taxes, is that, in order for
a CEE to escape the scope of Art. 25 on the basis that it is consideration for services
supplied by the importing state,501 it is necessary for it to be shown that the service
in question is of benefit to the importer and not to the general public.502 As Lyons
points out, the ECJ ‘has consistently denied that something which is done by a public
authority for the benefit of the general public as well as the trader concerned, is a service
to the trader for which a charge may be made’.503 This means that, in the case of an
environmental levy on imports which was not part of a general system of taxation,504
it would be necessary to rely on the only other exception to the concept of CEEs and to
show that it was an administrative charge,505 that is, that it was imposed to cover the
costs of services required by Community law or by international agreement.506
496 [2002] EWHC 926 (Admin), [2002] 2 CMLR 51.
497 [2002] 2 CMLR 51, para. 75.
498 Generally, see Timothy Lyons, EC Customs Law (Oxford: Oxford University Press, 2001),
pp. 60–72 and ch 13.
499 See Art. 23, European Treaty (ex 9).
500 See para. 7.2.2.3 above.
501 Ibid.
502 See, for example, Cadsky v. Instituto Nazionale per il Commercio Estero, C–63/74, [1975]
ECR 281, although more recent cases are reviewed at Lyons, op.cit., pp. 70–71.
503 See Lyons, op. cit., p. 70.
504 See para. 7.2.2.3 above.
505 Ibid.
506 See Borgsmidt, op. cit., p. 278.
Community Law Aspects 301
In Compagnie Commerciale de l’Ouest and Others v. Receveur Principal des Douanes
de la Pallice Port, discussed above,507 the ECJ considered the particular problem of
the circumstances in which a parafiscal charge508 would fall foul of Art. 25:
A parafiscal charge applied under the same conditions as regards its collection to both
domestic and imported products, the revenue from which is used for the benefit of domestic
products only, so that the advantages accruing from it fully offsets [sic] the charge borne
by those products, constitutes a charge having an effect equivalent to customs duties
prohibited by Article [25] …
In so defining the scope of Art. 25 in relation to such charges, the Court was
distinguishing the scope of the Art. from that of Art. 90, the latter applying where the
offset is only a partial one.509
12.3.4 Harmonisation of excise duties on fuels
Differentiated rates of excise duty were introduced for leaded and unleaded petrol by
Council Directive 92/81/EEC510 on the Harmonisation of the Structures of Excise
Duties on Mineral Oils and Council Directive 92/82/EEC511 on the Approximation
of Excise Duty Rates on Mineral Oils. The former was designed to harmonise the
structures, exemptions and rate reductions applicable to excise duties on mineral
oils; the latter was designed to specify minimum rates or rate bands for each category
of oil. Controversially, Directive 92/81/EC exempted from duty oils that are used
as fuels for the purpose of air navigation, as well as navigation within Community
waters, other than for private pleasure-flying and sailing. Both Directives have now
been repealed by the 2003 Energy Products Directive.
The Energy Products Directive (‘the EPD’)512 repeals the two 1992 Directives as
from 31 December 2003.513 Unlike that of its predecessors, its scope is not limited
to mineral oils but covers most energy products, including electricity, natural gas
and coal. The recitals of the EPD specifically refer to the taxation of energy products
including, where appropriate, electricity, as an instrument for achieving the Kyoto
Protocol objectives.514 They also acknowledge the possibility that CHP generation
and renewables might qualify for preferential taxation treatment.515 The main
substantive provision is Art. 4(1), which provides that Member States must not apply
levels of taxation below the prescribed minimum levels to the products covered by the
EPD. Article 14 provides that Member States must exempt: (1) ‘energy products and
electricity used to produce electricity and electricity used to maintain the ability to
507 See para. 12.3.3.1(4) above.
508 Ibid., n above.
509 See para. 12.3.3.1 above.
510 (1992) OJ L316 12 (repealed).
511 Ibid.
512 Council Directive 03/96/EC, (2003) OJ L283 51.
513 Ibid., Art. 30.
514 Ibid., recitals 7, 12 and 13.
515 Ibid., recital 25.
302 Environmental Taxation Law
produce electricity’;516 (2) ‘energy products supplied for use as fuel for the purpose of
air navigation other than in private pleasure-flying’;517 and (3) ‘energy products supplied
for use as fuel for the purposes of navigation within Community Waters’, other than
private pleasure craft and electricity produced on board.518 Of these three mandatory
exemptions, (1) does not, however, prevent Member States from subjecting products
to taxation for reasons of environmental policy without having to respect the specified
minimum levels.519 The other two preserve the exemptions in the 1992 Directives.
By Article 15, EPD, Member States may exempt, either wholly or partially, inter alia,
electricity from renewables; electricity produced from ‘environmentally-friendly’ CHP
generation;520 and energy products and electricity used for CHP generation.521 The
implementation of the EPD in UK law has been discussed in Chapter 6,522 together
with the derogations therefrom which the UK has succeeded in negotiating.
The Biofuels Directive,523 a second major development in 2003, aims to promote
the use of biofuels and other renewable fuels524 to replace diesel or petrol for
transport purposes in each Member State. Climate change, environmentally-friendly
security of supply and the promotion of renewables are given as express justifications
for the measure.525 ‘Biofuels’ are defined as liquid or gaseous fuel for transport
produced from biomass.526 The heart of the Directive is Art. 3(1)(a), which provides
that Member States should ensure that a minimum proportion of biofuels and other
renewable fuels is placed on their markets and, to that end, must set national targets
therefore. This is backed up by the specific monitoring and reporting requirements
in Arts 3(3) and 4(1) of the Directive respectively. Again, implementation of the
Biofuels Directive in the UK was discussed in Chapter 6 above.527
12.3.5 State aids and taxation
Where revenue is paid into Member States’ national treasuries and producers are
then supported out of general funds, the support may constitute state aid under Art.
87, European Treaty.528 However, reliefs and exemptions within particular tax codes
may also, in certain circumstances, count as state aid.529 State aid in the form of
516 Ibid., Art. 14(1)(a).
517 Ibid., Art. 14(1)(b).
518 Ibid., Art. 14(1)(c).
519 Ibid., Art. 14(1)(a).
520 Council Directive 03/96/EC, Art. 15(1)(d).
521 Ibid., Art. 15(1)(c).
522 See para. 6.4 above.
523 Directive 03/30/EC, (2003) OJ L123 42.
524 Defined, ibid., Art. 2(1)(c).
525 Directive 03/30/EC, Art. 1.
526 Ibid., Art. 2(1)(a). Biomass is defined, ibid., Art. 2(1)(b).
527 See para. 6.4 above.
528 See para. 12.2.7.1 above. Where the arrangement is also discriminatory, then it may be
caught by Art. 90, European Treaty (ex 95) as well as by Art. 87.
529 See the (unsuccessful) attempt to argue that certain exemptions within the aggregates
levy code constituted unlawful state aid (in R (on the application of British Aggregates
Associates and Others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR
51, paras 79–115).
Community Law Aspects 303
such exemptions and reliefs is referred to as ‘fiscal aid’ or ‘fiscal state aid’.530 In
considering an application for state aid clearance under Art. 87(3), the Commission
follows its 2001 Guidelines,531 as well as, where appropriate, its 1998 guidelines
on the application of the state aid rules to measures relating to direct business
taxation.532
In 2001, the Commission decided not raise any objections to the introduction of
enhanced capital allowances for energy efficient investments, on the basis that the
measure did not constitute aid.533
In 2003, the Commission decided to close down the Art. 88(2) procedure, with a
conditional decision, in relation to the Finance Act 2001, ss.92A and 92B exemption
from stamp duty for non-residential properties in disadvantaged areas.534 For details
of the Commission consents granted in relation to the UK’s environmental taxes and
other economic instruments, the reader is referred to para. 12.2.7.2 above.
In 2004, the Commission decided not to raise any objections to the introduction of
a reduced rate of excise duty on bioethanol used for road transport, on the basis that
the aid was compatible with the European Treaty.535
12.4 Rules on free movement of goods
Part Three, Title I, Ch. 2, European Treaty, as is well-known, prohibits quantitative
restrictions between Member States. Article 28, European Treaty (ex 30) deals
with imports, while Art. 29, European Treaty (ex 34), deals with exports. By Art.
28, quantitative restrictions on imports and all measures having equivalent effect,
are prohibited between Member States. Art. 29 lays down the same rule, mutatis
mutandis, for exports. To each rule, there are the exceptions in Art. 30, European
Treaty (ex Art. 36), including prohibitions or restrictions justified on grounds of the
protection of health and life of humans, animals or plants. Any such prohibition or
restriction must not, however, constitute a means of arbitrary discrimination or a
disguised restriction on trade between Member States.
The question of what constitutes a measure having equivalent effect has for long
been governed by the first rule articulated in Procureur du Roi v. Dassonville,536
which reads as follows:
530 See Raymond Luja, ‘WTO Agreements versus the EC Fiscal Aid Regime: Impact on
Direct Taxation’ (1999) 27 Intertax 207–25, esp. pp. 216–23.
531 See para. 12.2.7.2 above.
532 See Commission Notice on the Application of the State Aid Rules to Measures Relating to
Direct Business Taxation, (1998) OJ C384 3.
533 See Decision N 797/2000, Enhanced Capital Allowances for energy efficient investments
(13 March 2001). See para. 21.3.1 below.
534 See para. 24.5.3 below.
535 See Decision N 407/2003, Reduced Rate of Excise Duty on Bioethanol used for Road
Transport (3 February 2004). See para. 22.2.2 below.
536 C–8/74, [1974] ECR 837.
304 Environmental Taxation Law
537 Rewe-Zentrale AG v. Bundesmonopolverwaltung für Branntwein, C–120/78, [1979] ECR
649.
538 The case therefore embodies a mutual recognition principle.
539 [1979] ECR 649, para. 8.
540 See the discussion in Craig and de Búrca, op. cit., ch. 15.
541 C–302/86, [1989] 1 CMLR 619. Also (confusingly) known as the Disposable Beer Cans
case. See para. 12.2.5.1(2)(a) above. See also Commission v. Belgium, C–2/90, [1992]
ECR I–4431 (‘the Walloon Waste case’).
542 See para. 12.2.5.1(2)(a) above.
543 That is, in the absence of Community harmonisation measures.
544 [1989] 1 CMLR 619, 630 (para 8).
545 See Craig and de Búrca, op. cit., pp. 371–9.
All trading rules enacted by member States which are capable of hindering, directly or
indirectly, actually or potentially, intra-Community trade are to be considered as measures
having an effect equivalent to quantitative restrictions.
This rule was subsequently developed in the ECJ’s decision in the so-called ‘Cassis
de Dijon’ case,537 which held that Art. 28 was capable of applying to national rules
which inhibited trade, not because they discriminated against imported products, but
because they were different from the trade rules applicable in the products’ country
of origin.538 However:
Obstacles to movement within the Community resulting from disparities between the
national laws relating to the marketing of the products in question must be accepted
in so far as those provisions may be recognised as being necessary in order to satisfy
mandatory requirements relating in particular to the effectiveness of fiscal supervision, the
protection of public health, the fairness of commercial transactions and the defence of the
consumer.539
The rule thus enunciated has been developed in a line of more recent cases.540 Of
interest in the present context is the Danish Bottles case, that is, Commission v.
Denmark,541 the ECJ decision that gave rise to the Packaging and Packaging Waste
Directive.542 There, the Danish Government argued that a national rule which stated
that a government agency had to approve the specification of beer containers, and that
the empty ones had to be returned under a deposit-and-return scheme to be set up by
distributors, was justified by a mandatory requirement of environmental protection.543
To mitigate the difficulties for foreign producers, Danish producers were entitled to
market beer in unapproved containers to a maximum of 3,000 hectolitres per annum.
Whilst accepting that environmental protection was a mandatory requirement,544 the
Court held that to require the use only of approved containers was disproportionate,
and that even the limit of 3,000 hectolitres did not prevent Denmark from being in
breach of its Art. 28 obligations.
The Danish Bottles case demonstrates that, in applying Arts 28-30, the proportionality
principle545 requires the court to weigh a given restriction on free movement against
its environmental objectives. On this basis, it might be argued that an environmental
levy, that is, a disincentive to the import or export of a product rather than an outright
Community Law Aspects 305
ban, might meet the proportionality concern.546 This case left open, however, whether
the proportionality principle could be applied in this way.547
But this issue did arise in the German mineral water bottles case, that is, Commission
v. Germany.548 The German transposition of the Packaging and Waste Directive549
was based on the concept of the return of used empty sales packaging by final
consumers free of charge, so that it could be re-used. The ECJ upheld a Commission
objection that this constituted a burden on mineral water producers in other Member
States, and was contrary to Article 28 (ex 30) of the European Treaty.550 The German
Government’s defence that this was justifiable as being for the protection of the
environment was rejected on grounds of proportionality.551 Although the German
legislation specified a six month transitional period, that was an insufficient safeguard
for importers because the real transitional period was indeterminate.552
The Single Market means that ‘green’ electricity can be sourced from France (with
the attendant conceptual problems and difficulties of verification presented by this)
and the UK road system has, for some years, been subjected to additional wear from
44-tonne lorries coming over from the Continent on the ferries and through the
Channel Tunnel. Of more concern to the UK Government is the undermining of its
excise duties through ‘shopping at Calais’.553
12.5 Concluding comments
The authors are reluctant to extend an already long chapter still further. However,
as a preliminary to the practical discussion of the UK’s green levies and subsidies
over subsequent chapters, it might be useful to identify those features of Community
law which seem to be of particular significance in shaping the design of those
instruments.
Most important, perhaps, is the division of the material between the regulatory
and taxation aspects. As to the former, it is important to emphasise that, although
Community environmental legislation has not required the creation of any of the
UK’s environmental levies and subsidies, its existence nonetheless helps to provide
at least technical justifications for them. How meritorious in fact such justifications
are is a different matter and this a major theme of subsequent chapters. For example,
the ‘landfill tax escalator’, which is discussed in Chapter 15 below, is expressly
justified by reference to the UK’s obligation to meet the reduction targets set out in
546 See Borgsmidt, op. cit., p. 273.
547 Ibid., op. cit., referring to Jan H. Jans, European Environmental Law (The Hague: Kluwer,
1995), pp. 203–4.
548 C–463/01, decided 14 December 2004. See para. 27.6 below and Christine Trüe, ‘The
German Drinks Can Deposit: Complete Harmonisation or a Trade Barrier Justified by
Environmental Protection?’ (2005) 2 JEEPL 142–49.
549 ‘European Parliament and Council Directive’ 94/62/EC. See para. 12.2.5.1(2)(a) above.
550 Para. 84 of the judgement.
551 Ibid., paras. 75, 78.
552 Ibid., paras. 79–82.
553 See para. 22.1 below.
306 Environmental Taxation Law
the Landfill Directive. It is nonetheless apparent that – absent special factors – the
legitimacy that this may be seen to lend to the tax may be lost in the fact that any
increase in landfill tax will, for reasons to be discussed, be passed on to council tax
payers. Equally, however, it may be the case that an apparently greater alignment
between landfill tax and the Landfill Directive may help to sharpen the focus of the
tax and prevent it from in future merely becoming a device for raising revenue. As
mentioned above, a recent decision of the Court of Appeal on the concept of ‘waste’,
for landfill tax purposes,554 shows that at least the courts may take an approach to the
tax which is more deeply rooted in its European objectives than has hitherto been the
case. Moreover, as regards the control of air and atmospheric pollution, it is difficult to
avoid the conclusion that, whatever the professedly environmental dimension of the
Community law and policy on energy and transport, their objectives often sit ill with
those of the law Community law on air and atmospheric pollution, as exemplified by,
for example, the IPPC regime. Market liberalisation and environmental protection,
whatever environmental safeguards the former policy may contain, are not obvious
bedfellows. It may be that a combination of state aid law and other exemptions from
‘single market’ measures will offer at least the pragmatic possibility of reconciling
these at first not easily reconcilable policy objectives. This is a matter to which we
return in Chapter 21 below.
The Community regulatory framework for environmental levies and subsidies,
internally inconsistent though it may sometimes be, at least offers an ideological
basis for such instruments. The same cannot be said for Community taxation law.
Like GATT 1994, these provisions originate with a Treaty the framers of which did
not share the modern preoccupation with environmental matters. In consequence,
the process of fitting national environmental levies and subsidies into the framework
of the European Treaty is to a considerable extent a matter of eluding the various
obstacles that the Treaty presents. That this can be done successfully seems to be
borne out by the recent decision of the High Court of England and Wales, discussed
above, on the validity of the design of aggregates levy. Nonetheless, the reader is left
with a very similar impression to that which may be gained from a close reading of
the ECJ decisions on the various national attempts to create eco-taxes, that is, that
their validity or otherwise, under the taxation rules of the Community, is by no means
a foregone conclusion.
554 See para. 15.3 below.
Division 2
National Taxes
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Chapter 13
Aggregates Levy
13.1 Introduction
This tax had a chequered history before it even got off the ground.1 Even the attempt
to pretend that it might not be a tax failed, the general statement that it was a levy in
Finance Act 2001, s.16(1), having to be changed into the explicit one that it was a tax
by Finance Act 2002, Sched. 38, para. 2.2
In a Consultation Paper issued on 15 June 1998, it was proposed that a tax of
this nature might be introduced.3 It would be similar to landfill tax, with no input
complications and assessed on site operators, but with the addition of liability for
imports and a rebate for exports.4 The underlying objective would be to promote
recycling. In the event, the tax had a long gestation period, the decision to proceed
not being announced until Budget 2000, and the legislation being passed with no
debate on anything other than the underlying principles and economic effects of the
tax just before the 2001 General Election. The start date was 1 April 2002.5
In the months leading up to the introduction of the tax, the government machine
gave out seemingly contradictory messages. In January 2002, in Aggregates Levy
– at a glance,6 Customs said:
The Government believes that it is essential that there continues to be an adequate supply
of aggregates.
But, come Budget Day, the Treasury went on record that the introduction of the
tax was ‘to reflect the environmental costs imposed by aggregates quarrying’.7 The
answer to this apparent inconsistency is to be found in the framework enshrined in
Art. 6, European Treaty (ex 3c), that is, that environmental protection requirements
must be integrated into Community policies and activities, in particular, the concept
of sustainable development.8
1 See para. 11.3.2 above.
2 See paras 1.2 and 1.2.1.1 above.
3 See HM Customs and Excise, Consultation on a Proposed Aggregates Tax, 15 June
1998.
4 By way of a credit (see para. 16.9 below).
5 See para. 11.3.2 above.
6 Available from www.hmce.gov.uk.
7 HMT 1 (17 April 2002).
8 See para. 12.2.1 above. See also John F. McEldowney and Sharron McEldowney,
Environmental Law and Regulation (London: Blackstone Press, 2001), p. 42.
310 Environmental Taxation Law
13.2 Operation of the tax
The levy applies at the rate of £1.60 per tonne.9 It is collected by site operators and
normally accounted for quarterly.10 The tax point is ascertained under Finance Act
2001, s.19(1), and takes place, in the course of business,11 as the first event12 in the
following sets of circumstances:
1 by removal from the site at which it was won13 other than for an exempt purpose14
or, if removed from that site without a tax point arising, removal from a site
under the same registration15 or at which an exempt process had been intended
to be supplied but had not;16
2 when it becomes subject to an agreement to supply it to somebody else (which
will be paraphrased hereafter as ‘sold’);
3 when it is used for construction purposes; or
4 when it is mixed, other than in permitted circumstances, with any substance other
than water.
However, whereas landfill tax was able to take advantage of the requirement for there
to be a waste disposal licence,17 the only requirement for the extraction of aggregate
is the need for planning permission, and the applicant for that would not necessarily
be the subsequent extractor. Customs’ approach to this problem has been fourfold:
1 the adoption of a sledgehammer to identify all possible ‘business’18 candidates
for the actual controller of the site,19 making them jointly and severally liable,20
and requiring them to notify registrability.21 From 1 April 2003, certain changes
were made for discrete commercial exploiters. As explained in Business Brief
34/02,22 this involved:
9 VAT is charged on the tax-inclusive figure (see para. 1.4.3.1 above).
10 See Chapter 16 below.
11 Finance Act 2001, s.19(3)(a),(3A).
12 Ibid., s.17(2)(b),(c),(5).
13 Ibid., s.20(1)(a),(b),(d),(2).
14 Ibid., s.17(2)(a),(3),(4).
15 Ibid., s.19(2)(b),(3)(b).
16 Ibid., s.19(2)(c),(3)(c).
17 And was designed around the waste management regime already in force (see para. 6.3.2
above).
18 Finance Act 2001, s.22(2), charities and local authorities being confirmed as capable of
coming within this by amendment in 2002: in this context, it needs to be remembered that,
under various authorities relating to VAT, it is clear that individuals and trustees who act
as landlords are, prima facie, carrying on business.
19 Finance Act 2001, ss.21, 22(1).
20 Ibid., s.22(3).
21 Ibid., s.24(2)(a), 24(6)(ca), Sched. 4, para. 1(1)(a).
22 24 December 2002: see Aggregates Levy (Registration and Miscellaneous Provisions)
(Amendment) Regulations 2003, S.I. 2003 No. 465.
Aggregates Levy 311
a. exemption from all obligations was to be given for those who exploited
only:
i. soil, vegetable matter or other organic matter; or
ii spoil, waste or other by-products of any industrial combustion process,
or the smelting or refining of metal; or
iii. drill-cuttings from licensed oil exploration; or
iv. arising from roads when utilities’ work is carried out; whereas
b. exemption from registration and subsequent compliance, but not notification,
is be available when the exploitation is only of:
i. coal, lignite, slate or shale; or
ii. spoil, waste or other by-products resulting from the separation of coal,
lignite, slate or shale after extraction; or
iii. spoil, waste or other by-products resulting from the separation of
specified minerals after extraction; or
iv. china clay and ball clay and spoil or waste resulting from its extraction;
or
v. any other clay.
2 reserving the ultimate right to define the extent of the site;23 and
3 selecting only one person for registration (which is hardly surprising since
controlling the weighbridge is of the essence to compliance), that person being
‘the one best placed to do so having regard to existing commercial practice,
record-keeping, access to a weighbridge etc’24 and, in general, not using their
powers to amalgamate adjoining sites; while
4 making only very limited use of their power to exclude registrables from
registration,25 initially confining26 this to the three remaining situations for
which exemption was provided under section 17(3)27 –
a. by subsection (3)(b), removal from the site of a building,28 to the extent that
23 Finance Act 2001, s.24(7), the intent being to be able to counter avoidance: see Financial
Secretary to the Treasury (Mr Stephen Timms, MP), Committee of the Whole House, 23
April 2001, col. 84. The issue is considered in more detail in para. 16.8 below.
24 This phrase was used to several representative body correspondents in April 2002.
25 Finance Act 2001, s.24(3).
26 Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 4027, reg. 3(3), repealed, with effect from 1 April 2003, by Aggregates Levy
(Registration and Miscellaneous Provisions) Amendment Regulations 2003, S.I. 2003
No. 465.
27 That is, (b)–(d).
28 Finance Act 2001, s.17(3)(b). In East Midlands Aggregates Ltd v. C & E Commrs, (2003)
A1, affirmed by Rimer, J., [2004] STC 1582, this relief was extended to the lorry park
adjoining a warehouse and not confined to the footprint of the building and the route of its
service pipes. But it was not given for the removal of soil further away in order to provide
312 Environmental Taxation Law
it is in connection with its modification or erection,29 and exclusively for the
purpose of laying foundations, cables or pipes;30
b. by subsection (3)(c), dredging (or other removal from a watercourse);31 and
c. by subsection (3)(d), removal from the route of a proposed highway, but only
to the extent that for the improvement of that highway.32
As indicated in 1 above, with effect from 1 April 2003, the regime was changed, with
the (remaining) additional heads of exemption being added on the basis that Customs
should be notified instead.33
Somewhat surprisingly, the regulations laying down the compliance obligations of
registered persons did not exclude the registrables not selected for registration,34 even
though it is difficult to see how they could conceivably check up on the authenticity
of figures ascertainable only by the person with control of the weighbridge. It is
understood, however, that in practice Customs will not seek to enforce these
obligations against other than the registered person.
13.3 Problems caused by the legal structure
Two problems arise from the scatter-gun approach to registrability:
1 where more than one party to a commercial arrangement appears to be within the
scope of the statutory criteria, it would be wise for the contractual documentation
to reflect which of them, inter partes, is intended to bear the financial burdens of
both:
a. the tax itself; and
b. if an unexpected person is selected as the accountable party, the resulting
administrative costs.
Clearly a specific contractual indemnity will be required in almost all cases.
In addition, the tax in question being one on turnover, the question of security
(perhaps by way of bank guarantee) will need to be considered in many cases. The
credit of components of the construction industry is frequently not of the highest,
and the provision of security might well not be practicable in many cases. There
will therefore be cases where the existence of the tax will cause some people, and
a safe bank for the lorry park. In Pat Munro-(Alness) Ltd v. C & E Commrs, (2004) A2, it
was confirmed that an all-weather football pitch was not a building.
29 Finance Act 2001, s.17(3)(b)(i).
30 Ibid., s.17(3)(b)(ii).
31 Ibid., s.17(3)(c).
32 Ibid., s.17(3)(d).
33 Ibid., ss.17(3)(e),(f) and (4)(a),(c),(d),(e) or (f): in the substituted Aggregates Levy
(Registration and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 4027, reg.
3(2)–(3).
34 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, regs 5–11.
Aggregates Levy 313
especially landowners, to decide against entering into arrangements which might
bring with it the prospect of what is, in reality, a guarantor’s liability.
With this observation in mind, it is necessary to examine the situations which
may lead to registrability. These are set out in Finance Act 2001, s.22(1),
which defines35 who is responsible for subjecting a quantity of aggregate to
exploitation:36
a. where the tax point is ascertained by the removal37 of aggregate from either
its originating site38 or one in the same registration,39 this is the operator of
the site.40 This concept is a creation of s.21, Finance Act 2001, and includes
each of:
i. the person who occupies the site41 (which Customs have defined in
correspondence as to be interpreted ‘in its literal sense as physical
occupation of the site’);42 and
ii. another person who exercises any right43 to win aggregate from land
at that site,44 carry out any exempt process at it45 or store aggregate at
it.46
b. where the tax point arises by virtue of removal from a site from which it had
originally been expected that an exempt process47 would be applied to the
aggregate48 both:
i the operator (as in a. above); and
ii. the owner of the aggregate at the time of removal.
c. where it is sold other than on its originating site or one in the same registration
or used for construction purposes, the respective vendor or user.
35 Subject, of course, to the course or furtherance of a business requirement in Finance Act
2001, s.22(2).
36 From this starting point, one arrives at registrability through the following chain: Finance
Act 2001, s.19(1), s.24(2)(a), Sched. 4, para. 1(1)(a) and Aggregates Levy (Registration
and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 4027, reg. 2(1).
37 Finance Act 2001, s.19(2)(a).
38 Defined ibid., s.20(1) as (a) won from the seabed, (b) at which an exempt process (under
s.18) was applied or (d) the site from which the aggregate was most recently won.
Under s.20(2), this can include mixture on that site.
39 Finance Act 2001, ss.19(2)(b), 22(4).
40 The concept of site is critical to the administra,tion of the tax (ibid., s.24(6)–(8)).
41 Ibid., s.21(1)(a).
42 See para. 21.8 below (other possible interpretations).
43 Finance Act 2001, s.21(1)(b).
44 Ibid., s.22(2)(a).
45 Ibid., s.22(2)(c), by reference to s.18.
46 Ibid., s.22(2)(d).
47 See para. 13.5 below.
48 Finance Act 2001, s.19(2)(c).
314 Environmental Taxation Law
d. Where it is sold while on its originating site or one in the same registration,
both:
i. the respective vendor or user; and
ii. the operator (as in (a) above).
e. Where the aggregate is mixed at premises other than its originating site or
that in the same registration, both:
i. the owner of the aggregate at that time; and
ii. the occupier49 of the premises where the mixing takes place.
f. Where the aggregate is mixed at the originating site or one in the same
registration, both:
i. the owner of the aggregate at that time; and
ii. the operator (as in (a) above).
2 The one major concession given to the industry after the June 1998 Consultation
was the ability for a company to move aggregate between its extraction and
mixing sites,50 including those within the same group registration,51 without
incurring a tax point.52 It will readily be apparent that this commercial advantage
could be lost by Customs exercising their discretion as to which of alternative
candidates to register adversely to the interests of such a person. This possibility
will need to be taken into account:
a. in negotiating the terms upon which premises are taken for relevant
occupation;53 but also
b. in negotiating the circumstances in which others are permitted to carry out
activities at those premises,54 or are likely to do so at adjoining premises.55
Under Finance Act 2001, s.30A, which has been replaced by Finance Act 2004,
s.291,56 a five-year transitional rebate scheme for Northern Ireland was authorised
49 Presumably the same meaning applies here as in Finance Act 2001, s.21(1)(a), as to which
see above.
50 This was to mitigate the ‘backload’ empty problem (that is, the return journey without any
goods to carry).
51 General Guide to Aggregates Levy (January 2002) (current text available from www.hmce.
gov.uk), para. 10.3. Note, however, that those who have opted for divisional registration
will be limited to inter-divisional transfers (ibid., para. 10.5).
52 Finance Act 2001, s.19(3)(b).
53 Ibid., s.21(1)(a).
54 Ibid., s.21(2).
55 Ibid., s.24(7).
56 As a result of EU authorisation on 7 May 2004, and, following Royal Assent, supplemented
by Aggregates Levy (Northern Ireland Tax Credit) Regulations 2004, S.I. 2004 No. 1959.
Aggregates Levy 315
by the European Commission.57 Subject to the revised scheme receiving state
aid approval, operators registered with Customs who have agreed to abide by the
Northern Ireland Code of Practice Compliance Scheme (‘COPCS’) will retain the
original abatement of 80 per cent for processed aggregate and be able (in addition) to
obtain this for virgin aggregate used in its raw state, until 31 March 2012. Aggregate
transferred to Great Britain will not qualify for relief, unless for export, when it
will be possible to claim a 100 per cent rebate instead. Imported aggregate will not
qualify for relief. Within a year of joining the COPCS, the operator will be obliged
to commission an environmental audit to record the base line for the site. The
Department of the Environment of Northern Ireland58 will set improvement targets
and carry out verification audits to monitor performance. In the event of EU consent
not being obtainable, the UK Government will seek the Commission’s agreement to
the continuation of the original 80 per cent rebate level. Under the original scheme,
this was destined to be reduced to 60 per cent on 1 April 2004.59
13.4 Meaning of ‘a(chǎn)ggregate’
Between the time of the June 1998 Consultation and the Budget 2002 amendments to
Finance Act 2001, the subject-matter of the tax underwent considerable revision.60
Aggregate is any rock, gravel or sand, with any substances incorporated or naturally
mixed with it,61 including spoil, waste, off-cuts and other by-products resulting from
the application of any exempt process62 to it,63 but not anything else resulting
from the application of that process.64
But aggregate is exempt as such if:
1 it is wholly or mainly, or part of, coal, lignite, slate, shale,65 spoil, waste or other
by-products from an industrial combustion process or the smelting or refining
of metal,66 Continental Shelf drill cuttings,67 anything resulting from works
carried out under the New Roads and Street Works Act 1991 (and equivalent
Northern Irish provisions),68 and clay, soil, vegetable or other organic matter;69
or
57 Business Brief 13/04 (10 May 2004).
58 See para. 4.2.2 above.
59 CE11 (17 March 2004) (see also para. 21.8 below).
60 To avoid confusion in this chapter, an examination of the genesis of the final list history
has been deferred until para. 21.8 below.
61 Finance Act 2001, s.17(1).
62 See para. 13.5 below.
63 Finance Act 2001, s.18(1)(a).
64 Ibid., s.18(1)(b).
65 Ibid., s.17(4)(a).
66 Ibid., s.17(4)(c).
67 Ibid., s.17(4)(d).
68 Ibid., s.17(4)(e).
69 Ibid., s.17(4)(f).
316 Environmental Taxation Law
2 it comes wholly from the excavation of a building site in connection with the
modification or erection of a building or the laying or foundations or services,70
or from the bed of a river, canal or harbour approach in the course of dredging
undertaking for improvement or maintenance,71 or in the course of highway
construction,72 or from the spoil or waste of china clay or ball clay (other than
overburden),73 or the spoil of coal, lignite, slate, shale, anhydrite, ball clay,
barytes, china clay, feldspar, fireclay, fluorspar, fuller’s earth, gems and semiprecious
stones, gypsum, any metal or its ore, muscovite, perlite, potash, pumice,
rock phosphates, sodium chloride, talc or vermiculite.74
13.5 The concept of ‘exempt processes’
An exempt process consists of one of the following:75
1 the cutting or any rock to produce stone with one or more flat surfaces –
originally this was called dimension stone, the idea being to exempt stone used
for monumental masonry or the facing of historic buildings, but not off-cuts;
2 any process by which one of the following is extracted or separated from any
aggregate: anhydrite, ball clay, barytes, china clay, feldspar, fireclay, fluorspar,
fuller’s earth, gems and semi-precious stones, gypsum, any metal or its ore,
muscovite, perlite, potash, pumice, rock phosphates, sodium chloride, talc or
vermiculite;76 or
3 any process for the production of lime or cement either from limestone alone or
limestone and anything else.
Carrying on an exempt process means that tax is not charged by reference to what
which is being done on the site.
13.6 Administration of the levy
The administrative provisions for aggregates levy, climate change levy and landfill
tax share certain common features. Please refer, therefore, to Chapter 16, where they
are discussed together.
70 Finance Act 2001, s.17(3)(b).
71 Ibid., s.17(3)(c).
72 Ibid., s.17(3)(d), unless aggregate extraction is the main purpose.
73 Ibid., s.17(3)(e).
74 Ibid., s.17(3)(f), together with future substances added by Treasury order under s.18(4).
75 Ibid., s.18(2).
76 Ibid., s.18(3), together with future substances added by Treasury order under s.18(4).
Chapter 14
Climate Change Levy
14.1 Introduction
Climate change levy was the second environmental tax to be placed under the
jurisdiction of HM Customs and Excise.1 It was introduced to assist the government
in meeting its emissions reduction target under the Kyoto Protocol.2
Despite its being preceded by a specially-commissioned report,3 the tax’s
introduction may, however, be considered premature, because it preceded the
formation of a proper energy policy.4 Also, despite the fact that transport accounts
for 34 per cent and domestic consumption for 29 per cent of final energy use,5 in part
for political reasons, the scope of the tax is confined to business users.6
Moreover, in the context of the post-nationalisation structure of the electricity
supply industry,7 this has meant that the effect of the concessions in favour of fuel
sources which are for some reason desirable8 has been diluted by a complicated
apportionment process under which:9 there are three month balancing periods; and
averaging periods which normally run for two years.
1 The first such tax so to have been entrusted to Customs (see para. 4.2.1.2(2) above) having
been landfill tax in 1996 (see para. 15.1 below).
2 See para. 8.3.1.4 above.
3 Lord Marshall, Economic Instruments and the Business Use of Energy (HM Treasury,
1998) (see para. 11.3.1 above).
4 See House of Commons Environmental Audit Committee, 8th Report. Energy White
Paper – Empowering Change? (House of Commons Papers, Session 2002–2003, HC
618) (London: Stationery Office, 2003), published on 22 July 2003. The Committee said,
in para. 10: ‘The Energy White Paper represents a major shift in the approach to UK
energy strategy’. See para. 21.6.2 below.
5 The former is understandable, in the sense that transport taxation has always been
segregated, albeit in some respects, for favoured treatment. The latter is a serious lacuna,
especially since domestic energy consumption has increased by 25 per cent since the early
1970s (see Benjamin J. Richardson and Kiri L. Chanwai, ‘The UK’s Climate Change
Levy: Is It Working?’ [2003] JEL 39–58).
6 See para. 21.6.2 below.
7 See paras. 2.4.1 and 6.4.3.1 above and 21.7 below.
8 See para. 14.4 below.
9 Finance Act 2002, Sched. 6, para. 20.
318 Environmental Taxation Law
14.2 Tax base and rates
Where the full rate of levy applies, it is collected from the supplier and payable at
different poundages,10 depending on the type of energy supplied, that is:11
electricity at £0.0043 per kilowatt hour;
gas supplied by a utility at £0.0015 per kilowatt hour;
liquid natural gas £0.0096 per kilogram; and
any other substance £0.0117 per kilogram.
The tax applies to supplies of taxable commodities, that is, electricity, gas, liquid
natural gas, coal, lignite and coke, but not to hydrocarbon oil or road fuel gas or
waste within the scope of Environmental Protection Act 1990.12 Within this general
ambit, the levy is confined to supplies of:
a. electricity by a utility to a non-utility,13 although the position of combined heat
and power (‘CHP’) stations is complex;14
b. gas by a utility to a non-utility;15 and
c. other commodities, provided that this is in the course or furtherance of a
business.16
There are also concepts of:
a. self-supply,17 so that electricity utilities and CHP operators are normally brought
into charge in respect of their head office complexes, but non-CHP producers of
electricity largely for their own consumption are not;
10 Government Response to the Environment, Transport and Regional Affairs Committee’s
Report: UK Climate Change Programme, 8 August 2000, para. 98, said: ‘The initial
rates of climate change levy will be based on the energy content of the different energy
products. Current electricity pool arrangements means that is [sic] only possible
to determine carbon content of electricity as broad average with a “downstream”
tax. However, the government has said that it will keep under review the basis for
setting climate change levy rates, in light [sic] of developments in electricity trading
arrangements’. See para. 6.3.2.1 above.
11 VAT is payable, in addition, on the levy-inclusive price (see para. 1.4.3.1 above).
12 Finance Act 2000, Sched. 6, para. 3. See para. 6.3.2.1 above.
13 Ibid., Sched. 6, paras. 5, 150(2); Climate Change Levy (Electricity and Gas) Regulations
2001, S.I. 2001 No. 1136: for the underlying regulatory regime, see paras. 2.4 and 6.4.3
above and 21.7 below.
14 See para. 14.5 below.
15 Finance Act 2000, Sched. 6, para. 6; Climate Change Levy (Electricity and Gas)
Regulations 2001, S.I. 2001 No. 1136.
16 Finance Act 2000, Sched. 6, para. 7.
17 Ibid., Sched. 6, paras. 17, 23(3), 152; Climate Change Levy (General) Regulations 2001,
S.I. 2001 No. 838, reg. 41.
Climate Change Levy 319
b. deemed supply,18 that is, self-use,19 a tag which can be used to allow landlords
supplied by utilities some but not all of whose tenants are exempt to achieve the
intended end result for their tenants;20
c. special utility schemes, which can amalgamate electricity and gas supplies where
Customs agree that this is reasonable;21 and
d. recipient accountability where energy is received from a non-resident nonutility.
22
14.3 Reduced rates
Under transitional arrangements made with the European Commission:23
1. horticultural producers will pay half rate for a period of five years;24 and
2. installations within the IPPC25 concept were able to get reductions of 80 per cent
for ten years,26 provided that they entered into climate change agreements;27
and
3. natural gas for burning in Northern Ireland is exempted on a temporary basis,28
a concession which was later mirrored for aggregates levy.29
14.4 Exemptions
The following are exempt:
1 gas supplies for burning outside the UK30 – this is logical because fuel oil exports
18 Finance Act 2000, Sched. 6, para. 23(1),(2); Climate Change Levy (General) Regulations
2001, S.I. 2001 No. 838, reg. 52.
19 Except for CHP where for own use only: Financial Secretary to the Treasury (Mr Stephen
Timms, MP), Committee of the Whole House, 2 May 2000, col. 89. Some such businesses
may be able to claim auto-generator exemption: see Charles Yorke, [2002] IELTR 210.
20 Technical Briefing No. 8 (March 2001) (available from www.hmce.gov.uk): the alternatives
suggested officially are arranging dedicated supplies direct from the utility or (if the relief
is small) making a liability sharing agreement with the tenants: but see para. 21.7 below.
21 Finance Act 2000, Sched. 6, para. 29; Climate Change Levy (General) Regulations 2001,
S.I. 2001 No. 838, reg. 54.
22 See para. 16.7 below.
23 See para. 21.10 below.
24 Finance Act 2000, Sched. 6, para. 43.
25 See the Integrated Pollution Prevention and Control Directive (Council Directive 96/61/
EC, (1996) OJ L257 26). See paras. 6.2.3 and 12.2.2 above.
26 Finance Act 2000, Sched. 6, paras. 44–51.
27 See para. 14.6 below.
28 Finance Act 2000, Sched. 6, para. 11A.
29 Finance Act 2001, s.30A: see paras. 13.3 above and 21.8 below.
30 Finance Act 2000, Sched. 6, para. 11.
320 Environmental Taxation Law
are not within the scope of the tax, it may also be seen as the equivalent of the
(controversial)31 export rebate given for aggregates levy;
2 supplies for use in public transport, on the railways, or international shipping32
– public transport is to be encouraged in order to get cars off the road;
3 direct33 supplies for domestic or non-business charitable use34 – the latter is
consistent with government support of the charitable sector;35
4 supplies to:
a. producers of taxable commodities other than electricity,36 except for
headquarters operations;37 or
b. other than for use as fuel,38 being the electrolytic processes, steam reformation,
dual use functions and non-heating uses specified in regulations,39 and which
the European Commission confirmed on 4 April 2002, could be extended
(retrospectively) to recycling;40
c. with effect from 29 January 2003,41 there were included additional dual use
functions and non-heating uses connected with non-ferrous blast furnaces,
waste combustion, the re-carburising of iron and steel, carbon black
production, the manufacture of titanium oxide and the production of lower
olefins; and
d. following the enactment of Finance Act 2003, seemingly in order to facilitate
(c), the supply of a commodity is exempt if the person supplied intends it to
be used as fuel in a recycling process for which there is a competing process
which is not a recycling process using taxable commodities other than as fuel
and producing a product of the same kind as that produced by the recycling
process with a greater amount of energy involving a lower levy charge.42
Paragraphs 4a. to 4d. above thus confine the tax to its intended objective.
31 See para. 21.8 below.
32 Finance Act 2000, Sched. 6, para. 12, as to which note the similarity to Value Added Tax
Act 1994, Sched. 8, Group 8, item 4(a).
33 This seems to be the position following the VAT case concerning a 1994 pre-payment scheme
subsidiary for Bristol University, Oval (717) Ltd v. C & E Commrs, LON/01/1070.
34 Finance Act 2000, Sched. 6, paras. 8–9, as to which again note the similarity to Value
Added Tax Act 1994, Sched. 7A, Group 1, Notes 3–5.
35 The former being political (see para. 21.6.2 below).
36 Finance Act 2000, Sched. 6, para. 13. This includes exploration, but so that energy used at
exploration sites is not relieved: Technical Briefing No. 12 (October 2001) (available from
www.hmce.gov.uk).
37 Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838, reg. 40.
38 Finance Act 2000, Sched. 6, para. 18.
39 Climate Change Levy (Use as Fuel) Regulations 2001, S.I. 2001 No. 1138.
40 Technical Briefing No.16 (16 June 2002) (available from www.hmce.gov.uk); Business
Brief 18/02 (8 July 2002).
41 By ESC – see Business Brief 02/03 (6 February 2003) – until 13 March 2003, when
Climate Change Levy (Use as Fuel) (Amendment) Regulations 2003, S.I. 2003 No. 665,
came into effect.
42 Finance Act 2000, Sched. 6, para. 18A. See Troup, [2003] BTR 416.
Climate Change Levy 321
5 Although wholesale supplies of taxable commodities are not normally within
the scope of climate change levy,43 such a situation can arise in the following
circumstances:44
a. where a gas shipper without a supply licence sells natural gas to a ‘burner’;
b. where a gas producer burns it;
c. where an electricity producer consumes it;
d. where a gas utility burns it; or
e. where an electricity utility consumes it.
6 The creation of new biofuels, for example, biodiesel and bioblend, has taken
effect from Royal Assent to Finance Bill 2004.45 The supply of products used in
the creation of bioethanol will take effect from 1 January 2005, when the new
rate of excise duty is introduced.46
7 Renewable source and ‘good quality’ CHP47 electricity is also exempted: see
para. 14.5 below.
The requirement for certification48 can, however, give rise to administrative problems
where the person to whom energy is supplied by the utility is the landlord of the
end user, since it is only the landlord who can provide the utility with the relevant
certificate.49 Following the enactment of Finance Act 2003, provision can be made
for situations in which there has been a change of circumstances.50
14.5 Combined heat and power and renewable source electricity
Not all actually renewable51 sources of energy qualify for relief. Large hydroelectric
schemes have been excluded because all major UK sources have already
been exploited.52 Nuclear energy is also excluded, presumably because this has been
a political hot potato for decades and, at the time the tax was being introduced, no
decision had been taken to proceed with the erection of third generation capacity. It
43 Ibid., Sched. 6, para. 14.
44 Technical Briefing No.11 (March 2001) (available from www.hmce.gov.uk).
45 22 July 2004.
46 Finance Act 2000, Sched. 6, paras. 13 and 13A: CE20 (17 March 2004). For the excise
situation, see para. 22.2 below.
47 Climate Change Levy (Combined Heat and Power Stations) Prescribed Conditions and
Efficiency Percentages Regulations 2001, S.I. 2001 No. 1140.
48 Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838, reg. 34. But, by ESC,
from 1 May 2002, that which may have been claimed during 2001/02 could be claimed
within 2002/03. Amendments to Finance Act 2000, Sched. 6, paras. 15 and 148 enable
changes of methodology to be prescribed following the enactment of Finance Act 2003.
49 Technical Briefing No. 8 (March 2001) (available from www.hmce.gov.uk).
50 Under the substituted Finance Act 2000, Sched. 6, para. 24.
51 As defined by Utilities Act 2000, s.50.
52 Notice CCL 1/4 (June 2004), para. 2.2n (available from www.hmce.gov.uk).
322 Environmental Taxation Law
is, however, in line with the EU approach of excluding nuclear from the definition
of renewables.53 Fossil fuels are obviously excluded, but waste from them can
sometimes qualify if the fossil content is below a threshold.54
As has been indicated above, the generator/REC55 method of supplying electricity
under the post-nationalisation structure56 means that the effect of the exemption for
renewables or other ‘desirable’ sources, for example, methane from coal mines,57 is
lost in part:
1 because it is only direct supply contracts to commercial users (and normally only
very large ones) which will be capable of full exemption; and58
2 where electricity goes through the REC to a mixture of business and residential
addresses, the effect of (in effect) exemption at the previous level is diluted.59
This gives rise to:
1 the need to ascertain whether the supplier is fully exempt (especially in relation
to CHP);60 and
2 if this is not the case, to calculate the degree of exemption by reference to three
monthly balancing and two yearly averaging periods,61 with Customs obtaining
additional powers in 2002 to enable collection to be made if a CHP generator
53 See para. 12.2.6.3(2) above.
54 See CCL 1/4 (June 2004), para. 2.1, by reference to Climate Change Levy (General)
Regulations 2001, S.I. 2001 No. 838, regs 46–51.
55 Regional Electricity Companies, into which the old area boards were injected at the time
of privatisation into which the old area boards were injected at the time of privatisation
(see para. 2.4.1 above).
56 See paras. 2.4.1 and 6.4.3.1 above.
57 Announced in Budget 2002, subject to European Commission confirmation: HMT 2 (17
April 2002); this is treated as if a renewable source under Finance Act 2000, Sched. 6, para.
19(4A) – by the autumn, however, the fall in electricity prices under NETA had been such
that such projects were not deemed to be viable. On 9 April 2003, European Commission
permission had still not been obtained, but the government were ‘optimistic’ that it would
be [see Treasury Budget 2003, para. 7.13]. Eventually, this addition was brought in with
effect from 1 November 2003: see Climate Change Levy (General) (Amendment) (No. 2)
Regulations 2003, S.I. 2003 No. 2633.
58 CCL 1/4 (June 2004), para. 5.1, indicates that the prices in such contracts are normally
expressed on a free-of-levy basis, moving the risk of non-compliance onto the supplier.
59 Nonetheless, until 31 March 2003, CHP supplies to a utility or for domestic or non-business
charity use were disregarded and the electrical equivalent of any mechanical output for nongeneration
purposes taken into account: Climate Change Levy (Combined Heat and Power
Stations) Prescribed Conditions and Efficiency Percentages Regulations 2001, S.I 2001 No.
1140, reg. 5(3),(4), repealed by Climate Change Levy (Combined Heat and Power Stations)
Prescribed Conditions and Efficiency Percentages (Amendment) Regulations 2003, S.I.
2003 No. 861. For consequent subsequent amendments: see CE 4 and CE 5 (9 April 2003).
60 As to which Customs took additional powers to those of disclose in Finance Act 2000,
Sched. 6, paras. 19(8) and 20A(8), to direct certification through the Gas and Electricity
Markets Authority by the inserted Finance Act 2000, Sched. 6, para. 149A, in 2002.
61 Finance Act 2000, Sched. 6, paras. 20, 20B.
Climate Change Levy 323
ceases to make such supplies rather than ceases to be a supplier of any taxable
commodity;62 but
3 where self-supply is concerned, CHP is exempt in proportion to qualifying
input.63 Where the supplier produces largely for himself, the normal exemption
is, however, replaced in the case of partially exempt CHP where the threshold set
by regulations has been exceeded;64
4 In the case of a partially exempt CHP producer, the output is nonetheless exempt
if it is below the threshold set in regulations;65
5 Where supplies other than self-supplies are made to CHP stations a proportion
of the supply is exempt, the fraction being determined by Treasury regulations.66
Under the pre-2002 system, exemption was confined to good quality CHP.67
Where exemption is to be obtained on the basis that it has been supplied by a
renewable source, or, from 1 April 2003,68 a CHP source, a declaration to that effect
must be made by the supplier,69 the electricity of any other supplier used under
contract must confirm to Customs that the relevant conditions have been applied,70
and the electricity must be generated, as the case may be, from a renewable source in
a manner prescribed by Customs,71 or by CHP from a non-renewable source.72
The essence of the scheme applicable to CHP stations which took effect from 1
April 2003, is that:73
1 the power station must be certified by Defra (one of the pre-conditions being
that it may not receive state aid in excess of the level specified in the guidelines
issued the European Commission on 3 February 2003);
2 the station makes monthly returns to its regulator (Ofgem in England and Wales),
which issues certificates (CHP levy exemption certificates (‘LECs’)) two monthly
in arrears; and
62 Budget Day Press Release, CE21 (17 April 2002).
63 Finance Act 2000, Sched. 6, para. 17(3),(4).
64 Ibid., Sched. 6, para. 17(2), 152.
65 Ibid., Sched. 6, para. 16(2).
66 Ibid., Sched. 6, para. 15.
67 CCL 1/2 (February 2002) (available from www.hmce.gov.uk); Technical Briefing No. 15
(reissued June 2002) (available from www.hmce.gov.uk).
68 Finance Act 2002, s.123, (Appointed Day) Order 2003, S.I. 2003 No. 603.
69 Finance Act 2000, Sched. 6, paras. 19(1)(b),(2), 20A(1)(b),(3): certain conditions also
have to be fulfilled for a period of time, see ibid., paras. 19(1)(c),(5)–(7), 20A(1)(c),(4)–
(7), revised by Finance Act 2003 to permit averaging from 1 April 2003.
70 Finance Act 2000, Sched. 6, paras. 19(1)(d), 20A(1)(d).
71 Ibid., Sched. 6, para. 19(3),(4).
72 Ibid., Sched. 6, para. 20A(4); Climate Change Levy (General) Regulations 2001, S.I.
2001 No. 838, regs 51A–51M, Sched. 2 (inserted by Climate Change Levy (General)
(Amendment) Regulations 2003, S.I. 2003 No. 604. As most CHP is used by its generator,
it has been questioned how much effect this measure will have on the UK’s progress
towards its Kyoto targets: see Charles Yorke, [2002] IELTR 210.
73 Technical Briefing No. 18 (March 2003, revised March 2004) (available from www.hmce.
gov.uk).
324 Environmental Taxation Law
3 the station’s combined heat and power quality assurance (‘CHPQA’) certificate
is issued by Defra annually in arrears;74
4 it is permissible to ‘trade’ CHP LECs independently of the physical route taken
by the physical supply, or, as Customs put it originally: ‘[t]his means LECs may
be issued for suppliers to consolidators or into the imbalance market’.75 Levy
exemption certificates have, however, to be allocated in accordance with the
outputs record.76
14.6 Climate change agreements and the UK Emissions Trading Scheme
The 80 per cent levy reduction arrangements are confined to those industries within
the Integrated Pollution Prevention and Control (‘IPPC’) concept.77 This was,
initially, only discernable by a process of deduction,78 but the list in the statute79 was
replaced (by statutory instrument) before the tax came into operation by one which
incorporated the (amended) statutory instrument incorporating the IPPC concept into
UK law following the gradual replacement of Part I of the Environmental Protection
Act 1990 by the Pollution Prevention and Control Act 1999.80
In order to benefit from the 80 per cent levy reduction, an electricity consumer
has first to provide his supplier with Customs’ certificate that he has entered into a
climate change agreement.81 For the first agreement, it was of the essence that this
certificate be served before the reduced rate could be applied.82 However, where
occupation of the site changes, the new occupier’s accession can be backdated.83
74 See para. 4.2.1.2(1) above.
75 Technical Briefing No. 18 (March 2003, revised March 2004) (available from www.
hmce.gov.uk), para. 2.10 (2003 version): as to the legality of this activity and the
distinction between it and trading in Green Certificates (‘or ROCs’), see para. 20.6
below.
76 Ibid., para. 2.9 (2004 version). Although not acknowledged, the reason for this is likely
to have been the Cogeneration Directive (European Parliament and Council Directive
04/8/EC on the Promotion of Cogeneration based on a Useful Heat Demand in the
Internal Energy Market and Amending Directive 92/42/EEC, (2004) OJ L52 50). See
para. 12.2.6.3(2) above.
77 See para. 6.2.3 above. This was for state aid reasons (see para. 12.2.7 above) and consent
is to be sought, during 2004, to the extension of the scheme to other sectors (see Business
Brief 27/2003 (10 December 2003), and para. 21.10 below).
78 The debate initiated by the government concerned heavy users of electricity, which is not
necessarily the same thing as heavy polluters.
79 Finance Act 2000, Sched. 6, para. 51.
80 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No.
1973, am. S.I. 2001 No. 503.
81 Finance Act 2000, Sched. 6, para. 44, variation notices come within para. 45.
82 Ibid., Sched. 6, para. 49(1).
83 Ibid., Sched. 6, para. 49(2). Although this does not appear to require adherence to the same
umbrella agreement, clearly difficulties could arise if the successor was not a member of
the trade association, for example, a landlord taking over on an insolvency (see para. 16.6
below).
Climate Change Levy 325
There are few direct agreements.84 Most participants are signatories to an
‘underlying agreement’ supplemental to an ‘umbrella agreement’ made between
the (then) DETR85 and their trade association.86 Moreover, because of the delay
in completing negotiations with the trade associations,87 it will usually be found to
be the case that the underlying agreements pre-date the umbrella agreements and
provide for the trade association to divide out the reduction target for that particular
industrial group subsequently.
The umbrella agreements contain obligations on underlying agreement signatories
to comply with certain procedures. These may seem odd in some cases, for instance
solo intensive pig or battery hen enterprises. They will include, however, monitoring
compliance against an agreed plan.88 That plan will, in turn, in reality be governed
by the signatory’s obligations under the Pollution Prevention and Control (England
and Wales) Regulations 2000,89 through:
1 the best available techniques (‘BAT’)90 being phased in for existing installations
over the period 2001 to 2007,91 as against the previous standard of best available
techniques not entailing excessive cost (‘BATNEEC’);92 but
2 the changes required will, to some extent, be site-specific after taking account
of:
a. the technical considerations of the installation;
b. the local geography; and
c. the environmental considerations for the area; together with
3 due consideration of energy efficiency, for which guidance material has been
published.
Although the targets in the agreements run for ten years, the scheme operates on the
basis of two-year certification periods,93 running to 30 September.94 But compliance
is only required to be verified in the second year of each period.95 Verification has to
84 Under Finance Act 2000, Sched. 6, para. 47. Some of them are joint ones involving groups
of retailers.
85 See para. 4.2.1.2(1) above.
86 Under Finance Act 2000, Sched. 6, para. 48.
87 Called ‘sector associations’ for this purpose.
88 Account also needs to be taken of Climate Change Levy (General) Regulations 2001, S.I.
2001 No. 838, reg. 44, with regard to the delivery of taxable commodities.
89 S.I. 2000 No. 1973, am. S.I. 2001 No. 503. See para. 6.2.3 above.
90 That is, the IPPC concept (see paras. 6.2.3 and 12.2.2 above).
91 Under the Pollution Prevention and Control Act 1999. See para. 6.2.3 above.
92 Under the Environmental Protection Act 1990, Part I. See para. 6.2.2 above.
93 Finance Act 2000, Sched. 6, para. 49.
94 Which has to be compared to direct participants under the UK Emissions Trading Scheme
(‘UK ETS’) participants operating by reference to calendar years (see para. 20.5 below).
95 The first ran from 1 October 2001 to 30 September 2002, even though the start date was
1 April 2001.
326 Environmental Taxation Law
be provided, through the trade association, by 31 January following.96 (It is worthy
of note, in this context, that the Regional Development Agencies,97 who were asked,
for the first time, to become involved in the Budget process in 2003, recommended
that the target-setting and verification processes need to be made more cost-effective
and less burdensome.)98
The sanction for non-compliance is exclusion from relief for the subsequent twoyear
period, but:
1 Participants who do especially well as against their targets may sell their excess
pollution capacity on the market set up pursuant to the UK Emissions Trading
Scheme (‘UK ETS’).99
2 An incentive to do this is the extraordinary arrangement under the Umbrella
Agreement system under which the undershoot by one or more signatories to the
Underlying Agreement is first offset against overshoots by other such signatories
within the scope of that particular sector, that is, individual Umbrella Agreement.100
3 Those who have overshot their targets may avoid disqualification for the
subsequent two-year period by buying-in capacity on the trading market.101
4 It appears that, if an ‘over-shooter’ has in fact sold in the market, the position of
the sector as a whole, that is, all those covered by the same Umbrella Agreement,
may be affected adversely.
5 If the sector as a whole meets its target, the individual participant may carry
forward his personal surplus to 2007,102 when the initial scheme had been
expected to be replaced by at least a European one.103
In Budget 2004, the government made known its intention to seek Community state
aid approval104 to extend the scope of climate change umbrella agreements outside
96 Which has to be compared to 31 March for direct participants (see para. 20.5 below).
97 These are bodies, such as the South East Regional Development Agency, which promote
economic activity, for example, by taking small roles in promoting the development of
‘brown’ and ‘green’ field sites which might be difficult to develop without some form of
official support.
98 Budget Day Press Release, PN 02 (9 April 2003).
99 See para. 20.4 below, and also the government’s intentions as to the possibility of switching
to the EU Emissions Trading Scheme with a similar climate change levy discount in 2005:
Business Brief 27/2003 (10 December 2003).
100 Note, in this context, that a particular trade association may be a party to more than one
umbrella agreement, for example, the National Farmers Union.
101 See para. 20.4 below.
102 With the arrival of the EU Emissions Trading Scheme (‘the EU ETS’) in January 2005,
the opportunity is likely to be given to climate change agreement holders to switch to the
EU scheme: Business Brief 27/2003 (10 December 2003). In the same breath, however,
it was made known that consideration was being given to extending the climate change
agreement scheme to industries not within IPPC. It was not altogether clear how these two
changes were considered to be consistent (see Jeremy de Souza, The Report (the journal
of the City of Westminster and Holborn Law Society), March 2004, p. 5).
103 See para. 20.3 and Chapter 28 below.
104 See para. 12.2.7 above and 21.10 below.
Climate Change Levy 327
those industries within the IPPC criteria.105 To qualify, businesses will have to be
above a threshold of energy intensity,106 measured for the purposes of the Energy
Products Directive107 as one whose ‘purchases of energy products and electricity
amounted to at least 3 per cent of the production value’, under a one-off four-year
test (the lowest year being discounted).108
All businesses meeting or exceeding a 12 per cent threshold would be eligible
to enter into climate change agreements. But where the 3 per cent level had been
exceeded, but the 12 per cent level not breached, qualification would only be possible
if one of two additional criteria were also present:109
1 a percentage of imports to home demand110 of 50 per cent; or
2 a ratio of exports to total manufacturers’ sales of 30 per cent.111
14.7 Administration of the levy
Since the model on which climate change levy is administered shares a number of
features with those applicable to aggregates levy and landfill tax, the administrative
provisions for all three taxes are discussed together, in Chapter 16 below.
105 Budget Day Press Release, CE19 (17 March 2004). In Business Brief 19/04 (23 July
2004), applications for new entrants were requested on a special spreadsheet by 31 August
2004. It was hoped that new members would be able to participate from 1 January 2005
(when the EU ETS starts), but this was subject to Defra being able to obtain the necessary
state aid approval by then (see para. 12.2.7.2 above).
106 This was the criterion the UK Government would have liked to use when the rebate
scheme was first devised, before being obliged by the European Commission to fall back
on the IPPC test, thus enabling certain businesses which would not normally be associated
with heavy energy use (for example, intensive farming) to qualify.
107 Council Directive 03/96/EC, (2003) OJ L283 51. See para. 12.3.4 above.
108 Budget Day Press Release, CE19, para. 4.
109 Ibid., CE19, para. 6.
110 Total manufacturers’ sales plus imports minus exports.
111 These complications were the subject of criticism from the Engineering Employers’
Federation: Houlder, Financial Times, 18 March 2004, p. 12.
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Chapter 15
Landfill Tax
15.1 Introduction
The decision to introduce a tax on landfill was announced in the 1994 Budget.1 The
extent of the UK’s waste disposal problem at that date was made know in a Treasury
Press Release. The annual production of controlled waste2 was 140m tonnes, of which
70 per cent (a higher proportion than in other countries) was being disposed of to
landfill. Of this, 15m tonnes was of commercial origin and 35m from the construction
industry. The major problem was therefore domestic, a service undertaken by local
authorities, and paid for through the local taxation system currently in force.3
The tax4 was introduced from 1 October 1996, pursuant to Finance Act 1996.
It took a form similar to VAT, albeit with credits being limited to reuse, recycling
or incineration.5 This was the first of the environmental taxes placed under the
management of HM Customs and Excise.6
15.2 Tax base and rates
Taxation is by weight,7 determined in accordance with regulations, the matter being
complicated by water content.8 For this purpose, it is permitted to discount:9
1 non-natural water added:
a. for extraction; or
b. for transportation purposes; or
c. if it amounts to 25 per cent, it has been added in the course of an industrial
process; or
2 which constitutes the residue, not exceeding the original water content, of a
water treatment works unless the water contains pollutants liable to leach from
the landfill site.
1 29 November 1994.
2 See para. 6.3.2.1 above.
3 See paras. 2.3 above and 21.4.1 below.
4 On which VAT is charged on the inclusive price (see para. 1.4.3.1 above).
5 See para. 16.9 below.
6 See para. 4.2.1.2(2) above.
7 Finance Act 1996, s.68.
8 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, regs 41–44.
9 Ibid., reg. 44(5)–(8).
330 Environmental Taxation Law
The rate of tax was set at £7 per tonne for general waste. This was increased to
£10 per tonne on 1 April 1999 and by £1 each year until £15 is reached in 2004.10
It was announced on 27 November 2002, that the rate was to be set to reach £35, by
instalments of at least £3 per annum, starting in 2005.
Inert waste is taxed at £2 per tonne.11 Where mixed loads are presented at a landfill
site, Customs are empowered to give directions12 (which power has been exercised)13
as to how those loads are to be treated where the quantity of non-qualifying material
is ‘small’.14 This has been held to mean up to 5 per cent, weight being only one factor
to be taken into account in assessing whether this level has been exceeded.15
The intention behind the extensive definition of inert waste given in the current
Treasury Order16 is that this is intended to be confined to waste that does not
physically or chemically react, biodegrade or adversely affect other matter with
which it comes into contact in a way likely to give rise to environmental pollution.17
The substances entitled to the lower rate are:
1 naturally occurring rocks and soils, which Customs regard as including clay,
sand, gravel, sandstone, limestone, crushed stone, china clay, clean building or
demolition stone (for example, sandstone, limestone or slate), topsoil, peat, silt
and dredgings;
2 ceramic or concrete materials, which are treated as comprising glass, ceramics,
bricks, tiles, clay ware, pottery, china, bricks and mortar, reinforced concrete,
concrete blocks, breeze blocks and thermalite blocks;
3 process or prepared minerals which have not been used, that is, moulting sands
and clays, clay and other absorbents, fuller’s earth, bentonite, glass and other
man-made fibre, silica, mica and abrasives which have been extended18 to
include foundry sand;
4 furnace slags;
5 bottom ash and fly as from wood or coal combustion (including pulverised fuel
ash from the latter);
6 low activity inorganic compounds, that is, titanium dioxide, calcium carbonate,
magnesium carbonate, magnesium oxide, magnesium hydroxide, ferric oxide,
iron hydroxide, aluminium oxide and hydroxide and zirconium dioxide; and
7 provided that they are disposed of in a site licensed to take only inactive or inert
waste,19 gypsum and plaster (but not plasterboard).
10 As to the inadequacy of these rates, see para. 21.4.1 below.
11 Finance Act 1996, s.42(2),(3),(4). This was, however, adjudged to have been a success in
House of Commons Environment, Transport and Regional Affairs Select Committee, 13th
Report. The Operation of the Landfill Tax (House of Commons Papers, Session 1998–
1999, HC 150–I) (London: Stationery Office, 1999), para. 21.
12 Finance Act 1996, s.63.
13 Currently in Notice LFT 1 (available from www.hmce.gov.uk).
14 Finance Act 1996, s.63(2).
15 Cleanaway Ltd v. C & E Commrs, (2003) L.17.
16 Landfill Tax (Qualifying Material) Order 1996, S.I. 1996 No. 1528.
17 Customs Press Release 60/95 (15 December 1995).
18 Albeit by News Release 48/96 (18 September 1996).
19 The power to impose conditions is given by Finance Act 1996, s.63.
Landfill Tax 331
15.3 Securing the tax base
Tax is charged on a taxable disposal,20 which takes place when material is disposed
of as waste,21 by way of landfill,22 at a landfill site23 at the time the land is question
is within this category.24
The accountable party is the landfill site operator of that land at that time.25 That
person is normally the holder of the waste disposal licence for that particular area
of land.26 At the time the tax was introduced, it was thought that the need for such a
licence to be held identified with precision the only person who needed to be held to
account for the tax. However, it appears that evasion was taking place and Customs
therefore thought it necessary to introduce the concept of secondary liability in
2000.27 A person within the relevant description (called ‘the controller’) is obliged to
identify himself and is, in effect, a guarantor without statutory right of recourse of the
‘extractor’s’ (turnover) tax liability for the site.28 There is no necessity for there to be
a connection between the controller and the licence holder and, indeed, it is possible
that some independent landlords could come within the scope of the definition.29
A disposal of material as waste takes place when the person initiating30 the
disposal does so with the intention of discarding it as waste,31 it being irrelevant
that either he or somebody else could benefit from or make use of the material.32
The concept of waste has been the subject of litigation. In ICI Chemicals &
Polymers Ltd v. C & E Commrs,33 the secondary product of a chemical process,
which could be sold to the building industry was used to construct cells to contain
noxious substances, in accordance with the terms of the waste disposal licence,
it was held that the disposal had not been of waste. But, in NSR Ltd v. C & E
Commrs34 and J & S Mackie v. C & E Commrs,35 the fact that the acquiring licence
holder intended to use imported soil for restoring the site to agricultural use did not
avail him. Similarly, in McIntosh Plant Hire v. C & E Commrs,36 the use of waste
to metal a road within a landfill site was also held to be taxable. In C & E Commrs
20 Finance Act 1996, s.40(1).
21 Ibid., s.40(2)(a).
22 Ibid., s.40(2)(b).
23 Ibid., s.40(2)(c).
24 Ibid., s.40(3).
25 Ibid., s.41.
26 Ibid., ss.66(a), 67(a); Environmental Protection Act 1990, s.35. See para. 6.3.2.1 above.
27 Finance Act 1996, Sched. 5, paras 48–61.
28 See para. 16.2 below.
29 See para. 16.16 below.
30 Thus, in C & E Commrs v. Darfish Ltd, [2001] Env LR 3, where the licence holder
required, and contracted for the delivery of builders’ topsoil for site engineering, it was the
intentions of the builders, rather than the purchasing licence holder, which were relevant.
31 Finance Act 1996, s.64(1),(3),(4).
32 Ibid., s.64(2).
33 (1998) V&DR 310.
34 (1999) L.7.
35 (2000) L.9.
36 (2001) L.10; see also Lancashire Waste Services Ltd v. C & E Commrs, (1999) L.8.
332 Environmental Taxation Law
v. Parkwood Landfill Ltd,37 a local authority disposed of unwanted material, at a fee,
to a recycling company (‘Recycling’) in which it held a minority shareholding. At
Recycling’s plant, the material was crushed, sorted, mixed with other material and
graded before being divided into saleable material. Part of the recycled material was
sold to Parkwood, the holder of the waste disposal licence, for use in the restoration
of its landfill site. The central issue was that the local authority intended to discard
the material. It was immaterial either that, as a result of recycling, there was a change
in the nature of the material or that, through its shareholding, the local authority
stood to benefit from the recycling of some of it.38
A further issue in Parkwood was whether the use to which it had put the material
precluded the recognition of what had happened as a disposal by way of landfill,39
irrespective by whom it was made. It was held, however, that a disposal for this
purpose could be more than the legal transaction by which it is effected or property
in the material passes.40 This is relevant because Finance Act 1996, s.65(1), provides
that a disposal by way of landfill takes place if the material is deposited either:
1 on the surface of the land,41 or a structure set into the surface;42 or
2 under the surface of the land.43
Which head applies can be of significance. In F A Gamble & Sons Ltd v. C & E
Commrs,44 when the operator of the site had accepted the waste, for a fee, it was
stockpiled for subsequent processing into soil (after intermixture with fertilisers) for
use to cover the clay cap and thus achieve site restoration. Section 65(1)(a) being in
point, the initial deposit was the relevant event,45 and, at that stage constituted waste.
The Court of Appeal in Parkwood overruled the Vice-Chancellor’s judgment. All
four heads of section 40(2) had to be present before a tax liability arose. In these
particular circumstances, head (a) was not because,, in determining whether a disposal
was as waste, it was legitimate to have regard to the purpose of the tax, which was
divert waste from landfill into recycling.46
37 [2002] STC 417.
38 See para. 6.3.2.1 above.
39 For the purposes of the two heads of Finance Act 1996, s.65(1).
40 By reference to Finance Act 1996, s.64(3),(4).
41 Which includes that covered by water above the low water mark of ordinary spring tides:
Finance Act 1996, s.65(7).
42 And irrespective of whether placed in a container before being deposited: Finance Act
1996, s.65(2). Where it is intended to cover it with earth subsequently, the disposal takes
place when the material is deposited, rather than when it is covered: Finance Act 1996,
s.65(4).
43 Irrespective of whether covered by earth (or similar matter) afterwards or deposited in a
cavity in the first place: Finance Act 1996, s.65(3)(a),(b),(8).
44 (1998) L.4.
45 By reason of Finance Act 1996, s.65(4).
46 [2002] STC 1536. One has to wonder whether it was a pure coincidence that this judgment
was given the day after it had been announced in the Pre-Budget Report that the rate of tax
was to rise, over a period of years to £35, and in the context of the publication in draft of
Landfill Tax 333
It is for consideration whether the Court of Appeal’s decision had the effect of
overruling earlier decisions, including that of Moses, J. in Darfish. In Bendall v. C &
E Commrs,47 the intention of the site licensee was taken into account to the extent of
withdrawing from charge material taken in for a fee but used to make a hard stand
for his scrap and other businesses. In so holding, the tribunal distinguished NSR, ICI
Chemicals & Polymers and Gamble.
15.4 Exemptions
Extensive exclusions from landfill tax are provided for in addition to the reduced rate
for inert landfill:
1 dredging operations from the beds of rivers, canals and harbours undertaken in
the interests of navigation;48
2 the removal of naturally occurring material from the sea in the course of
commercial extraction operations;49
3 naturally occurring material extracted from the earth in the course of commercial
mining or quarrying operations (including opencast), other than such material
as has been subjected to or results from either a process forming part of those
operations which permanently alters its chemical composition or a process
separate from the mining or quarrying;50
4 the disposal of inert waste at a landfill site which is or was a quarry, for which
there is a planning requirement for total or partial refilling and the waste disposal
licence permits only the disposal of inert waste at the site;51
5 subject to prior written notice to Customs, the use of inert waste for site restoration
(other than capping waste) under the terms of the planning consent or waste
disposal licence:52
a. it had been held in Ebbcliff Ltd v. C & E Commrs53 that this relief was
available in circumstances in which a quarry had been filled before 1970
and then restored in accordance with 1950s planning consents, but to a
poor standard. It became necessary for it to be recontoured with inert waste
deposited under the capping layer. The tribunal held that this constituted
continued restoration of the site to modern standards, within Finance Act
the Downing Street Strategy Unit’s Waste Not, Want Not, which did not pull punches on
the country’s problems in relation to the domestic waste management problem (see para.
6.3.2 above).
47 (2003) LON/00/1305.
48 Finance Act 1996, s.43(1)–(3).
49 Ibid., s.43(4).
50 Ibid., s.44.
51 Ibid., s.44A (taking effect from 1 October 1999).
52 Ibid., s.43C (also taking effect from 1 October 1999).
53 (2003) L.16.
334 Environmental Taxation Law
1996, s.43C(2). But the tribunal’s decision was reversed by Etherton, J.,54
on the basis of:
i. the word restore not encompassing the concept of improvement, but
restoration: the judge adopted a tribunal case not cited below, Harley
v. C & E Commrs,55 where a farmer had imported waste to improve the
contours of a valley in order to make it more productive; and
ii. the words on completion of not being apposite to cover a disposal user
which had ceased in 1970.
b. The concept of restoration was subsequently considered in Dispit Ltd v. C &
E Commrs.56 In that case, the Environment Agency had varied the terms of
the taxpayer’s waste disposal licence permitting tipping in a former railway
cutting by requiring steps to be taken to prevent leaching. This was achieved
by lining the cutting with inert waste before tipping took place. While this use
of waste was not for ‘capping’, the tribunal distinguished the circumstances
in which the works were carried out from those in Harley. By looking at the
planning consent in its totality, and not just the restoration condition, it was
clear that there was a distinction between tipping under it and restoration
after the tipping had been completed. The taxpayer was not, in consequence,
entitled to relief under this head;
6 Exemption is also available57 for certain58 materials removed in the course of the
reclamation of contaminated land, which has been certified by Customs after at
least 30 days’ prior written application, if it involves cleaning the land (or part of
it) of some or all of the pollutants causing or having the potential to cause harm,
after polluting activity has ceased either:
54 [2004] STC 391. Etherton, J.’s judgment was upheld in the Court of Appeal, [2004] STC
1496, on the basis that s.43C(2) was drafted in a manner which presupposed a knowledge
of ordinary terms in use in the landfill business. It was generally recognised in the industry
that the restoration stage commenced after infilling had been completed. It was therefore
proper, when construing the subsection to have regard to industry practice and usage.
Parliament’s express exemption of capping was hard to explain if the waste below was
to be included. There was no overlap with s.44A. Where there was no capping layer,
s.43C(2) could still apply, but it would be a question of fact at what point the infilling
ended and the restoration began.
55 (2001) L.13.
56 (2004) L.19, which was approved by the Court of Appeal in Ebbcliff, [2004] STC 1496.
57 Under Finance Act 1996, s.43A(1) provided that the work is completed before the
removal of the source of pollution or, where construction work is involved, before the
commencement of that work (ibid., s.43A(2)).
58 This treatment is not, however, available where the removal is required under notices
served under the statutory powers specified in Finance Act 1996, s.43A(4), unless the
removal is carried out by an official body within the descriptions contained in ibid.,
s.43A(5),(6).
Landfill Tax 335
a. where those pollutants would prevent this being attained, with the object
of facilitating development, conservation, the provision of a public park or
other amenity, or the use of the land for agriculture or forestry; or
b. to remove or reduce the potential of pollutants to cause harm;59 and
7 pet cemeteries operating under a waste disposal licence and in which no (other)
waste is deposited.60
15.5 Temporary disposals
Where material is held temporarily, in an area designated for the purpose,61 pending
one or more of incineration or recycling, removal for use elsewhere, the use of inert
waste for restoration of the site at which disposal takes place, or sorting pending
removal elsewhere or eventual disposal,62 the disposal may be treated as wholly63 or
partially64 exempt under regulations.
Under the text of regulation 3865 in force from 1 February 2002, where Customs
have designated an area in which material is held temporarily under such conditions
as Customs impose while the designation lasts and, within a year, material stored
within the area is either:
1 recycled66 or incinerated, or
2 (being inert waste and provided that prior written notice is given to Customs)
used other than by way of taxable disposal either for site restoration at the same
site or at another place, or
3 sorted pending either application.
15.6 Fly-tipping
It seems to have been envisaged in 1994 that, in addition to their tax collection duties,
Customs would carry out an enforcement role, the suspicion being that there were
59 Finance Act 1996, s.43B.
60 Ibid., s.45.
61 Ibid., s.62(7)(b).
62 Ibid., s.62(7)(a), from 28 July 2000.
63 Under Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 39.
64 By reason of shifting the disposal date under Landfill Tax Regulations 1996, S.I. 1996 No.
1527, reg. 40.
65 That is, of Landfill Tax Regulations 1996, S.I. 1996 No. 1527.
66 On 19 March 2004, in Business Brief 10/04, Customs announced a change in policy
relating to recycling. Although the original producer’s intention is not relevant, previously
Customs regarded it as of the essence that a chemical change was a prerequisite to recycling.
Under the revised policy all that is required is processing into a useable material.
336 Environmental Taxation Law
quite a lot of unauthorised67 landfill sites around.68 However, not only were no such
duties assigned to Customs under Finance Act 1996, the position of licensees who
have been the victims of fly-tipping has been most unsatisfactory, with Customs
able to issue an estimated assessment69 against which (in the absence of the material
not having been weighed) the taxpayer does not realistically have much prospect of
success on appeal.
The statutory code includes a provision which makes it clear that the site operator
is liable for fly-tipping.70 It does not, however, include any right of recovery by the
taxpayer against any fly-tipper who might be apprehended. The minister in charge
of this part of the Bill71 had this problem drawn to his attention in correspondence,
and indicated (no doubt correctly) that, as and when fly-tippers were caught, the
authorities would prosecute. But he did not feel able to introduce an amendment
to ameliorate the risk to site operators because the general understanding was that
local authorities ought to be requiring all licensees to install boundary security,72
seemingly of a type suitable for that appropriate to the storage of dangerous waste.
It needs to be borne in mind in this context that, in 1996, farmers had not been
brought within the waste management licensing regime.73 It is understood that
undertakings were received at that time that, as and when it was extended to
farmers,74 this unsatisfactory situation would be revisited. But when the required
general reorganisation of waste disposal site regulation occurred, in July 2002,75
no such action was taken. The stricter general regime, coupled with the increased
obligations on site operators (for which there was no five year transition for new
sites), makes it unlikely that farmers will undertake responsibility for their own
waste management, thus increasing the costs of an industry in a very poor economic
state indeed. Furthermore, the advent of legal responsibility for removal upon the
landowner has given rise to serious concern, not least in the context of prospective
changes in the regime for the disposal of hazardous waste.76 In April 2004, the UK
67 The relevant licence or permit being required (see paras 6.3.2.1 and 6.3.2.4 above).
68 Nonetheless, in October 1999, the government indicated that the majority of fly-tipping
was by householders ‘not directly affected’ by the tax (see HM Government, The
Government’s Response to the Environment, Transport and Regional Affairs Committee’s
Report: the Operation of the Landfill Tax, 1999 (Cm 4461, 1999)).
69 Under Finance Act 1996, s.50(5).
70 Finance Act 1996, s.69(2)(b).
71 The Paymaster-General (Mr David Heathcoat-Amory, MP).
72 Letter of 22 February 1996, to Chairman of the Holborn Law Society Revenue
Committee.
73 Environmental Protection Act 1990, s.75(7)(c). See para. 6.3.2.1 above.
74 It being known at that date that the European Commission were disputing whether the
UK had complied with its obligations under the relevant waste disposal directive in this
respect. The UK Government did not capitulate to threats of proceedings until 9 December
2004, when a Written Statement from the Environment Minister (Mr Elliot Morley, MP)
revealed that draft regulations had been published, for promulgation in early 2005: HC 9
December 2004, cols 106–107WS.
75 Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559. See para. 6.3.2.4.
76 Such clean-up costs have been estimated at £100m, with none of the 12 commercial landfill
sites authorised to handle such waste serving London or Wales (see Houlder, Financial
Landfill Tax 337
Government set up a flycapture database77 following the inclusion in Anti-Social
Behaviour Act 2003 of powers for local authorities to take preventive action against
regular offenders.78
15.7 Administration of the tax
In common with aggregates levy and climate change levy, the administrative
machinery applicable to landfill tax is discussed overleaf, in Chapter 16.
Times, 25 March 2004, p. 6). Furthermore, with property developers speeding up their
clearance of contaminated sites in anticipation of price rises, the available capacity in
the 12 sites is only half the annual demand (see Houlder, Financial Times, 15 July 2004,
p. 5).
77 See www.environment-agency.gov.uk (an email address and password is required).
78 See ENDS Report 350, March 2004, p. 48. A consultation was also then in progress on
an amended version of Environmental Protection Act 1990, s.59. A Select Committee
commented on developing policy in this field in July 2004 (see the House of Commons’
Environmental Audit Committee, 9th Report. Environmental Crime: Fly-tipping, Flyposting,
Litter, Graffiti and Noise (House of Commons Papers, Session 2003–2004, HC
445) (London: Stationery Office, 2004)).
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Chapter 16
Customsʼ Administrative Model
16.1 Introduction
Although of considerably greater longevity,1 Customs took on their principal current
tax collection role in 1973, when value added tax (‘VAT’) was introduced upon the
entry of the UK into the (then) European Economic Community (‘the EEC’).2
As Customs have been the tax collection agency selected for the collection of
national environmental taxes, it was decided to model the collection machinery and
the administrative arrangements and powers upon those extant for the purposes of
VAT. These operate at three levels – statute (‘primary legislation’), statutory instrument
(‘secondary legislation’) and legally binding notices (‘tertiary legislation’). It should be
appreciated, in this connection, that the primary function of the notices (which can take
the form of pamphlets or leaflets and appear under various designations) is to inform
taxpayers. Where paragraphs are intended to have the force of law, this is indicated.
Where notices do not have the force of law, but are intended to be explanatory of it
and of Customs’ practice in interpreting it, the legal system will not regard Customs
as estopped by them as regards issues of interpretation. Erroneous or misleading
statements in them will, however, be taken into account in deciding whether the
imposition of penalties is appropriate.
16.2 Registration
Unlike Inland Revenue taxes before the late 1990s, the collection of indirect taxes3
outside ports of entry into the UK has always been on a self-assessment basis. In
addition, it was an essential feature of VAT that traders purchasing goods or services
were (generally) able to credit their liability (called ‘input tax’) against their sales (or
‘outputs’) and only accounted to Customs for the net amount. The crediting feature is
not normally a feature of environmental taxes, but, where it is not, has been retained
for some purposes.
A crediting facility makes it necessary that assessable parties be registered, if only
so as to be able to give those who they are dealing with a number to cite on their own
documentation.
This means, in turn, that, while registrability may be of importance to the collection
of tax, actual registration is of the essence to its administration.
1 See Graham Smith, Something to Declare: 1000 Years of Customs and Excise (London:
Harrap, 1980).
2 The circumstances are outlined in, for example, Stephen Weatherill and Paul Beaumont,
EU Law, 3rd edn (London: Penguin Books, 1999), pp. 6 and 36.
3 See para. 1.2.1.2 above.
340 Environmental Taxation Law
Where, as in the case of VAT or climate change levy, the taxable event is the supply
of something, it will be readily apparent that registrability is easy to determine,
subject to anti-avoidance measures4 and small trader thresholds.5
However, where what is taxed, although extracted or delivered, is ascertained by
reference to weight delivered to or from a site, different criteria apply. Where control
of the site requires a licence, as in the case of landfill,6 there should be no problem
in identifying the accountable party.7 This has not, however, circumvented the need
(in the eyes of Customs) for the addition of anti-avoidance legislation, in the form of
secondary liability.8
Where this identifying factor is not present, the legislature is faced with grave
problems. In the case of aggregates levy, it was decided to solve these by providing
for joint and several liability between members of a class,9 the membership varying
according to the type of exploitation envisaged.10 Nonetheless, as Customs have
conceded in correspondence, control of a weighbridge cannot be shared and in
practice only one candidate can be selected for registration.
Although Customs have power, by regulation, to exempt those not selected from
both the requirement to register11 and administrative responsibility where another
has been registered,12 they initially chose not to do so13 in relation to aggregates
levy.
A different solution was therefore adopted over a period of a year for two similar
problems. In 2000, landfill tax evasion was countered by the introduction of the
concept of secondary liability, that is, that of a guarantor without right of indemnity,14
whereas, in 2001, fears of a similar situation arising in relation to aggregates levy
were countered by invoking the joint and several liability concept.15
4 For example, Value Added Tax Act 1994, Sched. 1, para. 1A, and Sched. 9A.
5 As, for VAT, in Value Added Tax Act 1994, Sched. 1, para. 1.
6 See Environmental Protection Act 1990, s.35 (see para. 6.3.2.1 above).
7 Although there is still a requirement to notify registrability and prospective registrability
(see Finance Act 1996, s.47(2),(3)).
8 Finance Act 1996, Sched. 5, paras 48–60 (added by Finance Act 2000, Sched. 37).
9 Finance Act 2001, s.22(3).
10 Ibid., ss.21 and 22(1),(2).
11 Ibid., s.24(4)(a), which they chose to exercise by requiring notification of situations in
which exemption was conferred by ss.17(3)(b)–(d) (see Aggregates Levy (Registration
and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 4027, reg. 3(2), until
its repeal on 15 August 2002, by Aggregates Levy (Registration and Miscellaneous
Provisions) (Amendment) Regulations 2002, S.I. 2002 No. 1929).
12 Finance Act 2001, s.24(4)(b).
13 As to administrative responsibilities: see Aggregates Levy (General) Regulations 2002,
S.I. 2002 No. 761, regs 4–11, and Aggregates Levy (Northern Ireland Tax Credit)
Regulations, S.I. 2002 No. 1927.
14 Although described as involving joint and several liability (see Finance Act 1996, Sched.
5, para. 57(1)).
15 These powers are, however, as nothing when compared to the new Value Added Tax Act
1994, s.77A and the amended Sched. 11, para. 4(2), inserted by Finance Act 2003, ss.18
and 19, to combat carousel and missing trader frauds which exploited the European single
market by moving computer chips and mobile phones between Member States with the
Customs’ Administrative Model 341
A complication arose in relation to climate change levy by virtue of the regulatory
structure governing the supply of electricity. Since it was not desired to tax domestic
supplies, it was not possible to distinguish at the point of taxation between polluting
and renewable or cleaner sources. The accountable party had, therefore, to be a
person with a licence from the regulator to supply electricity or gas.16 This is the
person making the supply.17 Where, however, the supply is made by a person who
is neither a utility nor resident in the UK, it is the recipient of the supply who has to
register.18
It was therefore necessary for the statute to provide for people to notify Customs
of their registrability.19 As a result both climate change levy and aggregates levy
have regulations which require candidates for registration to identify themselves to
Customs.20 (Aggregates levy had an additional complication because, for revenue
protection reasons, Customs have been given the right to determine the boundaries of
a site.21) The concept of self-identification22 came in, needless to say, in 2000,23 and
in conjunction with the introduction of secondary liability for landfill tax.24
16.3 Deregistration
Although it might not seem necessary for a taxpayer who has ceased to be accountable
for a tax to deregister – rather than just make a nil return, Parliament has seen fit to
prescribe penalties in this situation for aggregates levy25 but not landfill tax26 or
climate change levy.27
importer defaulting on the reverse VAT charge. Such operations were costing billions
of pounds. Nonetheless, for the Customs to obtain power to recover the missing tax off
innocent third parties not necessarily the immediate purchaser from the fraudster must be
rated extraordinary.
16 To get round certain administrative difficulties, Customs can designate people as deemed
utilities, under Finance Act 2000, Sched. 6, para. 151, but these are purely fiscal fictions:
see Technical Briefing No. 8 (March 2001) (available from www.hmce.gov.uk).
17 Finance Act 2000, Sched. 6, para. 40(1).
18 Ibid., Sched. 6, para. 40(2).
19 Ibid., Sched. 6, para. 55(1), which should be compared to aggregates levy’s Finance Act
2001, s.24(2) and Sched. 4, para. 1(1).
20 See Climate Change Levy (Registration and Miscellaneous Provisions) Regulations
2001, S.I. 2001 No. 7, reg. 2(1), and Aggregates Levy (Registration and Miscellaneous
Provisions) Regulations 2001, S.I. 2001 No. 4027, reg. 2(1) and (3).
21 Finance Act 2001, s.24(7).
22 In the circumstances, one might almost say ‘self-incrimination’.
23 When all the other fiscal collection agencies went over to it.
24 See Finance Act 1996, Sched. 5, para. 60(3)(a).
25 Finance Act 2001, Sched. 4, para. 3.
26 Finance Act 1996, s.47(4) merely provides for an obligation to notify. Landfill Tax
Regulations 1996, S.I. 1996 No. 1527, reg. 6 sets out a timescale for this.
27 Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 7, reg. 4, sets out a timescale for notification.
342 Environmental Taxation Law
Needless to say, where circumstances have changed, Customs must be
informed.28
16.4 The form of registration
It goes without saying that Customs are empowered to specify the format of an
application for registration or notification of registrability. However, the way in
which they use their powers can affect the way in which the tax is collected.
To start with the VAT position, there are just two forms – single and joint (and
several) registration. The former deals with both sole traders and companies. The
latter encompasses partnerships, trusts and co-ownership situations.29
The VAT position in relation to partnerships is strange, with limited partners being
ignored30 and businesses with the same composition of general partners being
amalgamated.31 This oddity comes from the fact that, for the purposes of that tax,
persons, rather than businesses, are registered, with the result that several businesses
with turnovers below the registration threshold can come within the charge to tax
where, taken separately, they would not have done.
For landfill tax, climate change levy and aggregates levy, partnerships and
unincorporated associations32 are treated in the same way.33 While there has been
no litigation on the point, there seems to be no reason why businesses should not be
treated as segregated for the purposes of these taxes. The point is not, however, an
idle one so far as aggregates levy is concerned, because the one major concession
obtained by the industry under the first consultation was the ability to move aggregate
from the extraction site to another site in the same registration without triggering a
tax charge.34
28 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 5; Climate Change Levy
(Registration and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 7, reg. 3;
Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 4027, reg. 4.
29 Value Added Tax Act 1994, s.45 is, however, confined to partnerships.
30 Saunders and Sorrell v. C & E Commrs, (1980) VATTR 53.
31 C & E Commrs v. Glassborow, [1974] STC 142.
32 For VAT, clubs are dealt with separately by Value Added Tax Act 1994, s.46(2)–(3), being
regarded as deemed traders by s.94(2).
33 By, respectively, Finance Act 1996, s.58(1)–(3), with Landfill Tax Regulations 1996, S.I.
1996 No. 1527, reg. 8, Finance Act 2000, Sched. 6, para. 117, with Climate Change Levy
(Registration and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 7, regs 12
and 13, and Finance Act 2001, Sched. 4, para. 2(4), with Aggregates Levy (Registration
and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 4027, regs 12 and 13: the
provisions relating to unincorporated association liability are based on Value Added Tax
Regulations 1995, S.I. 1995 No. 2518, reg. 8.
34 Finance Act 2001, s.19(3)(b): a dispute could reach the litigation system under s.40(1)(c),
by reason of a request for a review by a registrable party not selected for registration. See
para. 4.2.1.5 above.
Customs’ Administrative Model 343
16.5 The problem of trusts
Although the difference between a partnership and a trust fund35 is fundamental,
with one variant, Customs treat the two situations in the same way for VAT. The
difference is that each settlement36 is treated as a discrete taxpayer. Where a bank is
a sole trustee or executor, the trust’s activities are not dealt with on the bank’s own
(and, no doubt, partially exempt), registration number.
Despite VAT having been extant since 1973, proper arrangements for land held upon
either statutory or substantive trust have never been put in place.37 There are problems
which have never been sorted out satisfactorily, the underlying problem being that
some of the people Customs would prefer to have included in the registration do not
have control of the activities of the fund and, not unreasonably, feel that they should
not be included in a system of taxation which involves personal liability.
Where there is a tenant for life under the Settled Land Act 1925, the legal estate is
vested in him alone, and the function of the trustees is to give a good receipt for capital
monies. In practice, transactions are therefore treated as carried out by the tenant for
life alone, and the VAT paid to him other than as part of the price. Where, however,
there is a single income beneficiary under a trust of land, the rental income, technically,
belongs to that person as it arises,38 and Customs’ preference is for the beneficiary
and the trustees to be registered jointly. This is not generally acceptable to the income
beneficiary’s solicitor, and in practice registration by the trustees alone is agreed by
Customs. Where a unit trust is involved, Customs’ theory is that the trustee is registered
‘on behalf of the unitholders’, but this is not generally accepted as having taken place.
Where a co-ownership is involved, the official view is that no waiver of exemption39
can take place unless all join in, and that dealings in beneficial interests are outside the
scope. Although this has not been challenged in the Courts, it is very doubtful whether
this analysis is correct. Such an issue could not, however, arise in connection with
environmental taxes, because it is not possible to be a ‘semi-operator’.
In addition, for VAT, at present, some conveyancing situations have to be dealt with
by interposed registrations.40 As a general rule, this complication does not apply to
environmental taxes, because there is no concept of input tax in relation to them.41
35 For general guides to the English law of trusts, see, for example, Hanbury and Martin:
Modern Equity, ed. by Jill E. Martin, 16th edn (London: Sweet and Maxwell, 2001) and
Gary Watt, Trusts and Equity (Oxford: Oxford University Press, 2003).
36 That said, the distinctions discussed in, inter alia, Roome v. Edwards, [1981] STC 96, are
not matters with which Customs should be expected to be conversant, even at Head Office
level.
37 Value Added Tax 1994, s.51A was added in 1995, but has never been brought into effect
and, it is understood, is not now intended to be.
38 Williams v. Singer (No. 2), (1920) 7 TC 387.
39 Under Value Added Tax Act 1994, Sched. 10, paras 2–3.
40 Under Value Added Tax Act 1994, s.47.
41 But see Climate Change Levy Technical Briefing No. 8 (March 2002) (available from
www.hmce.gov.uk) in relation to interposed landlords and deemed utility directions under
Finance Act 2000, Sched. 6, para. 151, and the list released on 6 May 2003, which may
reflect this.
344 Environmental Taxation Law
There is no recognition of trusts as such in the environmental taxes legislation.42
Plainly some form of joint and several registration would be required, but whether
as partnerships or as unincorporated associations is unclear.43 While, as a general
rule, only those engaged in some form of business activity can be involved in the
registration process,44 the aggregates tax legislation was amended in 2002 to make it
clear that Government departments, local authorities and charities could come within
this concept.45 It also appears to be the case that Customs are under the impression
that landlords can be registrable as waste disposal operators,46 and in consequence
become primarily liable for landfill tax.47 Quite apart from this, it is clear that letting
property can, and usually does, constitute economic activity for the purposes of
VAT,48 and personal representatives (and sometimes trustees) do sometimes carry on
trading, especially that of farming.49
It follows that the treatment of trusts for the purposes of environmental taxes is by
no means an academic issue, and it is far from clear that Customs’ practice in relation
to VAT would necessarily be adopted by the Courts.
16.6 Groups, divisions and going concerns
Provision is made, however, for both group and divisional registration, and for
transfers of going concerns:
1 The first can be requested for Companies Act groups and have a substantive effect
because it has the effect of removing boundaries between members, who assume
joint and several liability for tax owed. Customs have therefore had to introduce
controls over the use of this medium,50 and may have resort to an extremely wide
set of anti-avoidance provisions.51 The reason for this is that exempt transactions
42 This is particularly noticeable in relation to the definition of non-resident for the purposes
of climate change levy (see Finance Act 2000, Sched. 6, para. 156).
43 The point might be of some significance for climate change levy and aggregates levy,
where Climate Change Levy (Registration and Miscellaneous Provisions) Regulations
2001, S.I. 2001 No. 7, reg. 2(2) and Aggregates Levy (Registration and Miscellaneous
Provisions) Regulations 2001, S.I. 2001 No. 4027, reg. 2(3) require a partner to fill in
Forms CCL 2 and AL 2 as well as Forms CCL 1 and AL 1. By way of contrast, it should
be noted that, for landfill tax, only the partnership files particulars under Landfill Tax
Regulations 1996, S.I. 1996 No. 1527, reg. 4(3).
44 See Finance Act 2001, s.22(2), in relation to aggregates levy.
45 See the addition to Finance Act 2001, s.22(2).
46 Although Environmental Protection Act 1990, s.35(2)(a) is, in terms, clearly inconsistent
with this interpretation. See para. 6.3.2.1 above.
47 See Landfill Tax Briefing (7 August 2000).
48 Commission of the European Communities v. France, C–50/87, [1989] 1 CMLR 505.
49 In relation to which climate change agreements may be relevant: see Finance Act 2000,
Sched. 6, para. 51.
50 Value Added Tax Act 1994, ss.43A, 43AA and 43B.
51 Ibid., s.43C, Sched. 9A.
Customs’ Administrative Model 345
generate breaks in the transparency chain which is of the essence to the structure
of this European tax up until the stage of supply to the final consumer. Such
considerations do not affect environmental taxes, for which the facility has been
retained for purely administrative reasons,52 Customs having no power, under
regulations made since the issue was raised in Parliament, to add companies to a
group of their own motion.53
2 Bodies corporate may have separate divisional registrations. The existence of
these has no effect on liability, however. Such registrations are also permissible
for landfill tax54 and aggregates levy.55
3 For VAT, clubs, insolvencies and estates in the course of administration are dealt
with by regulations made under the same statutory provision.56 For landfill tax,
climate change levy and aggregates levy, death and incapacity57 and insolvency58
are dealt with separately.
4 For VAT, a transfer of going concern is treated as a non-event, and such treatment
can be compulsory. It is, furthermore, sometimes extremely difficult to ascertain
whether such a state of affairs exists at the time of the tax point. Where such a state
of affairs exists, it is neither obligatory nor desirable59 for the transferee to take
over the transferor’s registration number. The same pertains for environmental
taxes.60
52 By, respectively, Finance Act 1996, s.59, Finance Act 2000, Sched. 6, para. 116, with
Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001,
S.I. 2001 No. 7, regs 8–11, and Finance Act 2001, s.35, Sched. 4, para. 2(2), and Sched.
9, with Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001,
S.I. 2001 No. 4027, regs 8–11.
53 Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 7, regs 8–9 and Aggregates Levy (Registration and Miscellaneous Provisions)
Regulations 2001, S.I. 2001 No. 4027, regs 8–9.
54 Finance Act 1996, s.58(3).
55 Finance Act 2001, Sched. 4, para. 2(3).
56 Value Added Tax Act 1994, s.46.
57 By, respectively, Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 9, Finance
Act 2000, Sched. 6, para. 118 with Climate Change Levy (General) Regulations 2001,
S.I. 2001 No. 838, regs 55 and 57, and Finance Act 2001, s.38, with Aggregates Levy
(General) Regulations, S.I. 2002 No. 761, regs 34 and 36.
58 By, respectively, Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 9, Finance
Act 2000, Sched. 6, para. 120 with Climate Change Levy (General) Regulations 2001,
S.I. 2001 No. 838, regs 56 and 57, and Finance Act 2001, s.37, with Aggregates Levy
(General) Regulations, S.I. 2002 No. 761, reg. 35.
59 Because liability for penalties etc is transferred with the registration (see Ponsonby v. C &
E Commrs, [1988] STC 28).
60 By, respectively, Finance Act 1996, s.58(5), with Landfill Tax Regulations 1996, S.I.
1996 No. 1527, reg. 7, Finance Act 2000, Sched. 6, para. 119, with Climate Change Levy
(General) Regulations 2001, S.I. 2001 No. 838, reg. 59, and Finance Act 2001, s.39, with
Aggregates Levy (General) Regulations, S.I. 2002 No. 761, reg. 37.
346 Environmental Taxation Law
16.7 Non-UK residents
Where an overseas taxpayer is involved, the position is far fairer for VAT than for
environmental taxes, where a formula devised for the purposes of air passenger
duty61 and insurance premium tax62 and adapted for the purposes of liability on
offshore life policies63 has been followed.
Although, for VAT, while a person who accepts the position of tax representative
is personally liable for all the VAT owed by his principal,64 irrespective of whether
the relevant transactions were under his control, for both climate change levy65
and aggregates levy,66 it is (theoretically) possible for one to be nominated as an
agent by Customs without having any connection with the business, let alone the
ability to comply with the administrative and financial obligations of registration.
When pressed on this extraordinary situation during the Committee Stage of Finance
Bill 2000,67 the Financial Secretary to the Treasury said that the taxpayer had two
safeguards – the review procedures68 and judicial review.69
For climate change levy, a non-resident must notify Customs within 30 days.70
Customs may then either ‘require or permit’ the non-resident to appoint a resident tax
representative and oblige him the non-resident to request them to approve the person
nominated,71 or a replacement.72 They may also require such a replacement.73 Where
the non-resident fails to comply, Customs may direct the nomination of a person of
their own choice,74 who is both ‘eligible to act’75 (which means being resident in the
United Kingdom)76 and ‘suitable in all the circumstances to be the tax representative
for the relevant non-resident taxpayer’.77 Such a person is not permitted to withdraw
from such appointment.78
61 Finance Act 1994, s.35(1)(a), albeit not in such outrageous terms!
62 It should be noted, however, that Finance Act 1994, s. 57(11) specifies that the person in
question should have been the agent of the insurer!
63 In the inserted Income and Corporation Taxes Act 1988, s.552A(5)(g).
64 Value Added Tax Act 1994, s.48.
65 Finance Act 2000, Sched. 6, paras 114 and 115, see also Climate Change Levy (Registration
and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 7, regs 14–19.
66 Finance Act 2001, ss.33–34, see also Aggregates Levy (Registration and Miscellaneous
Provisions) Regulations 2001, S.I. 2001, No. 4027, regs 14–19.
67 Standing Committee H, 18 May 2000 (Mr Stephen Timms, MP).
68 Which normally precede an appeal to a tribunal, the latter not being available in this case.
69 See para. 4.2.1.5 above.
70 Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 7, reg. 14(2),(3).
71 Ibid., reg. 14(4),(6).
72 Ibid., reg. 15(1),(3).
73 Ibid., reg. 16.
74 Ibid., reg. 17(1),(2),(3).
75 Ibid., S.I. 2001 No. 7, reg. 17(4)(a).
76 Ibid., reg. 14(4)(a).
77 Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001 No. 7, reg. 17(4)(b).
78 Ibid., reg. 18(2)(b).
Customs’ Administrative Model 347
There are similar provisions for aggregates levy. The non-resident must notify
Customs within 30 days.79 Customs require or permit the appointment of a resident
tax representative and oblige the non-resident to request their approval of the
nominee,80 or his replacement.81 They may also request his replacement.82 If the
non-resident does not comply, they may select a tax representative,83 who is both
‘eligible’84 and ‘suitable in all the circumstances’,85 and who may not resign.86
Both formulae are, to put it mildly, ‘comprehensive’ from the point of view of HM
Government, but fail to provide either a statutory right of indemnity or a statutory
right of disclosure to the Customs-nominated ‘representative’.87
There are additional complications where climate change levy is concerned. While
the supplier of energy is normally the registrable party, where that person is both
non-resident88 and not a utility89 the recipient has to register.90 It seems therefore
that the very wide powers of selection given to Customs in relation to that tax can
only apply where either:
a. the utility is non-resident; or
b. the supplier is not a utility and is outside the stretched definition of residence and
the recipient is non-resident under the same definition.
16.8 Site registration
For the purposes of aggregates levy, Customs are able to fix the boundaries of a site.91
When registering, applicants have, therefore, to submit site details.92 Although Customs
79 Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I.
2001, No. 4027, reg. 14(2),(3).
80 Ibid., reg. 14(4),(6).
81 Ibid., reg. 15(1).
82 Ibid., reg. 16.
83 Ibid., reg. 17(1),(2),(3).
84 Ibid., reg. 17(4)(a), that is, resident in the UK (see reg. 14(4)(a)).
85 Ibid., reg. 17(4)(b).
86 Ibid., reg. 18(2)(b).
87 Neither follows from the fact that the person in question is stated to be ‘entitled to act’
under Finance Act 2000, Sched. 6, para. 115(1) or Finance Act 2001, s.34(1).
88 Albeit restricted by reference to Finance Act 2000, Sched. 6, para. 156, which treats a
person as resident where it has an established place of business in the UK, or has a usual
place of residence in the UK, or is a firm or unincorporated body which has amongst
its partners or members at least one individual with a usual place of residence in the
UK. (It should be noted that the third criterion does not apply to trustees, giving rise to
considerable difficulty to purchasers of energy.)
89 As defined in Finance Act 2000, Sched. 6, para. 150.
90 Finance Act 2000, Sched. 6, para. 40(2). Value Added Tax Act 1994, s.9A introduces a
reverse supply mechanism for VAT where a VAT-registered trader imports electricity or
natural gas from a non-UK person.
91 Finance Act 2001, s.24(7).
92 On Form AL 1A: see Aggregates Levy (Registration and Miscellaneous Provisions)
Regulations 2001, S.I. 2001, No. 4027, reg. 2(6).
348 Environmental Taxation Law
will normally accept this description, they may override it. The Financial Secretary to
the Treasury justified this to the Committee of the whole House as follows:
Customs & Excise is given powers to decide the boundaries of any premises for registration
purposes to safeguard against avoidance of the levy by businesses that might otherwise
locate taxable activity outside previously agreed boundaries.93
Presumably an adjoining landowner aggrieved by such a decision could have
resort to judicial review, even if the review procedures were inoperable,94 because
registrability could be in dispute. The issue could be relevant in connection with
construction activity, not least in the context of the concept of occupation being a
qualification for joint and several liability.95 Concern on this front has, however, been
reduced following the receipt of confirmation from Customs to two representative
bodies in April 2001 that the concept of occupation in this context must involve
physical presence.96
Site registration is also required for landfill tax, but only where a registered taxpayer
has more than one site.97
16.9 The credit concept
It is of the essence to VAT that it does not matter how many traders contribute inputs
to the make-up of the product or service sold to the final consumer. The underlying
theory is known as the neutrality principle. In order to achieve this, the price each
trader pays to his own suppliers is credited against the price he receives for the
product he sells on, and on which he has to account for VAT. For the system to work,
each trader receives from and delivers to other traders an invoice specifying the VAT
element of the transaction. As a general rule, only if a trader receives such an invoice
can he claim a credit for the VAT paid to his supplier.
It follows that invoicing is of the essence to VAT.98 This is especially important
because the VAT system is not fully transparent, breaks in the recovery chain are
created by both non-business user and also business outputs to which VAT is not
charged (known as exempt supplies). This complication can create difficulties in the
calculation of input recoveries, especially where overheads are concerned.
93 HC, 23 April 2001, col 84.
94 In theory Finance Act 2001, s.40(1)(c) enables a review, and s.41(1)(a) an appeal to a
tribunal, to take place in relation to the registration of premises.
95 Either under Finance Act 2001, s.22(1)(e) or through s.22(1)(a),(b),(d) or (f), by reason of
s.21(1)(a).
96 It seems that they may also take that view in relation to the interpretation of Environmental
Protection Act 1990, s.35(2)(a), and the position of landlords (who do not have legal
occupation), and in relation to which they are generally believed to be wrong.
97 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 4(2).
98 Where an invoice is required, clearly it has to contain a minimum amount of information:
see Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 37, and (for the climate
change levy equivalent) Finance Act 2000, Sched. 6, paras 27(5), 28(4) and 143(2).
Customs’ Administrative Model 349
The factor just discussed is not present in environmental taxes. There are, however,
circumstances in which credits can be generated. One of these, bad debt relief, is
dealt with in the next para. As a general rule, credits can only be generated where
an invoice is issued.99 But, unless credits are in point, the issue of invoices is not
obligatory.100 This gives rise to potential problems in relation to supplies received
from non-utilities for the purposes of climate change levy,101 since the recipient102
will be responsible for accounting for the tax if his supplier is non-resident and,
unless a climate change levy accounting document (which is what an invoice is
called in the context) is issued, he will be put on enquiry as to the residential status of
the supplier, a task not assisted by the extra-ordinary definition of non-resident which
applies for the purposes of that tax.103
Credits can arise for landfill tax,104 but generally only in relation to bad debts105 or
sums paid to qualifying environmental bodies.106
The purpose of accounting documents and invoices in climate change levy is to
fix the tax point.107 Separate provision is made, however, for the timeous108 (or
early)109 and late110 issue of such documents.111 The accounting document system
does not apply, however, where a special utility scheme is in force.112
Where a relevant commodity other than electricity or gas is made by a non-resident,
the supply is treated as taking place on its delivery (or earlier making available) to the
UK recipient unless that recipient elects for it to be deferred to the date of an election
made within 14 days.113
Credits and repayments114 are made in the following circumstances:115
99 It has, however, been found possible to dispense with them for the purposes of aggregates
levy, see Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, regs 10(i) and
(j), 12, 13.
100 Just to make things complicated, Finance Act 2000, Sched. 6, paras 31 and 32 use the
word invoice for supplies of other than electricity and gas, for which the equivalent is
called a climate change levy accounting document!
101 Where an accounting document only has to be issued in the circumstances specified in
regulations (which powers have not been exercised in this respect) (Finance Act 2000,
Sched. 6, para. 143(1)).
102 Finance Act 2000, Sched. 6, para. 40(2).
103 Ibid., Sched. 6, para. 156.
104 Finance Act 1996, s.51; Landfill Tax Regulations 1996, S.I. 1996 No. 1527, regs 17–20.
105 Finance Act 1996, s.52.
106 Ibid., s.53.
107 Finance Act 2000, Sched. 6, paras 26(2),30(2).
108 Ibid., Sched. 6, para. 27.
109 Ibid., Sched. 6, para. 31.
110 Ibid., Sched. 6, paras 28, 32.
111 For this a system of supplier certificates is prescribed by Climate Change Levy (General)
Regulations 2001, S.I. 2001 No. 838, regs 34–40 and Schedule 1.
112 Finance Act 2000, Sched. 6, paras 26(4),29; Climate Change Levy (General) Regulations
2001, S.I. 2001 No. 838, reg. 54.
113 Finance Act 2000, Sched. 6, para. 33(2),(4).
114 Ibid., Sched. 6, para. 102.
115 Ibid., Sched. 6, para. 62(1).
35,0 Environmental Taxation Law
1 a subsequent change in circumstances which, had they existed at the time of
supply, would have meant that it was not taxable;
2 after a taxable supply has been made on that basis, it is determined that it was to
no extent such a supply;
3 after a taxable supply has been made on the basis that it is neither a half-rate nor
a reduced-rate supply, it was determined that it was to any extent such a supply;
4 levy is accounted for on a half-rate supply as if it were neither a half-rate supply
nor a reduced-rate supply;
5 after a charge has arisen for the supply of a taxable commodity to a person who
uses it in producing taxable commodities primarily or for his own consumption,
that recipient makes supplies of any of the resulting commodities;
6 the bad debt provisions apply; or
7 the making of a taxable supply gives rise to a double charge.116
For aggregates levy, credits can be generated where aggregate is:117
1 exported;118 or
2 has an exempt process applied to it; or
3 is used in a prescribed industrial or agricultural process;119 or
4 is disposed of in a manner not constituting use for construction; or
5 where the bad debt provisions apply.
To justify such a credit, documentation must be retained.120
Where a taxpayer issues an invoice showing tax which is not in fact chargeable, that
tax is nonetheless payable to the Crown.121
16.10 Bad debt relief
Relief for bad debts under VAT has taken some time to read the situation under which
there is an add-back if the invoice remains unpaid after six months. Relief is limited
to the VAT proportion of what is unpaid, rather than a VAT-LIFO basis operated.
This has given rise to problems for some taxpayers. On the other hand, the scheme
has not been without its problems for Customs. At one stage the use of interposed
registrations122 (which are, more often than not, created at the request of Customs)
gave rise at one stage to double deductions being sought, frequently as a result of
an administrative muddle, but sometimes by design, before the rules were changed.
116 Ibid., Sched. 6, para. 21.
117 Finance Act 2001, s.30(1).
118 This is the export side of the BTA (see paras 1.2.1.2 and 8.4.5.1 above).
119 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, Sched.: reformulated
with effect from 1 April 2003 – see Business Brief 29/02 (November 14, 2002).
120 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, regs 10(i) and (j).
121 Value Added Tax Act 1994, Sched. 11, para. 5(2),(3), Finance Act 1996, Sched. 5, para.
44(1)(b).
122 Under Value Added Tax Act 1994, s.47.
Customs’ Administrative Model 351
More recently there has been the problem of how to enforce an input tax add-back by
defaulting business customers.
All of the above seems to have made Customs wary of debt arrangements for
environmental taxes, even though Parliament has provided for them in all cases.123
For landfill tax, the requirements include payment of the tax, invoicing within 14
days, the issue (and retention of a copy) of an invoice, the writing off of the debt,
a year having elapsed and the recording of the claim.124 A claim may not be made,
however, where the transaction is with a connected person.125
For climate change levy, the conditions for relief include the issue of a climate
change levy accounting document, the writing off of the debt and six months having
elapsed.126 In the case of this particular tax, provision is made for this relief to apply
to transactions for non-monetary consideration.127 Here again, a claim may not be
made for a transaction with a connected person.128
For aggregates levy, relief is limited to situations in which a sale or a removal from
a site are involved.129 No relief is available where the chargeable event is mixture
or use for construction purposes. Relief is also denied where the counterparty is a
connected person.130 It is also restricted to circumstances in which the customer has
become insolvent or gone into liquidation.131
16.11 Transitional provisions
For landfill tax, adjustments may fall to be made in three sets of circumstances:
1 where, after a contract has been entered into, there is a change in the rate of tax,
unless the contract provides for no adjustment to be made;132
2 where material undergoes a landfill disposal under a construction contract entered
into before 30 November 1994, unless the contract provides for no adjustment to
be made;133 and
3 where a turnover rent arises under a contract entered into before 30 November
123 Finance Act 1996, s.52, Finance Act 2000, Sched. 6, para. 62(1)(f), Finance Act 2001,
s.30(1)(e).
124 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, regs 23(b), reg. 23(e)(i), reg. 23(d),
reg. 23(c), reg. 25(a) and reg. 26 respectively.
125 Ibid., reg. 23(a).
126 Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838, reg. 10(1)(c), reg.
10(1)(d) and reg. 10(1)(e) respectively.
127 Ibid., reg. 10(7).
128 Ibid., reg. 10(1)(b),(2) specifying Income and Corporation Taxes Act 1988, s.839 as
relevant in this context.
129 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, reg. 12(1)(a).
130 Ibid., reg. 12(1)(c), (2) specifying Income and Corporation Taxes Act 1988, s.839 as
relevant in this context.
131 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 761, reg. 12(1)(e).
132 Finance Act 1996, Sched. 5, para. 45.
133 Ibid., Sched. 5, para. 46.
352 Environmental Taxation Law
1994 and it can reasonably be expected that landfill tax would have been ignored
in calculating such turnover.134
For climate change levy, where a contract has been entered into before 1 April 2001,
the supplier may change the price to include the levy.135 Thereafter changes in the
amount of the levy are taken into account, whatever the terms of the contract.136
For aggregates levy, only two circumstances are provided for:
1 where a contract has been entered into before 1 April 2002, for the supply of a
quantity of aggregate;137 and
2 where a turnover rent is paid under an agreement made before 1 April 2002, and
the circumstances are such that it can reasonably be expected that aggregates
levy would have been ignored in calculating such turnover.138
16.12 Record keeping and inspection
As with VAT, environmental taxes are normally accounted for quarterly.139 Where
a climate change levy payer has an annual liability of under £2,000, he is given the
option of annual accounting.140
In order to achieve compliance, the taxpayer is placed under a duty to make and
retain records and produce them for inspection,141 and Customs are given power to
enter and search for, copy and remove documents, and take samples.142
16.13 Disputes
Where Customs and the taxpayer do not agree on the sum due, Customs issue either an
assessment or a ruling and the taxpayer has the right to ask for this to be reviewed.143 In
134 Ibid., Sched. 5, para. 47.
135 Finance Act 2000, Sched. 6, para. 142(1),(2).
136 Ibid., Sched. 6, para. 142(3)–(5).
137 Finance Act 2001, s.43(1).
138 Ibid., s.43(2).
139 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 2(1); Climate Change Levy
(General) Regulations 2001, S.I. 2001 No. 838, reg. 3; Aggregates Levy (General)
Regulations 2002, S.I. 2002 No. 761, reg. 5.
140 Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838, regs 6A–6G.
141 Finance Act 1996, Sched. 5, paras 2–3; Finance Act 2000, Sched. 6, paras 125–7; Finance
Act 2001, Sched. 7, paras 2–4.
142 Finance Act 1996, Sched. 5, paras 4–5,7–10; Finance Act 2000, Sched. 6, paras 5–10;
Finance Act 2001, Sched. 7, paras 5–10.
143 Finance Act 1996, s.54, Sched. 5, para. 59; Finance Act 2000, Sched. 6, para. 121; Finance
Act 2001, s.40: but it should be noted that value added tax reviews are non-statutory and
that in relation to environmental taxes this means that the costs of any successful appeal
to a tribunal from a review only run from after the completion of the review process (see
C & E Commrs v. Dave, [2002] EWHC 969 (Ch), [2002] STC 900).
Customs’ Administrative Model 353
most cases, an appeal may then be lodged with a tribunal.144 Appeals from tribunals
lie to the Courts on points of law (see para. 4.2.1.5 above).
In some cases, refunds from Customs carry interest.145 In the case of landfill tax146
and aggregates levy,147 however, refunds are restricted by the doctrine of unjust
enrichment.
16.14 Irregularities
Where tax is overdue, it carries interest.148
Where tax is overdue regularly or returns are made incorrectly, Customs are able to
levy civil penalties (which carry interest on a different basis), subject to control by
the tribunals.149
In the case of fraudulent evasion, criminal proceedings can be taken.150
16.15 Enforcement
Customs are given wide powers, including arrest,151 distress and diligence,152 and
requiring the provision of security.153
These must, furthermore, be read against the historical background of the
Commissioners’ original functions being directed substantially against smuggling,
leaving them with greater powers of entry and detention without warrant than the
police!154
Where customs and excise duties are concerned, they also have the power to seize
vehicles and other objects within which contraband is carried or concealed.155 An
144 Finance Act 1996, s.55; Finance Act 2000, Sched. 6, para. 122; Finance Act 2001, s.41.
145 Finance Act 1996, Sched. 5, para. 29; Finance Act 2000, Sched. 6, para. 66; Finance Act
2001, Sched. 8, para. 2.
146 Finance Act 1997, Sched. 5, paras 1–4.
147 Finance Act 2001, s.32(2)–(4).
148 Finance Act 1996, Sched. 5, paras 26–7; Finance Act 2000, Sched. 6, paras 70–71, 81–9;
Finance Act 2001, Sched. 8, paras 6–7.
149 Finance Act 1996, Sched. 5, paras 18–23; Finance Act 2000, Sched. 6, paras 98–113;
Finance Act 2001, s.46, Sched. 6, paras 7–9.
150 Finance Act 1996, Sched. 5, paras 15–17; Finance Act 2000, Sched. 6, paras 92–5; Finance
Act 2001, Sched. 6, paras 1–4.
151 Finance Act 2000, Sched. 6, para. 97; Finance Act 1996, Sched. 5, para. 6; Finance Act
2001, Sched. 6, para. 6.
152 inance Act 1997, ss.51–2; Finance Act 2000, Sched. 6, para. 90; Finance Act 2001, Sched.
5, paras 14–16.
153 Finance Act 1996, Sched. 5, para. 31; Finance Act 2000, Sched. 6, para. 139; Finance Act
2001, s.26.
154 Customs and Excise Management Act 1979, ss. 138, 139: their attitude has also come in
for criticism recently, see para. 22.1 below.
155 Customs and Excise Management Act 1979, s.141(1).
354 Environmental Taxation Law
appeal can be made to the Courts in condemnation proceedings,156 or, if the seizure
is not contested, application made to the Commissioners for the exercise of their
discretion to restore on terms.157 A decision not to do so may be reviewed internally,
upon application. If the taxpayer is dissatisfied with that, there is the right of appeal
to the VAT and Duties Tribunal, but only on a supervisory158 basis and with the best
outcome only the ordering of a new review.159
16.16 Problems for landowners
Finance Acts 2000 and 2001 contained a number of ill-thought out provisions imposing
considerable potential burdens on landowners, especially on those who let property
some years ago. Professional advisers would have needed a crystal ball to counter
legislation which could not then have been within anyone’s contemplation.160
The secondary liability provisions applicable to landfill tax provide a striking
example. These were added to Part VIII of Sched. 2 to the Finance Act 1995 by
Finance Act 2000. In the Committee Stage of the Finance Bill 2000, the provisions
were not even debated. Even so, the ‘controller’ who can come within this concept
(and thus become, in effect, an unsecured guarantor of somebody else’s turnover tax
liability) is somebody who determines, or is entitled to determine, what disposals
of material, if any, may be made.161 While most post-1990 leases will not give the
landlord overriding control covenants,162 leases drafted before that date would be
likely to do so, in order to preclude the dumping of dangerous waste. Such landlords
could, therefore, have become personally liable following this change in the law.
Their position has not been made easier by the example given by Customs to the
House of Commons in the Explanatory Notes to this part of the Finance Bill,163 and,
astonishingly in view of the reaction to those, repeated in a Landfill Tax Briefing
issued on 7 August 2000.164 This example of the situation giving rise to concern
was one in which a farmer had let a site to an operator and the farmer held the waste
disposal licence. Bearing in mind that a tenant has legal occupation of the land, this
situation was not one which should have arisen under Environmental Protection Act
1990, s.35(2)(a).165
The problem with landfill tax persisted in relation to the aggregates levy legislation,
which had been issued in draft at the time of Finance Bill 2000, and which was placed
156 Ibid., Sched. 3. See para. 4.2.1.5 above.
157 Ibid., s.152(b).
158 That is, that the reviewer’s decision was unreasonable in the sense of having either applied
the law wrongly or taken irrelevant material into account.
159 Finance Act 1994, s.16(4).
160 See de Souza, Taxation, 21 March 2002, pp. 609–10.
161 Finance Act 1996, Sched. 5, para. 48(1).
162 Because of the fear of overlapping with the responsibilities of what is now the Environment
Agency (see para. 4.2.1.3 above).
163 Explanatory Notes, para. 24.
164 Ibid., para. 1. See de Souza, Taxation, 7 September 2000, p. 600.
165 As enacted. See para. 6.3.2.1 above.
Customs’ Administrative Model 355
before Parliament under a shortened scrutiny procedure in order to enable the 2001
General Election to be held in May.166 No points of detail were debated, the House of
Commons’ available time being, rather understandably, directed to the highly dubious
economic and environmental justifications put forward for the very existence of the
tax. The problem is, yet again, that of occupation,167 the point being of considerable
significance because building sites are involved and, for obvious reasons, developers
who are to obtain long leases are let into possession under licences, the lease being
granted only when the landlords’ surveyor is satisfied that they have been erected in
accordance with the agreed specification. In such circumstances, legal occupation is
retained by the landlord.
The issue could also arise, however, in relation to quarries where the taxpayer’s
accountant has sought to avoid liability to income tax under Income and Corporation
Taxes Act 1988, s.34(1) by instructing the solicitor to draw the agreement up as a
licence, rather than a lease.168
Concern had also been expressed at the prospect of landowner liability under
Finance Act 2001, s.22(1)(e) or (f), where a mixing process carried out by another
was not such as to require the exclusive possession which the grant of a lease would
create and resulted in the production of other products. The only one identified at the
outset was coated limestone, clearly not one to be created in such circumstances, but
developments in technology could easily result in others which might.169
No definition of ‘occupation’ was inserted in the statute. The question therefore
arose as to whether the rating concept of occupier was to apply instead – under this the
person actually in possession is liable.170 Uncertainty on this persisted until after the
registration period for the tax had expired, Customs telling a representative body171
166 The consultation process in relation to the draft had, however, been extremely drawn out.
The first of these appears to have been produced at a time when a value (rather than weight)
basis of taxation was Customs’ preferred option. Had such a basis been practicable (and
it was found not to be) it is possible that a multiple accounting party arrangement would
have been somewhat less unreasonable in principle. In the events which have happened,
Customs take the view that the wide range of potential registrables is merely there for the
protection of the revenue, and that in practice the one with real control over the operation
has to be picked as a sole registered taxpayer, with the duties attributed to registrables
confined to him alone. While the former must be regarded as envisaged by the statute, a
‘guarantor’ liability situation for the other can clearly arise under it.
167 Finance Act 2001, ss.21(1)(a), 22(1)(e).
168 It also needs to be noted, in this context, that in an old rating case, Andrews v. Hereford
RDC, (1964) 10 RRC 1, a farmer was held to be the rateable occupier where the extractor
appears to have been granted some form of non-exclusive licence. But this case was,
however, doubted in Re Briant Colour Printing Co Ltd, [1977] 1 WLR 942, and (in any
event) subsequent health and safety legislation would have made it extremely unlikely
that those particular circumstances would be repeated.
169 Jeremy de Souza, (1999) 63 Conv 7.
170 Re Briant Colour Printing Co Ltd, [1977] 1 WLR 942, John Laing & Son Ltd v. Kingswood
Area Assessment Committee, [1949] 1 KB 344, at 350, London County Council v. Williams,
[1957] AC 362, Ratford v. Northavon District Council, [1987] 1 QB 357, at 377H, Verrall
v. Hackney LBC, [1983] 1 QB 445, at 462E.
171 The Country Land and Business Association on 15 April 2002.
356 Environmental Taxation Law
that the word should be interpreted in its literal sense as physical occupation of the
site.172 Nevertheless, this issue remains open, unless and until a Court has a chance to
adjudicate on the matter. The seriousness of the position is that if a landowner comes
within the concept, he becomes, in effect, a guarantor of the operator’s turnover173
tax, that is, in this case, landfill tax.174
Unfortunately, these are not the only areas in which the hazards to landlords have
not been properly thought out. Climate change levy, and the attendant UK ETS,
contains provisions which could create problems for them:
1 where a tenant becomes insolvent, and had been a party to a climate change
agreement,175 the landlord does not automatically succeed to it. Indeed, as a
non-member of the former tenant’s trade association (which will have entered
into the umbrella agreement),176 it is likely to be difficult to accede because the
main agreement will have been made by that association. Negotiating a stand
alone agreement is likely to be difficult. Power supplies could therefore become
liable to the full rate of levy.177
2 Where a former tenant has been receiving energy supplies from a non-resident
non-utility, it will have had to register and account for the levy as the recipient
of supplies liable to the levy.178 This is unlikely to be known to the landlord and,
there being no obligation upon suppliers accounting for the levy to deliver an
invoice to their customers, may not immediately be apparent.
3 With regard to the interface between climate change levy and the UK ETS, when
the UK ETS’s rules were finalised on 1 February 2002, the crucial concept of
change of operation was defined by reference to the concept of management
control, as set out in the proposals published on 14 August 2001. Under these it
seemed that, in some cases, landlords could find themselves within this concept,
for instance the following formulation:
Alternatively, a Direct Participant could exercise dominant influence over the emissions
from a source by virtue of the terms and conditions contained in the contract governing the
operation of the source.179
This could well prove embarrassing for all parties if this was first discovered (as
indeed seems more likely than not) during due diligence for a take-over.
172 The subsequent decision of a tribunal on the basis of VAT liability under Value Added Tax
Act 1994, Sched. 10, para. 3A(7)(a), in Brambletye School Trust Ltd v. C & E Commrs,
LON/00/458, might, however, be cited in favour of this view.
173 Rather than one based on profits, and therefore a much more onerous obligation.
174 Finance Act 2001, s.22(3). Furthermore, the transitional provisions take no account of the
possibility that he might, indeed, even be selected for registration.
175 Finance Act 2000, Sched. 6, para. 50. See para. 14.6 above.
176 Ibid., para. 48. See para. 14.6 above.
177 Ibid., para. 49(2).
178 Ibid., Sched. 6, para. 40(2).
179 Ibid., Annex A, para. A4.
Customs’ Administrative Model 357
4 There are understood to be some situations in which the terms of the pre-2000
lease may not permit the landlord to pass on the levy element of his disbursements
to the tenants.180 In such circumstances, legal advice must clearly be taken as to
the situation and the options available to the landlord to overcome it.
5 There is, furthermore, a problem that Customs acknowledge181 in relation to the
operation of climate change levy. The tax is applied to supplies from suppliers to
businesses.182 If the supply is to the landlord of premises in multiple occupation,
the following situations could arise:
a. none of the occupiers is entitled to exemption, in which case no problem
arises, because the tax is due and has just been paid one step up the line;
b. all of the occupiers are entitled to exemption, in which case the landlord has
to certify this to the supplier;183
c. there is a mixed situation, in which case one of the following courses of
action must be adopted:
i. arrangements are made for the supplier to make direct supplies to the
‘odd ones out’; or
ii. Customs are requested to register the landlord as a deemed utility,184 so
that sub-certification can take place185 – Customs have, however, very
fairly made the point that landlords will incur not only administrative
costs, but also recovery delays if they agree to do this;186 or
iii. landlord and tenants come to an agreement as to how the cost of the levy
is borne between them; or
iv. things will have to be left as they are and the appropriate proportion of
the levy collected from each tenant, irrespective of his personal ‘direct’
exemption position.
180 Kennedy and McClenaghan, The Tax Journal, 21 May 2001, p. 6.
181 Technical Briefing No. 8 (March 2002) (available from www.hmce.gov.uk).
182 See para. 14.2 above.
183 Although he cannot where direct certification to the supplier by the end-user has been
specified in Finance Act 2000, Sched. 6, that is, in relation to non-fuel or horticultural
use.
184 Seemingly under Finance Act 2000, Sched. 6, para. 27(3), in which case it is not possible to
claim renewables or CHP relief (see paras 19(1)(a),20A(1)(a)). No such persons appeared
on the list of deemed utilities published by Customs in May 2002 on www.hmce.gov.uk.
185 Although this is not normally done retrospectively: Technical Briefing No. 9 (March
2002) (available from www.hmce.gov.uk).
186 Technical Briefing No. 8 (March 2002) (available from www.hmce.gov.uk): as to the
subsequent uptake of which, see the revised of deemed utilities list issued by Customs on
6 May 2003 (the list for the time being being available from www.hmce.gov.uk).
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Division 3
Local Levies
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Chapter 17
Workplace Parking Levies
17.1 Introduction
The concept of workplace parking levy was introduced in the legislation setting up the
new Mayor and Assembly for Greater London.1 Similar powers were subsequently
given to other local authorities in England and Wales,2 and this legislation also
amended the earlier provisions relating to London.3
However, whereas in London, it was road user charging which hit the headlines, the
government seems to have intended workplace parking charges to be pioneered outside
London. During the passage of the legislation, the Department of the Environment,
Transport and the Regions (‘the DETR’)4 appears first to have tried, through an
approach to Hampshire County Council, to obtain the consent of Winchester City
Council to act as guinea pig, based apparently on the fact that the Council controlled
most of the inner city parking and that a park-and-ride scheme (albeit one under
which most of the traffic had to pass through the City to get to it) was in place.5 This
did not prove to be acceptable to the City Council.6
The government next turned its attention to the West Midlands,7 but ran into
opposition from Coventry, Solihull and Walsall.8 Nottingham City Council seems
to have been quite enthusiastic, however, proposing a daily charge of 70p, but ran
into heavy opposition from local employers, even though Boots plc (and others)9
intended to pass the cost on to the employee.10
Two years after the passage of the relevant legislation no such scheme was in
operation. Nottingham still had the possibility of a charge of £150 per annum on the
agenda, however, to start in April 2005.
1 Greater London Authority Act 1999, s.296 and Sched. 24.
2 Transport Act 2000, ss.178–90.
3 Ibid., Sched. 13, paras 19–43.
4 See para. 4.2.1.2(1) above.
5 South Hants Weekly News, 11 March 1999, p. 6.
6 Ibid., 28 March 1999, p. 12.
7 Jowit, Financial Times, 20 May 1999, p. 10.
8 Guthrie, Financial Times, 25 May 2000, p. 7.
9 That is, the landowners, from whom the charge would be collected.
10 Ward, Evening Post, 22 January 2000, pp. 1–2. By 2004, the proposal had become one for
£150 p.a. per parking space over and above an exempt maximum of ten, expected to rise
to £300 over a decade. It appears that Councillors thought that this would be politically
acceptable because the vast majority of commuters lived outside that local authority
district’s boundaries (see Guthrie, Financial Times, 14–15 February 2004, p. 3).
362 Environmental Taxation Law
17.2 Changes in planning practice
It is indicative of the previous culture (of encouraging the provision of office
parking) that, from 1988, car parking facilities were provided for employees at their
employer’s expense should have been free of income tax.11 (Somewhat surprisingly,
only since 1999, following the point being taken on a PAYE inspection of a FTSE
100 company’s main premises, has this been extended to the parking of motor cycles
and bicycles.)12
In 1997, the incoming Labour Government had changed the general planning
guidance from one under which developers were expected to provide adequate offstreet
parking to one in which this was discouraged in order to reduce private car
commuting in favour of the use of public transport.
Indeed in 1999, while the relevant legislation was still before Parliament, it was
reported that a charity carrying out a mixed residential and retail development in
central Winchester with no on-site parking (and for which it had been made clear
that residential parking permits would not be made available by the City Council)
had been asked by Hampshire County Council to pay for 19 car parking spaces in the
out-of-town park-and-ride at a cost of £3,300 per space.13
17.3 Double payment
Transport Act 2000 contained no provision for the reduction of the rateable value
of premises subject to workplace parking levy, despite the fact that there was recent
authority making it clear that the availability of parking had to be taken into account
in arriving at rateable value.14
Also absent was a provision permitting tenants who had to pay this levy to apply
to the court for a downward revision of their rents. Three factors should be noted in
this context:
1 rateable value was based on the open market rental, so that the identification
of the attribution of the former to car parking as such was clear evidence of its
availability being reflected in rental values;
2 until the late 1990s, it was common practice for new office developments to be
let on the basis of a 25 year lease with upwards-only rent reviews; and
3 between the mid-1970s and 1997, local planning authorities normally only gave
permission to developers of such accommodation.
11 Income and Corporation Taxes Act 1988, s.197A; Income Tax (Earnings and Pensions)
Act 2003, s.237.
12 Finance Act 1999, s.49.
13 South Hants and Winchester Weekly News, 16 December 1999, p. 1.
14 Benjamin v. Austin Properties Ltd, [1998] 19 EG 163.
Workplace Parking Levies 363
17.4 Metropolitan schemes
In London, either Transport for London or the Common Council (of the City) or
any London Borough Council may establish a scheme to licence persons to provide
workplace parking.15 The scheme is made by the relevant authority and confirmed by
the Mayor16 acting on behalf of the Greater London Authority17 and has to conform to
the Mayor’s transport strategy.18 Each scheme has to designate the areas and times at
which it applies and specify rates of charge,19 which may be differential.20 Although
joint licensing schemes are permissible,21 the same premises cannot be subject to
more than one scheme.22 Licences may not be granted for a period of longer than a
year,23 and the Secretary of State is empowered to prescribe exemptions for numbers
of spaces, classes of vehicle and reductions in and limits on rates of charge.24 The
scheme may also provide for the net proceeds of charging to be divided between the
Greater London Authority, Transport for London and certain Metropolitan Boroughs
for relevant transport purposes25 under both a ten-year and a four-year plan.26
17.5 Other schemes
These schemes operate in relation to a maximum number of parking spaces in
premises covered by them (as specified in the licence application),27 and are normally
the responsibility of the occupier of the premises in question.28 They are made by
non-metropolitan traffic authorities, or a combination of them and London traffic
authorities,29 over the whole or part of their area.30 In the case of a joint scheme,
provision has to be made for the net recoveries to be apportioned between the relevant
authorities.31 The order is made by the relevant licensing authority,32 which has to
specify the areas and hours to which it relates and specify the rates of charge.33 It
15 Greater London Authority Act 1999, s.296. See para. 4.2.3 above.
16 Ibid., Sched. 24, para. 2.
17 Ibid., Sched. 24, para. 7.
18 Ibid., Sched. 24, para. 8.
19 Ibid., Sched. 24, para. 11.
20 Ibid., Sched. 24, para. 13.
21 Ibid., Sched. 24, para. 8.
22 Ibid., Sched. 24, para. 12.
23 Ibid., Sched. 24, para. 15.
24 Ibid., Sched. 24, para. 17.
25 Ibid., Sched. 24, para. 24.
26 Ibid., Sched. 24, paras 25–28.
27 Transport Act 2000, ss.178(1),(4), 188.
28 Ibid., s.178(2)(a).
29 Ibid., s.178(5).
30 Ibid., ss.179(1), 180(1), 181(1).
31 Ibid., Sched. 12, para. 3.
32 Ibid., s.183.
33 Ibid., s.186.
364 Environmental Taxation Law
has to be confirmed by the Secretary of State in England and the National Assembly
for Wales in that Principality,34 both of which may restrict the scope of schemes by
regulation in relation to exemptions and reductions in or limits on charges.35
17.6 Those subject to schemes
Licensing schemes, when made, apply (within the relevant area) where the occupier
of premises provides a parking space occupied by a motor vehicle of his (or another
person with whom he has made an arrangement or, in the case of a company, a
member of the same group)36 for attending at a place (or in its vicinity)37 where
that person carried on a trade, profession, the functions of office holder, government
department, local authority or other statutory body38 being the vehicle of that person,
his employees, agents, suppliers, business customers or business visitors or by a
pupil or student if the business is the provision of education or training or a local
councillor in the case of the local authority.39 It should be noted that this formulation
could include the making available by a householder of parking, by arrangement, to
a neighbouring businessman.
34 Transport Act 2000, ss.184, 198(1).
35 Ibid., s.187.
36 Greater London Authority Act 1999, Sched. 24, para. 3(2),(3); Transport Act 2000,
s.182(2),(3).
37 Greater London Authority Act 1999, Sched. 24, para. 3(1); Transport Act 2000, s.182(1).
38 Greater London Authority Act 1999, Sched. 24, para. 3(4); Transport Act 2000, s.182(4).
39 Greater London Authority Act 1999, Sched. 24, para. 3(1),(4); Transport Act 2000,
s.182(1),(4).
Chapter 18
Road User Charging Schemes
18.1 Introduction
Although first advocated in the Smeed Report in 1964,1 road user charging was not
invented in the UK, with Singapore, Oslo, Bergen, Trondheim and Stavanger having
them up and running before any British scheme was authorised.2 In advocating an
increase in this,3 a Report published on 20 July 2004, with the White Paper The Future
of Transport, entitled a Feasibility Study of Road Pricing in the UK, emphasised the
need for the establishment of public trust.4 The Report revealed that one-fifth of the
UK’s total carbon emissions came from road traffic and that, with engines operating
less efficiently, these emissions were higher in congested areas.5
18.2 Central London
The concept of road user charging was introduced in the legislation setting up the
new Mayor and Assembly for Greater London.6 Most of the publicity generated by
this concept has been related to these powers, in the context of Mr Ken Livingstone’s
plan to charge7 £5 per day from 17 February 2003, for each vehicle8 entering the
1 Road Pricing: The Economic and Technical Possibilities: HMSO 1964, publication of
which is understood to have been delayed until after the General Election of that year by
the Conservative Minister of Transport, Mr Ernest Marples.
2 Jowit, Financial Times, 22 August 2002, p. 21. See, generally, Stephen Ison, Road User
Charging: Issues and Policies (Aldershot: Ashgate, 2004), esp. ch. 3. The Norwegian
schemes were, however, of limited duration and to fund infrastructural development:
House of Commons Transport Committee, 1st Report. Urban Charging Schemes (House
of Commons Papers, Session 2002–03, 390–I) (London: Stationery Office, 2002). In this
context, it is worthy of note that Nottingham’s espousal of the workplace parking levy
– see para. 17.1 above – was intended to achieve a combination of specific objectives,
namely the subsidisation of local bus and train services and the funding of a new tramway
system (House of Commons Transport Committee, op. cit., para. 37).
3 And extolling, inter alia, the establishment of ‘HOT’ commuter freeway lanes in California
(House of Commons Transport Committee, op. cit., para. 2.17).
4 House of Commons Transport Committee, op. cit., para. 2.21.
5 Ibid., para. 3.7.
6 Greater London Authority Act 1999, s.295 and Sched. 23.
7 Payment has to be made by 10 pm on the day in question and may be achieved by
telephone, email, at machines in car parks (for example, the National Theatre) and some
retailers.
8 After Mr Livingstone’s re-election as Mayor of London in June 2004, consideration was
given to doubling the congestion charge for 4×4 vehicles, which an interim report from
the Liberal Democrat group in the London Assembly were purchased by 3 per cent more
366 Environmental Taxation Law
central London ‘box’ between 7 am and 6.30 pm Monday to Friday (with exemption
for certain specified categories):9
1 vehicles for the disabled displaying a blue badge or exempt from vehicle excise
duty;
2 emergency service vehicles, the armed forces, the Coastguard, Port of London
authority and lifeboat service and certain vehicles of the London Fire Brigade,
the eight local authorities whose areas are covered and the Royal Parks Agency;
3 certain National Health Service staff and patient journeys, including those by oncall
emergency services, and NHS vehicles exempt from vehicle excise duty;
4 buses, coaches, community minibuses, ‘black’ taxis and London licensed
minicabs;
5 motorcycles;10
6 electrically propelled vehicles and the ‘cleanest’ alternative fuel vehicles; and
7 special recovery and breakdown vehicles.
The reliefs are:
1 90 per cent discounts for residents;11 and
2 reductions for vehicles using environmentally-friendly fuels.12
The authorities will no doubt have been gratified to learn of employers’ general
refusal to meet the bill for their employees’ cars.13 The effect of the scheme on
retailers within the charging zone was not positive. It is, however, a matter of
Londoners than in UK as a whole (see Blitz, Financial Times, 14 July 2004, p. 6). This
news came out shortly after the French Government revealed plans to impose a tax on
3,200 Euro on (inter alia) new cars of this type from January 2005 (see Johnson, Financial
Times, 3–4 July 2004, p. 6).
9 A challenge to the Mayor of London’s proposal in July 2002 by Westminster City Council
and some residents of Lambeth, based largely on the absence of an environmental impact
assessment was rejected by the High Court: R (on account of The Mayor, Citizens of
Westminster and others) v. The Mayor of London, [2002] EWHC 2440 (Admin), and see
G. Sector, ‘Sleepless Nights at City Hall’, NLJ, 24 January 2003, pp. 82–96.
10 Which seems to have generated a purchasing boom, giving rise to consideration of the
possibility of the rules being changed before the scheme started (see Jowit and Griffiths,
Financial Times, 20 January 2003, p. 4).
11 Of 90 per cent, although the saving of £1,000 p.a. would go nowhere towards funding
the premium payable for residential property within the zone (see Brun-Rovet, Financial
Times, 6 January 2003, p. 4).
12 For those powered by hydrogen, electricity or liquified petroleum gas, this is 100 per cent.
This relief was welcomed by the House of Commons Transport Committee, op. cit., para.
78. It should be noted, in this context, that the World Business Council for Sustainable
Development’s Mobility 2030 Report, which was backed by eight international car makers,
had concluded that fiscal reform, rather than regulation, was required to induce consumers
to buy environmentally-friendly cars (see Mason, Financial Times, 6 July 2004, p. 9).
13 Buck, Financial Times, 6 January 2003, p. 4.
Road User Charging Schemes 367
dispute how much of the reduced trade in Oxford Street was caused by this, rather
than the effect of terrorism and the world economic slowdown on trade from
tourists.14
The Mayor’s objectives were:
1 to cut traffic by 10 to 15 per cent;
2 to reduce congestion by double that;15 and
3 to generate a net operating profit of £121m.16
During the first fortnight, traffic in central London appears to have been cut by 20 per
cent.17 It was anticipated that this would have the following consequences:
1 the Mayor of London would extend the scheme to cover other central areas,
initially the rest of Westminster, Kensington and Chelsea;18 and
2 other UK cities were likely to proceed with further consideration and/or
implementation of schemes of their own.19
14 Wight, Financial Times, 5 September 2003, p. 3. Another factor, not canvassed in that
article, might be the increasing difficulty of getting into London on the railway network.
There was, however, a direct effect on some businesses (see Blitz, Financial Times,
27 November 2003, p. 6; Blitz, Financial Times, 14–15 February 2004, p. 3; Fifield,
Financial Times, 16 February 2004, p. 4). In April 2004, a study by Imperial College,
London for the John Lewis Partnership attributed a decline of 8.2 per cent in the takings
of its Oxford Street store to the introduction of the congestion charge (Blitz, Financial
Times, 22 April 2004, p. 6).
15 In a Report published on 20 July 2004, with the White Paper The Future of Transport, Cm
6234, entitled a Feasibility Study of Road Pricing in the UK, para. 3.12, it was said that
a 15 per cent fall in traffic had led to an average 30 per cent reduction in congestion. It
was also suggested, in para. 3.8, that there had been a proportionately greater decrease in
accidents involving personal injury within the charging zone.
16 Newman, Financial Times, 8–9 February 2003, p. 1.
17 Jowit and Blitz, Financial Times, 1–2 March 2003, p. 4. It later settled down at between
17 and 18 per cent: Jowit, Financial Times, 15 April 2003, p. 11. There was subsequently
a reverter to 20 per cent, coupled with a realisation that there had been no material extra
congestion on outer London routes which it had been thought would be affected adversely
by the creation of the central charging zone, leading to puzzlement as to where the traffic
had gone (see Blitz, Financial Times, 17–18 May 2003, p. 5).
18 Possibly at half the central zone rate: although a poll commissioned by the London
Assembly showed 53 per cent of the residents of Westminster and Kensington and Chelsea
as favouring an extension of the existing zone: Blitz, Financial Times, July 25, 2003, p.4.
From the point of view of efficiency, an extension of the boundaries of the initial zone at
the same daily charge would be controversial because it would create a large number of
90 per cent discounted motorists. The Mayor, however, seems to be thinking in terms of a
pilot scheme for the whole country in 2010 on roads such as the North Circular (see Blitz,
Financial Times, 24 October 2003, p. 3).
19 See para. 18.3 below.
368 Environmental Taxation Law
By the anniversary, the reduction in traffic had stabilised at 20 per cent, with 17,000
travellers seeming to have switched to the buses.20 There were two unexpected fiscal
consequences of the London scheme:
1 Employers did not normally agree to reimburse the congestion charge to staff
bringing their cars to work, but where they did so and company cars had been used,
there was no addition to the benefit scale for which the employee was assessed.21
2 Where subsidised child care facilities for which no benefit charge was assessed
on the employee22 were available, these were likely to be close to the place of
work, rather than the employee’s home. Employees of businesses within central
London would almost certainly have no alternative means of transporting young
children than by car, and were not exempted from liability for the congestion
charge. It is worthy of note that this underlying problem was not addressed in
the Inland Revenue’s proposals, issued in late February 2003, for the revision of
child care benefit relief.
18.3 Other cities
Similar powers were subsequently given to other local authorities in England and
Wales,23 and this legislation also amended the earlier provisions relating to London.24
In August 2002, Ministerial approval was given to a £2 per diem charge for entering
the centre of Durham between 10 am and 4 pm Monday to Saturday. The scheme
started on 1 October 2002. Bristol is understood to be considering a charge of £5
per day and Cardiff and Chester are also giving consideration to the possibility of
congestion charging.
Were a similar scheme to London’s to be implemented throughout England, it has
been estimated that it might raise £16bn per annum, increasing motoring costs for
urban motorists from 12p to 20p per kilometre.25
20 Blitz, Financial Times, 14–15 February 2004, p. 3.
21 Deloitte and Touche Press Release, 26 February 2003. It is interesting to note, in this
context, that the House of Commons Transport Committee was concerned at the effect
of the charging zone on employees with antisocial hours on low wages (see House of
Commons Transport Committee, op. cit., para. 73).
22 Under Income and Corporation Taxes Act 1988, s.155A; Income Tax (Earnings and
Pensions) Act 2003, s.318.
23 Transport Act 2000, ss.163–77.
24 Ibid., Sched. 13, paras 1–18.
25 Blitz, Financial Times, 14 October 2003, p. 8. The House of Commons Transport
Committee drew attention to the fact that the underlying policy was to reduce congestion,
without causing problems elsewhere, and that the current model of measuring congestion
was unsuitable (see House of Commons Transport Committee, op. cit., paras 15, 20 and 26
respectively). It was also observed that the ‘by default’ adoption of a twin track policy of
workplace parking and congestion charging contributed to a Departmental policy muddle
(ibid., para. 132). In this context, it is worthy of note that the main objective of the City
Councils in Bristol and Durham, the protection of the City centre, was at variance with the
Government’s preferred economic criteria (ibid., paras 42, 43).
Road User Charging Schemes 369
In Scotland, Edinburgh is considering introducing a charge of £2 per day from
2006. For this the City Council will have to hold a public enquiry, followed by a
referendum.26
18.4 Metropolitan schemes
Transport for London, a London Borough Council or the Common Council of the
City of London may establish schemes for ‘the keeping or use of motor vehicles on
roads’ in their areas.27 The scheme is made by the relevant authority and confirmed by
the Greater London Authority,28 acting through the Mayor,29 (and which may require
London Boroughs to implement a joint scheme)30 and must be in conformity with the
Mayor’s transport strategy.31 The scheme has to designate the area to which it applied,
specify the classes of motor vehicle to which it applies, designate the roads in respect of
which a charge is imposed, and specify the charges.32 Modifications to the boundaries
and the roads may, however, be required by the Mayor on behalf of the Greater London
Authority.33 The Secretary of State has power to specify exemptions and reductions
in or limits on charges.34 The person liable, who may be the registered keeper (that is,
registered at Swansea) unless he can show that some other person was the driver, is to
be provided for in regulations.35 The net proceeds of any scheme for the first ten years
of potential operation may only be applied for relevant transport purposes.36
18.5 Other schemes
Charges can be imposed on the registered keeper of a vehicle (that is, the person
registered at Swansea)37 under a charging scheme ‘in respect of the use or keeping
of motor vehicles on roads’38 made by a non-metropolitan traffic authority alone or
jointly with another such or a London traffic authority, in respect of its own roads,39
or (in relation to a trunk road)40 by the Secretary of State in England or the National
Assembly for Wales in that Principality.41
26 Nicholson, Financial Times, 1 October 2002, p. 2; 24 February 2004, p. 6.
27 Greater London Authority Act 1999, s.295(1).
28 Ibid., Sched. 23, para. 4.
29 Ibid., Sched. 23, para. 2.
30 Ibid., Sched. 23, para. 7.
31 Ibid., Sched. 23, para. 5.
32 Ibid., Sched. 23, paras 8, 10.
33 Ibid., Sched. 23, para. 9. See para. 4.2.3 above.
34 Ibid., Sched. 23, para. 11.
35 Ibid., Sched. 23, para. 12. See para. 4.2.1.2n above.
36 Ibid., Sched. 23, paras 16–22.
37 Transport Act 2000, s.163(2).
38 Ibid., s.163(1).
39 Ibid., ss.164(1), 165(1), 166(1). See para. 4.2.3 above.
40 Ibid., s.167.
41 Ibid., s.163(3). See para. 4.2.2 above.
370 Environmental Taxation Law
Orders are made by the relevant authority42 and confirmed by the Secretary of State
or National Assembly for Wales (as appropriate).43 The scheme has to designate the
roads, classes of motor vehicle, chargeable events, rates of charge and the period for
which the scheme is to continue in force,44 but is subject to the relevant confirming
authority’s power to specify, by regulation, exemption and reduced rates and limits
on charges.45 In the case of a joint scheme, the net charges are to be apportioned.46
One way of removing cars from the roads of conurbations is to provide additional
rail capacity. Central to this strategy as far as London is concerned is the long-mooted
Crossrail link involving a tunnel between Paddington and Liverpool Street. A special
tax on businesses benefited is under consideration in this context.47
42 Ibid., s.168.
43 Ibid., ss.169, 170, 198(1). See para. 4.2.2 above.
44 Transport Act 2000, s.171.
45 Ibid., s.172.
46 Ibid., Sched. 12, para. 3.
47 Blitz, Financial Times, 15 July 2003, p. 3. Light rail schemes elsewhere, including
(significantly, Nottingham) may require taxpayer subsidy (see Wright, Financial Times,
13–14 December 2003, p. 4).
Division 4
Other Economic Instruments
This p,age intentionally left blank
Chapter 19
The Packaging Regime Route
19.1 Introduction
The Packaging and Packaging Waste Directive1 was brought into effect in the UK
on 6 March 1997, by the Producer Responsibility Obligations (Packaging Waste)
Regulations 1997,2 made under powers conferred by Environment Act 1995, ss.93–5.
The aim of the Directive is to reduce the environmental effect of packaging and the
waste from it by a combination of:3
1 packaging waste prevention;
2 increased reuse through recycling and recovery; and
3 reductions in the quantity of packaging discarded.
The Directive set targets for recovery and recycling and Member States were required
to implement it by 30 June 1996, with the new regime coming into force on 1 January
1997.4 The UK was not the only Member State to fail to meet the deadline.
The Directive sets out a general framework. Within that, each Member State can
adopt a discrete approach. Germany and Denmark were amongst those which had
schemes already in existence. Although one of the stated purposes of the Directive
was to harmonise national systems, companies trading across national frontiers are
faced with having to comply with a number of separate regimes.
The Environment Agency5 has placed on record6 that, in 2001, 9,000 companies in
England and Wales came within the original legislation and 3.5m tonnes of packing
waste had been recycled in the UK. Seeing its function as kick-starting sustainability,
Mr Howard Thorp was quoted as saying:
Producer Responsibility could be the key to making that shift in industrial production and
consumer behaviour. The concept is simple. It tackles the generation of waste at source.
It encourages producers to prevent pollution, reduce use of energy and other resources
throughout the life cycle of a product by better design and production. It is prevention
rather than cure.
Producer responsibility makes producers take some responsibility for the environmental
impacts of their products, including the raw materials and what happens after the product
is used.7
1 European Parliament and Council Directive 94/62/EC, (1994) OJ L365 10.
2 S.I. 1997 No. 648. See para. 1.4.2.1(2) above.
3 Council Directive 94/62/EC, Art. 4(2).
4 See para. 12.2.5.1(2) above.
5 See para. 4.2.1.3 above.
6 Press Release of 29 May 2002.
7 Ibid.
374 Environmental Taxation Law
19.2 Packaging
This concept is widely defined,8 being divided into three categories – sales packaging,
group packaging and transport packaging. Containers are, however, excluded from
the last of these. There is, however, a lack of uniformity between Member States
as to what is covered. It was revealed in the test case about flower pots, Davies v.
Hillier Nurseries Ltd,9 that nine Member States had concluded that plastic pots were
covered, France had not and the position was unclear elsewhere. In that case, the
conclusion of the stipendiary magistrate, that the items under consideration were not
‘packaging’, was overruled by the Divisional Court.10
The basis of that decision is instructive. Hilliers are well-known nurserymen.
They grew plants and shrubs from cuttings with a view to selling them both to trade
customers and the public. The cuttings were not sold, but nurtured to a size at which
they could be sold for replanting. Once rooted, a cutting was placed in a liner. It was
subsequently transferred to a plastic pot, the size being determined by the needs of
the plant, to continue its growth to the size at which it was offered for sale. After
sale, it was expected that a high proportion of purchasers would remove the plant
from the pot.11 The question at issue was whether the plastic pot was ‘packaging’ as
defined by the Producer Responsibility Obligations (Packaging Waste) Regulations
1997, reg. 2(1)(a):
sales packaging or primary packaging, that is to say packaging conceived so as to constitute
a sales unit to the final user or consumer at the point of purchase.12
At the time the plants were potted, the purpose was to nurture them to a saleable size.
The pot therefore performed the dual function of keeping the plant in good condition
until replanted and containing the plant for the purchaser’s ease and convenience in
handling and transporting it.
The magistrate concluded that the pot was not within the definition of ‘packaging’
because its primary purpose was the growing and nurturing of the plant, and the
Divisional Court concluded that he was entitled to come to that conclusion of fact.
The question that should have been addressed, however, was the meaning of the work
‘conceived’. The Divisional Court concluded that this required consideration of all
the circumstances present at the time of the potting of the plant, in order to determine
whether its use at that time (rather than the time of sale) included its (contemplated)
use in the sales process, even though the growing and nurturing function of the pot
could not be regarded as incidental to the sales process. Although the primary purpose
8 Producer Responsibility Obligations (Packaging Waste) Regulations 1997, Sched. 3.
9 (2001) Env LR 726.
10 See para. 4.2.1.5 above.
11 Although not gone into by the Divisional Court, the underlying concept in the Directive
is that packaging becomes waste when the owner discards it or intends to discard it (see
para. 12.2.5.2 above). This can be for a variety of reasons, including becoming obsolete
or inappropriate.
12 Emphasis added.
The Packaging Regime Route 375
of potting was growing and nurturing, the plants were ‘conceived so as to constitute a
sales unit and, at the time of sale, constitute a sales unit’ and were ‘packaging’ within
the relevant definition. Hilliers should therefore have registered as a producer under
the Regulations.13
19.3 Choice
Back in 1997, packaging users had until 31 August to decide how to meet their
recycling an recovery obligations. The choice was either to register with the official
agencies or to join a collective scheme that took on their obligations.14
19.4 Registration
Where a producer is liable to be registered and is not a member of a collective
scheme,15 it must do so every year16 with the appropriate agency17 if it comes within
the relevant criteria set out in Schedule 1 to the 1997 Regulations – basically having
an annual turnover of packaging or packaging materials in excess of 50 tonnes.
In England, the appropriate agency is the Environment Agency,18 whose practice is
to prosecute those who fail to register.19 A fee is charged for the annual application
for registration.20 The Environment Agency may refuse or cancel a registration.21 It
also has monitoring obligations.22
19.5 Obligations once registered
A registered person is obliged to:23
1 take reasonable steps to recover and recycle packaging waste in relation to each
relevant class in accordance with Sched. 2 to the 1997 Regulations;24 and
13 See para. 19.4 below.
14 For example, the officially promoted Valpack, Wastelink’s Wastepak or the Dairy
Industries Federation’s Difpak.
15 Producer Responsibility Obligations (Packaging Waste) Regulations 1997, reg. 4.
16 Ibid., reg. 5.
17 Ibid., reg. 6.
18 See para. 4.2.1.3 above.
19 The Hillier case was, technically, that, albeit arranged openly as a test case on
registrability.
20 Producer Responsibility Obligations (Packaging Waste) Regulations 1997, reg. 9(2).
21 Ibid., reg. 10 and 11(1).
22 Ibid., reg. 25.
23 Producer Responsibility Obligations (Packaging Waste) Regulations 1997, reg. 3(5)(b).
24 This provides for different percentages for different functions, with targets increasing
year-by-year, in accordance with the UK targets set out in ibid., Sched. 10.
376 Environmental Taxation Law
2 furnish a certificate of compliance in accordance with regulation 23.
3 If its main activity is that of seller, there is also an obligation to provide the
information to consumers specified in regulation 3(5)(c).
4 Where its turnover exceeded £5m, a recovery and recycling plan has to be lodged
with the annual application for registration.25
5 Businesses have the option of meeting their recovery obligations themselves or
by joining a registered compliance scheme, which will meet the obligations of
others.26
6 It is, however, possible to comply with this obligation by purchasing packaging
waste recovery notes (‘PRNs’) issued by accredited reprocessors.27 This market
has operated since January 1998, initially on a non-statutory basis,28 but, from
1 January 2004, on an official one,29 as an adjunct to the statutory command
and control regime enshrined in the 1997 Regulations. Indeed, the submission
of PRNs seems to be the main way in which obligated businesses, including
compliance schemes, demonstrate their compliance. They acquire the PRNs
either on their issue by accredited packaging waste reprocessors or by purchase
on the open market from other organisations. Concern has, however, been
expressed on a number of fronts:
a. at the way in which the scheme operates in practice, not least in connection
with the development of a secondary market in which non-obligated parties
trade in PRNs for their own profit;30 and
b. at the fact that PRNs were not equally available to all obligated parties;31
coupled with
i. what was sometimes a significant price being set without any indication
of the factors or policy behind it;32 leading to
25 Ibid., reg. 6(4)(dd).
26 See para. 19.3 above and also Defra’s Consultation Paper, Review of the Producer
Responsibility Obligations (Packaging Waste) Regulations 1997 (7 August 1998), para.
7.3: see www.defra.gov.uk.
27 Ibid., para. 7.2.
28 Which was before any accreditations had even been applied for: ibid., para. 7.4. A similar
issue also arose in relation to Green Certificates (see para. 21.5 below).
29 Producer Responsibility Obligations (Packaging Waste) (Amendment) (England)
Regulations, S.I. 2003 No. 3294. This also created the concept of the PERN (packaging
export recovery note): see para. 1.4.2.1(2) above.
30 See Defra Consultation Paper, Review of the Producer Responsibility Obligations
(Packaging Waste) Regulations 1997 (7 August 1998), para. 7.4, point 4 This concern
was stated to be that of the obligated parties, although the underlying problems were not
identified: see, however, para. 19.7 below. It runs counter to what subsequently became
general government policy, namely the support of environmental taxation by trading
mechanisms (see Chapter 20 below).
31 Ibid., points 2 and 5.
32 Ibid., point 1. Although between May and August 2003, prices fell from £8 to below £4
per tonne: ENDS Report 346, November 2003, pp. 19–20.
The Packaging Regime Route 377
ii. the thought that resources might not have been, as intended, flowing
towards increasing collection and reprocessing capacity and developing
markets for recyclate.33
Subsequent investigations into wood and plastic recyclers led to the suspension
or cancellation of the accreditation of 14 firms between September 2003 and June
2004.34
19.6 Waste disposal obligations
Official experience in relation to packaging35 can be expected to be put to use in the
fields of motor vehicle,36 electronic and electrical equipment.37 It appears, however,
that the motor industry is not to have to contribute in relation to the first of these until
1 January 200738 (the date from which the owner of the vehicle may not be charged
for delivery to an authorised treatment facility), and even this prospective obligation
is giving rise to concern in the trade because the prospective charge of £50 per car far
exceeds the £5–£10 which some members of the public with old cars are currently
reluctant to pay scrap dealers,39 with 350,000 cars being abandoned in the UK each
year. However, although the prior requirement that, by 1 January 2006, at least 80 per
cent of such vehicles have to be reused or recycled, generated less publicity initially,
the combination of the falling price of steel and the rising cost of recycling has since
created doubt as to the economic viability of that part of the proposal.40
Moreover, the manufacturers and retailers of electrical equipment cannot agree over
a proposal by the former,41 based on schemes extant in Belgium, the Netherlands and
33 Ibid., point 1. This problem was solved by the insertion of regs 5(5B) and 21B and the
reformulation of reg. 7, from 1 January 2004.
34 ENDS Report 353, June 2004, p. 19.
35 Considered by the European Packaging Industry Association to have resulted in ‘a(chǎn) massive
transfer of costs from the public sector to the packaging and packaged goods industry’
(see Houlder, Financial Times, 16 October 2003 (special report Sustainable Business),
p. 6). The cost of recycling continued to cause concern, in the context of the 2008 EU
targets (see Houlder, Financial Times, 28–29 February 2004, p. 5).
36 End-of-life Vehicles Directive, 2000/53/EC, OJ L 269, partially implemented by the Endof-
Life Vehicles Regulations 2003, S.I. 2003 No. 2635.
37 Albeit, initially, subject to the expectation of the Better Regulation Task Force that the
dumping of electrical equipment will increase in the short term (see Houlder, Financial
Times, 28 July 2003, p. 3). Concern has, furthermore, been expressed as to the prospect of
hazardous waste being stockpiled and illegally dumped after the introduction of new EU
regulations in the summer of 2004 restricting the number of landfill sites able to take such
waste (and especially in the south of England), reducing the number of sites able to take
it from 200 to ten (see Houlder, Financial Times, 8 December 2003, p. 6).
38 Eaglesham, Financial Times, 21 June 2002, p. 3.
39 Guthrie, Financial Times, 15 October 2002, p. 4.
40 Dowen, The Times, 18 March 2003, p. 10 (law).
41 Made before the passing of the new EU rules under which, by 2006, the industry would have
to recycle or reuse over half the old equipment, with less than 30 per cent going to landfill
or incineration (see Parker and Houlder, Financial Times, 19 December 2002, p. 6).
378 Environmental Taxation Law
Norway, that a £10 charge be imposed at the point of sale to finance the recycling
both of goods made by companies which have gone out of business (‘orphan’
products); and ‘historic’ products made ten to 20 years ago.42 It may be possible for
this problem to be ameliorated by following the example of the computer industry
and espousing leasing, which gives manufacturers the ability to refurbish equipment,
where practicable.43
The European Commission has estimated that recycling costs between 5 and 8
billion euros per annum, saving an equivalent amount in waste disposal cost.44
It is now considering the possibility of introducing similar legislation for spent
batteries.45
Concern has, however, been expressed by the House of Commons Environment,
Food and Rural Affairs Committee not only on the progress made by the UK in
implementing the relevant Directives but also as to the adequacy of the existing
bureaucracies (especially the Environment Agency and Defra)46 to do so effectively
within the relevant timescales.47
19.7 The future of packaging waste recovery notes
The decision made by the UK Government in 2003 to ‘legalise’ PRNs and weed its
base of accreditation holders was not the only option available to it.
It might easily have decided to supplement the recycling obligation summarised in
paragraph 19.3 above by new taxes or schemes of the types considered in paragraph
27.6. It is perhaps not surprising that none of these routes was adopted because
packaging is degradable waste and with the (compulsory, albeit belated) introduction
of special sites for noxious waste in 2004, those solutions would not have contributed
to the main objective of taking waste away from landfill.
A more logical solution would have been to concentrate on the objective referred
to in paragraph 19.3 and close down the diversion into tradable obligations, not least
because the latter route does not seem to offer a solution to the more serious problem
on the horizon referred to in paragraph 20.7, namely both the recapture of vehicular
and electronic goods and the subsequent recycling of the parts. The former could
hardly be dealt with satisfactorily on an EU-wide basis48 because of the greenhouse
42 Pickard, Financial Times, 17–18 August 2002, p. 4; Houlder, Financial Times, 28–29
December 2002, p. 4.
43 Houlder, Financial Times, 27 May 2003, p. 11.
44 In relation to cars alone, see Bream, Financial Times, 12 January 2004, p. 4.
45 Houlder, Financial Times, 27 May 2003, p. 11.
46 See para. 4.2.1.2(1) above.
47 End of Life Vehicles Directive and Waste Electrical and Electronic Equipment Directive:
Fourth Report of Session 2003–2004, HC 103, 11 February 2004.
48 If this were to be attempted, it would undoubtedly come as an unexpected lifeline to the
Channel Ferry operators, who had been reducing their services as a result of a combination
of competition from the Channel Tunnel and ‘no frills’ airlines and a reduction in the
number of those travelling to Calais to buy alcohol and tobacco at prices which did not
include UK excise duties.
The Packaging Regime Route 379
gas consequences of long-distance transportation to disposal sites. This has already
been the cause of concern in relation to post-July 2004 noxious waste disposal. But
it is possible that the invention, under the new statutory regime which took effect for
PRNs on 1 January 2004, of packaging waste export recovery notes (‘PERNs’),49
may have been in part with a view to a similar regime being introduced for vehicle
and electronic goods manufacturers.
It is, furthermore, appropriate to analyse both the differences between the PRN
‘product’ (that is, the provision of services) and that of the official50 and unofficial51
markets in allowances:
1 There is a very significant difference between a market in which allowances or
permits are to be traded, when the offeror merely needs to buy-in (if necessary at
a loss) in order to deliver, and one in the provision of services, where the offeror
may either not have any capacity to supply the relevant services52 or be offering
what the authorities may or should consider to be a substandard product.
2 Although Defra’s August 1998 Consultation Paper53 highlighted as an area of
concern the presence of non-obligated54 parties in the unofficial market, this
has not been a factor which has been voiced in public in relation to the other
unofficial markets, both of which deal in allowances (rather than services to be
supplied).
3 Most puzzling from an economic point of view has been the record of price
movements. The Defra Consultation noted both lack of universal availability;
and a pricing structure which was not readily capable of analysis. However, the
prospective removal of some accreditations, as part of the solution, would not
normally have expected to result in the halving of prices in the course of four
months.55 For this reason it would therefore be premature to assume that the
January 2004 legitimation of the market has produced a viable end product in the
form of properly performed services.
In conclusion, while it must be accepted that the PRN route chosen by the government
is consistent with both its ‘traded market’ approach and the apparent preferences of
49 See para. 1.4.2.1(2) above.
50 See Chapter 20 below.
51 See para. 20.6 and 21.5 below in relation to Green Certificates, the deficiencies of which it
has been possible to fix by introducing tougher non-compliance sanctions, and the ‘grey’
market in EU ETS, in which some major Continental banks are participating without (it
seems) their respective Central Banks being overtly concerned (for the latter, see Chapter
28 below).
52 That is, what is required to achieve the objective set out in para. 19.3 above.
53 See para. 19.5 above.
54 By which is presumably meant speculators, rather than financial institutions acting as
formal market makers. As to the former, it may be recalled that, in the February 1974
Election, Mr Harold Wilson (the Labour Leader of the Opposition) made great play with
‘land speculation’, generating a fuss about the difference between this and what he later
described as ‘land reclamation’, ending up in the Millhench affair.
55 See para. 19.5n above.
380 Environmental Taxation Law
the ‘industry’, it is too early to say whether this major departure from the original
objective56 is not a dead end in relation to the packaging recycling problem, let
alone the basis upon which the recapture and recycling obligations to be imposed on
vehicle and electronic goods suppliers can be resolved.57
56 That is, that in para. 19.3 above.
57 See para. 19.6 above. As to which, it should be noted that the answer to the disposal of
electrical goods problem which was favoured in the autumn of 2004 was the introduction
of a levy payable by purchasers of between 2 and 5 per cent of the retail price: Marsh,
Financial Times, 6–7 November 2004, p. 5.
Chapter 20
Emissions and Waste Trading Schemes
20.1 Introduction
The concept of transferable pollution permits was first developed in the US, in relation
to power station emissions into the atmosphere. It first entered the UK political arena
with the publication of Economic Instruments for Water Pollution.1 In the event,
however, the concept did not develop in that direction in the UK.
In March 2000, the UK Emissions Trading Group2 made some proposals to the
government, and, in an official Press Release on 6 November2000, the government
let it be known that it had been decided to put these into effect, albeit subject to
further consultation. On the basis that the necessary initial research would have been
completed by early 2001, and targets set by March 2001, and the bidding process
under way by the autumn of 2001, £30m was to be made available from public funds
in 2003/04 to kick-start the process.
The process was expected to go hand in hand with the negotiations between the then
DETR3 and trade associations representing IPPC users of energy in relation to the
terms of climate change agreements.4 This was because the 6 November 2000 Paper
had identified the interrelationship between the climate change levy 80 per cent rebates
available to parties to climate change agreements and the subsidisation of successful
bidders under the initial auction of tradable permits as a key issue. Consequently
considerable slippage in the timetable for negotiating the terms of the umbrella climate
change agreements5 led, inevitably, to a deferment in the timetable for tradeable
permits. The recommendations received by the government in January 2001 were only
published on 3 May 2001. It was still envisaged that trading would start in April 2002,
but the publication date for the draft rules had been put back to July 2001.
A pilot project had, however, been set up in February 2001, operated on a
non-monetary basis, between 11 oil companies flaring gas from 58 offshore
installations.6
20.2 Design and implementation of the UK Emissions Trading Scheme
In the event, the government’s proposals, entitled the UK Emissions Trading Scheme
(‘UK ETS’), were not published7 until 14 August 2001. Under this document, it was
1 DETR, 20 January 1998.
2 See para. 2.4.5 above.
3 See para. 4.2.1.2(1) above.
4 Under Finance Act 2000, Sched. 6, para. 51.
5 See para. 14.6 above.
6 Buchan, Financial Times, 6 February 2001, p. 8.
7 By the DTI. See para. 4.2.1.2(1) above.
382 Environmental Taxation Law
envisaged that the draft rules would be issued in November and finalised in December,
when the draft Protocol. would become final. That was to remain open for comment
until 1 October 2001, by which date prospective entrants were urged to contact the
government, which needed to receive their source lists for consideration by 31 October
2001. Bidding was scheduled to start in January 2002, on the basis of unverified
baseline figures, but independent verification would be required before any allocations
were made in April 2002, in relation to targets running from January 2002.
Certain areas had, however, to be left open in the August 2001 document. It was
hoped, at that time, that additional clarity would have been possible in relation to the
international ramifications at the Marrakesh Conference in November 2001. In the
event, nothing of great significance came out of that event, mainly because before it
started President Bush had announced that the Kyoto Protocol had been withdrawn
from treaty consideration before the Senate.
This was not, however, the only problem. Kyoto had been constructed on the basis
that Russia would be able to sell pollution capacity to the West and Japan, and in
particular the USA. Indeed, without Russian ratification it cannot come into effect.
The Kremlin’s failure to submit the Treaty for approval by the Duma had, therefore,
given rise to puzzlement.8 Indeed it seemed that the ratification procedures were
unlikely to be completed during 2004 unless Russia was guaranteed substantial
financial benefits from ratification.9 The EU’s outgoing Energy Commissioner, Mrs
Loyola de Palacio, had expressed the view, however, that Russia’s accession is of the
essence to the EU continuing to espouse the Kyoto mechanisms,10 not least because
(following the withdrawal of US) Russian ratification is a pre-requisite to the Treaty
coming into force at all.11 In April 2004, however, there were indications that the
re-elected Russian President, Mr Putin, might be willing to ratify if the EU were to
drop their demands for energy price liberalisation12 as far as Russian natural gas
was concerned.13 But, at the end of the following month, there were indications
that the Russian Government was considering an alternative strategy, generating
economic growth with the assistance of a general absence of emissions controls. This
uncertainty lasted until the end of September 2004, when the Russian Government
sent the Treaty to the Duma with a recommendation for ratification.14
8 Grubb and Safonov, Financial Times, 15 July 2003, p. 19.
9 Jack, Financial Times, 27–28 September 2003, p. 8.
10 Financial Times, 2 March 2004, p. 18. Her letter generated a considerable reaction: Grubb
and Bunzl in Financial Times, 18 March 2004, p. 18, and Okonski in Financial Times, 8
March 2004, p. 18.
11 A point made when such ratification did not take place when talks with the EU took place
in May 2004: Houlder, Financial Times, 20 May 2004, p. 17; Jack, Financial Times, 21
May 2004, p. 8.
12 See para. 12.2.6.3(2) above.
13 Ostrovsky, Financial Times, 23–25 April 2004, p. 7.
14 Shlaes, Financial Times, 24 May 2004, p. 17. The problem of Russia and its relationship
with the EU in this respect was also addressed by Jacqueline Karas in Russia and the Kyoto
Protocol: Political Challenges (London: RIIA, Sustainable Development Programme,
March 2004). But, by the end of September, the Ministerial power struggle had been
won by the ratification camp (see Ostrovsky and Harvey, Financial Times, 30 September
Emissions and Waste Trading Schemes 383
The development in the previous paragraph was, needless to say, not immediately
predictable in 2001. There had, however, been further slippage in the implementation
timetable for UK ETS. The draft rules (with considerable gaps in them) were only
made available for consultation on 25 January 2002, and observations invited by
‘close of play’ on 31 January, the day before the bidding process was to start.
One of the results of this chaotic situation was that the concept of management
control, which was critical to that of change of operation, ended up by being defined
by reference to the original proposal document, UK Emissions Trading Scheme,
Annex A. This was almost certainly not intended to act as (rather than to form the
basis of) a legal document and it is possible that problems may arise,15 not least in
the context of takeovers and mergers.16
The auction17 produced 34 successful participants (since reduced to 32), who were
to be entitled to £53.37 per tonne of carbon dioxide equivalent cut under a fiveyear
programme, in return for reductions of 1.1m tonnes. The first credits, to these
‘winners’ were made in the register on 2 April 2002, to the extent of approximately
4m allowances. Nearly 600 allowances had been purchased.18
20.3 Subsequent development of the UK Emissions Trading Scheme
The initial scheme was designed as a support for the climate change agreement
programme, under which 6,000 signatories to 43 climate change agreements
had to meet energy usage reduction targets (usually on an industry-apportioned
basis)19 in alternate years, during the five year period for which those agreements
ran. The scheme was negotiated with the European Commission on the basis of
being temporary state aid for the period of ten years and, officially at any rate,
was unlikely to be renewed. The opening of the register had not, in fact, been
the commencement of trading, applicants having hedged their positions since
the previous autumn. Trading in depth was not expected, however, to develop
2004, p. 12; Harvey and Ostrovsky, Financial Times, 1 October 2004, p. 8). Although the
Governing Party had a majority in the Duma, ratification could not, however, be guaranteed
(see editorial, Financial Times, 1 October 2004, p. 20). The President’s proposal did
nonetheless, subsequently, obtain the approval of both Houses of Parliament.
15 Especially in relation to para. A.4.
16 This being the time at which the legal small print is likely to be examined by outside
lawyers – where premises are being acquired rather than the operating entity, a vendor well
within his prospective target is likely to sell units in the market as a means of increasing
his effective sale price for the going concern.
17 Seemingly completed on 11–12 March 2002.
18 HM Treasury’s Budget 2003 (9 April 2003), para. 7.15 (see also Brian Jones and Peter
Hawkes, [2001/2002] 3 ULR 39).
19 This has the extraordinary effect of permitted a delinquent to benefit from an overall
industry undershoot if he has not covered himself in the tradable permits market, whilst
encouraging a likely overshooter to sell his prospective surplus in order to prevent
delinquents benefiting from this.
384 Environmental Taxation Law
before climate change agreement participants20 were in a position to estimate the
amount of their individual divergences from their first year targets in the autumn
of 2002.21
On 1 December 2004, the Environment Minister, at a speech launching the London
Climate Change Services Providers Group, let it be known that, in its first two years,
UK ETS had achieved emissions reductions of 9.8m tonnes of CO2 equivalent
and that six of the leading participants had pledged additional reductions of 8.9m
tonnes.22
The ultimate intention was to run the trading arrangements on until they could
be merged with an international trading scheme into the first Kyoto Protocol23
target saving period, 2008–2012.24 Whether this will ever happen is, however, far
from certain. The US is the largest emitter of greenhouse gases25 and the Kyoto
Protocol had been designed on the basis that it could mitigate its obligations under
the reduction programme by buying permits from Russia, which had been allocated
a very generous quota,26 thus helping to subsidise the democratic regime which had
succeeded the collapse of the Soviet Union less overtly than hitherto. The withdrawal
of the draft treaty from consideration by the Senate (where it was heavily bogged
down) by President Bush in the summer of 2001 put into question whether any
international permit trading scheme would be viable, except possibly within the
EU, which, in late 2002, was preoccupied with the more pressing problems of the
enlargement process.27
In the spring of 2002, it was anticipated that a voluntary European scheme would
start in January 200528 and that the discrete British trading scheme would come to
20 In relation to whom, it needs to be remembered that the criterion for membership was not
that of heavy power usage, but having come within the IPPC heavy polluter categorisation
(see para. 6.2.3 above).
21 Buchan, Financial Times, 2 April 2002, p. 4.
22 http://www.defra.gov.uk/corporate/ministers/speeches/em041201.htm: Mr Elliot Morley,
MP.
23 See para. 8.3.1.4 above.
24 The first such sale was by the Slovak Republic to a Japanese group on 6 December
2002, and a decision in principle on an EU-wide system was expected to be agreed on 9
December 2002 (see Dombey and Houlder, Financial Times, 6 December 2002, p. 14).
25 Following the dramatic blackout in Ontario, Ohio, Pennsylvania, Michigan and New York
in August 2003, doubts have been expressed as to the credibility of US environmental
policy (see Coldwell, Financial Times, 16–17 August 2003, p. 11).
26 A. Moe and K. Tangen, The Kyoto Mechanisms and Russian Climate Politics (London:
RIIA, 2000).
27 Relations between USA and many of the ‘old’ EU states deteriorated as a result of the
former’s initiation of the Iraq War. At the Nairobi conference convened under the auspices
of the 1987 Montreal Protocol, US negotiators sought exemption for methyl bromide, a
fumigant used in farming, and were opposed by the EU delegation (see Houlder, Financial
Times, 12 November 2003, p. 14).
28 It is worthy of note in this context that a wholesale price surge in electricity is considered
likely to accompany this event, despite ‘windmills’ replacing retiring Magnox (nuclear)
and coal power stations (see Financial Times, Lex Column, 22 August 2003, p. 18).
Emissions and Waste Trading Schemes 385
an end and merge into it by December 2006.29 It was also envisaged that the British
Government would set the penalty level for overshooting at about the same level, of
approximately twice the open market rate.30
In August 2001, it had, however, also been envisaged that a number of non-domestic
greenhouse emission projects would be set up and that participation in them might
earn credits which could be traded within the UK ETS.31
It was also envisaged in August 2001 that one possible future development of the
scheme might be the creation of a facility for non-governmental organisations to buy
in capacity for cancellation and/or companies to buy-and-cancel in order to offset
greenhouse emissions voluntarily.
In the Pre-Budget Report on 27 November 2001, mention was made of the possibility
of UK ETS being extended to biodegradable municipal waste.32
It is, however, possible that the scope of the UK ETS may, instead, be narrowed.
In February 2002, the Cabinet Office Performance and Innovation Unit33 evaluated
two possible methods of providing a fiscal incentive for carbon abatement,34 a
carbon tax (which was ruled out by the Treasury more or less immediately)35 and
changing UK ETS36 to confine it to carbon emissions permits.37 Membership
of the revised scheme would be mandatory for all participants in the fossil fuel
market.38
It was therefore rather surprising that, when the Department for Transport published
Powering Future Vehicles on 30 July 2002,39 it was revealed that work was under
way on a projects entry route, and that transport was to be one of the priority sectors
for this.40 This is especially so when account is taken of the fact that the compulsory
scheme on which the European Commission was understood to be working at the
29 In the event, the scheme approved by EU Ministers on 9 December 2002, although
starting in 2005 and relating to carbons, involved a compromise which the Commission
feared might impair its efficiency. Both companies and sectors would be permitted to opt
out until 2008, and after that date Member States are to be able to include more sectors
or gases and to auction off up to 10 per cent of the carbon quotas (see Dombey, Financial
Times, 10 December 2002, p. 13). Come November 2003, however, there was no internal
consistency of approach between UK Government departments (see Eaglesham and Taylor,
Financial Times, 16 November 2003, p. 2). For the EU Emissions Trading Directive, see
Chapter 28 below.
30 These were authorised by Waste and Emissions Trading Act 2003, ss.38, 39.
31 UK Emissions Trading Scheme (14 August 2001), section 6.
32 Para. 7.82.
33 See para. 4.2.1.2(1) above.
34 The Energy Review (February 2002), paras 3.57, 3.59 and Box. 3.1.
35 Written Answer, 25 February 2002, vol. 380, No. 106, col. 1031.
36 That is, The UK Greenhouse Emissions Trading Scheme 2002, the rules of which spell
out in detail the obligations of direct participants.
37 Entrants to the 2002 auction had the option of basing their targets on either carbon dioxide
or on all six Kyoto gases (see para. 8.3.1.4 above).
38 See also Taylor, Financial Times, 8 August 2002, p. 4.
39 Containing a foreword by the Prime Minister, The Rt Hon. Tony Blair, MP.
40 Para. 29.1.
386 Environmental Taxation Law
time covered a multitude of areas, but not transport.41 However, in The Future of
Air Transport,42 the British Government indicated that it proposed to use its 2005
Presidency of the EU to bring aviation within the EU Emissions Trading Scheme
(‘EU ETS’)43 from 2008.
In the context of the Cabinet Office Performance and Innovation Unit proposals, it
should be borne in mind that the following limitations were set upon those who could
apply to join the 2002 auction scheme:
1 a renewable obligations certificate scheme being under consideration, electricity
and heat generators could only participate in relation to their own headquarters
and generation site where all the energy was consumed on site;
2 sites covered by climate change agreements, which provided a 20 per cent
reduction in levy as an incentive, and in relation to which the proprietors were
participants in the relative sector of the trading mechanism, a gateway preventing
net transfers from this to the absolute sector in which those successful in the
auction were to have their credits;44
3 those whose emissions were from land or water transport;
4 where the emissions were from households, in relation to which the Energy
Efficiency Commitment was to come into force in April 2002;
5 the emission of methane from a landfill site covered by the Landfill Directive;45
and
6 where the flaring of natural gas was concerned, allowances purchased would not
be capable of substitution for consents under Energy Act 1976.
In the Energy White Paper published in February 2003, Our Energy Future –
Creating a Low Carbon Economy, emissions trading was said to be ‘central’ (to the
White Paper’s thesis),46 and indications given that it might be extended to projects
involving CHP47 and coal mine methane.48
41 Including energy, the production and processing of ferrous metals, the mineral industry
and industrial plants from the production of pulp from timber or paper and board with a
daily capacity of 20 tonnes.
42 Cm 6046 (December 2003), Annex B: see para. 27.5 above.
43 See Chapter 28 below.
44 How these arrangements are to be fitted into the 2005 European emissions trading
arrangements could be an issue of some difficulty, since such participants do not have
a true ‘cap’ on their emissions and their climate change agreements do not represent an
allocation from the UK national total for the purposes of the EU ETS Directive (see
Fiona Mullins and Jacqueline Karas, EU Emissions Trading: Challenges and Implications
of National Implementation (London: RIIA, 2003), p. 61). The solution favoured by the
UK Government is the creation of a level playing field through the introduction of an
equivalent climate change levy reduction for agreement participants who prefer their direct
emissions to be covered by the EU scheme (see Business Brief 27/2003 (10 December
2003)).
45 See para. 12.2.5.1(2) above.
46 Para. 2.27.
47 Ibid., para. 4.18.
48 Ibid., para. 6.67.
Emissions and Waste Trading Schemes 387
Furthermore, in June 2004, in a joint Defra-Treasury Consultation, Developing
Measures to Promote Catchment-Sensitive Farming, the possibility was mooted of a
trading element in an economic instrument solution option.49 It appeared, however, that
Dutch experience with manure trading50 and the inability of transferability to generate
any trading in relation to local reservoir schemes in Colorado51 would militate against
the adoption of such a scheme.52 The responses to the Consultation were published
on 2 December 2004 and revealed that the majority had opposed the use of economic
instruments.53 On the same day, the minister issued a written Parliamentary Statement
containing no reference to such instruments in his assessment of the way forward.54
However, a more fundamental problem to the future development of the current
system was becoming apparent at the beginning of August 2003. The EU ETS,55
to be introduced in January 2005, affects 2,000 industrial sites in the UK. How the
UK’s national allocation of allowances would be divided out was becoming highly
controversial and a consultation was therefore put in hand. Industries with high
abatement costs are likely to have to buy allowances to the extent that they have
been unsuccessful in obtaining enough of the 95 per cent expected to be allocated
free of charge. According to the research accompanying the consultation document,
an increase in electricity prices would be likely to result if trading took place at £10
per tonne of carbon dioxide. There was, subsequently, a considerable debate over
the prospective allocation of allowances between energy suppliers and industry in
general.56
In the event, although it had produced a draft national allocation plan (‘NAP’)
before the end of 2003,57 the UK Government was not able to meet the 31 March
49 See para. 21.9 below.
50 Para. E9.
51 Ibid., para. E10.
52 This is, perhaps, not altogether surprising in the light of the review of international
precedents in Annex 3 to Economic Instruments for Water Pollution, published by the
DETR on 20 January 1998.
53 www.defra.gov.uk.
54 Mr Elliot Morley, MP: HC 2 December 2004, col. 51WS.
55 See Chapter 28 below.
56 Houlder, Financial Times, 14 August 2003, p. 2; Taylor, Financial Times, 9 January 2004,
p. 3; Taylor, Financial Times, 12 January 2004, p. 4; Miller (letter), Financial Times, 13
January 2004; Whitelegg and Nicholson (letters), Financial Times, 15 January 2004;
Financial Times (leader), 20 January 2004; Taylor, Financial Times, 20 January 2004,
p. 2; Taylor, Financial Times, 24–25 January 2004, p. 4; Taylor, Financial Times, 27
January 2004, p. 4. The EU Energy Commissioner at that time, Mrs Loyola de Palacio,
was subsequently understood to regard the reduction of emissions as a preferable option
for maintaining energy industry competitiveness (see Buck, Financial Times, 26 February
2004, p. 10). However, she made clear in correspondence on that article that her concerns
related to the state of uncertainty resulting from Russia’s (then) failure to ratify the Kyoto
Protocol (see Financial Times, 2 March 2004, p. 18).
57 Providing for a reserve of 5.7 per cent for new entrants: ENDS Report 348 (January
2004), p. 18. As to this, it is worthy of note that the Commission’s acceptance, on 7 July
2004, of the UK’s late filing was conditional on two aspects: the need to include Gibraltar;
388 Environmental Taxation Law
200458 deadline for announcing its allocation of allowances between generators
and industry.59 The main reason was thought to be the lack of base line emissions
data,60 especially in the energy sector.61 It was indicated in a written answer to a
House of Commons Question, however, that the installation-level allocation would
be published in June.62 In the event, the UK filed on 30 April 2004,63 scaling back
the previous target for savings between 1990 and 2010 from 16.3 per cent of carbon
emissions to 15.2 per cent.64 The official prediction was that electricity prices would
rise by 6 per cent, but this was disputed by the Energy Intensive Users Group,65 who
predicted an increase of between 25 and 30 per cent by 2007.66
The government published a Consultation entitled Towards a UK Strategy for Biofuels
on 26 April 2004. One of the questions posed was the possibility of introducing a
and the provision of insufficient information on the way in which new entrants would be
able to begin participating in EU ETS (see IP/04/862).
58 Making the criticism of other Member States in the joint statement issued by Mrs Beckett
and Sir Digby Jones, the Director-General of the Confederation of British Industry on 9
June 2004 somewhat surprising (see www.defra.gov.uk).
59 It was, needless to say, not the only Member State to miss the deadline! It seemed, however,
that informal trading in EU ETS was not attaining volume because of the absence of
certainty as to national allocation plans (see Morrison, Financial Times, 18 March 2004,
p. 63). But the international market in carbon emissions did seem to be increasing in size
(see Houlder, Financial Times, 10 June 2004, p. 11).
60 It should be noted, in this context, that Art. 3(6) of the Electricity Acceleration Directive,
2003/54/EC, (2003) OJ L176 37 (see para. 12.2.6.3(2) above) obliges Member States to
require suppliers to notify customers of their source mix. Although the principle behind
NETA does not facilitate this to be done, the UK has accepted that this will have to be
incorporated into the UK regime, albeit by increasing the administrative obligations of
suppliers (see DTI Consultation, Implementation of EU Directive 2003/54 Concerning
Common Rules for the Internal Market in Electricity, paras 3.3.11–17. See paras 6.4.3.1(4)
and 12.2.6.3(2) above).
61 See 350 ENDS Report, March 2004, pp. 47–8.
62 HC PQ 160232, 29 March 2004, cols 1196-1197W.
63 After which the Commission had been considering legal action against the six Member
States who had still not filed. Only three of the new joiners had filed. In addition, the
Commission was in correspondence with some of those who had filed, including Germany
(see Minder, Financial Times, 19 May 2004, p. 8). The German Government has therefore
found itself assailed from both sides, with EnBW considering taking legal action to obtain
a higher share of the allowances for its lignite and gas plants to take account of its nuclear
plants being phased out under that government’s decision to shut them down (see Reuters,
reported in Financial Times, 3 June 2004, p. 8).
64 Houlder, Financial Times, 7 May 2004, p. 2. The final allocation may, however, be delayed
until February 2005 (see ENDS Report 355, August 2004, pp. 55–6).
65 See para. 2.4.5 above.
66 Houlder, Financial Times, 7 May 2004, p. 2. Although not the concern of that particular
organisation, this issue is particularly important in the context of UK Fuel Poverty
Strategy, where it seems to be of the essence to the effect on the poorer sections of the
domestic consumer market that NETA and other government structural changes bring
down prices (see also para. 21.6.2 below). See also Taylor, Financial Times, 15 September
2004, p. 2.
Emissions and Waste Trading Schemes 389
Renewable Transport Fuels Obligation. There was, however, a consensus amongst the
responders that regulation would be extremely difficult. Indeed some oil companies
took the view that such arrangements would be inconsistent with the European Single
Market. The ‘most popular’ option was said, however, to be a system of tradable
certificates.67 The government then announced that it would undertake a feasibility
study and consultative process.68
The government is also consulting on the possibility of introducing trading in white
certificates.69 This concept involved the concept of energy saved (or the use of which
had been avoided) rather that the UK and EU ETS concept of an allowance or credit
of emissions (called a black certificate). It was accepted, however, that monitoring
and verification problems would arise, as well as the issue of interaction with UK and
EU ETS, were such a system to be introduced.
20.4 Operation of the UK Emissions Trading Scheme
Direct participants are those who we,re successful in the February 2002 auction.70 If
they meet their five-year targets, they will obtain a subsidy. To the extent that they
have done so, the surplus may either be sold71 or ‘banked’ for carry forward to future
years up to, but not later than 2007.72 It is not envisaged that the subsidy element
will be present in successor regimes, which will operate by reference to compulsory
emission control levels.73
67 A summary of the replies was published on 2 December 2004: www.dft.gov.uk.
68 Consultation issued 2 December 2004, by Defra, Review of the UK Climate Change
Programme, para. 8.17.
69 Ibid., para. 7.25.
70 This was an electronic exercise, with a series of rounds.
71 The National Audit Office’s investigation of the initial operating period for UK ETS
indicated that it had helped to develop a small core of trading expertise in the City
of London, with five brokers participating. Those brokers had, however, expressed
disappointment with the low prices and small transaction volumes (see Houlder, Financial
Times, 21 April 2004, p. 6). In the context of the pending merger with EU ETS, for which
Continental trading was taking place in an unregulated over-the-counter market, the news
that the London-based International Petroleum Exchange was planning a link up with
the Chicago Climate Exchange (which had established the first trading market for US
greenhouse gas emissions in 2003) should therefore be seen as a significant development
(see Tait and Morrison, Financial Times, 22 April 2004, p. 29).
72 But with the prospect of being able to transfer a maximum of the overall target saving into
the subsequent first Kyoto Protocol period.
73 The UK was originally to be permitted to opt out of the pilot phase of the EU ETS, which
is to run from 2005 to 2007. Under the EU ETS, Member States have to draw up their own
Kyoto commitment allocation plans by March 2004 and seem likely to auction 5 per cent
of their carbon dioxide emissions licences. It is expected that higher wholesale electricity
prices will result (see Houlder, Financial Times, 26 June 2003, p. 10).
390 Environmental Taxation Law
If direct participants look like falling short of their targets,74 they may cover their
shortfall for the calendar year by the following 31 March. If they do not, they suffer
not only the loss of the financial incentive (alias subsidy), but also a reduction in
the following year’s target (that is, a requirement to reduce emissions by more)
multiplied, in the short term by a factor of between 1.1 and 2.75
Direct participants may buy and sell credits76 on the basis of spot trading carried
out though the auspices of the Emissions Trading Authority,77 the ownership of
credits being maintained by the Registry. Trading may either be direct or through a
broker and takes place on a seller-liability basis, that is, if the target was not met, the
consequent penalties would be visited on the seller rather than the buyer.
It is not necessary, however, to be either a direct participant or the signatory to
a climate change agreement (known as ‘a(chǎn)greement participants’) to take part in
trading. The Financial Services Authority is not, however, involved in the operation
of this market.
20.5 The regime applicable to direct participants
Before being accepted as qualifying, direct participants had to establish a baseline
figure and have it verified by an independent firm selected from a panel whose
members have been accepted as professionally competent by the government. The
baseline figure will usually have been the emissions of the three years. The subsequent
task of the verifier will be to monitor divergence from the target based on this by 31
March following the calendar year end.78 Divergences are treated as material if they
exceed 5 per cent.
74 The problem about the scheme seems, however, to be that, out of the £215m committed to
31 companies, the National Audit Office (see para. 4.2.1.3 above) discovered that the DTI
had felt that an even handed approach had meant that bids had had to be accepted from four
chemical and oil companies (BP, Invista UK, Ineous Fluor and Rhodia Organique Fine)
who managed to obtain between half the first year’s commitment for attaining targets (by
a very wide margin) which, in the NAO’s view, they would have achieved without the aid
of the scheme (see Houlder, Financial Times, 21 April 2004, p. 6). The NAO Report was
heavily criticised for ignoring BATNEEC: ENDS Report 351 (April 2004), p. 27.
75 The intention was to replace this by a financial penalty once the necessary legislation
could be put through Parliament, which turned out to be in the Waste Emissions Trading
Bill, a piece of legislation the government’s Parliamentary business managers did not
think it necessary to organise expedited passage on the floor of the House of Commons
before the 2003 Summer Recess!
76 Each equivalent to one tonne of carbon dioxide equivalent.
77 The purpose of this entity is to police the system. It alone has the authority to transfer
credits out of the compliance accounts of direct and agreement participants into the
national retirement account, out of which no transfers can be made.
78 By way of contrast, agreement participants operate to years from 1 October to 30
September have to notify by 31 January and only have to comply in alternate years, that
is, 2001/02, 2003/04, 2005/06, 2007/08 and 2009/10. What happens in the ‘fallow’ years
is ignored.
Emissions and Waste Trading Schemes 391
Candidates for the 2002 auction were able to select five-yearly targets either in
carbon dioxide alone or in all six Kyoto gases.79
Candidates also had to select a sector of their business and provide a source list of
their plants in that sector. Cherry picking was not permissible. All sources within the
same management control had to be included.
The concept of management control was clearly central to this part of the scheme.
This was intended to mean the ability to direct the financial and operating policies
governing the omissions from the source. Clearly it includes, but is not confined to,
voting control and the ability to nominate the composition of the board of directors.
It can also, however, include contractual control.80
It follows from this that it becomes necessary to be able to identify when a change
of operation has taken place and the resulting situations, differentiating between:
1 transfers between participants, when the target for the source is switched unless
either:
a. the change threshold of the lower of 25,000 tonnes of carbon dioxide equivalent
or 2.5 per cent of the verified original base line has not been breached; or
b. the parties contract otherwise;
2 the transferor is a participant, but the transferee is not and does not join the
scheme, and the change threshold is breached;
3 a participant obtains control from a non-participant, when nothing happens; or
4 the acquisition of a substitute source by a participant, when a substitution takes
place.
In the event of withdrawal from the scheme, the whole of the incentive money
received is repayable, with interest.
20.6 Green Certificate trading
The concept of a tradable Green Certificate arose out of the introduction of the RO
in the electricity sold into the climate change levy system from 1 April 2002.81 A
generating station holding such certificates may convert them into UK ETS allowances
at the rate of 0.43 allowances per certificate. It is not, however, permissible for
allowances to be converted into certificates.
Customs have made it clear that this form of trading has to be distinguished from,
and should not be compared to, trading in (climate change levy) levy exemption
certificates (‘LECs’) after 31 March 2003, which they have been advised is lawful
79 Carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and
sulphur hexafluoride. See para. 8.3.1.4.
80 UK Emissions Trading Scheme (14 August 2001), Annex A, para. A.4.
81 See para. 21.5 below. As with PRNs (as to which, see para. 19.5 above), trading started
initially on a non-statutory basis.
392 Environmental Taxation Law
provided that the balancing requirement is maintained and that an audit trail exists
which leads back to appropriately-generated electricity.82
20.7 Landfill Allowances Trading Scheme (‘the LATS’)
Under the Waste and Emissions Trading Bill introduced in the House of Lords on 14
November 2002,83 tradeable allowances from local authorities were to be created.
This was by way of implementation of the commitment contained in the White Paper
Waste Strategy 2000: England and Wales. This was part of a strategy to restrict the
amount of municipal biodegradable waste84 sent to landfill85 in order to comply with
the targets for 2010, 2013 and 2020 contained in the Landfill Directive.86
Provision is made for the setting of a maximum amount of degradable municipal
waste (to be specified by weight)87 that may be sent to landfill on a county-by-county
basis, by reference to years beginning on 17 July.88 There will then be an allocation
of landfill allowances to waste disposal authorities by the county councils.89 These
allowances will be tradeable. The details of the scheme, which will make provision
for borrowing and ‘banking’, as well as trading, are to be contained in secondary
legislation.90 In preparation for the scheme, each county is to be required to prepare
a strategy for reducing the amount of such waste going to landfill.91
82 CCL Information Sheet 01/03 (May 2003) (see para. 14.14 above).
83 But stalled in the House of Commons before the 2003 Summer Recess, since the completion
of its Committee Stage there on 29 April 2003. The reason seems to have been the need to
formulate a policy following the departure of Mr Meacher from the government in June
2003. The government’s approach came under very heavy criticism from both national
Opposition parties in the Report Stage and Third Reading debate held on 28 October 2003.
84 Waste Emissions and Trading Act 2003, s.21(2) defines this as a combination of
biodegradable waste as defined in s.21(1) and municipal waste as defined in s.21(3).
85 Defined in Waste Emissions and Trading Act 2003, s.22(1) as either a waste disposal site
or a site used for the storage of waste, as defined in s.37, subject to the matters referred to
in s.22(2) and the activities set out in s.25(1) being left out of account.
86 See para. 12.2.5.1 (2) above and the Landfill Directive, Arts 5(1),(2) (a four-year derogation
has been obtained under the latter).
87 Waste Emissions and Trading Act 2003, ss.1, 2: depending upon whether the year is a
target year, for which the Secretary of State has to agree a target with the county in
question in advance. If agreement cannot be reached, s.3 specifies default rules. Section
23 empowers the Secretary of State to change the target years.
88 Scheme years run from 2004 to 2019, target years are those starting in 2009, 2012 and
2019. These are the years by which compliance with the Landfill Directive is to be judged
by the European Commission.
89 Waste Emissions and Trading Act 2003, s.4. Under s.24, the devolved authorities are
responsible in Scotland, Wales and Northern Ireland. Under s.5, this allocation must be
before the beginning of the relevant year. The ban on exceeding the target is contained in
s.9.
90 Waste Emissions and Trading Act 2003, ss.6, 7.
91 It is thought that an authority with substantial incineration capacity, such as Birmingham,
will be at a substantial advantage under this system.
Emissions and Waste Trading Schemes 393
On 11 May 2004, Mr Elliot Morley, MP (the Minister of State) announced that
landfill allowance trading (‘the LATS’) would commence on 1 April 2005.92 This
followed the outcome93 of a consultation94 on the draft regulations.95 As a result
of this, the government decided that scheme years should run to 31 March.96 The
allocation formula would not have a population growth formula built into it,97 and
it was felt that it would be impractical to run a scheme without penalties.98 The first
review was to take place in 2007.99 Allowances were to be divided out on the basis
of convergence by 2010,100 with the potential for some increases before then (rather
than capping).101 The reductions during the intervening years were to be on a backend
loaded (rather than straight line) basis,102 with a reduction in the first year103
and a trajectory of 10/15/20/25/30.104 A mass balance approach was to be used in
calculating the rate,105 with 2003/04 as a base year.106
It was not considered appropriate for a specified percentage of the funds generated
to be reinvested in waste management.107 There was to be a borrowing limit of 5 per
cent of the following year’s allocation,108 but with no restriction on the banking of
unused allowances.109
There was to be no requirement to use a broker,110 as to whom the possibility of FSA
authorisation was under consideration.111 Defra would issue guidance,112 predict the
outturn and make a preliminary reconciliation available,113 and monitoring would
92 HC, 11 May 2004, col. 58WS.
93 Landfill Allowance Trading Scheme Consultation Outcome, DEFRA, April 2004.
94 By internet, opened 29 August 2003, closing 21 November 2003, with comments on the
draft regulations published on 14 November 2003, accepted up to 31 January 2004.
95 To be entitled: the Landfill Allowances and Trading Scheme (England) Regulations 2004
and Landfill Allowances Scheme (Scheme Years and Landfill Targets) Regulations 2004.
96 Consultation Outcome, para. 4.11. The start is being deferred until 2005/06 (see paras 4.5,
4.17).
97 Ibid., para. 4.18.
98 Ibid., paras 4.6, 10.7, 10.8, 10.9, 10.15, 10.20, 10.23, 10.27.
99 Ibid., para. 4.34. It would focus on operational arrangements (ibid., para. 4.35).
100 Ibid., para. 5.4.
101 Ibid., para. 5.15.
102 Ibid., para. 5.20.
103 Ibid., paras 5.21, 11.3, 12.4, 12.8, 12.10, 12.12, 12.14, 12.16, 12.20.
104 Ibid., para. 5.22.
105 Ibid., para. 5.28.
106 Ibid., para. 5.29.
107 Ibid., para. 5.17.
108 Ibid., para. 6.9.
109 Ibid., para. 6.10.
110 Ibid., para. 7.4. It would be up to each local authority to decide how many people should
be authorised to deal and their level of seniority (ibid., para. 8.6).
111 Ibid., paras 7.5, 7.15. It will have been noted above that UK ETS brokers were not within
the FSA’s jurisdiction.
112 Ibid., para. 7.10. There was some controversy over the cost estimate in the Partial RIA
which had been issued (ibid., para. 13.2).
113 Ibid., para. 9.2.
394 Environmental Taxation Law
be on a mass balance approach with reconciliation by the Environment Agency six
months after the scheme year end.114 Defra would formulate a communications
strategy.115 Non-monetary trading would be permitted (albeit with no decision made
on how this would be recorded.116 The public would have ‘read only’ access to the
register and to the average prices paid (but not to individual prices),117 forward
trades would have to be registered,118 but only in the most exceptional circumstances
would trading be suspended.119
Coupled with this development, albeit less heralded by the UK Government, was the
placing of PRN trading on a statutory basis.120 In relation to these, the government’s
view in 1998 had been that the market was a source of instability.121 What effect the
LATS will actually have on the bringing forward of capital expenditure on recycling
facilities is uncertain, not least because the existence of central government council
tax capping powers122 may deter local authorities who would otherwise have
undertaken such expenditure from commissioning it.
114 Ibid., paras 9.10, 9.15, 9.16, 9.20, 9.21.
115 Ibid., para. 7.24.
116 Ibid., para. 7.20.
117 Ibid., para. 4.18.
118 Ibid., para. 8.4.
119 Ibid., para. 7.9.
120 See para. 19.5 above.
121 Ibid.
122 Which were exercised in 2004 (see para. 21.4.1 below).
Division 5
The Instruments in Operation
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Chapter 21
Policies in Practice (1)
21.1 Introduction
It was stated in Chapter 1 above that the overriding aim of the book has been to give
a comprehensive, contextual and critical account of environmental taxation law in
the UK.1
In this division of Part III, we attempt to relate the theory of environmental
taxation, as discussed in Chapter 5 above, to the events that have occurred since
the introduction of each of the post-1997 environmental taxes, respectively in 2001
and 2002, as well as the ongoing modifications to landfill tax, and the absence of
taxes on agricultural activity. We begin with an examination of the vexed question
of the so-called ‘employment double dividend’.2 As we have already mentioned, this
notion is much contested by economists and, since we are not economists, we set out
simply to show what has happened to rates of employers’ NICs in the years since the
introduction of climate change levy in 2001. The facts are rather striking. From there,
we look at another legitimating factor of environmental taxes, that is, the extent to
which the revenue raised by them is ‘recycled’ or ‘hypothecated’.3 Again, the way in
which the hypothecation debate has ‘played out’ in practice discloses some surprising
problems with what may seem at first a self-evidently sensible idea.
The main theme of this government, however, is the extent to which the energy
policy which underlies the biggest of the environmental taxes, climate change levy, is
internally inconsistent in itself. The failure of the government to create the conditions
for a viable renewables sector, while structuring the tax so as to prevent further damage
to what remains of the UK coal industry, is only one of the inconsistencies disclosed
by this examination. Similar contradictions are disclosed by the relationship between
the landfill tax escalator and local government taxation and by the imposition of
aggregates levy on a product for which the government, via its various agencies, is
the largest customer.
Throughout, the main source of the criticisms made are the reports of a number
of Parliamentary Select Committees who have chosen in the last couple of years to
examine the UK’s energy policy and, with it, its environmental regulation, including
the operation of climate change levy.
21.2 The employment ‘double dividend’
When landfill tax was introduced at a principal rate of £7 per tonne, the anticipated
revenue was such that a reduction of 0.2 per cent could be made in employers’ national
1 See para. 1.2.2 above.
2 See para. 5.3 above, especially the materials footnoted at para. 5.3n.
3 See para. 11.2.2 above.
398 Environmental Taxation Law
insurance contributions (‘NICs’). Although the Labour government increased the
rate of tax to £10 per tonne in 1999 and by £5 in five annual increments from 2000
to 2004, no variation in the NIC rate has been announced because the landfill tax
has become a net non-producer.4 When climate change levy was introduced in 2001,
the rebate was increased, but by only 0.3 per cent. Again, when aggregates levy was
brought in, in 2002, there was a further rebate, but by only 0.1 per cent.
The last two reductions were so low as to make little difference even (in the case of
climate change levy) to the few employers unaffected by the new tax. Such changes
were, furthermore, expected to be short-lived by reason of the general increase in life
expectancy’s knock-on effect on the future levels of national insurance contributions,
which, historically, have been increased in line with the underlying ‘insurance’
element.
Three points need to be made about the underlying policy decision:
1 Employers’ payroll taxes in the UK do compare very favourably with those of
its immediate European neighbours, with some French businesses moving to the
southeast in order to obtain relief on this score. This climate is, furthermore, an
important one in the context of attracting overseas inward investment. The extent
to which the UK Government’s decision to stay out of the euro has undermined
this advantage, and therefore policy, however, has not yet been quantified.
2 The German Government’s 1999 Law Initiating Ecological Tax Reform is based
on a similar premise (higher energy taxes being offset by reduced social security
contributions).
3 Whereas the effect of climate change levy has been to increase industrial energy
costs by approximately 15 per cent, politically the importance of the NIC
offset does not seem to have been got across to many small and medium sized
businesses.5
In the event, the Chancellor’s announcement of a general surcharge of 1 per cent in
Budget 2002, to take effect in April 2003, has put an end to whatever the process
was intended to be.6 In consequence, it is difficult to avoid the conclusion that
environmental taxes are just that, taxes, and presumably ones which, in due course,
will become just as much available for general use as the ‘infamous’ road fund tax
of the 1920s.7
4 The figures given by the Financial Secretary to the Treasury (Mr Stephen Timms, MP) to
Standing Committee A in the afternoon of 8 May 2001, were a net take, after the rebating
scheme, of £452m, as against NIC rebates of £690m.
5 See the survey of businesses in the northwest of England in Benjamin J. Richardson and
Kiri L. Chanwai, ‘The UK’s Climate Change Levy: Is It Working?’ [2003] JEL 39–58.
6 Indeed in 2003 Pre-Budget Report, para. 7.50, it was said: ‘The Government does not
think there is a strong case for recycling the increases in landfill tax revenue through any
further tax cuts’.
7 See Martin Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979
(Cambridge: Cambridge University Press, 2002), pp. 129–32. See also Roy Jenkins, The
Chancellors (London: Macmillan, 1998), pp. 167–68, 317 and 322.
Policies in Practice (1) 399
21.3 Hypothecation, ‘recycling’ of revenue and tax subsidies
21.3.1 Post-1997 taxes
The government has linked both climate change levy and aggregates levy with the
setting up of specified fixed funding to deliver environmental improvements:
1 as part of the measures to meet the UK’s Kyoto targets,8 of which the main
component was the introduction of climate change levy, there were set up:
a. an Energy Efficiency Fund of £50m, part of which was earmarked to assist
with the five year transition for horticulture;9 and
b. the Carbon Trust,10 to which day to day responsibility for administering,
again in connection with the Kyoto targets, the enhanced capital allowances
scheme for the adoption of specified environmentally-friendly energy
equipment passed in July 2002.11
2 Furthermore, the following direct tax reliefs were given:
a. 100 per cent first year capital allowances for the installation of
environmentally-friendly energy equipment.12 This started off, in 2001,
covering good quality CHP, certain motors, variable speed drives, boilers,13
refrigeration equipment and thermal screens, lighting and pipe insulation.
These were extended in 2002 to oil-fired condensing boilers, heat pumps
for space heating, radiant and warm air heaters, compressed air equipment,
refrigeration display cabinets and compressors. They were further extended
in 2003 to certain water meters, monitoring equipment, flow controllers,
leakage detection equipment, lavatories and taps.14 The reliefs were then yet
8 See para. 8.3.1.4 above.
9 This was part of the amelioration package contained in Budget 2002: see Press Release
REVCEC 4/00 (21 March 2000). The Carbon Trust is a different body from the Energy
Saving Trust, which had been set up by the previous Conservative Government after the
1992 Rio Conference (see para. 4.2.1.2(1) above).
10 See para. 4.2.1.2(1) above.
11 The Carbon Trust also makes loans to small and medium-sized enterprises. However, the
setting-up of both it and the Energy Saving Trust (‘the EST’) were seen as political gestures
by the House of Commons Science and Technology Committee in its Report issued on 2
April 2003, entitled Towards a Non-Carbon Fuel Economy: Research, Development and
Demonstration, paras 41 and 44. In the 2004 Spending Review, issued on 12 July 2004,
para. 17.3, it was revealed that, by 2007/08, at least £40m per annum would be used to
expand the Carbon Trust’s Programmes. One of the projects being backed was Ceres
Power, a developer of fuel cells (see Cookson, Financial Times, 13 July 2004, p. 6).
12 Capital Allowances Act 2001, s.45A.
13 A by-product of this seems to have been a retail boom in green household boilers (which
do not qualify for capital allowances) (see Marsh, Financial Times, 7 January 2003,
p. 4).
14 Press Release REV BN 26 (9 April 2003); Capital Allowances Act 2001, ss.45H–J.
400 Environmental Taxation Law
further extended in 2004 to air-to-air energy recovery equipment, compact
heat exchanges and heating, ventilation and air conditioning zone controls on
the ‘energy saving’ side and rainwater harvesting equipment on the ‘water’
side; and
b. the 5 per cent VAT rate was made available for the grant-aided installation in
dwellings of energy saving materials15 and heating equipment.16
3 In conjunction with the start of aggregates levy, the Aggregates Levy Sustainability
Fund (‘the ALSF’) of £35m was set up ‘to deliver local environmental
improvements’.17
21.3.2 Landfill tax
Landfill tax was, of course, already in existence when the present government came
to power in 1997 and had built into it the possibility of an operator making direct
contributions to one or more environmental trusts, the only conditions being that:18
1 the landfill operations of the contributor could not benefit from the activities of
that particular trust;19
2 only 90 per cent of the contributions would qualify for relief from landfill tax –
but contributions to research and development, educational or disseminational20
trusts apart, it is unclear whether (and if so why) the remaining 10 per cent is
deductible from profits under Case I of Schedule D;21 and
3 there was an overall relief cap of 20 per cent of an operator’s total liability.22
Thus, for instance, say Dump-it PLC has a total landfill tax liability of £5m. If no
contributions had been made, this would have cost it £3.5m after corporation tax
at 30 per cent. However, if it had contributed £1m to environmental trusts, it would
15 Value Added Tax 1994, Sched. 7A, Group 2. Insofar as these cover construction
materials, such as ‘Wallform’ blocks, the relief may be ineffective because the supply
may be incidental to the principal supply of construction (see Beco Products Ltd and BAG
Contractors v. C & E Commrs, MAN/01/4).
16 Value Added Tax 1994, Sched. 7A, Group 3. From 1 June 2004, this was extended to
ground source heat pumps: via Group 2, Note 1(h). Microchip units are to be added in
2005.
17 See para. 4.2.1.2(1) above.
18 Finance Act 1996, s.51; Landfill Tax Regulations 1996, S.I. 1996 No. 1527, regs 17–21,
30–32.
19 Except in the case of trusts set up for research and development and the dissemination of
its results.
20 That is, ones which collate evidence of best possible practice and distribute it back to the
industry.
21 See paras 1.4.3.1 above and 24.8 below. The solution to this problem has not been helped
by the article in Tax Bulletin No. 23 (June 1996) indicating that it was for the taxpayer
to justify deducting the 90 per cent under Income and Corporation Taxes Act 1988,
s.74(1)(a)! (See paras 1.4.3.1 above and 24.1 below.)
22 However, from 1 April 2003, this has been reduced to 6.5 per cent. See Landfill Tax
(Amendment) Regulations 2003, S.I. 2003 No. 605, reg. 3(a).
Policies in Practice (1) 401
have reduced its landfill tax bill by £900,000, but have increased the (probable)
cost after corporation tax by only £70,000. The company’s management might
well have seen this as a viable alternative to advertising as a means of improving
the company’s public image.
Such entities were set up under the auspices of Entrust,23 and were extremely
popular,24 both with site operators, who fill the pro bono parts of their annual reports
with extolling their contribution to the public good through these entities, and with
local churches25 and other land-based charities, who have been quick on the uptake
when waste disposal operations have been set up in the vicinity. Entrust are prepared to
regard projects within a radius of ten miles as qualifying under that head, and Customs
are prepared to treat environmental protection as including both the protection of
buildings as well as the creation of wildlife habitats, conservation areas, ‘urban forestry’
and the promotion of positive land management and community involvement.
Eligible bodies may be corporate or unincorporated, and include trusts and
partnerships.26 They must not be controlled by, inter alia:
1 local authorities, or
2 those registered for landfill tax, or
3 people connected with them,
and are precluded from distributing their profits or applying any of their funds for the
benefit of contributors. Any profit has, furthermore, to be applied in furtherance of
their objects, which must include one or more of the following:27
1 unless this benefits the polluter or is required by a statutory notice,28 the
reclamation, remediation or restoration of land or any operation intended to
facilitate the economic social or environmental use of land for which such use
has ceased because of the carrying out of some activity over the land;
2 subject to the same restrictions, where the use of land has ceased because of
pollution, the prevention, reduction, remediation or mitigation of pollution;
3 research, development, education or the collection and dissemination of information
about waste management practices generally – in relation to this object and the
following one, contributors can obtain general (but not specific) benefit;29
23 Finance Act 1996, s.53. As a result of controversy as to the effectiveness of the degree
of supervision attained, improvements in the scheme’s operation were put into effect in
the autumn of 2003. Less information was required, common systems adopted, better
information recorded on project funding and audit processes improved (see Business Brief
19/03 (1 October 2003)).
24 And have to comply with Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 33A.
25 See Churches Main Committee circulars 1996/6, 1997/2 and 1997/8.
26 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 33(1)–(1C).
27 Ibid., reg. 33(2).
28 Ibid., reg. 33(3).
29 Discontinued with effect from 1 April 2003 (see Landfill Tax (Amendment) Regulations
2003, S.I. 2003 No. 605, reg. 4).
402 Environmental Taxation Law
4 the same in relation to recycling;30
5 provided that this is not required under a statutory notice and is not to be operated
with a view to profit,31 the provision, maintenance or improvement of a public
park or other public amenity in the vicinity of the landfill site where this is for the
protection of the environment;
6 following the Treasury’s reassessment of the efficiency of this type of support,
with effect from 1 October 2003,32 the conservation or promotion of biological
diversity33 where this was for the protection of the environment and neither carried
out compulsorily34 or for profit,35 through either the provision, conservation,
restoration or enhancement36 or the maintenance or recovery of a species in its37
natural habitat;
7 subject to the same restrictions as in 5, the maintenance, repair or improvement
of a place of worship or of historic or architectural interest which is open to
the public and in the vicinity of the landfill site where this is required for the
protection of the environment; and
8 the provision of financial and administrative services to (only) such bodies – a
function which, it should be noted, cannot be charitable, so that an inheritance
tax issue will arise if close companies and unincorporated businesses contribute
to this class of body.38
The system, as set up in 1996, was, however, exploited by the industry, with Customs
confirming that it was in order, under the original scheme, for an arrangement to be
made for a third party to put up the ‘missing’ 10 per cent on the basis that he would be
reimbursed. However, when suggestions began being made to local authorities that
they should join in, the rules were changed, with effect from 1 January 2000.39
The Labour government let it be known, in Budget 2001, that it was attracted to
the idea of replacing Environmental Trusts with a public spending programme on
sustainable waste management.40 In the Pre-Budget Report on 27 November 2001,
these thoughts were refined into:
30 Discontinued with effect from 1 April 2003 (see Landfill Tax (Amendment) Regulations
2003, S.I. 2003 No. 605, reg. 4).
31 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 33(6).
32 Under Landfill Tax (Amendment) (No.2) Regulations 2003, S.I. 2003 No. 2313.
33 As defined in the UN’s 1992 Framework Convention on Climate Change (see para. 8.3.1.3
above) and Landfill Tax Regulations 1996, S.I. 2003 No. 1527, reg. 33(2A).
34 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, reg. 33(3A)(a)–(e).
35 Ibid., reg. 33(3A)(f).
36 Ibid., reg. 33(2)(da)(i).
37 Ibid., reg. 33(2)(da)(ii).
38 This is by reason of the requirement under Inheritance Tax Act 1984, s.10(1) that no
gratuitous benefit should be intended to accrue to any person.
39 Malcolm Gammie, QC, and Jeremy de Souza, Land Taxation, release 53 (London: Sweet
and Maxwell looseleaf), para. E3.008A.
40 In commenting on the 1999 Thirteenth Report of the Environment, Transport and Regional
Affairs Select Committee, The Operation of the Landfill Tax’s criticisms of the uneven
distribution of funds [para. 48], the point had been made that a ‘key strength’ of the scheme
was that it encouraged private sector involvement in environmental protection schemes:
Policies in Practice (1) 403
1 consideration of the possibility of replacing environmental trusts by discretionary
expenditure;41
2 the inclusion of a biodegradable municipal waste permit within the UK ETS;42
and
3 the setting up of a New Opportunities Fund to encourage recycling.43
This process was given encouragement, in summer 2002, by the deliberations of the
House of Commons Public Accounts Committee, which concluded that inadequate
public benefit had resulted from the subsidy of £400m given to environmental trusts
since 1996.44
In the Pre-Budget Report, made to the House of Commons on 27 November 2002,
it was made known that the level of funding would be capped at its 2002/03 level,
with one third (approximately £47m) continuing to be available from 1 April 2003,
through a reformed tax credit scheme for spending on local community environmental
projects. The remainder (£100m in 2003/04, rising to £110m in 2004/05 and 2005/06)
was to be allocated to public spending to encourage sustainable waste management,45
in a manner yet to be determined46 after due consideration of the Downing Street
Strategy Unit’s Report, Waste Not, Want Not,47 with an emphasis on recycling in
partnership with local government.48
In a written statement to the House of Commons on 3 February 2003,49 the Economic
Secretary to the Treasury (Mr John Healey, MP) announced certain changes in the
scheme, to take effect on 1 April 2003:
1 the maximum percentage of the operator’s total liability to be available within
the scheme was to be reduced from 20 to 6.5 – somewhat unexpectedly increased
to 6.8 per cent from 1 April 2004;50 and
[2000] JPL 18, at 23. The change in policy plainly risks dissipating the advantages of this
approach and well as giving rise to the likelihood in the longer term that ring fencing will
be lost and the money be diverted to general Budgetary purposes.
41 Ibid., para. 7.81.
42 Ibid., para. 7.82 (see Chapter 20 above).
43 Ibid., para. 7.84.
44 Eaglesham, Financial Times, 27 July 2002, p. 5.
45 Ibid., para. 7.53.
46 The House of Commons’ Environmental Audit Committee, in its Fourth Report of
2002–03 on Pre-Budget Report 2002, HC 167, published on 1 April 2003, seems to have
suspected, however, that this presaged diversion to strategic central objectives.
47 Published in draft the same day and, finally, on 3 December 2002 (see para. 6.3.2
above).
48 Pre-Budget Report, para. 7.56. It is noteworthy in this context that, in 2004, West
Oxfordshire District Council (a traditionally low spending council) had to consider a 33
per cent Council Tax increase in order to cover unfunded expenditure (largely on this
score) and came under pressure from the Labour Government to reduce the increase (see
BBC News website, 25 February 2004).
49 Col. 5.
50 By Landfill Tax (Amendment) Regulations 2004, S.I. 2004 No. 769, reg. 3. See also
Business Brief 09/04 (18 March 2004).
404 Environmental Taxation Law
2 categories 3 and 4 above to be discontinued, although
3 transitional relief was to be available, until 31 March 2004, only, for the funding
of projects for which a written contractual obligation had been entered into before
3 February 2003.
As part of this process, the contribution years were converted into periods ending on
31 March.51
The only developments announced in the 2003 Budget were, however:52
1 the announcement of continuing discussions on the LTCS, with a view to the
making of new regulations in the summer of 2003 which would include habitat
creation;
2 attempts, in conjunction with Entrust to simplify the administration of the scheme
and provide better information from it; and
3 the transmogrification of the Waste Minimisation and Recycling Fund into
a Waste Management Performance Fund for English local authorities, to take
effect on a date to be announced, after consultation with the local authorities.53
At the same time, decisions would be made on how the scheduled landfill tax increases
would be made revenue neutral to local government. A package of measures was
scheduled to be announced in the 2003 Pre-Budget Report. In the event, however, no
substantive measures were announced in the 2003 Pre-Budget Report. In February
2004, however, HM Treasury published54 a Final Report commissioned by it from
Integrated Skills Ltd entitled An Assessment of Options for Recycling Landfill Tax
Revenues. The results, in relation to how the 2005/06 landfill tax surplus should be
applied, were distinctly tentative.55
However, the Integrated Skills Ltd report is extremely important for the way in
which it approaches the problem, leading the authors to wonder how the £35 revised
landfill tax cap had been fixed:
1 This report identifies three alternatives to disposal to landfill:
a. Energy from waste, which, it transpires, will only be competitive from an
economic point of view when the £35 level has been reached, the typical cost
levels being between £35 and £55 per tonne;
b. composting, which has a restricted application to business waste, but will
become competitive with landfill within a few years, at a price of £20
51 Landfill Tax Regulations 1996, S.I. 1996 No. 1527, substituted regs 31(4),(5),(6),(6A);
Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605, reg. 5.
52 Press Release PN 04 (9 April 2003).
53 See para. 6.3.3.5 above.
54 See www.hm-treasury.gov.uk.
55 Because of the possibility of infringing Community state aid law, as to which Appendix
B contains the observation: ‘EU policy on state aid for environmental protection faces the
difficulty that it must fulfill two objectives which are sometimes seen as contradictory’
(see paras 12.2.7 above and 21.10 below).
Policies in Practice (1) 405
per tonne for open window schemes and £25–45 per tonne for in-vessel
schemes;56 and
c. materials recycling, the lower end cost equivalents57 for all Defra-surveyed
materials being lower58 than the £35 landfill tax rate cap, but the upper end
ranges for steel59 and wood60 being slightly above this level and that for
plastics (at £207) very significantly in excess of it.
2 Even though incineration appears to be the alternative to landfill most under
consideration by county councils,61 the report does not give any consideration to
this as an alternative to landfill. Energy from waste could, no doubt, be seen as
a version of incineration, and was indeed, in its CHP form, seen as having such
advantages by the Official Opposition spokesman,62 its immediate economic
(and therefore political) consequences63 have been laid bare by the Report.
3 Most materially, and worryingly, the Report reveals that businesses do not look
at their waste disposal costs in a manner that draws attention to the taxation
element in the use of landfill. It is clear, therefore, that the government will have
an educational task, as well as the anticipated one of provider of subsidies until
the rate of tax reaches much higher levels.64
In a report issued in April 2004,65 the Commission on Sustainable Development66
expressed concern at progress on the waste disposal, and especially recycling, front,67
making particular mention of the position of local authorities,68 whose ‘Catch 22’
situation in relation to council tax capping was ignored.
56 In May 2004, TEG Environmental was to begin the roll-out of a new type of large scale
composting plant (see Hall, Financial Times, 27 April 2004, p. 24). By way of contrast,
the extraordinary size of the legal fees involved in the cross offers for the UK landfill sites
of Shanks Groups should be noted (see Taylor, Financial Times, 28 May 2004, p. 26).
57 Para. 2.5.2.
58 Albeit, in the case of plastics, at £31, not significantly lower.
59 £42.
60 £45.
61 See para. 27.7 below. See also para. 4.2.3 above.
62 Ibid.
63 At a time when county councils in the south have come off badly from a reorganisation of
the central government grant regime and are under political pressure to economise both
from their electorates and from central government.
64 As indicated in para. 21.10 below, the Report concludes that additional tax relief for
research and development or enhanced capital allowances will not produce results in this
field. The implication of this, as indicated in para. 2.5.2 of the Report is that, until the
rates of landfill tax reach much higher levels, subsidies will be required because there are
‘significant cost barriers to overcome’.
65 Shows Promise. But Must Try Harder.
66 See para. 4.2.1.4 above.
67 Ibid., paras 75, 120–22.
68 Ibid., paras 123, 157. See also para. 4.2.3 above.
406 Environmental Taxation Law
21.3.3 Land remediation reliefs
The pollution legacy of the industrial revolution affects most industrial countries.69
Under the general income tax law, remediation expenditure is likely to be classified
as capital,70 and therefore not relieved before sale (when the expenditure is likely to
be deductible under the enhancement heading).71 An excellent example of this is the
US case, Northwest Corp v. Commissioner of Internal Revenue,72 where the removal
of asbestos in the course of remodelling a building was held to be capital. Following
this decision, the Taxpayer Relief Act 1997 added section 198 to the Federal Income
Tax Code giving relief (by election) for the abatement of hazardous substances up to
31 December 2000. In Australia, expenditure on environmental impact assessments
is relieved by equal instalments over ten years, and clean-up expenditure over a
single year.73
In the UK a very limited relief was enacted in 2001, following the publication
of Lord Rodgers’ Urban Task Force report, Towards an Urban Renaissance.74
The clean-up expenditure relief takes the form of a 150 per cent corporation tax75
deduction for newly purchased contaminated land for which there was:
1 no right of recovery from the vendor;
2 no entitlement to a capital allowance;
3 no grant aid;
4 no subsidy from a third party; and
5 where the deduction would not be a trading expense.76
On the face of it, this relief is confined to capital expenditure, but the Inland Revenue
have confirmed that it can be taken against stock-in-trade.77 Where available, the
relief can be claimed either by an acquiring trader or by an acquiring landlord.
21.4 Political and industrial aspects
21.4.1 The waste management industry
A good environmental and economic case can be made for landfill tax. The purpose
behind making the dumping of waste more expensive to the end user is to encourage
69 See para. 24.5.1 below.
70 Income and Corporation Taxes Act 1988, s.74(1)(f).
71 Taxation of Chargeable Gains Act 1992, s.38(1)(b).
72 108 TC 265 (1997).
73 Income Tax Assessment Act 1997, subdivisions 400–A and 400–B.
74 The package of measures also included the very restricted flats-above-shops 100 per cent
first year allowances (see Capital Allowances Act 2001, ss.393A–393O).
75 That is, there is no deduction for income tax purposes.
76 Finance Act 2001, Sched. 22.
77 Taxation, 7 March 2002, p. 546.
Policies in Practice (1) 407
recycling.78 Yet it is quite clear that, even though the rate of £15 per tonne has been
reached in 2004, the hoped-for end result will not be achievable.79
The decision to introduce the £10 to £15 escalator was examined in the Thirteenth
Report of the House of Commons Environment, Transport and Regional Affairs
Select Committee, The Operation of Landfill Tax, published on 14 July 1999. This had
heard evidence to the effect that this level was far too low to encourage investment in
recycling technologies.80 It recommended that further price rises up to £30 per tonne
should be considered81 and that the increased revenue should be used to deter flytipping
and reduce the additional burden on local authorities.82 On the other hand,
the evidence before the Committee did support the retention of the £2 rate for inert
waste, this being a sufficient incentive to encourage alternative means of disposal for
this type of waste.83
The Committee also took evidence as to the undesirable consequences of the
introduction of the tax, which were said to include fly-tipping, increased waste
management costs for local authorities, the diversion of industrial waste into the
household disposal stream, a negative effect on the recycling of metals and white
goods, a downturn in the use of pulverised fuel ash (and therefore increased disposal
of it) and the use of virgin aggregate and mineral for landfill engineering (because of
the lack of suitable waste).84 The planning controls on developments (such as golf
courses) involving landfilling and landscaping should be reviewed,85 and that inert
material used for site engineering should be exempted from the tax.86 It also found
that the credit scheme was very complicated and difficult to monitor as to quality.87
In the light of the Committee’s recommendations, it is appropriate to consider
why landfill tax rates were originally set so low why they have only gradually been
increased. Although it has not been admitted, the reality is that the bulk of the waste
committed to landfill is collected from householders by contractors on behalf of local
authorities. The cost of the tax has, therefore, to be found out of the council tax.88
78 Environmental Protection Act 1900, s.52, encourages recycling through the making of
payments by central government to local authorities. The net saving of expenditure is
determined under Environmental Protection (Waste Recycling Payments) (England)
Regulations 2004, S.I. 2004 No. 639. See also para. 1.4.2.1(3) above.
79 Houlder, Financial Times, 22 October 2002, p. 6; Eaglesham, Financial Times, 24 October
2002, p. 4.
80 Ibid., paras 15, 16.
81 Ibid., para. 18.
82 Ibid., para. 20.
83 Ibid., para. 21.
84 Ibid., para. 22.
85 Ibid., para. 27. As to a follow-up on this, see RICS Education Trust’s Can the Waste
Planning System Deliver? (Royal Institute of Chartered Surveyors, 2004).
86 Select Committee Report, para. 28.
87 Ibid., para. 76.
88 The Minister for the Environment (Mr Elliot Morley, MP) has said that amendments to
Environmental Protection Act 1990, ss.45 and 51 would be require before local authorities
could charge householders for collectin,g household waste or delivering it to Civil Amenity
sites (see HC WA 158231, 10 March 2004, col. 1544W). See also para. 4.2.3 above.
408 Environmental Taxation Law
The level of local taxes is politically a very sensitive issue indeed. It will be recalled
that the main reason for the political demise of Mrs Thatcher was the previous (and
wildly unpopular) attempt at a replacement for domestic rates, the community charge
(colloquially referred to as ‘the poll tax’). It is, therefore, just not politically possible
for a government of any complexion to increase landfill tax suddenly to a level at
which a major increase in council tax levels round the country will result. Indeed,
it is reasonable to presume that this was behind the report that the Performance
and Innovation Unit89 was thinking of recommending the imposition of collection
charges of either a £5 per month rubbish collection charge or one of £1 per bag.90
Some support for this approach can be had from British Columbia’s User Pay Waste
Management Initiative, which combined massive increases in tipping fees with an
annual collection charge for a single bag per household, and additional fees for each
extra bag (paid for by stickers purchased in advance), and the approach was supported
by the Environment Agency. It was, however, opposed by the Treasury.91
On the other hand, there is a school of thought (which appears to have some
ministerial support)92 to the effect that the best way to encourage recycling would be
to induce local authorities to enforce the separation of materials by householders,93
as in Switzerland. Indeed the contrast between the waste disposal profile between
the two countries is remarkable. In 2000, Switzerland recycled 45 per cent and
incinerated 48 per cent, leaving only 7 per cent to go to landfill. For the UK, the
figures were 11 per cent, 8 per cent and 81 per cent. With the UK facing the prospect
of fines of up to £180m per annum if it failed to meet the targets set for 2010, 2013
and 2020,94 and appearing to have no prospect of doing so on the basis of trends
at the end of 2002, drastic action had to be, and was, recommended in the Prime
Minister’s Strategy Unit’s95 report, Waste Not, Want Not. Essential to this was the
dissemination of the political message that the public perception of the extent to
which local council tax bills were dependent upon waste disposal costs (including
landfill tax) was too pessimistic. Whether it will be possible to get this message across
remains to be seen, especially in the southeast where county councils were to come
out extremely badly, in relative terms, from the reallocation of local government
subsidy arrangements to be announced the following week.96 Indeed, by September
89 See para. 4.2.1.2(1) above.
90 Newman, Financial Times, 12 July 2002, p. 2.
91 Guha, Financial Times, 13 August 2002, p. 2.
92 See Houlder, Financial Times, 7 May 2003, p. 6.
93 See Houlder, Financial Times, 22 July 2002, p. 4.
94 Under the Landfill Directive (see para. 12.2.5.1(2) above).
95 See para. 4.2.1.2(1) above.
96 For instance, in Hampshire, the increase of 3.7 per cent was thought likely to provoke
an increase in the County Council’s Council Tax precept of 15 per cent in 2003/04 (see
Guthrie, Financial Times, 8 December 2002, p. 4). Ironically, Waste Not, Want Not (see
above) had complimented that particular authority on its innovatory policies with regard to
waste disposal. Indeed, a green garden material composting business fed by the county’s
26 Household Waste Recycling Centres has been so successful that it has made a planning
application to expand its composting site near Basingstoke (The Business Magazine,
Solent and South Central, December 2003/January 2004, p. 3).
Policies in Practice (1) 409
2003,97 a considerable degree of opposition from low income groups, and
especially pensioners, had been organised against the continuation of the council
tax system following the implementation of the changed central government subsidy
arrangements.
The changes, which were announced at a time when the increased regulatory
obligations were already encouraging consolidation in the waste disposal industry,98
were likely to take the form of:
1 an increase in the rate of landfill tax, which was very low compared to its
equivalent in other Member States,99 to £35 per tonne, starting with an uplift of £3
in 2005/06100 and increasing by at least the same rate thereafter101 – pursuant to
the Strategy Unit’s finding that a two year lead in time was required to encourage
a switch to other methods of disposal;102
2 the reduction of two thirds in the credits available to Entrust-registered entities in
favour of publicly funded purposes, such as the development of new technologies,
perhaps supported by the Challenge Fund announced in the 2000 Spending
Review;
3 the use of the increased revenue stream to lighten the burden on industry –
measures which would require consultation;103
4 putting pressure on local authorities,104 which may be difficult to achieve in the
absence of the provision of additional funds by central government, since long
term capital spending is difficult to attain under a system in which the government
has retained the ability to ‘cap’ the expenditure of individual councils and can
97 Not least in the context of the Liberal Democrats seeking support for their long-espoused
policy of the replacement of the council tax by a local income tax. Although some
American cities have such a tax, how practicable it would be in the UK, even if collected
through central government machinery, must be debatable. With council tax and its two
predecessors, the community charge (or ‘poll tax’) and generally applicable rates, it was
possible for the local authority to estimate its receipts within a very small margin of error.
This would not be possible with an income tax supplement.
98 Felsted, Financial Times, 18–19 January 2003, p. 13.
99 Waste Not, Want Not focused on the Netherlands’s £45 and Denmark’s £34.
100 Announced in the Pre-Budget Report on 27 November 2002.
101 The House of Commons’ Environmental Audit Committee, in its Fourth Report of 2002–
03, HC 167, published on 1 April 2003, paras 19 and 21, considered that the projected rate
of increase would take nine years to reach a level at which recycling would be induced,
and that local authorities would be likely to go for the cheaper alternative of incineration
in the meantime.
102 However, it does not seem to have been realised that the costs of implementing the
Landfill Directive have been such (at least to one major operator) that major customers’
willingness to fund them by price increases has been breached (see Rafferty, Financial
Times, 6 November 2003, p. 26).
103 Press Release HMT 1 (27 November 2002).
104 Eaglesham, Financial Times, 30 November/1 December 2002, p. 5. The major problem
seems, however, to be winning over doubtful financiers (see Cowe, Financial Times, 25
August 2004, p. 10).
410 Environmental Taxation Law
(and, in 2003, did) change the formula under which central government subsidies
are allocated;
5 the possibility of local authorities being able to offer householders discounts for
undertaking composting;
6 the possibility of an incineration tax being imposed – albeit, it seems, without
this being expected to operate as an incentive to move to recycling;105
7 the realisation that, as 25 per cent of the country’s methane discharge comes from
landfill sites,106 a reduction in the amount of waste so disposed of would help
meet climate change targets;107
8 shortage of land for landfill in the southeast and northwest, with the prospect
of transporting waste to landfill elsewhere, thereby increasing the emission of
GHGs; and
9 setting up a system of tradable landfill allowances,108 and, possibly, in the final
analysis, a ban on biodegradable material.
21.4.2 The electricity supply industry
Politics has also a great deal to do with the problems behind climate change levy
because a policy decision109 has been taken to exempt domestic households from
it.110 This was inevitable in the light of the government’s reduction, shortly after
taking office in 1997, in the rate of VAT on domestic power supplies from 8 per cent
105 At the same time as advertising the fact that the planning system did not make it easy
for local authorities to set up new incineration sites. See also House of Commons
Environmental Audit Committee, Waste – An Audit, Fifth Report of Session 2002–03, HC
99, published 23 April 2003, para. 63, and para. 27.7 below.
106 By way of comparison, the ministerially-described ‘very comprehensive’ Review of
Environmental and Health Effects of Waste Management: Municipal Solid Waste and
Similar Wastes, by Enviros and the University of Birmingham, published by Defra on 6
May 2004, indicated that the incineration of municipal solid waste accounts for less than
1 per cent of dioxin emissions.
107 Subsequently the Household Waste Recycling Act 2003 introduced new provisions into
Environmental Protection Act 1990: (1) s.45A, obliging English local authorities to
make arrangements for the collection of recyclable household waste unless alternative
arrangements were available or the cost would be unreasonably high; (2) s.45B, enabling
the National Assembly for Wales to extend this obligation to the local authorities in that
Principality; and (3) s.47A, obliging the Secretary of State to report to Parliament on
progress in relation to English local authorities by 31 October 2004.
108 Under Waste and Emissions Trading Bill published 15 November 2002 (see para. 20.7
above).
109 This must be contrasted with the position in the Netherlands and Sweden, where lower
rates of energy tax apply to industrial, as against domestic consumers (see Benjamin
J. Richardson and Kiri L. Chanwai, ‘The UK’s Climate Change Levy: Is It Working?’
[2003] JEL 39–58). In Norway, Sweden, Finland, the Netherlands and Denmark regard is
had to the carbon content of fuels taxed. New Zealand is to introduce a carbon-based tax.
Germany and Italy have also introduced energy taxes (ibid.).
110 See also the Warm Homes and Energy Conservation Act 2000.
Policies in Practice (1) 411
to 5 per cent.111 Indeed, it has actually been suggested that this reduction in VAT
stimulated the demand for energy.112
Nonetheless, the design of the tax means that, in the context of the structure through
which electricity is supplied, the incentives being introduced into the structure of
that tax to favour renewable or ‘clean’ sources of energy cannot have the maximum
effect because the distribution system lessens the effect of those incentives. For
instance, say an electricity supply company has a 75 per cent domestic and 25 per
cent commercial customer split. If it draws all its electricity from traditional sources
through the market mechanism, 25 per cent of its turnover will be taxable. However if,
for instance to secure price stability, its management decided to contract to purchase
20 per cent of its normal load from renewable sources outside the market mechanism,
the effect would not be to reduce its tax by 20 per cent, but by 5 per cent.113 In order
to improve upon this it would have to seek regulatory consent to restructure itself into
two companies with separate electricity supply licences. Only if the tax point were to
be shifted from that of distribution to final consumer, to that at which power was fed
by the generator into the network, could this problem be overcome. However, unless
there is the political will to subject domestic consumers to the full amount of the tax,
this change could not be made. The political will does not, however, seem to be there.
This has been demonstrated clearly in Economic Instruments to Improve Household
Energy Efficiency: Consultation Document on Specific Measures,114 which makes it
clear that, while the use of economic instruments (such as taxation) is more effective
than regulation,115 any increase in the rate of VAT on domestic power or subjecting
it to climate change levy has been ruled out.116
However, the Commission on Sustainable Development,117 in a report issued in
April 2004,118 advocates very strongly the extension of environmental taxation
to domestic consumers and, indeed, goes as far as advocating the replacement of
climate change levy by a carbon tax in order to achieve this. Faced with a statutory
requirement to report on the energy efficiency of residential accommodation in
England,119 Mrs Margaret Beckett, the Secretary of State for the Environment, Food
and Rural Affairs, published Energy Efficiency. The Government’s Plan for Action on
27 April 2004.120 The previous day, her Department, in conjunction with the DTI,
had issued a Consultation on the Methodology used for Calculating the Number of
111 Value Added Tax 1994, Sched. 7A, Group 1.
112 Daily Telegraph, 21 March 2000, p. 29.
113 This is the case even though, from 1 July 2004, Community tracing rules oblige UK
suppliers to disclose source proportions on electricity bills (see para. 12.2.6.3 above).
Only a small minority are likely to be influenced by this as to their choice of supplier.
114 HM Treasury and Defra, August 2003.
115 Ibid., paras 16–21. (In the sense of ‘command and control’.)
116 Ibid., para. 28, leaving fiscal amelioration to reducing the price of products which used or
saved energy: as to the latter (see para. 24.4 below).
117 See para. 4.2.1.4 above.
118 Shows Promise. But Must Try Harder, paras 57, 72 and 73.
119 See para. 21.6.2 below.
120 According to Hansard. According to Defra’s website, the document was published the
previous day (see www.defra.gov.uk).
412 Environmental Taxation Law
Households in Fuel Poverty for England.121 As to the latter, it is to be wondered
whether the former may not be of the greatest value if there was such a degree of
lacuna in the underlying statistics.122
In the 2004 Spending Review, issued on 12 July 2004, it was revealed that spending
on the Warm Front Programme would be £95m higher in 2007/08 than in 2004/05,
in order to ‘ensure further progress towards the 2010 target’. The programme’s
resources were also to be ‘better targeted on the genuinely fuel poor’ by reviewing
the eligibility criteria.123 The rush to print had been followed, in May 2004, by the
initiation by Defra of a consultation124 on the terms of the draft of the statutory
instrument125 to be promulgated in October 2004 to govern RECs for the period
1 April 2005 to 31 March 2008. The individual targets were to be apportioned out
by Ofgem proportionate to the respective numbers of their domestic consumers,
with smaller companies having a lower relative target.126 For the purposes of this
exercise, CHP is assumed to be a form of energy efficiency.127 Illustrations of
possible measures of energy efficiency were:128
1 cavity wall insulation;
2 loft insulation;
3 A-rated boilers;
4 fuel switching;
5 heating controls;
6 compact fluorescent lights;
7 fridgesaver-type schemes;
8 A-rated appliances;
9 tank insulation; and
10 draughtproofing.
However, it had to be admitted that the energy efficiency objective applied to all
domestic129 users,130 the change was expected to provide particular help to lowincome
consumers131 and therefore contribute to the alleviation of fuel poverty.132
121 See www.dti.gov.uk.
122 As to which, the government’s The UK Fuel Poverty Strategy 2nd Annual Progress
Report: 2004 also published on 26 April 2004, Chapter 2, is indicative of a distinctly
Rooseveltian New Deal hotchpotch of measures rather than a joined-up strategy.
123 Ibid., para. 17.6.
124 The Energy Efficiency Commitment from April 2005.
125 To be entitled the Electricity and Gas (Energy Efficiency Obligations) Order 2004.
126 Consultation proposals, paras 3.18, 3.20.
127 Ibid., para. 3.28.
128 Ibid., Annex 1, para. 8.
129 And, although the document was directed at the residential sector, presumably also other
users of buildings.
130 Annex 2 (Partial RIA), para. 10 stated: ‘Energy efficiency has a key role in meeting the
Government’s climate change targets by reducing emissions of carbon dioxide’. Para. 23
went on to quantify the proposed environmental benefit at 0.7MtC in 2010.
131 Ibid., Annex 2, para. 8.
132 Ibid., Annex 2, para. 11.
Policies in Practice (1) 413
The government’s conclusion was that the proposals would not only benefit the
environment,133 but also provide social benefits through the reduction of fuel bills
and improvement of comfort.134
On 30 November 2004, Defra published Fuel Poverty in England: The Government’s
Plan for Action.135 The objective proclaimed in this was to eliminate fuel poverty
by 2010.136 It appeared, however, that the government’s efforts to date, which had
been targeted at social housing,137 amounted to a mere 20 per cent of the households
involved, as against 65 per cent of owner occupiers.138 The Warm Front Scheme is,
therefore, to be amended from June 2005 to make ‘the greatest possible impact’ on
the private sector,139 with up to 25 per cent of the vulnerable fuel poor not eligible
under the current scheme,140 60 per cent of them single elderly householders.141
21.4.3 The coal industry
Historically, the National Union of Mineworkers had been a major force behind
the Labour Party. By the time Labour returned to office in 1997, however, the coal
industry had been denationalised and no longer played the role that it had done in
the national economy between the Wars. Nonetheless, when world prices fell, the
government chose to carry out a U-turn in its energy policy and, in 1999, vetoed the
building of gas-powered stations in order to prop up the coal industry.142 The view
has been expressed that, without this, the Kyoto targets could have been met without
resorting to climate change levy.143
133 Ibid., Annex 2, para. 23.
134 Ibid., Annex 2, para. 24. This said, para. 25 then states that the cost of this exercise would
be £4 per customer per fuel at 2004 prices. No recognition is given to the racing certainty
that the introduction of EU ETS is likely (on the official figures) to increase electricity
prices by 6 per cent (see para. 28.3 below).
135 www.defra.gov.uk.
136 Lord Whitty’s Foreword. However, Annex A, para. A4.2 suggests that it is only social
housing which will be brought into ‘a(chǎn) decent condition’ by 2010, which the targets for the
private sector being fixed at 65 per cent by 2006 and 70 per cent by 2010.
137 That is, subsidised local authority or housing association rented accommodation. See
para. 5.3.4.
138 Para. 3.3.1. It should also be noted from Annex B, para. B1.9 that the National Audit
Office review of the Warm Front programme had concluded that the current programme
provided very few effective options for homes seen as traditionally hard to heat.
139 Para. 3.3.8. This cost of this was not possible to estimate: para. 5.3.6.
140 Para. 4.2.1.
141 Para. 4.2.2.
142 This attitude persisted into 2003 when £60m was put up with a view to preventing further
deep mine closures for five years (see Eaglesham and Taylor, Financial Times, 12 February
2003, p. 1). Yet at the end of November 2003, UK Coal was saying that the award of state
aid of £36m for 2004, as against the requested £79m, was insufficient to prevent further
mining job losses (see Bream, Financial Times, 29–30 November 2003, p. 4).
143 See Daily Telegraph, 30 March 1999, p. 35; Brown, Financial Times, 23 February 2000,
p. 3. Dieter Helm in Energy, the State and the Market: British Energy Policy since 1979,
revised edition (Oxford: Oxford University Press, 2004), pp. 301–4, sees this as the point
where New Labour’s energy policy went off the rails.
414 Environmental Taxation Law
However, it appears that the New Electricity Trading Arrangements (‘NETA’)
put in place in 2001,144 under the Utilities Act 2000, reduced the price for coalgenerated
electricity by 40 per cent over the course of the first year,145 resulting
in the Fifoots Point power station in Wales being placed in receivership in 2002
and the huge Drax power station being in technical default on part of its debt.146
Furthermore, the acquisition of the Eggborough station turned out to have been an
additional problem for British Energy plc when that company ran into a financial
crisis in August 2002.147 The role played by NETA in British Energy’s problems was
acknowledged, subsequently, by the Minister of State for Energy (Mr Brian Wilson,
MP) before the House of Commons’ Trade and Industry Select Committee.148
The crisis in the autumn of 2002 was not, however, confined to coal and nuclear
generators. On 9 October Powergen announced the shut down of 25 per cent of its
electricity capacity, including the oil-fired Isle of Grain and the gas-filed Killinghome
plants.149 The fall in the wholesale market price was nowhere near matched by a
modest decline in retail prices. One of British Energy’s problems was the lack of
a retail base but, on 14 October, it had become apparent that the US TXU group
was in difficulties,150 said to be caused not by its imbalance in generating capacity
(three coal-fired stations to service 4m customers) but by having entered into five
long-term contracts at prices significantly above the market price then current.151
Following the demise of TXU Europe, a number of power stations with exclusive
supply agreements with that company halted output, doubling wholesale prices in the
‘balancing’ market.152 Nonetheless, it was thought likely that five US owned powers
stations would be put up for sale.153 In January 2003, following its acquisition of
the coal-fired High Marnham and Drakelow stations from TXU, the German-owned
144 Which emphasised the problem considered in the last part of para. 21.4.4 below.
145 The effect on domestic consumers was, however, less marked, with those who moved
supplier gaining as against those who stayed put, leading the National Audit Office to
question whether the lower pricing benefits had been worth the cost (as estimated by
Ofgem) of introducing the new scheme (see Taylor, Financial Times, 9 May 2003, p. 5).
146 Jones, Financial Times, 22 August 2002, p. 25. Manouevring as to how to restructure
this entity was still continuing in December 2003 (see Bream, Financial Times, 29–
30 November 2003, p. M2, Taylor, Financial Times, 2 December 2003, p. 27, and 11
December 2003, p. 28).
147 Roberts and Taylor, Financial Times, 7–8 September 2002, p. 4; Marsh, Financial Times,
30 September 2002, p. 6.
148 Buck, Financial Times, 11 December 2002, p. 26.
149 Taylor, Financial Times, 10 October 2002, p. 3. By August 2003, however, there was talk
of the former being taken out of mothballs (see Financial Times, Lex column, 22 August
2003, p. 18).
150 TXU Europe later went into administration (see Taylor and van Duyn, Financial Times,
20 November 2002, p. 1).
151 Financial Times, 15 October 2002, p. 20.
152 Taylor, Financial Times, 22 November 2002, p. 2.
153 Taylor, Financial Times, 21 November 2002, p. 26. With regard to AES’s problems with
Drax, leading to it walking away from the station on 5 August 2003 (see further Taylor,
Financial Times, 24 July 2003, p. 19; 6 August 2003, p. 19; 24 February 2004, p. 25).
Policies in Practice (1) 415
Powergen closed them.154 Moreover, by July 2003, the British banking industry had
become sufficiently concerned as to the financial viability of the traditional sector to
commission a study into the restructuring possibilities for the UK independent power
industry.155
The reality was that, by August 2003 (a year after British Energy admitted to
having difficulties), only those generators with retail capacity were not in financial
difficulty. It had only been avoided in the case of them by failing to reduce retail
prices in line with wholesale prices. This development represented not only a failure
of the government’s substitution of NETA for the original arrangements156 but also
the undermining of the original denationalisation structure, which separated out
generation from distribution.157
154 Taylor, Financial Times, 10 January 2003, p. 2. It appears that, before this acquisition, it
had been planning to mothball both its oil-fired station on the Isle of Grain in Kent and
the rest of its gas-fired Killingholme plant in Lincolnshire (see Taylor and Eaglesham,
Financial Times, 7 January 2003, p. 7). The US group, NRG Energy, was also experiencing
debt problems with its Killingholme plant (see Taylor, Financial Times, 8 January 2003,
p. 6). In addition, the regulator was preparing to ring-fence the REC, Midlands Electricity,
whose US parent had been unsuccessful in attracting adequate offers for it (see Taylor:
Financial Times, 9 January 2003, p. 4). In February 2004, the bankers’ consortium
company, CGE Power, made an indicative bid for Drax stated to be conditional upon
the simultaneous acquisition of an appropriate mix of other plants (see Taylor, Financial
Times, 24 February 2004, p. 25). In July 2004, the Fifoots power station in south Wales
was sold by its administrators to the Rutland Fund (see Taylor, Financial Times, 7 July
2004, p. 3). Scottish and Southern later bought Ferrybridge and Fiddler’s Ferry from AEP
(see Taylor, Financial Times, 31 July–1 August 2004, p. M2).
155 Kipphoff, Financial Times, 7 July 2003, p. 20. However, the plan put forward in early
September, for the lenders to all the insolvent power stations other than Drax to be
transferred into a single entity called ‘Joe’, but dubbed ‘BustCo’ by the Financial Times,
has given rise to concern (see Financial Times, Lex column, 6–7 September 2003, p. 16).
In December 2003, four British and two German banks formed a company, CGE Power, to
buy financially distressed UK power stations (see Taylor, Financial Times, 12 December
2003, p. 27). One large US power group was, nonetheless, continuing to seek purchasers
for its UK plants (see Taylor, Financial Times, 10–11 January 2004, p. M2 and 23 January
2004, p. 26). However, in May 2004, CGE Power withdrew all its offers in the face of
stiff price competition from electricity utilities (see Taylor, Financial Times, 25 May
2004, p. 21). Subsequently, Scottish Power purchased the Damhead Creek power station
in Kent and Centrica (originally a gas supplier, which had expanded into electricity) was
understood to be likely to acquire Killingholme in Lincolnshire (see Taylor, Financial
Times, 3 June 2004, p. 23).
156 Despite the optimism of the Director-General of Ofgem in a speech in November 2002
(see [2001/2002] 6 ULR 170). The New Electricity Trading Arrangements favoured
gas-powered stations. In September 2004, the House of Commons Trade and Industry
Committee decided to launch an investigation into why wholesale gas prices had risen in
the UK to a level much higher than in Continental Europe (see Taylor, Financial Times,
17 September 2004, p. 2). The effect on industrial users was also becoming serious (see
Workman (letter), Financial Times, 17 September 2004, p. 18).
157 See paras 2.4.1 and 6.4.3.1 above.
416 Environmental Taxation Law
As to the former of the foregoing points, although at the end of August 2003, there
had been an increase of 30 per cent in the base prices for the following winter and the
Isle of Grain power station was being recommissioned.158 The blackout in New York,
Ohio, Michigan and Ontario gave rise to initial concerns, but the conclusion was
reached that the genesis of the US’s deep-seated problem was political.159 Ironically,
the blackout in London, albeit seemingly for a different reason, followed within
a matter of days, reopening the initial concerns about whether the UK’s national
grid was also vulnerable to this type of problem; moreover, although reconnection
was relatively quick, the knock-on effect on the transport system was severe and
more prolonged.160 This (and a similar occurrence in Birmingham) was, however,
discovered to be due to incorrectly installed protection equipment, rather than
a lack of investment.161 Shortly after there were significant blackouts in Sweden,
Copenhagen and, in the early hours of 28 September, the whole of mainland Italy
and Sicily (an admitted case of massive underinvestment nationally) as a result of a
series of disconnections in the power lines from Switzerland, Austria and France.162
In these circumstances, the government ordered the preparation of emergency plans
to avoid blackouts in the UK over the 2003/04 winter.163 Since privatisation, the
generation cushion has fallen from 30 per cent to 17 per cent.164 The National Grid
had, furthermore, identified 16 weeks between November 2003 and March 2004 when
the reserve margin might fall below that 17.7 per cent cushion.165 In consequence it
sought new powers to cope with the potential problem.166 The Secretary of State for
Trade and Industry let it be known, however, that she was satisfied that, with some
capacity reopening, generators would be able to meet winter demand.167
Furthermore, a survey by London Electricity published in 2002 suggested that the
imposition of climate change levy had not resulted in any saving of energy. Not only
would the Kyoto obligation of 87.5 per cent of 1990 level by 2008/12 fail to be met;
neither would the government’s more ambitious 2010 target of 10 per cent from
renewable sources.168
By September 2003, concern was being expressed that, with the introduction of
the EU measures intended to accompany the start of the EU ETS in 2005, coal-fired
generation might become uneconomic169 and that consideration was being given to
158 Financial Times, Lex column, 22 August 2003, p. 18.
159 Dizard, Financial Times, 25 August 2003, p. 17.
160 Financial Times, 29 August 2003, pp. 1, 4.
161 Taylor, Financial Times, 1 October 2003, p. 2.
162 See Financial Times, 29 September 2003, Kapner and Graham (p. 1) and Kapner, Buck,
Graham, Hoyos and Taylor (p. 6).
163 Eaglesham, Financial Times, 2 October 2003, p. 1.
164 BBC Breakfast, 14 October 2003.
165 Taylor, Financial Times, 11–12 October 2003, p. 6.
166 Taylor, Financial Times, 15 October 2003, p. 3.
167 Taylor, Financial Times, 17 October 2003, p. 6.
168 Jones, Financial Times, 24 June 2002, p. 4.
169 However, in November 2003, UK Coal landed a large order from EdF Energy, one of the
biggest suppliers (see Taylor, Financial Times, 13 November 2003, p. 28). And it was
estimated, subsequently, that coal-fired stations increased their generation by 11 per cent in
Policies in Practice (1) 417
British Energy, which had by then managed to meet the UK Government’s terms for
temporary state aid,170 might seek ways of extending the life of its nuclear power
stations by up to five years in order to avoid 20 per cent of the UK’s generating
capacity going off stream at a critical time.171
Furthermore, the release, on 25 March 2004, of the carbon dioxide emissions
statistics for 2003, showing an increase of 1.5 per cent, although described by the
Environment Minister as a ‘blip’ and largely due to electricity imports from the
Continent,172 came at a time when, worldwide, concern was being expressed as the
‘comeback’ coal was making as a generation fuel.173 The demand for natural gas was,
nonetheless, still growing faster than that for competing fuels.174 In addition, twothirds
of City of London investors believed that the UK would miss its renewables
generation targets,175 and business leaders were understood to have appealed
to ministers to reconsider the tough emissions targets thought likely to cause UK
electricity prices to rise further than those in other EU Member States.176
2003 (see Taylor, Financial Times, 27 February 2004, p. 4). Scottish and Southern Energy
saw its future, however, in gas-fired stations (see Taylor, Financial Times, 7 November
2003, p. 28). At the same time it was recorded that developers had been shelving plans
to construct new conventional power plants (see Taylor, Financial Times, 13 November
2003, p. 9).
170 Taylor, Financial Times, 13–14 September 2003, p. 2. But by the beginning of August
2004, with the necessary EU consent not yet through, shareholders were complaining that
they were to be short changed (see Boswell, Financial Times, 2 August 2004, p. 20, and
Taylor, Financial Times, 5 August 2004, p. 20). The Decision, Rescue Aid to British Energy
plc, NN 101/2002, came through on 27 November 2004. When the company’s results for
the half year to 30 September 2004, were published, however, it became apparent that the
company had not been in a position to benefit from the upturn in market rates because
the bulk of its power had been pre-sold under long-term fixed-price contracts: Taylor,
Financial Times, 11–12 December 2004, p. M4.
171 See Taylor, Financial Times, 22 September 2003, p. 1.
172 Defra News Release, 25 March 2004.
173 Morrison, Financial Times, 12 March 2004, p. 10.
174 Chung, Financial Times Special Report, Gas Industry, 19 March 2004, p. 2. Concern has
also been expressed as to the adequacy of storage facilities for imported natural gas (see
Taylor, Financial Times, 10–11 April 2004, p. 2). Helm, op. cit., p. 422, also expresses
concern as to the security of supply aspects. This should be contrasted with the setting
up of the British National Oil Company in 1976 with the express objective of achieving
this for North Sea oil (see para. 2.4.3 above) and the idea underlining the pool (see para.
2.4.1n above) before its replacement by NETA (see, respectively, Helm, op. cit., pp. 40
and 131–7).
175 Taylor, Financial Times, 24 March 2004, p. 5.
176 Taylor, Financial Times, 12 March 2004, p. 6. Defra was subsequently understood to have
reduced the 2005–07 target in response to this problem (see Houlder, Financial Times,
10–11 April 2004, p. 1). The electricity trading documentation was later revamped in
order to allow futures and options to be written (see Skorecki, Financial Times, 17–18
July 2004, p. M2). In 1985, these had been the prerequisite to increasing gilt turnover after
‘Big Bang’ on the London Stock Exchange.
418 Environmental Taxation Law
21.4.4 The renewables sector
Reliance on King Coal for electricity generation has been a problem which
successive UK governments have for decades tried to address. The UK was one of
the first countries to espouse nuclear generation, in a programme starting with the
commissioning of the Calder Hall Magnox reactor in 1957. In 1965, the government
of the day took the view that the future lay with advanced gas-cooled reactors, but
the programme took a long time to implement.177 By the 1990s, nuclear power
had become a controversial source of generation.178 Indeed, the only perceived
advantage of nuclear generation is that it does not cause carbon emissions. With
the second generation of reactors coming to the end of their working lives,179 this
source of energy was excluded in terms from the statutory definition of ‘renewable
sources’.180 Early closure would, however, create unforeseen difficulty for the British
Government in meeting its Kyoto obligations.181 The following problems are acting
as a deterrent to their replacement:182
1 they are more expensive to operate than traditional sources, having had to be
subsidised by both a price levy183 and by quotas when denationalisation occurred.184
They gave rise to a crisis in early September 2002 in the listed utility (which had
20 per cent of the country’s generating capacity) when, following the introduction
of NETA in March 2001, the 25 per cent planned overcapacity cushion provided
for under the 1989 Pool produced a collapse in wholesale prices of between 19 per
cent (baseload) and 27 per cent (peak) to below the break even operating level.185
2 Decommissioning is an extremely costly business (having, in relation to the older
stations, to be underwritten fully by the taxpayer).186
177 Kay, Financial Times, 19 September 2002, p. 19.
178 As to the debate about continuing to use nuclear power, see P. Beck, Prospects and
Strategies for Nuclear Power (Earthscan, 1994), P. Beck and M. Grimston, Double or
Quits? The Global Future of Civil Nuclear Energy (RIIA Briefing Paper, April 2002).
179 Only Sizewell B (near Saxmundham in Suffolk) will still be in commission after 2023.
This is the UK’s only pressurised water reactor: the circumstances leading up to its
commissioning are considered in Helm, op. cit., pp. 101–6. The other British Energy
reactors are of the advanced gas cooled type.
180 Electricity Act 1989, s.32(8), as substituted by Utilities Act 2000, s.62.
181 Turner, Financial Times, 7–8 September 2002, p. 4. It seems, furthermore, that the crisis
faced by British Energy in late August 2002 was triggered by technical problems causing
the closure of two generating plants (see Plender, Financial Times, 9 September 2002,
p. 28).
182 Despite which a public consultation involving 4,500 people found opinion evenly split
(see Jones, Financial Times, 6 December 2002, p. 4).
183 Called fossil fuel levy, under Electricity Act 1989, s.33 (abolished by Utilities Act 2000,
s.66). See para. 6.4.3.1 above.
184 See para. 21.7 below.
185 Buchan, Financial Times, 26 August 2002, p. 3.
186 When the newer stations were privatised in 1996, as British Energy plc, the older Magnox
plants had to be retained under the banner of British Nuclear Fuels Ltd. In August 2002,
discussions were initiated with a view to the former’s financial position being bolstered
Policies in Practice (1) 419
3 The disposal of waste from them constitutes a serious, and very political,
problem.
4 One particular facility, Sellafield, has been a constant source of safety concerns
(irrespective of whether justified) for 20 years or so.187
5 The consequences of accidents, whether of a Chernobyl or a Three Mile Island
scale, would be, to say the least, extremely serious in a small and densely
populated country.
6 after 11 September 2001, the possibility of a nuclear station being the target of
terrorist (or, indeed, more formal hostile) activity cannot be ruled out.
When the nuclear industry ran into difficulties in the late summer of 2002, British
Energy plc put forward the request that such power be exempted from climate change
levy. Making the government’s decision not to agree to this known, the Secretary
of State for Trade and Industry188 was reported as having written to the Combined
Heat and Power Assocation189 that climate change levy was not a carbon tax190 but
a downstream energy tax to encourage all sectors of business and the public sector
to use electricity efficiently, and that withdrawing a fifth of the supply from the
levy would reduce ‘its beneficial effects on carbon emissions’.191 The government
subsequently introduced legislation to enable it to give financial assistance, including
by way of renationalisation.192 At the time, it was understood, however, that, while
the construction of new nuclear plants was not ruled out, it was not envisaged that this
would be at public expense. Subsequently, this possibility was virtually ruled out in the
Energy White Paper.193
by the transfer of the latter, but without the close-down responsibility (see Porter and
Bailhache, The Business, 25–27 August 2002, pp. 1, 2; Odell, Financial Times, 27 August
2002, p. 19). Talks with BNFL, which was also not in a good financial condition, broke
down, however, on the issue of reprocessing British Energy’s existing waste (see Taylor,
Financial Times, 7–8 September 2002, p. 4). The government had to offer financial
guarantees to prevent the latter going into administration (see Taylor and Eaglesham,
Financial Times, 9 September 2002, p. 1).
187 As to which it is significant that it is anticipated that the government will decide to wind
down the Thorp reprocessing centre there one third of the way into its anticipated 30 year
life (see Roberts, Financial Times, 27 August 2003, p. 2).
188 The Rt Hon. Mrs Patricia Hewitt, MP.
189 See para. 2.4.1 above.
190 The Royal Society subsequently advocated the substitution of a carbon tax to apply to
all (including householders) and which would be likely to benefit generation from wind,
wave, tidal, nuclear and carbon sequestration sources (see Houlder, Financial Times, 18
November 2002, p. 4).
191 Taylor and Eaglesham, Financial Times, 11 October 2002, p. 2. Various types of assistance
can be provided under Electricity (Miscellaneous Provisions) Act 2003, s.1. In this context
it is interesting to note that s.4 provides that, where the Secretary of State for Trade and
Industry undertakes to make a ground under Electricity Act 1989, Sched. 12, para. 1(1)
and, under GAAP, this passes through the profit and loss account, and is to be ignored for
tax purposes.
192 Taylor, Financial Times, 10 January 2003, p. 4.
193 See para. 21.6 below. But see Houlder and Burns/Taylor: Financial Times, 15 September
2004, p. 4.
420 Environmental Taxation Law
The proposed financial assistance ran into very heavy opposition from fossil fuel
operators, but the European Commission is understood to have felt that it had no
choice but to approve the UK Government’s request, given the high risk associated
with nuclear fuel.194 Nonetheless, at the end of May 2003, the Commission’s approval
for the rescue package had not been given and two US coal power station owners
were understood to be considering a challenge to it in the ECJ.195 However, on 23
July 2003, the Commission commenced an investigation into the matter, albeit in the
expectation of having, ultimately, to approve at least some of the decommissioning
aid.196 The UK Government set a deadline of 30 September 2003, for British Energy
plc to be restructured in the way which was normal in the early twenty-first century,
with the shareholders’ interests being reduced to 2.5 per cent (originally less than
one per cent had been mooted) and bondholders and banks forced to convert part of
their debt into shares. Agreement was reached early on 1 October 2003, and involved
government assistance with certain future liabilities, such as decommissioning costs
and procuring a variation in British Energy’s contract with the state-owned British
Nuclear Fuels Ltd, in return for 65 per cent of net cash flow.197 A year later, however,
after a substantial rise in wholesale prices and with the EU consent first imminent
and then granted, this agreement had become the subject of dispute, with US hedge
fund shareholders seeking a renegotiation.198
Hydro-electric plants have been used as the source of renewable electricity for some
decades, especially in Scotland. However, it is considered that it would not be possible
194 Guerrera and van Duyn, Financial Times, 11 March 2003, p. 4.
195 Taylor, Financial Times, 2 June 2003, p. 21.
196 Dombey, Financial Times, 24 July 2003, p. 5. On 17 June 2004, the UK Government
announced that it was delaying presenting the information requested by the European
Commission until the autumn. It was thought that the concerns behind this delay were not
related to a likely rejection but in relation to possible challenges by the anti-nuclear lobby
(see Taylor, Financial Times, 18 June 2004, p. 23).
197 Taylor, Financial Times, 1 October 2003, p. 2; Taylor, Batchelor and Tassell, Financial
Times, 2 October 2003, p. 3. Nonetheless, British Energy’s finances have continued to
be the cause of concern (see Bream, Financial Times, 31 October 2003, p. 24, Taylor;
Financial Times, 4 November 2003, p. 24; Taylor, Financial Times, 14 November 2003,
p. 6; Taylor, Financial Times, 26 November 2003, p. 23; Bream, Financial Times, 28
November 2003, p. 4; Eaglesham, Financial Times, 28 November 2003, p. 22; Taylor,
Financial Times, 8 December 2003, p. 24; Taylor, Financial Times, 27 February 2004,
p. 24).
198 Boswell, Financial Times, 2 August 2004, p. 20; Taylor, Financial Times, 5 August
2004, p. 20; Nicholson, Financial Times, 6 August 2004, p. 21; Taylor, Financial Times,
1 September 2004, p. 21; Taylor, Financial Times, 2 September 2004, p. 8; Taylor and
Minder, Financial Times, 2 September 2004, p. 19; Taylor and Eaglesham, Financial
Times, 9 September 2004, p. 4; Taylor, Financial Times, 15 September 2004, p. 24;
Taylor, Financial Times, 17 September 2004, p. 22; Taylor, Financial Times, 18–19
September 2004, p. M2; Taylor, Financial Times, 20 September 2004, p. 23; Taylor and
Buck, Financial Times, 23 September 2004, p. 23; Taylor, Financial Times, 24 September
2004, p. 21, Dickson, Financial Times, 24 September 2004, p. 22; Bream, Financial
Times, 25–26 September 2004, p. M3; Dickson, Financial Times, 1 October 2004, p. 24;
Taylor, Financial Times, 1 October 2004, p. 25.
Policies in Practice (1) 421
to achieve a major increase in capacity from this source. The effect of existing hydroelectric
capacity from Scotland coming on stream with the substitution of BETTA for
NETA199 is unclear. The speed of reaction of gas-fired stations gave them a major
advantage under NETA. In principle hydro-electric stations should be in a similar
position. With most capacity under the control of Scottish and Southern Energy plc,
however, one of the companies best placed to satisfy its retail needs from in-group
generation capacity, it might well turn out to be the case that the predominance of
gas-powered generators will persist on the traded market.
At one stage, the use of tidal power was being considered for the Severn Estuary,
following its initiation at the mouth of the Loire, but nothing had been heard of this
for some years before January 2003, when a government-commissioned study by Sir
Robert McAlpine was published.200
Harnessing natural gas burned off from oil rigs and methane from landfill sites201
may produce a small contribution. Harnessed to this is the generation of power from
waste, such as straw, for which a plant was set up near Ely in the mid-1990s202 and
one was commissioned in the West Country in mid-2002.
In December 2002, plans were announced for a power station in south Wales
burning hydrogen produced from coal that had been used to generate electricity.203
Moreover, in August 2003, a proposal was approved for the construction of a ‘clean’
coal-to-hydrogen power station close to the Hatfield Colliery in Yorkshire.204
From 29 November 1994, coppicing has been treated, for tax purposes, as part of
the statutory trade of farming.205 Moreover, farmers who plant up agricultural land
can be provided with funding by the Defra Energy Crops Scheme. In 1994 it had
been hoped that it would be possible to set up regional biomass generators, based
on drawing willow from farmers within a 40 mile radius, on the basis of a three
yearly growing cycle. Plants were planned for Cricklade (Buckinghamshire),206
Eye (Suffolk),207 Eggborough (Yorkshire),208 Swindon (Wiltshire) and Basingstoke
199 See para. 6.4.3.1 above.
200 Taylor, Financial Times, 14 January 2003, p. 6: see also letter from Napier, 16 January
2003, p. 18.
201 Or indeed coal mines.
202 Abel, Farmers Weekly, 3 November 1995, p. 59.
203 Taylor, Financial Times, 20 December 2002, p. 2.
204 Taylor, Financial Times, 6 August 2003, p. 3. Friends of the Earth (see para. 2.2 above)
have, however, criticised the Minister for extending a scheme under which conventional
power stations were allowed to qualify for green energy incentives by burning imported
olive residues and palm kernels, thereby discouraging the construction of new biomass
power stations. Such arrangements appear to have been made in relation to the financiallytroubled
Fiddlers Ferry and Ferrybridge stations (see Taylor, Financial Times, 20–21
December 2003, p. 4). These had been put on the market by their US owner, AEP, and a
privatised UK company, International Power, appeared to be the front-runner to purchase
them (see Taylor, Financial Times, 13–14 December 2003, p. M2).
205 Finance Act 1995, s.154.
206 Harris and Hill, Farmers Weekly, 3 November 1995, p. 60.
207 A plant based on forestry waste (see Green, Farmers Weekly, 30 October 1998).
208 Barker, Farmers Weekly, 3 November 1995, p. 61; 20 November 1995, p. 10.
422 Environmental Taxation Law
(Hampshire).209 In 2002, however, the ARBRE Pro,ject in Yorkshire was placed in
liquidation and a number of planned projects were placed on hold.210 There appear
to have been two difficulties with this: the problems of storage of wood chips211 and
the need to generate an adequate return for farmers on the prairie value set aside for
this use.
Wood-burning is, however, proving a success as a carbon dioxide reducing
boiler fuel for large houses and municipal buildings, such as Worcester’s County
Hall.212 However, this oddity apart, it has to be recognised (although it does not
seem to concern Ministers unduly) that, whilst renewable, biomass is not really
an environmentally friendly source of power.213 Indeed, in January 2003, upon
acquiring a controlling interest in Fibrowatt, the owner of three plants in East Anglia
burning a combination of poultry litter, meat and bone meal, the chief executive
of Energy Power Resources (which already had a poultry-litter station in Fife)
described organic products’ station as carbon-neutral, on the basis that they emitted
no more carbon dioxide than was taken in when the straw or wood in question was
growing.214
At around the same time as coppice-generated stations, onshore wind farms were
being set up. These were all, however, small-scale operations and dependent upon
the continued receipt of part of the fossil fuel levy by way of subsidy. Furthermore,
with their generating capacity dependent upon the current state of the wind, the small
operators who ran them found themselves at the risk of severe penalties through
causes outside their control if they offered their power for sale through the post-
March 2001 NETA market system.215 Difficulty is also encountered by reason of the
cost of linkage to the national grid.216
All of the above made it inevitable that the main means of the government
actually achieving the desired increase in generation from renewable sources, from
3 per cent in 1999 to 10 per cent in 2010, lay in the field of offshore wind farms.
However, although there has been some progress in obtaining permissions,217 the
rate required is making this target extremely hard to meet, especially where defence
209 Dreweatt Neate’s Broadcast, April 1995.
210 Lockhart, Bulletin of the Agricultural Law Association, winter 2002/03, p. 10.
211 Blake, Farmers Weekly, 10 November 1995, p. 56.
212 Lockhart, Bulletin of the Agricultural Law Association, winter 2002/03, p. 10.
213 Nonetheless, it has been forecast that biomass could provide 15 per cent of the electricity
needs of industrialised countries (see Williams, Financial Times, 28 May 2004, p. 12).
Furthermore, funders are coming forward to finance biomass plants in the UK (see Taylor,
Financial Times, 1 June 2004, p. 4).
214 Taylor, Financial Times, 28 January 2003, p. 26.
215 See para. 21.7.1 below.
216 Taylor, Financial Times, 27 October 2003, p. 3.
217 Pickard, Financial Times, 1 August 2002, p. 4; Taylor, Financial Times, 28–29 December
2002, p. 2; Taylor, Financial Times, 28–29 February 2004, p. 4. Mr Stephen Timms, MP,
Minister of State for Energy, estimated that, in order to generate 10 per cent of electricity
from renewable sources by 2010, between 3,500 and 5,000 onshore and offshire wind
turbines would be required (see Hansard, 23 February 2004, WA 155481, col. 72W). As
to the position in Scotland, see Pirie, Estates Gazette, 28 February 2004, p. 142.
Policies in Practice (1) 423
considerations are involved.218 In addition, the international legal situation is very
far from clear:219 in territorial waters, problems may arise from two European
Directives, on Habitats220 and Wild Birds,221 whereas the UK Government’s previous
failure to declare a full Exclusive Economic Zone, coupled with uncertainty as to the
function of the Crown Estates Commissioners in the 200 nautical mile zone222 seem
likely to generate a need for primary (that is, statute) legislation223 at a time when
Parliament has a very crowded programme. Furthermore, the regulator, Ofgem,224
does not appear to be minded to allow renewable energy and CHP schemes to pass
on the cost of connection to the networks unless this would result in greater value
for money for consumers.225 Nonetheless, in July 2003, some progress was being
made on this front226 albeit not on a sufficient scale to satisfy at least one influential
commentator.227 Indeed, concern was still being expressed as to planning delays in
May 2004.228
Consideration is also being given, and research conducted into, renovating old
windmills to produce electricity, in place of the traditional grinding corn or pumping
water, possibly on an unmanned basis.229
21.5 The Renewables Obligation
The legal mechanism under which the government aims to achieve their target230 is
to be found in Electricity Act 1989, s.32A,231 under which a qualifying renewable
source obligation can be set.232 Initially, such sources are required to be UK based,
218 Taylor and Tait, Financial Times, 31 July 2002, p. 4; Trinick (quoted), The Business
Magazine (Solent and South Central), November 2002, p. 10; Taylor, Financial Times, 1
March 2004, p. 4.
219 See Glen Plant, [2003] JPL 939.
220 Council Directive 92/43/EEC, (1992) OJ L206 7.
221 Council Directive 79/409/EEC, (1979) OJ L103 1.
222 Where both the Habitats and Wild Birds Directives, 92/43/EEC and 79/11/EEC, also
apply.
223 See Plant, op. cit.
224 See para. 4.2.1.3 above.
225 Taylor, Financial Times, 16 September 2002, p. 4. The regulator is also opposed to
subsidies for remote wind farms (see Taylor, Financial Times, 14–15 February 2004,
p. 4).
226 Taylor, Financial Times, 12–13 July 2003, p. 2 and 15 July 2003, p. 3.
227 15 July 2003, p. 18.
228 Taylor, Financial Times, 1 June 2004, p. 4.
229 Taylor, Financial Times, 4–5 January 2003, p. 4.
230 A target which, it should be noted, was specified on the basis of what was politically
possible, rather than what environmental considerations really demanded (see Richardson
and Chanwai, op. cit., pp. 39–58).
231 Inserted by Utilities Act 2000, s.63.
232 See para. 6.4.3.1(2) above. Green Certificates can be issued under Electricity Act 1989,
s.32B, and it seems that, in practice, these can be traded. Renewables Obligation Order
2002, S.I. 2002 No. 914, Art. 3(1)((b) envisages compliance through other electricity
suppliers. Energy Act 2004, s.116 made amendments to Electricity Act 1989, s.32B.
424 Environmental Taxation Law
but, in the course of obtaining state aid clearance from the European Commission,
the UK Government indicated that it would be prepared to allow trading between this
system and equivalent Community systems on a bilateral agreement basis.
As a general rule, renewable sources comprise all sources other than fossil fuels or
nuclear, but not all renewable source generating stations233 qualify for the issue (in
an electronic register run by Ofgem) of Renewable Obligation Certificates, generally
known as ROCs or green certificates. Further, hydro electric power is excluded unless
the generating station produces less than 20 MW DNC; or was commissioned after
April 2002. Waste qualifies only if it is either biomass or manufactured into a fuel
using advanced conversion technologies, that is, gasification, pyrolysis or anaerobic
digestion. Fossil fuel qualifies up to 2011 if co-fired with biomass, but, from 2006,
at least 75 per cent of the biomass must be from energy crops. Finally, all generating
stations commissioned before 1990 are excluded unless substantially refurbished
since then or co-firing fossil fuels and biomass.
Schedule 1 to the Renewable Obligation Order 2002,234 made on 31 March 2002,
required the following to be drawn down from renewable sources:
Year starting April 1 Percentage of total supplies
2002 3.0
2003 4.3
2004 4.9
2005 5.5
2006 6.7
2007 7.9
2008 9.1
2009 9.7
2010–2026 10.4235
There is, however, the option to make payments in lieu,236 by making a buy-out
payment to Ofgem.237 Ofgem then recycles the payment by apportionment between
233 The Green Certificate system is applied to generating stations. There is, however, an
overlap with the preceding non-fossil fuel obligation, some supply contracts for which
run until 2018 (see para. 6.4.3.1(2) above).
234 S.I. 2002 No. 914.
235 A study by the Carbon Trust published on 1 December 2003, indicated that uncertainty
was being created amongst investors by Ministers’ failure to specify targets after 2010.
The Minister for Energy was therefore expected to announce an increase to, perhaps, 15
per cent between 2010 and 2015 (see Taylor, Financial Times, 1 December 2003, p. 5).
236 Electricity Act 1989, s.32C; Renewable Obligation Order 2002, S.I. 2002 No. 914, Art. 7.
As to the RO, see Daniel Edmonds, [2001] 2 ULR 46; Mike Nash, [2003] IELTR 45. As
to the trading background post-Enron, see Richard Tyler, [2003] IELTR 135. Energy Act
2004, s.115 made amendments to Electricity Act 1989, s.32C.
237 This option was taken by 13 out of the 66 suppliers during the first year (see Ofgem’s
first Renewables Obligation Annual Report (27 February 2004). For the year from 1 April
2004, the buy-out price was increased from £30.51 per MWh to £31.39 per MWh (see
Ofgem Information Note, 11 March 2004).
Policies in Practice (1) 425
Green Certificate-holders in proportion to usage. There is therefore a double
advantage to tendering Green Certificates.238 Nonetheless, in the summer of 2002, it
was reported that some generators were charging businesses specifying the supply of
only ‘green’ energy a premium.239
Green Certificates may be carried forward for up to 25 per cent of a generator’s
obligation (a practice known as banking). ‘Borrowing’ from future years is, however,
not permitted. Whilst there are separate RO systems for England and Wales, Scotland
and (prospectively)240 Northern Ireland, the transfer system is nationwide. It is,
however, a matter of some debate whether Green Certificates are, in theory, tradable,
since they have to be tendered with electricity. In practice they also seem to be traded
independently.241
There is, furthermore, the option for the holder of Green Certificates to convert them
into UK ETS allowances at the fixed rate of 0.43.242 The reverse is not, however,
allowed.
21.6 The 2003 Energy White Paper
21.6.1 The proposals
The Energy White Paper laid down a further target of reducing carbon dioxide
emissions by 60 per cent by 2050243 but against the background of the likelihood
that, by 2020, three quarters of the UK’s primary energy would be imported. The
government’s means of resolving this tension was the maintenance of reliability of
supply,244 very largely an international political (that is, foreign and defence policy)
issue;245 the promotion of competitive markets,246 through reform within the EU,247
and the transformation of a ‘competitive’ UK electricity market into a ‘mature’
238 With effect from 1 April 2004, Renewables Obligation (Amendment) Order 2004, S.I.
2004 No.924, replaced Art. 3(4) of the 2002 Order with a provision enabling part fossil
fuel and part biomass months in which there was no other fuel intermixed to count for up
to 25 per cent between 1 April 2002 and 31 March 2006, 10 per cent between 1 April 2006
and 31 March 2011 and 5 per cent thereafter until 31 March 2016.
239 Buchan, Financial Times, 28 August 2002, p. 4.
240 The extension to Northern Ireland was made possible by the introduction of Electricity
Act 1989, ss.32BA and 32C(5) by Energy Act 2004, ss.117, 118 and 120.
241 A similar problem arose, initially, for PRNs (see para. 19.5 above).
242 See para. 20.6 above.
243 Our Energy Future – Creating a Low Carbon Economy, Cm 5761: released 24 February
2003.
244 Ibid., para. 1.33.
245 Albeit not recognised as such in terms. But this also applies to the internal distribution
network, for which an investment of £3bn is required to bring new wind farms on stream
(see Financial Times, 23 April 2004, p. 4).
246 Cm 5761, para. 1.35.
247 Ibid., para. 6.20, something which, it should be noted, had not been achieved over more
than a decade.
426 Environmental Taxation Law
one.248 The government also has the objective, however, that no household would
live in fuel poverty by 2016/18, which presumably rules out extending climate change
levy to domestic consumers.249 With emphasis on the renewables element,250 albeit
with no percentage being set for any particular element, and, within this, the 2010
target being doubled by 2020,251 the strategy was for:
1 changes in the planning system;252
2 a role for Scotland, Wales and Northern Ireland and, when and if set up, the
English Regions,253 in the hope of achieving local generation projects;
3 the increasing of grants by £60m up to 2005/06,254 when there was to be a
review;255
4 placing considerable hope on the contribution to be made by new technologies,
and especially through the support of wave and tidal prototypes,256 ‘a(chǎn) key
research area’ being solar PV257 and a ‘long-term’ role for fuel cells;258 but
248 Ibid., para. 7.10.
249 In the first report generated by Sustainable Energy Act 2003, s.2(1), Mrs Beckett launched
Energy Efficiency. The Government’s Plan for Action: see HC, 27 April 2004, col. 37WS.
This followed the release of The UK Fuel Poverty Strategy, 2nd Annual Progress Report:
2004 by Defra the previous day. The latter appears to try to link the relief of fuel poverty
by the allocation of the various tax credits initiated by the Treasury over the previous
years and build upon the effect of NETA and other aspects of the evolution, and regulatory
control, of electricity privatisation in reducing prices. This is set, however, against the
background of a realisation that the introduction of EU ETS in order to supplement Kyoto
is likely to result in increases in such prices, albeit unquantified. Yet, at the same time,
Ofgem has chosen to withdraw from the field of price regulation (see Taylor, Financial
Times, 17 September 2004, p. 3).
250 The target clearly relates to generation within the UK. However, in the first year of climate
change levy approximately a quarter of the exemptions accrued to French and Belgian
renewable energy imported into the UK and, were this to be taken into account, the 2010
target for UK sources would be halved (see ENDS Report, August 2002).
251 Cm 5761, para. 4.11.
252 Ibid., paras 4.30, 34. See also Taylor, Financial Times, 5 November 2003, p. 6. The
government approved plans for four wind farms off East Anglia and Lincolnshire (see
Taylor, Financial Times, 28 October 2003, p. 7). By early 2004, Scottish and Southern
(one of the major electricity companies) had invested in three sites in Scotland (see Taylor,
Financial Times, 17 February 2004, p. 26).
253 Cm 5761, para. 6.22.
254 Ibid., para. 4.13.
255 Ibid., para. 4.12.
256 Ibid., para. 4.53. There is no agreed methodology for this, a major problem being securing
the device to the seafloor (see Harvey, Financial Times, 16 October 2003 (special report
Sustainable Business), p. 4).
257 Ibid., para. 4.57. The problem here is the high cost of silicon substrates (see Harvey,
Financial Times, 16 October 2003 (special report on Sustainable Business) p. 4).
258 Ibid., paras 4.58, 59. As to the likely timescale here, see Roberts, Financial Times, 27–28
September 2003, p. 10. The main problem is the storage and transportation of hydrogen:
Harvey, Financial Times, 16 October 2003 (special report on Sustainable Business),
p. 4.
Policies in Practice (1) 427
5 with nuclear seen as unattractive on economic grounds, albeit with the possibility
of a future role after the ‘fullest’ consultation,259 if the planned reduction in
capacity resulting from projected closures was not taken up by a combination of
(currently) mothballed plant and the increased contribution from renewables.260
In addition to the above, there were three other main proposals. First, a 10 per cent
improvement in transport carbon dioxide emissions by 2020 was expected to be achieved
from the adoption of advanced technologies, none of them yet proved.261 Secondly, a
major contribution was expected262 on the home263 emissions front from a combination
of improved boiler technology and beefed up building regulations,264 which have to be
introduced in Member States under the Energy Performance of Buildings Directive265
by January 2006266 and under which there will be minimum construction standards for
both old and new buildings, energy certificates for all buildings, and efficiency testing
of boilers and air conditioning systems in commercial buildings (in due course) leading
to reduced consumption.267 Thirdly, it was anticipated green technology contributions
from both increased gas boiler efficiently offsetting CHP demand; and emissions from
the coal mines assisting enhanced oil recovery from the North Sea.268
Finally, carbon emissions trading would play a ‘central’ role, prospectively in an EU
context,269 but with the possibility of a Kyoto element,270 and a possible extension
to CHP projects271 and coal mine methane projects.272
259 Cm 5761, para. 4.69.
260 Ibid., para. 6.41, in which context it was said that the case for price caps had not been
made out: see para. 6.43.
261 Ibid., paras 5.4,16.
262 Albeit downgraded with the publication of First annual report on implementation of the
Energy White Paper, by Defra in April 2004 (see Eaglesham and Cookson, Financial
Times, 24 April 2004, p. 4).
263 Which should be contrasted with the criticism accorded to the government subsequently
for failing to follow ‘green’ policies in relation to the way departments ran their affairs
(see Houlder, Financial Times, 14 November 2003, p. 6).
264 Paras 3.8,28,45 (the last includes a contribution from the introduction of conveyancing
‘sellers’ packs’ in (then) forthcoming Housing Bill, of which it was said: ‘This will be
necessary for us to comply with the requirements of the EU buildings directive’!).
265 European Parliament and Council Directive 02/91.EC, (2002) OJ L1 65.
266 See Smy, Financial Times, 3 November 2003, p. 11. See also para. 21.6.2 below.
267 For the sort of developments which might be expected here, see Peter Sinclair, Cluttons’
businesslines, October 2003, p. 9. In a parallel development, an initial public offering
of shares was made in November 2003 in Romag Holdings PLC, a glass manufacturer
whose windows contained solar cells to generate electricity (see Blackwell, Financial
Times, 22 October 2003, p. 33).
268 Cm 5761, paras 6.60,62.
269 Ibid., para. 2.27.
270 Ibid., para. 2.19. See Grubb, Financial Times, 18 November 2003, p. 23.
271 Ibid., para. 4.18. As to which see also The Government’s Strategy for Combined Heat and
Power to 2010, published by DEFRA in May 2004.
272 Cm 5761, para. 6.67. There were, subsequently, hopes for carbon capture and storage (see
Houlder, Financial Times, 23 January 2004, p. 17).
428 Environmental Taxation Law
21.6.2 Select Committee criticism
The White Paper is generally reckoned to have been a disappointment, not least to
the House of Commons’ Science and Technology Committee, which, in its report
published on 3 April 2003, Towards a Non-Carbon Fuel Economy: Research,
Development and Demonstration,273 concluded that there was no prospect of meeting
the 2010 and 2020 targets.274 (This observation was disputed by the Treasury on the
basis of a reduction in carbon dioxide emissions during 2002 of 3.5 per cent.)275
Furthermore, the Committee concluded that:
1 the RO did not provide the incentive276 to stimulate the immediate development
of less mature technologies;277
2 although, during the last quarter of 2003, considerable advances had been
made,278 renewables were not coming on stream fast enough279 for further
nuclear facilities to be ruled out,280 and, in particular, it would be unwise to run
down investment in fusion research; and
273 Fourth Report of 2002–03, HC 55.
274 Ibid., para. 215. Ofgem later reported that the energy companies had missed their targets
by 40 per cent in 2002/03: Taylor, Financial Times, 26 November 2003, p. 4.
275 Eaglesham, Financial Times, 2 April 2003, p. 8.
276 HC 55, para. 188.
277 Ibid., para. 208.
278 See Taylor, Financial Times, 13–14 December 2003, p. 5; 18 December 2003, p. 2;
19 December 2003, p. 3. But this led to protests that the process was being rushed to
the detriment of ‘huge expanses of unspoilt landscape’ and that the DTI was being
overoptimistic in claiming that 15 per cent of British homes could be supplied by the
offshore wind programme (see respectively) letters to Financial Times, 20–21 December
2003, p. 10 (Cameron Beattie) replied to on 27–28 December 2003, p. 10 (T.R.H. Kimber),
and 22 December 2003, p. 18 (John Bower)).
279 It appeared that offshore wind farms has still not been attracting sufficient financial
backers because of concerns as to the government’s commitment (see Taylor, Financial
Times, 26 September 2003, p. 3). However, an initial public offering of shares in Novera
Energy Europe is planned to fund the construction of a Welsh wind farm of 17 turbines
(see Blackwell, Financial Times, 22 December 2003, p. 23). Furthermore, Centrica plc,
the household gas and electricity supplier, agreed to pay £9m for two wind power sites off
the east coast of England as part of a £500m green electricity expansion programme (see
Taylor, Financial Times, 23 December 2003, p. 20). Scottish and Southern Energy was
also given permission to start a £90m onshore windfarm in South Ayrshire (see Financial
Times, 24 December 2003, p. 4). The Spanish renewable energy specialist, EHN, plans to
invest £352m in the UK over five years (see Taylor, Financial Times, 30 December 2003,
p. 3). It does appear, however, that Ministers’ concerns over wind farm refinancing are
less than they were (see Taylor, Financial Times, 20 January 2004, p. 8). Ministers are
also hopeful that renewable energy will create jobs (see Bream, Financial Times, 16–17
January 2004, p. 2).
280 Making the construction of more gas-powered stations inevitable, thus advancing the
date upon which importation has to start, improving neither security of supply nor the
atmosphere (see Buchan (book review), Financial Times, 1 April 2003, p. 12).
Policies in Practice (1) 429
3 climate change levy should be replaced with a carbon and renewable energy tax,
the proceeds of which should not be used to reduce employers’ NICs, but be
given to a new Renewable Energy Authority set up to fund research, design and
development [RD&D].281
A more general criticism has been made – that the aim of reducing carbon emissions
is inconsistent with the goal of reducing fuel poverty. The former will result in higher
prices, while the latter is dependent upon keeping them low.282 This has, furthermore,
to be considered against the background of a position, at the beginning of June 2003,
in which energy market competition at the retail level was feared to be in danger of
failing.283
By the end of April 2003, concern was being expressed generally that the projected
20 per cent of Britain’s power would in fact come from renewables by 2020, at
any rate without a long-term subsidy regime.284 However, in early 2004, the British
Wind Energy Association285 expressed confidence in the increased capacity from
wind farms as a result of extended incentives announced at the end of 2003.286
In the spring of 2003, ministers were beginning to concede that electricity prices
might have to rise by between 5 and 10 per cent by 2010.287
With the retirement of the Minister of State at the Department of Trade and Industry
with responsibility for energy, Mr Brian Wilson, MP in June 2003, no full time
replacement was appointed, responsibility being given to Mr Stephen Timms, MP,
who was already responsible for overseas postal services, e-commerce and corporate
social responsibility. Although the government insisted that this did not denote that
energy strategy had fallen by the wayside, it was the occasion of criticism from both
the main Opposition parties.288 Yet when Mr Timms moved back to the Treasury
in September 2004, his successor, Mr Mike O’Brien, MP retained the same diverse
portfolio of responsibilities.
The House of Commons’ Environmental Audit Committee, published its Eighth
Report of Session 2002–03, Energy White Paper – Empowering Change?,289 after
the beginning of the summer recess, on 22 July 2003. Its observations included:
281 HC 55, para. 216.
282 Buchan (book review), Financial Times, 1 April 2003, p. 12.
283 Taylor, Financial Times, 16 June 2003, p. 1.
284 Within the UK, it is expected that Northern Ireland will have a surplus of renewably
generated electricity to sell to mainland generators to abate the shortage of, especially,
wind farm capacity (see Murray Brown, Financial Times, 2 July 2003, p. 6). Since then,
the position appears to have worsened, with the revelation that CHP targets had not been
met for 2002 (see Taylor, Financial Times, 1 August 2003, p. 4).
285 See para. 2.4.1 above.
286 Taylor, Financial Times, 24 February 2004, p. 4.
287 Eaglesham, Financial Times, 28 April 2003, p. 3.
288 Eaglesham, Financial Times, 20 June 2003, p. 4. That criticism was echoed in the
recommendations in the 4th Report of the House of Lords’ Science and Technology
Committee for the Session 2003–04, HL 126, Renewable Energy: Practicalities, published
on 15 July 2004, paras 2.18 and 10.6.
289 HC 618.
430 Environmental Taxation Law
‘The Energy White Paper represents a major shift in the approach to UK energy
strategy’. 290 In the context of this book, this begs the question,291 as to why climate
change levy was introduced in advance of the policy which it purports to implement.
Furthermore, the Report goes on to say that: ‘Our fears about implementation have
proved largely justified. The Energy White Paper is weak on specific measures and
contains little that is new … It remains largely an act of faith on the government’s
part that present policies, with their reliance on market mechanisms, will in fact
deliver’.292 Moreover, in the context of renewables policy, reference was made to the
bankruptcy of ARBRE, the flagship biomass project,293 the paucity of the current solar
PV programme,294 and the absence of an adequate strategy for other renewables.295
Concern was also expressed at the absence of targets for energy efficiency,296 and,
in the context of fuel poverty, the need to ensure that ‘the domestic sector bears its
proper share of the costs of reducing greenhouse emissions’.297 The latter goes, of
course, to the heart of the structural deficiency in-built into climate change levy.298
Perhaps the most significant message of all from the Committee, however, was the
unmasking of a major inconsistency in the government’s thinking. Combined heat
and power can only make a contribution to the problem if energy prices increase, yet
that ‘flies in the face’ of the wish to reduce such prices.299 Moreover, the dramatic
fall in energy prices over recent years had been due to an excess of capacity, which
the introduction of NETA had exposed.300 NETA itself was ‘a(chǎn) system for big players’
which resulted in the renewable obligation premium being withheld from small
renewable generators.301 The end result was that:
We highlighted last year our conviction that a transition to an environmentally benign
energy system cold not be achieved on the basis of unsustainably ‘cheap’ energy, as the
Prime Minister’s foreword to the PIU report indicated was a priority. The Government’s
approach remains inconsistent, and the price of energy is likely to rise.302
290 Ibid., para. 10.
291 See para. 14.2 above.
292 HC 618, para. 18.
293 Ibid., para. 31, which starts: ‘A substantial contribution from biomas, in particular, is
widely seen as essential to the achievement of the renewable targets’.
294 Ibid., para. 33.
295 Ibid., para. 34.
296 Ibid., para. 39.
297 Ibid., para. 53. On 27 April 2004, Mrs Beckett issued Energy Efficiency. The Government’s
Plan for Action pursuant to her statutory duty to report on the energy efficiency of
residential accommodation in England under section 2(1) of the Sustainable Energy Act
2003.
298 See para. 21.4.2 above.
299 HC 618, para. 44.
300 Ibid., para. 64.
301 Ibid., para. 63.
302 Ibid., para. 80. As to actual rises, see Hall, Financial Times, 4 August 2004, p. 3; Taylor
and Morrison, Financial Times, 9 September 2004, p. 1; Taylor, Financial Times, 9
September 2004, p. 4.
Policies in Practice (1) 431
The Environmental Audit Committee report was followed, on 15 July 2004, by the
report of the House of Lords’ Science and Technology Committee, Renewable Energy:
Practicalities.303 After confining the ambit of its enquiries to the renewables aspect,
the Committee expressed particular concerns as to the following aspects of government
policy. First, the RO304 was operated in a way which was unlikely to guarantee the
funding of new projects305 which could not be implemented by 2005,306 because
it acted as a cap on renewable output.307 In particular, it was felt that, in itself, the
new exemption of coalmine methane from climate change levy308 would be unlikely
to stimulate activity in that sphere without it becoming an eligible source for the
purposes of the renewables obligation.309 Secondly, although the fears that had been
expressed as to the degree of cover required to allow for wind turbines’ ‘intermittency’
were felt to have been exaggerated,310 a total reliance in excess of 10 per cent would
necessitate this being taken into account.311 Moreover, only the larger offshore wind
farms could be linked up to a high voltage transmission network.312 Small generators
would have to be connected direct to local distribution networks.313
Thirdly, as a source, biomass needed nurturing. Straw-based stations had storage
problems and could, in reality, only draw in from farmers in their locality.314 In
addition, transporting biomass from outside that locality created additional carbon
dioxide emissions,315 and the size of plant would never be such that linkage to the
National Grid would be feasible.316 Moreover a plant which utilised chicken waste
had been prevented by the regulator from burning feathers at all (on the grounds
that they were classified as industrial waste) and the variability of the chicken litter
which it did burn (classified as agricultural waste under the Incineration Emissions
Directive)317 was giving rise to difficulty.318 The Committee therefore recommended
that the UK Government and Ofgem should conduct an urgent regulatory review in
order to mitigate this sort of problem319 and (overall) to establish a regime which
favours small-scale, locally sourced, biomass plants.320
303 HL 126.
304 See para. 21.5 above.
305 Especially long-term projects such as one small particular forestry-based estate CHP
plant: see HL 126, paras 5.25 and 5.26.
306 Ibid., para. 5.26.
307 Ibid., paras 5.6 and 5.8.
308 See para. 14.4 above.
309 HL 126, paras 3.12 and 10.7.
310 Ibid., para. 7.2.
311 Ibid., para. 7.7.
312 Ibid., para. 6.2: this was a problem which had restricted the size of biomass stations.
313 Ibid., para. 6.10.
314 Ibid., para. 4.16.
315 Ibid., paras 4.32 and 10.27.
316 Ibid., para. 6.2.
317 European Parliament and Council Directive 00/76/EC, (2000) OJ L145 52.
318 HL 126., para. 4.21.
319 Ibid., para. 4.22.
320 Ibid., para. 10.27.
432 Environmental Taxation Law
Finally, the Committee found that using energy crops for co-firing under the RO321
could not be achieved on a meaningful scale before 2009.322
21.6.3 The government’s response
In a Written Ministerial Statement on 21 July 2004,323 the Parliamentary Under-
Secretary of State at the Office of the Deputy Prime Minister324 announced the
publication of two consultation documents which represented progress on the
Environmental Audit Committee’s concern over the absence of targets for energy
efficiency.325 The first was on the amendment of the buildings regulations energy
efficiency provisions and the implementation of the Energy Performance of Buildings
Directive.326 The second was the government’s proposals for amending official
guidance on the ventilation of buildings regulations. The Minister said:
Energy used in buildings is responsible for roughly half the UK’s carbon dioxide emissions.
Wasting energy costs money whereas measures such as loft insulation, boiler replacements
and more effective controls often pay for themselves within a few years.
One of the cornerstones of saving energy is to make building structures more airtight
to minimise heating or cooling energy losses due to air leaking through gaps in the
structure.327
On 9 August 2004, the ODPM328 issued a revision of Planning Policy Statement 22:
Renewable Energy. This laid down the policies to be taken into account by regional
planning bodies in the preparation of regional spatial strategies and local planning
authorities in the preparation of local development plans. Renewable energy covered
such as flowed naturally from the sun, the wind, the fall of water, the movement of the
oceans329 and from biomass. In technology terms, this meant onshore wind farms,
hydro electric, photovoltaics, passive solar, biomass, energy crops and energy from
waste (other than by incineration), landfill and sewage gas. It advocated regional
capacity targets,330 but not specific policies relating to the impact of wind turbines on
aviation or separation distances.331 There was, moreover, to be no allocation of pre-
321 See para. 21.5 above.
322 HL 126, para. 10.25. A pilot project by Syngenta, to power 1,000 homes in Yorkshire
using rapeseed oil has since been announced (see Taylor, Financial Times, 24–25 July
2004, p. 5).
323 HC, 21 July 2004, col. 29WS.
324 Mr Phil Hope, MP. See para. 4.2.1.2(1) above.
325 Col. 29WS.
326 2002/91/EC. The following day, the House of Lords passed what later became Sustainable
and Secure Buildings Act 2004, amending the Building Act 1984.
327 Col. 29WS.
328 See para. 4.2.1.2(1) above.
329 Although no specific commitment was given to this, its mention may be significant in
view of the support being given by the Carbon Trust to a wave energy converter project
(see Tighe, Financial Times, 10 August 2004, p. 3).
330 PPS 22, para. 2.
331 Ibid., para. 25.
Policies in Practice (1) 433
determined space in local plans.332 In the case of biomass, local planning authorities
were enjoined to minimise the increase in road traffic.333
The foregoing was considered to be a major boost to the wind farm industry,334
but, despite advocating consideration of the opportunity to incorporate small scale
schemes into both new developments and existing buildings,335 a considerable
setback to the solar sector.336
21.7 Problems with electricity supply industry structures
On two occasions, attempts have been made to convert climate change levy into a
carbon tax – both before the legislation was presented to Parliament by the House of
Commons Environment Committee337 and in the Performance and Innovation Unit
Report published in February 2002.338 Both were rejected by the Treasury.339
21.7.1 Denationalisation
The major problem behind the efficacy of climate change levy is the structure resulting
from the denationalisation of electricity, under which consumers (other than very
large commercial users) acquired their supplies through RECs (the successors of the
old regional electricity boards), which in turn bought their supplies from generators,
mainly (at that date) proprietors of large coal fired power stations, with more expensive
nuclear capacity having to be subsidised through a fossil fuel levy on bills.340 This
end of the supply chain has been changed since it was set up in a number of ways.
First of all, renewable341 and ‘clean’342 sources have entered the market in
quantity, these now being considered desirable from, respectively a conservation and
an environmental point of view – indeed the 37 per cent of the country’s electricity
generated from natural gas in 2001 is expected to rise to between 60 and 70 per cent
in 2020, a high proportion of it imported (and therefore needing to be assessed, from
332 Ibid., para. 6.
333 Ibid., para. 24.
334 Blitz, Financial Times, 10 August 2004, p. 3.
335 PPS 22, para. 18. In this context, a letter from Mr William Orchard published in Financial
Times on 6 August 2004, p. 16, advocating local CHP networks, can be seen as timely.
336 Whose funding looked like being undermined from March 2005 (see Houlder, Financial
Times, 10 August 2004, p. 3). See also W Patterson, Generating Change and Networking
Change: Keeping the Lights On Working Papers Nod. 2 to 3 (RIIA Sustainable
Development Programme, 2003 and 2004).
337 Barker, Daily Telegraph, 21 March 2002, and see also Watson and Dobson, The Tax
Journal, 2 August 1999, p. 9.
338 The Energy Review, para. 3.57.
339 The latter by Written Answer within a matter of days: 25 February 2002, vol. 380, No. 106,
col. 1031.
340 See para. 6.4.3.1 above.
341 Such as biomass: as to which, see W. Patterson, Power from Plants (Earthscan, 1994).
342 For example, wind power.
434 Environmental Taxation Law
a security of supply viewpoint, in an EU context).343 Secondly, the government has
become much more interested in the potential of CHP schemes344 to help meet their
target of the generation of 10 per cent of electricity from renewable sources by 2010.345
Thirdly, the present government reorganised the auction procedures in March 2001
in a way which made it difficult for small producers lacking flexibility in capacity346
to compete because of the need to provide an assured supply during the contractual
period.347 Finally, and perhaps more significantly than anything else, there has been
a world-wide trend in favour of replacing large coal-fired power stations with much
smaller natural gas stations, the former being environmentally ‘dirtier’, slower (in the
sense that they take more time to come on stream after being started up) and needing
decades for the investment in them to be depreciated. Gas stations are able to fill gaps
in the supply chain very much quicker than coal-fired stations.348
21.7.2 The end game
Suffice it to say that the ultimate consequences of these developments may not, as
yet, be fully apparent. This is especially the case in the light of the fact that global
privatisation was taking place at the same time as fundamental changes were
occurring in the economic structure of the electricity industry. Factors needing to be
considered in this context include the fact that trading electricity does not sit easily
beside traditional ‘big’ coal fired stations with their distribution networks. Secondly,
although the maintenance of a national distribution network has been seen as critical,
the creation of private wires (local monopolies linking local generation capacity with
local loads) outside the national or regional generation network, needs to be taken
into account.349 Finally, although fuel powered stations are dependent, economically,
on the future (variable) cost of fuel, the dominant economic factor governing hydro,
wind and photovoltaics-powered plants is the return on their construction cost, which
is determined by their degree of use.
The problem which has not generally been appreciated is, however, that different
financial techniques need to be used in order to compare the desirability of the
alternative techniques. The conclusion reached by one commentator is that energy
policy needs to take account of a wider list of factors than was normal under the
traditional fuel and power approach.350
343 See J. Stern, Security of European Natural Gas Supplies (London: RIIA, 2002).
344 Which are, of course, neither renewable nor particularly emission friendly modes of
generation.
345 But progress is not encouraging (see Taylor, Financial Times, 4 August 2004, p. 3).
346 For example, windpower and CHP (see Taylor, Financial Times, 11 July 2002, p. 4).
347 See Fairley and Ng, [2001/2002] 3 ULR 57.
348 See W. Patterson, Transforming Electricity (Earthscan, 1999).
349 By December 2004, Ofgem’s estimate of the cost of rewiring the UK to connect green
energy projects to both the national and local networks had risen to over £1bn: see Taylor,
Financial Times, 18–19 December 2004, p. 2.
350 W. Patterson, The Electricity Challenge, Generating Change and Networking Change:
Keeping the Lights On Working Papers Nod. 1 to 3 (RIIA Sustainable Development
Programme, 2003 and 2004).
Policies in Practice (1) 435
For all of these reasons, it may be of significance that the government has announced
its intention to undertake further (and detailed) consultations on specific measures to
encourage household energy efficiency.351 The government’s immediate reaction,
however, was to pass the Sustainable Energy Act 2003, under which the Secretary of
State352 is obliged to make an annual report on the progress made in four areas:353
1 cutting the UK’s carbon emissions;
2 maintaining the reliability of the UK’s energy supplies;
3 promoting competitive energy markets in the UK; and
4 reducing the number of people living in fuel poverty in the UK.
The Act also provides that, within a week of s.2 coming into effect, the Secretary of
State has to designate at least one energy efficiency aim for residential accommodation.354
A debate was held in Westminster Hall on 30 March 2004 on this subject. During that
debate, concerns were expressed at the lack of ‘joined up government’ in this respect.
But, when replying to the debate, the Under-Secretary of State at Defra355 revealed
that a new sustainable policy network had been set up to deliver this.356
By s.4 of the Act, the Secretary of State is empowered to direct energy conservation
authorities to take such energy conservation measures as the recipient authority
considers likely to achieve the improvement to the energy efficiency of residential
accommodation specified, by the date specified, in the direction. Moreover, by
31 December 2003, the Secretary of State was required to specify CHP targets
(for government use of electricity) for particular periods up to the calendar year
2010.357 Finally, the Gas and Electricity Markets Authority358 is required both to
carry out impact assessments for important proposals359 and to pay up to £60m to
the government for the Secretary of State to use to promote the use of energy from
renewable sources.360
Despite all of the above, concerns at the absence of ‘certainty of supply’ under
NETA361 continued to be widespread, centring especially on the apparent future
dominance of imported natural gas.362 Parliamentary concerns culminated in a
351 HM Treasury’s Budget 2003 (9 April 2003), para. 7.23.
352 Which can mean any Secretary of State since the various holders are, in theory, co-holders
of a single office, but, currently, Mrs Beckett, the one in charge of Defra.
353 Sustainable Energy Act 2003, s.1.
354 Under s.3, Sustainable Energy Act 2003, the National Assembly for Wales (see para. 4.2.2
above) is obliged to do the same.
355 Mr Ben Bradshaw, MP. See para. 4.2.1.2(1) above.
356 HC, 30 March 2004, col. 380WH.
357 Sustainable Energy Act 2003, s.5.
358 See para. 4.2.1.3 above.
359 Sustainable Energy Act 2003, s.6, inserting Utilities Act 2002, s.5A.
360 Ibid., s.7.
361 See para. 2.4.1 above.
362 See BBC2’s ‘If … the lights go out’, 10 March 2004, 9 pm; and letters to Financial Times
on 16 March 2004 (Professor Peter Odell) and 18 March 2004 (Mr Jonathan Stern).
436 Environmental Taxation Law
House of Lords’ amendment to the government’s Energy Bill in March 2004,
requiring the Secretary of State to ‘ensure the integrity and security of electricity
and gas supply’.363 However, after a certain amount of ‘Parliamentary ping-pong’
between the two Houses, what emerged was the reformulation364 of s.3A, Electricity
Act 1989, to require the Secretary of State (presumably for Trade and Industry)
and the Gas and Electricity Markets Authority to have regard to the achievement
of sustainable development365 while protecting the interests of consumers366 and
securing that ‘a(chǎn)ll reasonable demands for electricity are met’367 and that licensed
suppliers were able to finance their statutory activities.368 These proceedings also
saw the insertion369 of subsections (1A) to (1C) into s.1 of the Sustainable Energy
Act 2003 requiring reports by the Secretary of State to state what had been done
during the reporting period: to develop specified renewable sources; to ensure the
maintenance of such scientific and engineering expertise with the UK as is necessary
for the development of potential energy sources (including nuclear); and to achieve
the existing energy efficiency aims specified in ss.2 and 3.
Finally, the House of Lords’ amendments to the Energy Bill also saw the imposition
of an obligation upon the Secretary of State to make an annual report to Parliament
on both the long and short term availability of electricity and gas for meeting the
reasonable demands of UK consumers, and covering generating, distribution,
infrastructure and gas conveyance capacity within both timescales.370
21.8 The case of aggregates levy
It is sometimes very difficult to see where current government policy on energy
and the environment is heading. Ideas which started out under the auspices of Mr
Michael Meacher, the Minister for the Environment between May 1997371 and June
2003 (his former sub-department is currently part of Defra) got worked on in the
Treasury and sometimes seem to see the light of day as purely fiscal measures. In
363 Taylor, Financial Times, 1 April 2004, p. 4.
364 By Energy Act 2004, s.81(2).
365 Electricity Act 1989, s.3A(1)(b).
366 Ibid., s.3A(2)(a).
367 Ibid., s.3A(2)(b)(i).
368 Ibid., s.3A(2)(b)(ii).
369 By Energy Act 2004, s.82(2).
370 Ibid., s.172.
371 Mr Meacher was born in 1939 and educated at Berkhampstead and New College, Oxford.
Elected to Parliament in 1970 as a member of the (old) far left of the Labour Party, he had
held junior office between 1974 and 1979 and was, between 1983 and 1997, a member of
Labour’s elected Shadow Cabinet. He was generally considered to have been sidelined
when given the environment portfolio after Mr Blair attained the leadership, but took
the opportunity to make an in-depth study of the problems underlying this portfolio.
When Labour won power, he was not given a Cabinet seat, but compensated with a Privy
Councillorship. Because of this, the importance of his contribution to the evolution of
policy in this field has been acknowledged across the party spectrum.
Policies in Practice (1) 437
some cases, it is therefore legitimate to ask to what extent the end product actually
achieves its alleged environmental objective.
Aggregates levy is the most obvious case in point, not least because the government,
through its various agencies, is the largest user of aggregate. It is understood that
originally the main environmental concern was the effect on rural communities of
excessive numbers of lorries passing along small roads and such user late at night
and on public holidays. The tax has, however, nothing at all to do with concerns of
that sort.
Instead, aggregates levy seems to be based on the idea of promoting environmentally
friendly quarrying, a concept which one might well consider to be a nonsense in itself.
Indeed the fact that exports are rebated372 and imports brought into charge destroys
this hypothesis at the outset. The official Treasury justification was, however, that
the purpose of the tax was to protect virgin sources of aggregate, so as to encourage
recycling.373 During the consultation initiated in June 1998, the scope of the tax was
confined to sand, gravel and crushed rock, with coal, clay and minerals intended for
industrial use excluded. The first draft of the proposed legislation made no reference
to ‘crushed’ and incorporated any intermixed substances. Spoil, waste and other byproducts
of dimension stone (itself exempt) were included, as were the extraction of,
certain minerals, including waste derived from the extraction of anhydrite, ball clay,
barytes, calcite, china clay, china stone, fireclay, fluorspar, fuller’s earth, gems and
semi-precious stones, gypsum, metals and metal ores, potash, sodium chloride and
talc. The production of lime or cement from limestone was also included.374
The second consultation, of April 1999, made Customs realise that a use-based tax
would be impracticable, because the intended use might change after the tax point.
In the second draft of the legislation, therefore, the industry was assisted by aligning
the meaning of aggregate more closely with the terminology in the DETR’s Planning
Guidance Note 6 (a document with which the industry was familiar). This resulted
in the removal of ‘stones’ from charge and clay ball waste from exemption. Flint,375
feldspar,376 rock phosphates and manganese377 were excluded in their entirety.
Limestone was defined to include dolomite. Furthermore, coal spoil heaps, slag and
other waste products of industrial combustion, drill cuttings from Continental Shelf
372 A great deal of hostility was encountered on this in the responses to the June 1998
Consultation, some even suggested that a higher rate of tax should be imposed on
exports.
373 The case for this tax seems to be distinctly weak. It was, therefore, not too surprising to
find on p. 65 of Study into the Environmental Impacts of Increasing the Supply of Housing
in the UK, published by Defra in May 2004, the statement that building at a higher density
achieved the greatest reduction in the use of aggregates and the subsequent economic
costs by between 25 per cent and 50 per cent. This section of the document then concluded
with the statement that the tax ‘internalises these external costs’.
374 The 2002 amendments had, however, to include wording to Finance Act 2001, s.18(2)(c)
to make it clear that all input into lime and cement manufacture was to be exempt, not just
limestone itself.
375 Being mainly used for tableware and grit in poultry food.
376 A wider term than china stone, which was therefore removed from the list.
377 Used as fertilisers.
438 Environmental Taxation Law
operations (which are used to line landfill sites) and spoil disposed of as landfill
following its excavation for highway repairs were excluded from taxation. Also
excluded were silica sand, limestone used for industrial purposes, china and ball
clay and recycled aggregate. Complaints as to the prospective effect of the tax on
the competitive position of crushed aggregate led to changes in the substances being
covered by the tax between Royal Assent on 11 May 2001 and the start date for the
tax on 1 April 2002, including bringing uncrushed rock within its scope, but with
the exclusion of dimension stone378 and building stone production. Flint is subject
to the tax when used as an aggregate, exempt when cut and used as building stone
and eligible for credit when used in non-aggregate applications, such as agriculture
and animal feed. Calcite was removed from the exempt list in order to ensure a
level playing field with the market for calcium carbonate, both being eligible for a
credit when used in non-industrial applications.379 Even so, this rearrangement of
the boundaries left out clay and slate products, giving rise to further concerns as to
unfair competition and triggering judicial review proceedings that, in the event, had
not been completed by the start date.380
Indeed, the government do not now appear to dispute that what the tax has done is
to introduce distortions into the market place,381 although they have not admitted to
all of those that have been identified by others, that is,:
1 small quarries and those far away from the southeast are very considerably
disadvantaged, at the rate of £1.60 per tonne;
2 those in Northern Ireland are exposed to untaxed competition from Eire;
3 the creation of an annual market of 4m tonnes of slate waste products (via two
new railheads) from Welsh quarries operated by Alfred McAlpine;382 and even
4 (in the light of the extension in Budget 2002 to certain uncrushed materials) an
increase in the cost of repairing harbours in the north of Scotland.
The government ran into almost unanimous criticism from the main Opposition
parties on the principles underlying the tax during the debates on both the 2001 and
2002 Finance Bills. During the Report Stage of the latter, the (newly appointed)
Economic Secretary to the Treasury, Mr John Healey, MP, said:
378 The phrase, a critical one in the Consultations, actually disappeared from the revised
statutory text.
379 Although enacted under both a provisional collection resolution and a Finance Bill
introduced after the start date, the revisions were made known in principle in Business
Brief 17/01 (28 November 2001) and draft clauses published at the end of March 2002.
380 See R (on the Application of British Aggregates Association and Others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51 (see para. 11.3.2 above).
381 Customs are almost alone in trying to defend the tax, in Aggregates Levy Question and
Answer Briefing, on the basis that other countries have similar taxes, including Denmark,
France and Sweden within the EU, with the Netherlands considering a tax on minerals:
see www.hmce.gov.uk.
382 Batchelor, Financial Times, 1 October 2001, p. 12.
Policies in Practice (1) 439
The levy, in building in a recognition of the environmental costs of extraction, recognises
those costs by making the price of aggregates better reflect their true social and economic
costs; encouraging more efficient use of aggregates; encouraging the use of alternative
materials such as recycled materials and certain waste products in construction; and
encouraging the development of a range of other alternatives, including the use of waste
glass and tyres in mixed aggregate383 … Armourstone, the large blocks of aggregate that
are often used in sea walls or coastal protection, was brought into the scope of the levy as
a result of the levy’s extension to uncrushed rock. This was a necessary change. Because
aggregates can be produced from rock without crushing it, consultation with the industry
suggested that there was a danger of distortion of competition and the distinct possibility
of avoidance.384
By way of contrast, it should be noted that the Regulatory Impact Assessment
issued by the government when it decided to go for the ‘taxation’ option385 revealed
that the voluntary package put forward by the Quarry Products Association,386 albeit
conditionally on the government’s agreeing to limit its purchase of aggregates to
firms which had met certain environmental conditions (which smaller firms would
have found difficult and might be open to legal challenge), had offered the following
30 elements:
• industry-wide protection of ISA 14001;
• production of a QPA environmental best practice guide;
• environmental management guidance for smaller operators;
• piloting of ISO 140001;
• universal introduction of community liaison committees;
• a no quibble guarantee of Environmental Impact Assessments;
• production of best practice guidance for Environmental Impact Assessments;
• surrender of dormant quarrying permissions that will not be reactivated, in
National Parks;
• agreement not to operate National Park dormant sites on behalf of other
owners;
• strict qualifying criteria for new quarrying applications in National Parks;
• financing fundamental research into the impact of quarrying on Sites of Special
Scientific Interest;
• introducing key sustainability indicators;
• establishing an index-linked Sustainability Foundation financed by the industry;
• major investment in recycling plant and equipment;
• promotion of recycled materials with construction clients;
• establishing a restoration guarantee scheme for all aggregates;
• funding and joint management of the Aggregates Advisory Service;
• a compulsory code of conduct for Transport;
• mandatory membership of a ‘Well Driven’ scheme;
383 HC Debates, 4 July 2002, col. 465.
384 Ibid., col. 466.
385 See para. 11.3.2 above.
386 See para. 2.5 above.
440 Environmental Taxation Law
• introduction of transport plans for all aggregates supply sources;
• mandatory use of low sulphur fuels in the transport fleet;
• environmental training for all drivers, including subcontractors;
• environmental training for all employees;
• 50 per cent of employees to obtain NVQ by 2004;
• the introduction of planning enforcement fees;
• the extension of local authority air pollution controls to sand and gravel
processing;
• mandatory use of low sulphur fuels on internal quarry plant;
• the introduction of energy reduction targets;
• the establishment of a Quality Mark for environmental performance; and
• the promotion of environmental purchasing policies with clients.
Suffice it to say that it is very far from apparent to the authors how many of these
objectives are likely to be met at all, let alone more likely to be achieved, as a result
of increasing operators’ costs through the imposition of aggregates levy.
In October 2003 was published a report to Customs by Symonds Group Ltd
entitled Assessment of the State of the Construction Aggregates Sector in Northern
Ireland.387 The Province had been given a transitional regime,388 so that the rates
of aggregates levy in force were considerably lower than obtained in the rest of the
UK.389 The findings in the report may therefore have greater significance than may
at first be apparent.390 Before the introduction of aggregates levy, says the report,
most quarries had been able to sell their scalpings and low-grade materials. This
was no longer the case, resulting in stockpiling which, in some cases, prevented
seams of aggregate being exploited. Moreover, the proportion of operators expecting
their sales to decline over a three year period exceeded those who expected them to
increase. There was, furthermore, a significant unlicensed sector offering low grade
materials at low prices. These people were not only evading aggregates levy and VAT
as well, but also (it was assumed) not complying with health and safety and other
relevant legislation.
The Symonds Group report continues by stating that there had been an increase
in exports to Eire, coupled with a very low admitted level of importation in return.
Enquiries suggested, however, that the actual level of importation was much higher
than returns for the tax suggested. Aggregate prices remained low and, although tests
had shown that some types of recycled material would be an effective substitute for
387 www.hmce.gov.uk.
388 See para. 21.10 below.
389 The reduction is 80 per cent of the full rate and can last until 31 March 2012. Under
the original scheme, this was to expire on 31 March 2007, and abated by 20 per cent
in 2003–2004, 40 per cent in 2004–2005, 60 per cent in 2005–2006 and 80 per cent in
2006–2007.
390 Or, perhaps, extrapolated from the security situation in the Province even though the
paramilitaries were on ceasefire. The implication that Customs do not seem able to shut
down seemingly quite substantial unlicensed operations is a surprising one. One would
not have expected as similar situation to have been extant on the mainland.
Policies in Practice (1) 441
aggregate, the road construction industry had preferred to use the traditional material.
Recycling output was estimated at 280,000 tonnes, as opposed to 21 million tonnes
of primary aggregate. Finally, one of the reasons why so little construction and
demolition waste was recorded as going to landfill was the widespread availability
of unlicensed landfill sites.
The sequel was a decision, announced in the Pre-Budget Report on 10 December
2003,391 to apply to the European Commission for state aid consent to restructure
the temporary differential rate system on the basis of negotiated agreements, coupled
with an 80 per cent reduction in the rate of aggregates levy, both on processed
products and – something which would be new – on virgin aggregate, from a date
in 2004.392
21.9 Water and the farmers
During Labour’s final period in opposition, the shadow cabinet member responsible
for environmental policy, Mr Michael Meacher, undertook a detailed study into
the part taxation might play in achieving the next government’s environmental
objectives.393 Following the return of the New Labour government in May 1997,
Mr Meacher (a left winger) was not given a Cabinet seat, but was created a Privy
Councillor and appointed to the position of Minister of State at the mammoth
Department of Environment, Transport and the Regions (‘the DETR’),394 responsible
for environmental policy.
21.9.1 Economic instruments for water
The first significant environmental act of the New Labour Government in 1997 was
the publication of Mr Michael Meacher’s ‘Grey’ Paper.395 Although not so confined
in terms, in reality this directed attention to the problem of the pollution of the
water table from ongoing agricultural and industrial processes and considered both
the imposition of taxation on farmers’ use of fertilisers and pesticides, but also the
possibility of tradable permits being created for the industrial sector.396 In the event,
however, water pollution is almost the only area for which tradable permits have not
391 Cm 6042.
392 Business Brief 27/2003 (10 December 2003). See para. 13.3 above.
393 The previous Conservative government had introduced landfill tax in 1996, in order to
try and encourage recycling as a preferred method of waste disposal (see Chapter 15
above).
394 See para. 4.2.1.2(1) above.
395 Economic Instruments for Water Pollution, DETR, 20 January 1998. See Simon Conran,
‘Water Pollution, Abstraction and Economic Instruments’, in Environmental Policy:
Objectives, Instruments and Implementations, ed. by Dieter Helm (Oxford: Oxford
University Press, 2000), pp. 203–15.
396 By reference to experience in the USA, which subsequent analysis showed applied to
situations not replicated in the UK.
442 Environmental Taxation Law
been prescribed as part of 10 Downing Street’s list of solutions.397 The reason for this
may be that no policy document has emanated from that source on the contamination
of the water table.398 That, in turn, may owe something to the facts that research
suggested that fertilisers did not contribute to this, and that the pesticides debate had
become becalmed in the ‘war’ between the proponents of GM and organic crops.399
21.9.2 The privileged historic position of the UK’s farmers
Since the Second World War, the farmers have tended to be treated with kid gloves.
They have numerous tax exemptions, for example, the ability to recover the VAT
they pay as input tax through monthly recoveries based on the zero-rating of food;400
the exemption from VED for farm vehicles;401 and the exemption from fuel duty
through the ‘red diesel’ scheme.402 Indeed the post-war ‘Williams’ subsidy regime
instituted by Agriculture Act 1947 produced such a plethora of financial assistance
for farmers that, in 1950, it was possible for a recently-appointed Parliamentary
Secretary to the Ministry of Food403 to say: ‘No nation featherbeds its agriculture
like Britain’.404
21.9.3 1997 and 2004 compared
However, the problems of the farming industry as perceived in 1997 are totally
different from those as seen following the 2001 foot and mouth disease outbreak.
The Ministry of Agriculture, Fisheries and Food (‘MAFF’) has been abolished, being
absorbed into the Defra mega-department. The Environment unit of the old DETR
has also been included within the scope of Defra. The Prime Minister’s policy for the
countryside is, furthermore, now directed towards the support and preservation of
rural businesses, rather than farming, with a few additional sideshows.
21.9.3.1 Common Agricultural Policy reform
Farming still predominates but its subsidy base is being changed. Under the Mid-
Term Review (of CAP) agreement made between the Member States of the ‘old’ EU
397 The possibility of introducing economic instruments was, however, mentioned in the Pre-
Budget Report of 10 December 2003, para. 7.58. Against that has, however, to be set
the insistence of the House of Commons Environment, Food and Rural Affairs Select
Committee that it should not be water utility customers who pick up the bill (see Taylor,
Financial Times, 18 December 2003, p. 4). See para. 20.3 above in relation to the rejection
of various agricultural possibilities.
398 See para. 21.9.4 below.
399 See para. 21.9.6 below.
400 Value Added Tax Act 1994, Sched. 8, Group 1.
401 Vehicle Excise and Registration Act 1994, Sched. 2, para. 20A.
402 Hydrocarbon Oil Duties Act 1979, Sched. 1, para. 2.
403 Mr Stanley Evans, MP, subsequently the only Labour MP to vote in favour of the Suez
operation.
404 He was dismissed by Prime Minister Attlee the next morning.
Policies in Practice (1) 443
on 26 June 2003, the old arable area payments and animal subsidy schemes are to
be replaced in 2005 by a single farm payment (alias ‘SIP’).405 As brought in in the
UK,406 this may turn out to be far more land management, than agricultural activity,
based than the EU norm of the assistance of active farmers.
21.9.3.2 World Trade Organization pressures
In addition, under the Doha Round, in September 2003, a main item on the agenda
of the Cancún conference was the possibility of the US and the EU abandoning farm
support systems which involved export subsidies. Although the talks broke down,
this was primarily on other issues and should agreement for the phasing out of this
type of farm support regime be reached eventually,407 the pre-SIP financial base of
the UK farming community, the subsidisation of crops rather than the occupation of
land, would have been undermined.
In March 2004, there were, furthermore, indications that a resolution of the Doha
Round might be achieved in 2005,408 and (despite the initial US reaction) this is
likely to be enhanced by the success, in June, of Brazil’s challenge in the WTO to
the system of subsidies for US cotton farmers.409 Indeed, it was Brazil’s Foreign
Minister who played an important role in all sides arriving at the interim accord
which was struck at Geneva on 1 August 2004, before the mandate of the current US
and EU negotiators expired.410 But this accord really did not amount to more than
405 While a primary Regulation, EC/1782/2003, and a number of secondary Commission
regulations, had been promulgated, a great deal depended upon the options given to
Member States, which had to be exercised by 1 August 2004. Which said, for reasons
which are unclear, none of the UK components had laid statutory instruments under the
European Communities Act 1972 by that deadline. The scope for national variations had
to be especially wide in order to obtain French concurrence. Article 87 of the primary
Regulation contains an ‘a(chǎn)id’ of 45 Euros per hectare per annum for areas sown with energy
crops under certain conditions. For this purpose, energy crops are defined as biofuels
listed in the Biofuels Directive (European Parliament and Council Directive 03/30/EC,
(2003) OJ L123 42), Art. 2(2), or electric and thermal energy produced from biomass.
406 The regimes for England, Wales, Scotland and Northern Ireland are to differ.
407 As to the Brazilian Government delegation’s view of which, see Colitt, Financial Times,
16 September 2003, p. 9.
408 BBC News website 19 March 2004; de Jonquières. Financial Times, 19 March 2003,
p. 12. See also Duncan Brack and Thomas Branczik, Trade and Environment in the WTO
after Cancun (RIIA Briefing Paper No. 9, February 2004). An interim accord was struck
at Geneva on 1 August 2004, but really did not amount to the end of the ‘talks about
talks’ stage, in the sense that, although it was agreed that agricultural subsidies would be
eliminated, no final date was fixed (see de Jonquières, Financial Times, 2 August 2004,
p. 5).
409 See Colitt and Alden, Financial Times, 19–20 June 2004, p. 12. This was followed by a
successful challenge against the EU sugar regime (see Buck, Colitt and de Jonquières,
Financial Times, 5 August 2004, p. 1; Williams, Financial Times, 2 September 2004,
p. 8).
410 See Williams and de Jonquières, Financial Times, 2 August 2004, p. 1.
444 Environmental Taxation Law
the end of the ‘talks about talks’ stage, in the sense that, although it was agreed that
agricultural subsidies would be eliminated, no final date was fixed.411 The agreement
was, nonetheless, described as ‘a(chǎn) minor miracle’ in the Financial Times’ Leader of 2
August 2004.412
It must follow that any continuation of support for the European farmer in the
longer term will have to take the form of an environmental management subsidy
available to rural businesses generally.
21.9.3.3 The Water Framework Directive
In June 2004, a DEFRA consultation had been launched into the promotion of
catchment-sensitive farming413 in the light of the UK’s obligations under the
Water Framework Directive.414 Economic instruments were one of the four ways
canvassed in order to take this forward, the others being targeted advice, a voluntary
approach and bringing in command and control regulation in advance of the 2009
date specified in the Directive itself.
21.9.4 Fertilisers
In November 1997, it seemed that the first new environmental tax was likely to be
one on fertilisers. This would have had a serious effect on the profitability of farming,
then already under pressure. It appears, however, that detailed work into the idea was
discontinued following the revelation that the 15 per cent reduction in nitrogenous
fertiliser use over the preceding decade had not resulted in any reduction in the level
of pollution in the water table.415
This needs to be read against the background, at that time, of taxing farmers being
a political taboo. In the aftermath of the 2001 foot and mouth disease outbreak, with
government policy much more geared to the rural community, there may be less
reluctance to provoke resistance from the farming community than previously.416
The advent of the Water Framework Directive417 timetable, under which regulation
will be required between 2009 and 2015, brought the issue of fertiliser taxation to
the fore again. This was in the context of the presence of pesticides and veterinary
medicines presence in aquatic ecosystems being capable of resulting in environmental
damage.418 Farming itself also generated phosphorus and, where certain fertilisers
411 See de Jonquières, Financial Times, 2 August 2004, p. 5.
412 See Financial Times, 2 August 2004, p. 16.
413 See Developing Measures to Promote Catchment-Sensitive Farming (available from
www.defra.gov.uk). See also para. 20.3 above.
414 European Parliament and Council Directive 00/60/EC, (2002) OJ L327 1.
415 See Farmers Weekly, 30 January 1998, p. 14.
416 As to which it should be noted that New Zealand is planning a farm aroma reduction tax,
likely to cost each of its farmers an average of £110 per annum (Financial Times, 6–7
September 2002, p. 12).
417 European Parliament and Council Directive 00/60/EC.
418 Partial Regulatory Impact Assessment on Proposals Resulting From the Diffuse Water
Pollution from Agriculture Action plan [‘PRIA’] (June 2004), p. 5.
Policies in Practice (1) 445
were used, nitrogen.419 This had, however, to be considered in the context of both
the decoupling of subsidies from farming activities, in favour of area payments,
under the EU’s Mid Term Review;420 and the Entry Level schemes which have been
introduced by the Environment Agency in order to reduce diffuse water pollution.
Four possible strategies for the promotion of catchment-sensitive farming are also
under consideration:
1 reliance upon, and enhancement of, the Entry Level scheme;
2 earlier regulation than required by the Water Framework Directive;
3 a supportive approach to voluntary action by the farmer; and
4 the use of economic instruments.
The fourth option was, however, considered to be difficult to operate in relation to
the catchment-sensitive farming policy as far as concerned trading schemes (seen as
difficult to apply in such circumstances, difficult to enforce and unlikely to be costeffective)
421 or levies (for example, to promote better soil management).422 The scope
of economic instruments was therefore likely to be confined to taxing inputs423 or
nutrient surpluses,424 but was dependent upon farmers being able to pass the cost on to
consumers. This was considered unlikely to take place in practice unless costs increased
across the EU with the implementation of the Water Framework Directive.425
Whilst no decision had been made,426 it was noted that France was considering
placing a levy on nitrogenous fertilisers,427 and that Sweden, Austria and Finland
already had such taxes. Experience in those other EU Member States suggested
that, for each 1 per cent increase in price, there would be a reduction in demand
of between 0.1 and 0.5 per cent,428 with the possibility that CAP decoupling might
increase this,429 at a cost of approximately 1 per cent of revenues.430
21.9.5 Pesticides
Customs undertook detailed work, and issued consultations on both aggregates and
pesticide taxation, and, at the end of 1999, the indications were that, if a tax on
419 PRIA, p. 15.
420 Council Regulation, EC/1782/2003 (see para. 29.9.3.1n above).
421 Development Measures to Promote Catchment-Sensitive Farming [‘DMPCSF’], a joint
Defra-Treasury Consultation (June 2004), paras 4.61, 5.28 and E7–12.
422 PRIA, p. 10.
423 DMPCSF, paras 4.64 and E16–17. These could be applied to agrochemicals, veterinary
medicines, nitrogen and phosphorus in fertilisers, feeds and manures.
424 Seemingly based on a model, these might be either national or local (see DMPCSF, paras
4.63 and E14–15).
425 PRIA, p. 24; DMPCSF, para. 4.65.
426 DMPCSF, para. 5.29.
427 Astonishing, politically, as this might seem for a right-wing government in that country
(see DMPCSF, para. E18).
428 Ibid., para. E19.
429 Ibid., para. E20.
430 Ibid., para. E21.
446 Environmental Taxation Law
the former was not introduced (and the environmental case for it is almost nonexistent),
431 one on pesticides would be. At that time, it was thought that the latter
would be constructed on a cumulative basis, and result in 2 per cent of farms being
put out of business, a reduction of 3 per cent in farm incomes and the loss of between
1,000 and 2,000 jobs.432
On the basis of pesticide use, it was estimated that the gross margins of the following
crops were very sensitive to a tax on pesticides: winter wheat, winter malting barley,
dried peas, main crop potatoes, carrots, dry onion bulbs, dwarf beans, spring greens,
parsnips and leeks.433
At the time of Budget 2000, it was understood that negotiations were in progress
with the British Agrochemicals Association, with a view to revised proposals for
a non-fiscal voluntary agreement being adopted to achieve the government’s
environmental objectives.434
A consultation was undertaken in response to the resulting proposals, the responses
to which were published after the Pre-Budget Report on 8 November 2000, when the
government let it be known that they still thought that a ‘charge’ might play a role
in reducing the use of pesticides, but as one of a number of additional instruments.
At that time, it was envisaged that a charge would be calculated on a combination of
weight and hazard potential, this element being banded in five categories increasing
either arithmetically, on a scale of one to five, or geometrically, on a scale of one to
sixteen. In order to catch imports, the tax point was likely to be the first sale or use.
At the times of Budget 2001,435 the following Pre-Budget Report436 and Budget
2002,437 the success of the voluntary scheme was being evaluated and possibility
of a pesticides charge being introduced was said to be ‘a(chǎn) real option’ in the future.
Furthermore, such a development was not opposed in the Report of the Policy
Commission on the Future of Farming and Food.438 No mention was made, however,
of this subject in the supporting Press Notices to the 2003 Budget, on 9 April 2003.
At the time of the 2002 Pre-Budget Report, the government was still urging the
parties to make faster progress, keeping in place the threat of a tax in the event
of the failure of the voluntary package.439 Shortly afterwards, the Department of
Environment, Food and Rural Affairs announced a series of whole farm audits to
support a new environmental scheme to be open to all farmers.440
431 See Chapter 13 above.
432 ENDS Report, November 1999, p. 22.
433 Department for Environment, Food and Rural Affairs, Design of a Tax or Charge Scheme
for Pesticides, 29 April 2000 (republished).
434 ENDS Report, March 2000, p. 26.
435 HMT 1, 7 March 2001.
436 HMT 2: Protecting the Environment, Today and for the Future, 27 November 2001.
437 HMT 2, 17 April 2002.
438 Farming & Food – A Sustainable Future (29 January 2002).
439 HMT 2 (27 November 2002): this was supported by the House of Commons’ Environmental
Audit Committee’s Fourth Report of 2002–03, HC 167, issued on 1 April 2003, para. 41.
Yet in the Treasury’s Budget 2003 (9 April 2003), para. 7.65, it was merely stated that
work was being pursued on options.
440 Mason, Financial Times, 9 December 2002, p. 4.
Policies in Practice (1) 447
It is, however, worthy of note that the head of steam which the Customs’
environmental tax unit in Salford appeared to have been able to build up before
the amalgamation of the environment part of the old DETR with the Ministry of
Agriculture, Fisheries and Food, to form Defra, in the aftermath of the 2002 food
and mouth disease outbreak, seems to be deflating. While the Treasury is still going
through the motions of holding open the possibility of a pesticides levy, it seems
possible that the bringing together of both sides of the non-fiscal equation under a
single Secretary of State may have damaged this project beyond repair.
21.9.6 The GM diversion
A further factor which needs to be borne in mind is the removal of Mr Michael
Meacher, who had been Environment Minister since the Blair Government was
elected in May 1997, in the June 2003 reshuffle, and his replacement by Mr Elliot
Morley, a teacher by profession and an MP since 1987, whose previous ministerial
experience had been in the agricultural and countryside sector.
Mr Meacher’s views on the outcome of the genetically modified crop trials
in progress when he left office had been thought to be out of step with Downing
Street.441 Nonetheless the subsequent publication of the Strategy Unit’s study
was not as ‘pro’ these as had been anticipated. Furthermore, in September 2003, it
became public knowledge that the Agriculture and Environmental Biotechnology
Commission, which had been set up to advise the UK Government on the GMorganic
crop controversy,442 had been unable to reach a consensus, thus delaying
a Ministerial decision on the issue.443 When the results of the trials into three GM
crops, oilseed rape, sugar beet and maize, were published in mid-October – revealing
increased threats to the environment in two cases – they were generally thought to
be a vindication of Mr Meacher’s position.444 There was also a certain amount of
scepticism about the government’s ‘neutral’ position on the issue.445
Moreover, the position was not clarified by the publication the following month of
the report of the Agriculture and Environment Biotechnology Commission, which had
441 Mason, Financial Times, 11 July 2003, p. 5, and 12–13 July 2003, p. 6. It was indicated
subsequently, however, that the Prime Minister was by no means as favourable to GM
crops as had previously been supposed (see Mason and Houlder, Financial Times, 22
August 2003, p. 5).
442 Mason, Financial Times, 11 September 2003, p. 1.
443 Adams, Financial Times, 22 September 2003, p. 2; Mason, Financial Times, 26 September
2003, p. 4.
444 Mason and Cookson, Financial Times, 17 October 2003, p. 3, and Mason, Financial
Times, 18–19 October 2003, p. 13. They did, however, come in for very substantial
criticism, subsequently, from both the House of Commons Environmental Audit
Committee in its Report, GM Foods – Evaluating the Farm Scale Trials, and Friends
of the Earth. As to the latter, see Financial Times, 8 March 2004, p. 4. In both cases
the main cause of concern was a failure to take appropriate account of North American
experience.
445 Eaglesham, Financial Times, 17 October 2003, p. 3.
448 Environmental Taxation Law
failed to agree on how organic farmers might be protected.446 The GM companies’
position had, however, been deteriorating, politically, in Brussels447 before then,
and had been hit, technically, by the ban on the weed killer atrazine.448 Although
BBC News’ website reported that qualified approval for GM maize was imminent
on 19 January 2004, a decision by the Cabinet was, however, delayed until 4 March
2004.449 This was taken, furthermore, in the context of a disagreement as to the
efficacy of trial undertaken on the basis of a weed killer which would not be available
in future. While scientists appeared to take the view that this did not invalidate the
trials,450 this was not the opinion of the House of Commons Environmental Audit
Committee.451
On 9 March 2004, Mrs Margaret Beckett (the Secretary of State) made a statement
in the House of Commons that the government would be prepared to licence (only)
one type GM maize for use as animal feed, ‘Chardon LL’, subject to both EU
confirmation and to relicensing in 2006.452 The biotech industry was unhappy at
being told that it, rather than the government, would be responsible for compensating
farmers for contamination damage.453 The concerns of the anti-GM lobby were,
however, assuaged when Bayer, the manufacturer of LL Chardon, announced at the
end of the month that the government’s relicensing requirements meant that it would
not be proceeding with marketing it in the UK.454
It is, therefore, worthy of note that, in the 2003 Pre-Budget Report, it was indicated
that, while the government was ‘continuing’ to examine tax and economic instrument
options, it believed that the most effective method of reducing the environmental
impact of pesticides was for the voluntary initiative to be implemented in full.455
In the 2004 Budget Report, this option was kept open, albeit on a very contingent
basis,456 and the spotlight switched to a pending consultation on the use of financial
446 Mason, Financial Times, 26 November 2003, p. 7; Mason, Financial Times, 14 January
2004, p. 4; Eaglesham and Mason, Financial Times, 2 February 2004, p. 11; Firn and
Eaglesham, Financial Times, 20 February p. 4.
447 Mason, Financial Times, 14 October 2003, p. 10; 22 January 2004, p. 14.
448 Mason, Financial Times, 13 October 2003, p. 3.
449 Eaglesham and Mason, Financial Times, 5 March 2004, p. 6.
450 Mason, Financial Times, 4 March 2004, p. 4.
451 GM Food –Evaluating the Farm Scale Trials, Second Report of 2003–04, HC 90 (3
March 2004). The Chairman of the Committee, Mr Peter Ainsworth, MP, said that he was
writing to the Secretary of State in the context of leaked Cabinet Committee Minutes.
The Royal Society did not, however, agree with the Committee’s criticism and it was not
expected that the government would defer its announcement because of this development
(see Mason, Financial Times, 6–7 March 2004, p. 3).
452 Cols 1381–3.
453 Mason, Financial Times, 10 March 2004, p. 5.
454 Mason, Financial Times, 31 March 2004, p. 1.
455 Delivered 10 December 2003, paras 7.59–60.
456 Para. 7.69. Nonetheless The Rt Hon. Alun Michael, MP, Minister of State, said in answer
to a written Parliamentary Question on 27 April 2004 that the matter was still ‘under
consideration’: col. 863W, No. 168082.
Policies in Practice (1) 449
instruments to tackle diverse water pollution,457 following from the publication of
the Defra Discussion Document on that subject in April 2003.458
The virtual abandonment of a pesticides tax has clearly been a considerable
disappointment to the Commission on Sustainable Development, whose report
published in April 2004,459 recorded that, in the southeast of England and Thames
Gateway,460 water shortages were acute and wildlife and habitats already under
strain,461 and that, on the biodiversity front, there was a strong case for early
introduction of a pesticides tax, the economic difficulties of the farming sector
notwithstanding.462 Whilst accepting that the creation of Defra had helped to bring
about ‘a(chǎn) significant input of sustainability thinking into agriculture and food policy’,
the Commission placed on record that there was a ‘serious downside’ in the resulting
separation of the lead responsibility for planning and local government from the
ODPM and transport responsibility in the DFT.463
21.10 The effect of Community law and policy
The effect of Community law and policy on the structure of the UK’s environmental
taxes464 should not be underestimated, especially in relation to climate change
levy. The availability of 80 per cent reductions available under climate change
agreements has been constricted, by reference to Community rules on state aid,465
in two respects: by confining the processes which qualify to those within the IPPC
Directive466 and by the likelihood of those reductions only being available for ten
years.467
In addition, it prevented giving any relief to an industrial heavy energy user, who
was not an IPPC regime heavy polluter. As a general rule, both manufacturing and
small businesses pay much more in climate change levy than they save under the
457 HC 301, para. 7.68.
458 Strategic Review of Diffuse Water Pollution from Agriculture. It has to be said, however,
that it is not immediately apparent to the authors what form of economic instrument could
be designed to encourage best practice in the context of the non-pesticide issues discussed
very fully and fairly in this document. Mention has, however, been made of ‘rainwater
harvesting’.
459 Shows Promise. Must Try Harder. See para. 4.2.1.4 above.
460 The south coast of Essex bordering on the north bank of the Thames, an area scheduled
for considerable urbanisation.
461 Para. 56.
462 Para. 76.
463 Para. 69.
464 See Chapter 12 above.
465 See para. 12.2.7 above.
466 Finance Act 2000, Sched. 6, para. 51 (albeit reformulated before the effective date by
reference to the amended UK regulations): the underlying Community legislation is the
Integrated Pollution Prevention and Control Directive (see paras 12.2.2 and 14.5 above).
467 Both were confirmed by the Financial Secretary to the Treasury (Mr Stephen Timms, MP)
to Standing Committee H on 18 May 2002.
450 Environmental Taxation Law
NICs rebate.468 The government announced in the 2003 Pre-Budget Report,469
however, that it would apply for state aid approval to extend the eligibility criteria
during 2004 to sectors meeting a specific energy-intensive threshold (account being
taken of any competitive distortions in those sectors).470
Moreover, in relation to aggregates levy, although the Courts rejected a general
challenge471 based, inter alia, on the concept of unlawful state aid472 in favour of
materials and processes not within the scope of the tax, the concept of unlawful
state aid not only prevented the government reaching an agreement with the Quarry
Products Association, under which quarries with their proposed quality mark would
be given procurement preference,473 it also meant that the relief in favour of producers
in Northern Ireland against untaxed competition from Eire was only obtainable on a
transitional basis.474
Much of the complexity behind the aggregates levy has been caused by the
prohibition on the imposition of import taxes under the European Treaty.475 Although
the Court challenge raised this issue on the structure adopted, the end result has
been held to be watertight on this point.476 Having to skirt round the prohibition
has, nevertheless, meant that the tax collection machinery could not be confined to
extraction sites. Collection at the place of importation being prohibited, Customs
had to fall back on the premises at which processing and/or mixing first took place.
This is, in large measure, responsible for many of the liability complications that are
amongst this tax’s most unattractive features.
State aid challenges to the structures of Member States’ national taxes might have
been thought a serious threat to the latter’s fiscal options. Recent developments, in
unrelated areas, indicate that this might not, after all, be the case.477 In GIL Insurance
468 Jones, Financial Times, 24 June 2002, p. 4; Houlder, Financial Times, 17 July 2002,
p. 2.
469 Cm 6042.
470 Business Brief 27/2003 (10 December 2003).
471 R (on the application of British Aggregates Association and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51: primarily on the basis of the official
explanation that the purpose of the tax was to protect virgin sources (ibid., paras 108–15,
132).
472 There does not seem to have been a jurisdictional problem. The concept of ‘direct effect’
has been recognised by the ECJ. The challenge was mounted, and failed, on the basis of
community law restrictions alone. Similar obligations binding on the UK Government
under the WTO Agreement on Subsidies and Countervailing Measures were presumably
not thought to be arguable before the national court at the instance of the subject (see
paras 8.4.4 and 8.4.5.2 above).
473 Financial Times, 2 May 2001, p. 6.
474 Finance Act 2001, s.30A: Press Release HMT 2 – Protecting The Environment, Today and
for the Future (17 April 2002). See also Press Release CE11 (17 March 2004) and para.
13.3 above.
475 See para. 12.3 above.
476 See R (on the application of British Aggregates Association and others) v. C & E Commrs,
above.
477 Ager, Taxation, 15 January 2004, p. 357.
Policies in Practice (1) 451
Ltd v. C & E Commrs,478 the ECJ had to address a challenge to the imposition by the
UK of a special high rate of insurance premium tax (‘IPT’) equal to the standard rate
of VAT on travel insurance policies sold through travel agents and domestic appliance
insurance sold through retailers of those goods. This had been introduced in order to
prevent VAT avoidance through price shifting. The main challenge mounted related
to compatibility with the Sixth VAT Directive.479 A secondary challenge, however,
was also mounted on the basis that it constituted unlawful state aid under Art. 87(1),
European Treaty (ex 92(1)).480 The ECJ’s reasoning was as follows:481
… even on the assumption that the introduction of the higher rate of IPT involves an
advantage for operators offering contracts subject to the standard rate, the application of
the higher rate of IPT to a specific part of the insurance contracts previously subject to the
standard rate must be regarded as justified by the nature and the general scheme of the
national system of taxation of insurance. The IPT scheme cannot therefore be regarded as
constituting an aid measure within the meaning of Art. 87(1) EC.
State aid issues remain pressing ones in relation to the design of environmental
taxes, however. This applies, not only to the structure of exemptions and reliefs
within the taxes, but also to the destination of the proceeds raised by them. The
general issues relating to this point have already been explored in some detail.482
The issue has become particularly pressing in relation to landfill tax, as is evidenced
by governmental concern at the state aid restrictions upon the scope available to
it in relation to the disposal of the anticipated 2005/06 landfill tax surplus.483 As
analysed,484 what is required is a grant aid, or possibly an interest-free loan,485
regime to fund the construction of recycling plants. A central problem appears to
be, however, that, although Community state aid law permits assistance to small and
medium-sized enterprises, such enterprises are unlikely to be of sufficient size to
warrant the construction of their own discrete recycling capacity. A possible solution
to this appears to be the making of grants through venture capital funds promoting
such ventures.
478 Case C–308/01, [2004] STC 961.
479 See para. 1.2.1.4 above.
480 See para. 12.2.7.1 above.
481 C–308/01, para. 78.
482 See paras 11.3 and 12.3.5 above.
483 See An Assessment of Options for Recycling Landfill Tax Revenue, Final Report, prepared
by Integrated Skills Ltd for HM Treasury (February 2004).
484 Tax-subsidised research and development seeming to have reached its capacity and
enhanced capital allowances being considered to have no role to play in this sector.
485 Which, it seems to the authors, might go a long way towards solving the council tax
capping problems being faced by county councils, if made available to local authorities.
Funding issues can lie at the root of county councils’ ability to construct recycling facilities
(see para. 21.4.1 above). The report does not, however, address this possibility.
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PART III, SECTION B
GREENING THE UK TAX
SYSTEM
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Division 1
Removing Subsidies and
Creating Incentives
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Chapter 22
Excise Duties
22.1 Introduction
Until very recently, there had been comparatively little coordination of excise
duties within the EU.1 This was not for want of trying on the part of the European
Commission, given that disparities between Member States can have a very distortive
effect on local economies. There appears, furthermore, to be a reluctance to regard
significant differences in the rates of tax as contrary to public policy.2
The general provisions of the European Treaty that are designed to promote trade
between Member States tend to operate against direct tax anomalies (for example,
the inability of a resident of one Member State working in the neighbouring state to
obtain full reliefs in the latter).3 A country, such as the UK, which has historically
had (and, in order to balance its Budget, will seek to maintain) high levels of excise
duty on spirits and tobacco, will find that this tends to promote, rather than to restrict,
imports.4
In such circumstances, the general principles of the European Treaty leave the UK
a much greater freedom of action in relation to excise duties than in relation to other
areas of fiscal policy.5 That said, the means by which HM Customs and Excise have
sought to counter unofficial trading in goods subject to excise duties6 have, however,
been found to be inconsistent with the European Single Market Directive.7
22.2 Motor cars and their fuel
At least four different levies are imposed on the manufacture, sale and operation of
motor cars. First, there is a car tax, which is levied via the manufacturer at the time
of purchase and, having no environmental element, is not addressed further in this
book. There is then vehicle excise duty (‘VED’).8 Thirdly, there are excise duties on
1 See para. 12.3.4 above.
2 Zurstrassen v. Administrations des Contributions Directes, C–87/99, [2001] STC 1102.
3 See, for example, Finanzamt Koln-Altstadt v. Schumacher, C–273/93, [1995] STC 306.
4 Which is, of course, what the European Single Market is supposed to be meant to
achieve!
5 Imperial Chemical Industries plc v. Colmer, C–264/96, [1998] STC 874.
6 Recently a public health aspect has been brought into the equation, with it being revealed
in December 2004 that a lot of counterfeit cigarettes contained dangerous substances.
7 92/12/EEC, in Hoverspeed Ltd and others v. C & E Commrs, [2002] EWHC 1630
(Admin).
8 Vehicle Excise and Registration Act 1994.
458 Environmental Taxation Law
fuel9 and, finally, VAT is payable, in addition to the aforementioned levies, both on
the purchase of the car and upon the purchase of its fuel.10
22.2.1 Vehicle excise duty
Evas,ion of vehicle excise duty has for long been a concern to UK governments.
Although it is only payable for cars kept on the road, it is now the case that, when
the annual renewal comes up, the ‘keeper’ will find that he will not be able to avoid
paying by claiming that the car is to be kept off the road.11 The tax is administered by
the Driver and Vehicle Licensing Agency (DVLA) on behalf of the DFT.12
This is an annual registration duty originally called the road fund licence. It applies
to all vehicles except for emergency vehicles and those farm vehicles which need
to make only minimal use of the public highway. The annual rate was, originally,
intended to reflect the relative wear and tear. Thus motorcycles pay less than cars,
trade vehicles more than private, and heavy lorries more than smaller ones.
With effect from 1 May 2003,13 the annual14 rates of VED payable were varied to
the following, in order to give an environmental incentive:15
motorcycles, up to 150cc £15.00
151–400cc £30.00
410–600cc £45.00
over 600cc £60.00
private and light goods vehicles registered before 1 March 2001:
up to 1549cc £110.00
over 1549cc £165.00
light goods vehicles registered 2001–2003: £165.00
light goods vehicles registered after May 1, 2003: £110.00
private vehicles registered thereafter are banded according to CO2 emissions
and the type of fuel used:
up to 100g/km: diesel £75.00
petrol £65.00
alternative £55.00
101–120g/km: diesel £85.00
petrol £75.00
alternative £65.00
9 Hydrocarbon Oils and Duties Act 1979.
10 Value Added Tax Act 1994.
11 Vehicle Excise and Registration Act 1994, s.1(1C): substituted by Finance Act 2002,
Sched. 5, para. 2.
12 See para. 4.2.1.2(1) above.
13 Vehicle Excise and Registration Act 1994, s.2(2)–(7): substituted by Finance Act 2002,
Sched. 5, para. 3.
14 Six-monthly renewals are also permissible, albeit at different rates, for example, £60.50
as against £110.
15 References to specialist vehicles have been excluded from the summary below.
Excise Duties 459
121–150g/km: diesel £115.00
petrol £105.00
alternative £95.00
151–165g/km: diesel £135.00
petrol £125.00
alternative £115.00
166–185g/km: diesel £155.00
petrol £145.00
alternative £135.00
over 185g/km: diesel £165.00
petrol £160.00
alternative £155.00
trade licences are available for vehicles £165.00
and bicycles and tricycles for £60.00
22.2.2 Excise duties on fuel
Under the previous Conservative government, it was decided to encourage motorists
to switch to unleaded petrol, by subjecting this to a lower rate of excise duty than the
traditional leaded. This was bolstered by the indexation of the rate of duty on petrol,
known as the ‘fuel duty escalator’.
By the end of the century, the general switch by the majority of motorists to
unleaded petrol demonstrated that the Lawson initiative had achieved a large measure
of success. However, the rapid rise in oil prices during the summer of 2000 led to a
nationwide organised blockade of oil distribution depots and the government had to
agree to discontinue the escalator.
The use of diesel is increasing in the UK, helping to reduce emissions.16 Such
engines are 20 per cent more fuel-efficient than petrol.17 In Europe, sales of diesel
cars have doubled over seven years and are expected to make up half the total by
2006.18 The Commission is, however, preparing new emissions rules. Whilst making
diesel engines cleaner, they will make them more expensive and less efficient.19 The
cost is to increase with the introduction of the Euro 4 rules in 2005. The subsequent
rule change, which is scheduled for 2010, is likely to centre on the control of nitrous
oxide, which will create a problem for diesel engines.20
Mention was made in the 2002 Pre-Budget Report of fiscal encouragement of biofuels.
However, this merely stimulated the House of Commons’ Environmental Audit
Committee, in its Fourth Report for 2002–03 issued on 1 April 2003,21 to urge that a
more coherent strategy be adopted.22
16 Hunt, Financial Times, 16 October 2003 [special report Sustainable Business], p. 4.
17 Ibid.
18 Ibid.
19 Ibid.
20 Mackintosh, Financial Times, 15 October 2003, p. 14.
21 HC 167.
22 Ibid., para. 16.
460 Environmental Taxation Law
The government-funded Energy Saving Trust23 had been distributing most of its
Energy Budget grants to vehicles fuelled by LPG, the market in which had grown
from 1,000 to 90,000 in five years. This body considered that a radical change in the
duty differential would undermine this. Yet, in contrast to biofuels and hydrogen,
this fuel offered no carbon dioxide advantage over diesel.24 Nonetheless, Lord
Whitty, then the junior farming Minister, subsequently told the House of Commons
Environmental Audit Committee that the 2002 Budget cut of 20p had proved an
insufficient incentive, in effect supporting the view that increased use of biodiesel
and bioethanol should be seen as an effective means of contributing to the attainment
of the Kyoto targets.25 On 1 March 2004, Mr David Jamieson, MP, Under-Secretary
of State, Department of Transport, revealed that the Energy Saving Trust’s Powershift
grants26 were estimated to have assisted in the purchase or conversion of 13,516
vehicles to LPG in the context of LPG vehicle totals of 39,000 in 2000 rising to
107,000 in 2003.27 On 2 March 2004, the same minister made it clear that, even
though the rate of excise duty on LPG was to be increased gradually over the following
three years, support for LPG still continued through the Powershift conversion grant
scheme and reduced VED rates for gas powered vehicles.28
In the Budget on 9 April 2003, a package of measures had been announced:29
1 the creation of a lower VED band was created, for cars emitting less than 100
grams of carbon dioxide per kilometer;30
2 the setting of the duty on bioethanol at 20p per litre lower than for conventional
low-sulphur fuel, leaving LPG unchanged;31
23 See para. 4.2.1.2(1) above.
24 Houlder, Financial Times, 23 April 2003, p. 6.
25 Mason, Financial Times, 16 September 2003, p. 5.
26 Which had been undersubscribed, but was anticipated to overspend by £8m if applications
continued at the rate current at the end of 2003 (see HC Written PQs, 1 March 2004, col.
622W, WA 156200 and 156201).
27 Written PQs, cols 622–623W, WA 156245.
28 Written PQs, col. 763W, WA 157450.
29 Press Release PN 04 (9 April 2003).
30 On 13 May 2003, the Economic Secretary to the Treasury (Mr John Healey, MP) told a
Committee of the Whole House on the Finance Bill that evaluation had begun of a carbon
dioxide-based vehicle excise duty system, which was due for completion in the autumn:
col. 225. But the House of Commons’ Environmental Audit Committee, in its Tenth
Report of Session 2003–04, Budget 2004 and Energy, HC 490, published on 11 August
2004, found it extraordinary that the Minister, in evidence given to the Committee, did
not accept that one of the main objectives should be to influence buying decisions. They
were concerned, furthermore, that the government’s own evaluation of the VED scheme
showed that current differentials were insufficient to prompt behavioural changes. A
radical increase in those differentials was therefore recommended (ibid., para. 51).
31 HM Treasury’s Budget 2003 (9 April 2003), para. 7.30, indicated that the government
also intended to exempt hydrogen for a limited period following a consultation with
‘stakeholders’.
Excise Duties 461
3 the introduction of a duty incentive of 0.5p per litre for sulphur-free fuels from 1
September 2004;32 and
4 the further tightening in 2005/06 of the emissions criteria for company car scales,
albeit less stringent than that previously announced for 2004/05.33
The Pre-Budget Report of 10 December 2003,34 was a severe disappointment to
manufacturers of cars powered by LPG because of the Chancellor’s decision that the
41.7p per litre differential was no longer justifiable.35 Instead, emphasis was given to
an Alternative Fuels Framework,36 committing the government to a rolling three-year
period of differential certainty, within a general context of ‘blunt’ duty differentials
being considered against other means of support, such as capital incentives, grants
and regulatory solutions.
Budget 2004 contained the following provisions:37
1 The road fuel mixing charge was to be removed,38 and the Energy Products
Directive’s39 requirements40 were to be implemented, with effect from Royal
Assent to the Finance Bill.41
32 Press Release CE 30 (9 April 2003).
33 See para. 23.2 below. The success of this scheme was noted by the House of Commons’
Environmental Audit Committee, in its Tenth Report of Session 2003–04, Budget 2004
and Energy, HC 490, published on 11 August 2004, para. 47, and the suggestion made
that differentials be widened in order to increase the incentives for purchasing very lowemission
vehicles.
34 Cm 6042.
35 Mason, Financial Times, 11 December 2003, p. 10.
36 Cm 6042, Box 7.1. The introduction of the Alternative Fuels Framework was welcomed
by the House of Commons’ Environmental Audit Committee, in its Tenth Report of
Session 2003–04, HC 490, Budget 2004 and Energy, published on 11 August 2004, para.
40.
37 In July, it was announced that the general increases scheduled for 1 September 2004, were
to be deferred in the light of the steep increases in the oil price on international markets.
The government no doubt feared a repetition of the protests which took place in 2000.
The generally accepted view is, however, that (unlike in 2000) the price increases should
not be seen as short term, being generated very substantially by the very large increase in
the size of the economy of the People’s Republic of China during 2003–04. But the UK
Government’s long-term solution, the substitution of satellite-based road user charging,
does seem to be beset with technical difficulty (see Wright, Financial Times, 24–25 July
2004, p. 11). Nonetheless, against the background of carbon emissions from transport
still moving in the wrong direction and notwithstanding the fuel protests of 2000, the
House of Commons’ Environmental Audit Committee, in its Tenth Report of Session
2003–04, Budget 2004 and Energy, published on 11 August 2004, urged the government
to implement the duty rises ‘a(chǎn)t the earliest opportunity’ (ibid., paras 44–5).
38 Press Release CE 28 (17 March 2004).
39 See para. 12.3.4 above.
40 Press Release CE 29 (17 March 2004).
41 22 July 2004.
462 Environmental Taxation Law
2 Bioethanol used as a machinery fuel or additive was to be charged at 28.52 per
litre from 1 January 2005, 20p42 below the prevailing sulphur-free petrol rate.43
3 Sulphur-free petrol and diesel44 was to be charged at 48.52p per litre from 1
September 2004, 0.5p less than that for ultra-low sulphur petrol and diesel.45 For
this the rate was to be 49.02p. Other unleaded petrol was to be 51.70p. LPG was
to be 13.03p,46 natural gas 11.10p47 and biodiesel 28.52p.48
Following concern at the possibility of further protests following the increase in oil
prices during the summer, the 2004 Pre-Budget Report contained a single change
to these excise duties, a reduction of the duty on bioethanol from 28.52p per litre to
27.10p, from 1 January 2005.49
22.3 Heavy goods vehicles and their fuel
Vehicle excise duty rates for heavy goods vehicles are banded both by reference to
axle weight and numbers50 and by reference to whether they are built to standard or
reduced pollution standards.51 In relation to the latter, the differential in band G is
£500 (that is, £1,350 as against £1,850).
Excise duty on vehicle fuel is far higher in the UK than, for instance, in France.
Cross-border truckers tend therefore to plan their journeys on the basis that they will
be able to refuel on the other side of the Channel.
In the Pre-Budget Report 2000, the government announced its commitment to a
range of road fuels in order to achieve long-term reductions in the emission of both
the six Kyoto GHGs52 and the eight pollutants identified in The Air Quality Strategy
42 In Committee, the Chairman of the House of Commons Environment, Food and Rural
Affairs Committee (The Rt Hon. Michael Jack, MP, a former Conservative Financial
Secretary to the Treasury) challenged the Economic Secretary to the Treasury (Mr John
Healey, MP) as to why the rebate was as low as 20p and the impression gained by some
members of the Committee that Budgetary reasons lay at the root of this: the debate is
reported in Standing Committee A, 6 May 2004, cols 41–59.
43 Press Release CE 27 (17 March 2004). This was linked with a climate change levy change:
Press Release CE 20 (17 March 2004): see para. 14.3 above. The differential was to be
maintained until 2007.
44 The Freight Transport Association (see para. 2.6 above) said that the increase in diesel
duty would add £260m a year to transport costs (see Griffiths, Financial Times, 18 March
2004, pl.12).
45 Press Release CE 25 (17 March 2004).
46 There was to be a 1p differential until 2007.
47 For this, the differential was to be frozen until 2007.
48 Press Release CE 26 (17 March 2004). The DFT was to conduct a Consultation on
biofuels. The results were made known on 2 December 2004.
49 Excise Duties (Surcharges or Rebates) (Bioethanol) Order 2004, S.I. 2004 No. 3162.
50 Vehicle Excise and Registration Act 1994, s.62(1).
51 Ibid., Sched. 1, para. 9(1): inserted by Finance Act 2002, Sched. 2, para. 2.
52 See para. 8.3.1.4 above.
Excise Duties 463
for England, Scotland, Wales and Northern Ireland published in January 2000, that is,
benzene, 1,3 butadiene, carbon monoxide, ozone, particulates and sulphur dioxide.
In Finance Act 2001, s.3,53 Customs were given power to reduce or rebate duty
in relation to experimental fuels. In 2002, the Financial Secretary to the Treasury
invited the submission of applications for such recognition, on a pilot basis, to be
made to Customs by 31 July 2002. For this purpose, lists of fuels were published:
1 capable of inclusion were hydrogen,54 ethanol and bioethanol (including blends
of the latter), methanol, biogas, alternative methods of treating biogas and novel
treatments of organic oils (rather than esterification); while
2 excluded were fuels not for transport use, conventional fossil based fuels, road
fuel gases (other than those specified), esterified organic oils (that is, biodiesel),
blends of biodiesel and fossil fuels, fuel additives and emulsions (fuels mixed
with water).
Furthermore, in early May 2003, in Modernising the taxation of the haulage industry
– lorry road user charge: Progress Report Two, the government revealed that it had
achieved the necessary changes to the (then) draft Energy Products Directive,55
which had been sent to the European Parliament for approval, in order to enable it
to reduce the duty on diesel fuel after the introduction of the lorry road user charge
in 2006.56 This was in order to enable the UK haulage industry to compete with its
EU counterparts. The Directive was scheduled to take effect from January 2004, and,
under it, substantial increases in fuel duties would take effect across the European
Union from 1 January 2010.57
22.4 The emissions problem
Customs launched a Consultation on Duty Differentials for More Environmentally
Friendly Rebated Oils on 9 July 2003. This explained that there were three main
pollutants associated with heavy oil combustion, that is, primary particulates, sulphur
dioxide; and nitrogen oxides, for all of which emissions were expected to fall, but
as to which consideration was being given to the role of fiscal incentives in meeting
the targets58 set by the Air Quality Framework Directive59 and its first ‘daughter’
53 Inserting Hydrocarbon Oil Duties Act 1979, s.20AB.
54 As to the problem areas becoming apparent in relation to hydrogen, see Roberts, Financial
Times, 13 May 2003, p. 21. The voicing of these concerns has, however, led to a counter
attack by the manufacturers of LPG cars (see Macintosh, Financial Times, 25 August
2003, p. 4).
55 See para. 12.3.4 above.
56 See para. 27.3 below.
57 Ibid.
58 Within the National Emissions Ceilings for Certain Atmospheric Pollutants Directive (see
para. 12.2.6.2 above).
59 Ibid.
464 Environmental Taxation Law
directive.60 The latter laid down targets to be achieved for sulphur dioxide61 and
primary particulates by 1 January 2005, and for nitrogen dioxide by 1 January 2010.
However, under the revised Large Combustion Plant Directive,62 more stringent
limits are imposed and, under the revised Fuel Quality Directive,63 the maximum
sulphur content of gas oil sold as diesel road fuel has to fall by 80 per cent by 1
January 2009.64
The purpose of the consultation referred to above was to establish whether the
previously successful policy of successive UK governments in setting duty
differentials65 was likely to be repeatable, in circumstances in which rebated gas oil
and fuel oil continued to contribute to local air quality problems.66
60 Ibid., n.
61 See also para. 12.2.6.3(5) above.
62 See para. 12.2.6.2 above.
63 See para. 12.2.6.3(5) above (see also the Sulphur Content Directive, ibid.).
64 Proposals were, furthermore, before the Commission to tighten the emissions standards
for diesel engines still further.
65 That is, in encouraging the switch between 1997 and 1999 from conventional gas oil to
ultra-low sulphur diesel, and similar success in relation to ultra-low sulphur petrol.
66 Consultation, para. 4.4. It is worthy of note, that, in September 2004, the US State of
California took a different approach. New emissions reduction features were to be
incorporated in all vehicles between 2009 and 2016, at an estimated cost of US$1,000 per
car or lorry (see Simon, Financial Times, 25–26 September 2004, p. 8).
Chapter 23
Employee Taxes
23.1 Introduction
The general principles governing the income tax treatment of employees in the UK
are that both cash remuneration1 and benefits in kind2 are brought into charge, but
expenditure incurred by the employee is only relieved if ‘wholly, exclusively and
necessarily’ incurred in the performance of his duties.3 Suffice it to say that, as a
general principle, it has never been regarded as necessary to eat or sleep in order to
work, nor has it ever been so to travel from home to one’s place of work.4
What follows should be read subject to the outline of income tax given in Chapter 1
above5 and the reader is referred to one of the standard works on the subject6 for
income tax in general.
23.2 Income tax treatment of company cars
In the late 1960s and early 1970s, the fleet car business was seen as an essential means
of supporting the British motor industry.7 In times of very high personal taxation (the
top rate of income tax for earnings after 1974 became 83 per cent), the provision of
benefits in kind became the norm, and that of a ‘company car’ the lead item. The car
benefit scales were, indeed, so low that professional partnerships took to forming
service companies to provide cars to their equity partners.
The ground rules changed very suddenly, with the doubling of the scales in 1988.
From 1991, this was supplemented with the imposition, on the employer, of Class
1A NICs.8 The employee’s liability was nonetheless calculated by reference to a
1 Income and Corporation Taxes Act 1988, ss.19, 131; Income Tax (Earnings and Pensions)
Act 2003, ss.10(2), 67(2).
2 Income and Corporation Taxes Act 1988, ss.145 (residential), 154 (other); Income Tax
(Earnings and Pensions) Act 2003, ss.97, 201 respectively.
3 Income and Corporation Taxes Act 1988, s.198; Income Tax (Earnings and Pensions) Act
2003, s.328.
4 Ricketts v. Colquhoun, (1924) 10 TC 118.
5 See para. 1.4.3.1 above.
6 See John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000); and Lesley
Browning et al., Revenue Law: Principles and Practice, 22nd edn (London: Lexis Nexis
Tolley, 2004).
7 At that time there was still a major British owned car maker and exporting was seen
as the primary method of keeping the balance of payments under control. According to
conventional wisdom at that time, sustaining a substantial home market was seen as a prerequisite
to export growth.
8 Social Security Contributions and Benefits Act 1992, s.10.
466 Environmental Taxation Law
combination of the number of cars made available to him and his family, the amount
of business mileage done by him and the cost, age and engine size of the car.
From 6 April 2002, this system has been changed to one based on carbon dioxide
emissions, without any discount for the age of the car or high business mileage.9 In
Budget 2004,10 it was announced that the minimum level of charge would be fixed
as follows:
2004/05 145 grams per kilometre of carbon dioxide
2005/06 140 grams per kilometre of carbon dioxide
Fuel used for private motoring is subject to a separate charging regime from that for
the provision of the car.11 Suffice it to say that, for 2003/04, a combination of the
increased taxable amount and employer’s Class 1A national insurance contributions
has made it economic for this to be foregone at a litreage of as little as 3,000.12 The
maximum charge for that year was £14,400 and this has been frozen for 2004/05.13
Following schemes to provide vans for employee use, the government instituted a
consultation to encourage the use of more environmentally friendly vans.14 When it
appeared on 8 May 2003,15 this did not have many firm proposals in it, apart from the
extension of free fuel scale charging from cars to vans.16 The underlying problem in
extending the emissions-based provision of vehicle scale from cars was that, for vans,
there was no published data on them. The alternatives appeared to be the replacement
of a scale reduction for older vehicles by a supplement; having a different level of
charging after the introduction of the Euro IV emission standard in 2006, with noncompliant
vans being charged a supplement; and giving a reduction for vehicles running
on alternative fuels, such as liquid petroleum gas17 or compressed natural gas.
In Budget 2004, it was announced that the existing full private use charges of
£500, reduced to £350 for vans four years old or over, would continue in a revised
scheme to be introduced from 2005/06, when fuel scale charges would be added.
From 2007/08, however, the full availability charge would be increased to £3,000,
with no abatement for the van’s age.18 Fleet management companies indicated that
these changes would mean that additional administrative (and perhaps security
and tracking) arrangements would have to be put in place by employers.19 In the
9 Income and Corporation Taxes Act 1988, Sched 6; Income Tax (Earnings and Pensions)
Act 2003, ss.133–44.
10 Press Release REV BN 41 (17 March 2004).
11 Income and Corporation Taxes Act 1988, s.158(2); Income Tax (Earnings and Pensions)
Act 2003, s.150.
12 Crowther, Simon’s Tax Briefing, 14 October 2002, p. 8.
13 Press Release REV BN 41 (17 March 2004).
14 HM Treasury’s Budget 2003 (9 April 2003), para. 7.37.
15 Employer-provided Vans.
16 Ibid., proposal 4.
17 The Inland Revenue author does not seem to have been conscious of the doubts being
expressed about LPG (see para. 22.2.2 above).
18 Press Release REV BN 42 (17 March 2004).
19 Martin, Financial Times special report, Fleet Management, 31 March 2004, p. 1.
Employee Taxes 467
Responses to the Consultation Document20 both employers and professional advisers
had emphasised that, for commercial reasons, vans tended to have to be taken home
at night (and it was accepted in the RIA21 that home-to-work travel should not be
regarded as private mileage), that commercial considerations militated against the
notion that the employee would have a choice of make or that a van (in the state it
was likely to be after business use) would not be an idea vehicle for genuinely private
motoring, with the result that private usage (even if permitted under the terms of the
employee’s contract)22 would be likely to be insignificant. After consideration of
such submissions, the RIA saw the environmental impact of the changes as likely to
be as follows:
1 a reduction in the number of company vans used for private purposes;23
2 decreased attractiveness of a company van in place of a company car;24
3 a decrease in the number of company vans for which there is no restriction on
private use;25 and
4 a reduction in private mileage by those who have to pay for it;26 but
5 although the abolition of the older van reduction would remove the incentive to
retain such vehicles, no significant increase in the number of such vehicles being
scrapped was to be anticipated.27
On 29 April 2004, the Inland Revenue published a Report on the Evaluation of the
Company Car Tax Reform.28 This suggested that between 0.15m and 0.2 m tonnes of
carbon in road emissions (0.1 per cent of the total) had been saved in 2003, and would
lead to reductions of between 0.5m and 1m in the longer term. This was as a result of
reductions in business travel of between 300m and 400m miles after the removal of
incentives had induced a high level of awareness in drivers and employers.
23.3 Environmentally-friendly transport
The zero-rating of passenger rail and bus transport for VAT29 should provide a degree
of incentive to commuters to use public transport, but the effect is very marginal.
The completing services to the private car are seen, frequently as both relatively
expensive and (more important) not sufficiently reliable.
20 Published in April 2004.
21 Signed 1 April 2004.
22 Proof of which the RIA indicated would be likely to be required by the Inland Revenue
under the redesigned system.
23 Consultation, para. 23.
24 Ibid., para. 24.
25 Ibid., para. 25.
26 Ibid.
27 Ibid., para. 26.
28 www.inlandrevenue.gov.uk.
29 Value Added Tax Act 1994, Sched. 8, Group 8, item 4(a).
468 Environmental Taxation Law
In 1999, incentives were introduced for works’ buses,30 employer subsidisation of
buses,31 employer provision of cycling equipment32 and the payment of approved
passenger subsidies.33 Further incentives were considered, but only minor palliatives
were, in the event, brought into effect (in 2002), that is, up to six free meals per annum
for employees cycling in to work34 and the use of a works minibus for shopping trips
(of up to ten miles) from work.35
It has, therefore, to be concluded that the government’s scope for providing
meaningful assistance in this field has run its course. This has, however, to be seen
against the background of the Report of the Sustainable Development Commission
issued in April 2004: Shows Promise. But Must Try Harder. This mentions a
‘fundamental need … for more sustainable transport and planning policies that
reduce the need to travel where possible’.36
30 Income and Corporation Taxes Act 1988, s.197AA; Income Tax (Earnings and Pensions)
Act 2003, s.242.
31 Income and Corporation Taxes Act 1988, s.197AB; Income Tax (Earnings and Pensions)
Act 2003, s.243.
32 Income and Corporation Taxes Act 1988, s.197AC; Income Tax (Earnings and Pensions)
Act 2003, s.244.
33 Income and Corporation Taxes Act 1988, s.197AE; Income Tax (Earnings and Pensions)
Act 2003, s.233. For each of the above and the pre-1999 position, see J. Snape, ‘Tax Law
Aspects of Adapting and Operating Green Transport Plans’ (1999), 1 ELR 92–124.
34 Income Tax (Exemption of Minor Benefits) Regulations 2002, S.I. 2002 No. 205, reg.
3. From 2003/04, the limit of six free breakfasts for cyclists on official cycle-to-work
days was lifted: REV BN 04 (9 April 2003) , Income Tax (Exemption of Minor Benefits)
(Amendment) Regulations 2003, S.I. 2003 No. 1434.
35 Income Tax (Exemption of Minor Benefits) Regulations 2002, S.I. 2002 No. 205, reg. 4.
36 Ibid., para. 134. Paragraph 135 then goes on to describe the aviation situation as ‘even
more acute’. See, ibid., paras 29, 74 and 132. See also para. 4.2.1.4 above.
Chapter 24
Business Taxes
24.1 Introduction
By contrast with the method of calculating the taxable emoluments of employees,1
the profits of businesses are taxed on the basis of accounts drawn up under the best
current practice.2
Any employer who incurred expenditure on the congestion charge or any workplace
parking levies would therefore be able to deduct that expenditure in computing the profits
of his trade. (Whether any employee whose vehicle was involved would be taxable
on that expenditure is a different issue.)3 Furthermore, where LATS are concerned,4
corporation tax problems will not arise because local authorities are not treated as
carrying on trades in relation to the performance of their statutory functions.5
Adjustments are made for certain matters specified by law, which fall within two
general heads – those required in order to prevent the deduction of capital or personal
expenditure,6 and those required as a matter of public policy (for example, business
entertainment or involvement in criminal activity).7 The reader is referred to the
outlines in Chapter 1 above and to the standard texts on the subject for the background
to the provisions discussed below.8
24.2 Nature and role of capital allowances
For the purposes of computing trading profit, all capital expenditure has to be
deleted.9 Expenditure on the acquisition of, say, plant and machinery will only very
rarely come within the scope of revenue deductions. When drawing up accounts, the
appropriate deduction against revenue is obtained by estimating the useful life of
the asset in question and amortising its cost over that period through the medium of
depreciating its costs.
1 See para. 23.1 above.
2 Finance Act 1998, s.42(1).
3 See, however, para. 18.2 above in relation to congestion charge.
4 See para. 20.7 above.
5 Income and Corporation Taxes Act 1988, s.519(1). The same is intended to apply for VAT,
although the position is rather complex: see Value Added Tax Act 1994, s.33.
6 See Income and Corporation Taxes Act 1988, s.74.
7 Income and Corporation Taxes Act 1988, ss.577, 577A.
8 See CCH Editions, The CCH Tax Handbook 2003–2004 (Banbury: Croner CCH, 2003);
John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000); and Lesley Browning
et al., Revenue Law: Principles and Practice, 22nd edn (London: Lexis Nexis Tolley,
2004).
9 Income and Corporation Taxes Act 1988, s.74(1)(f).
470 Environmental Taxation Law
Depreciation is not expenditure as such and, accordingly, had to be written back in
order to accord with the concept of ascertaining a profit by deducting expenditure
from receipts, as comprehended by the late nineteenth-century judiciary. Since
the Second World War, both Labour and Conservative Governments have made
provision for series of capital allowances (or, at one stage, investment grants) in
order to redress the balance.
Capital allowances take two main forms: the possibility of an initial allowance to
give accelerated relief for new expenditure and a writing down allowance for the
balance, and the balance between the two changes regularly.
24.3 Motor cars
As indicated in the previous chapter,10 the provision of company cars to virtually
all and sundry started off as a means of propping up the British motor industry. The
only restriction imposed on employers was the imposition of a cost limit, currently
£12,000, above which the cost of cars was not included in the general ‘pool’ of
expenditure by reference to which 25 per cent reducing balance allowances were
generated, and is pooled separately subject to an annual cap of £3,000.11
From 2002, this cap does not apply12 where a 100 per cent first year allowance is
available because it is a new car that is either electrically-propelled or has low carbon
dioxide emissions.13
24.4 Environmentally-friendly equipment
From 2001, 100 per cent allowances have been available for energy-saving plant
or machinery that is of a type specified by the government.14 In 2002 and 2004,
further technologies were added to the list. In 2003, certain water technologies were
awarded the same treatment.15
In August 2003, in Economic Instruments to Improve Household Energy Efficiency:
Consultation Document on Specific Measures,16 it seemed that the only realistic
course of action might be to request European Commission consent to extend the
lower (5 per cent) rate of VAT to the purchase of energy-efficient equipment. It was
noted, however, that this would require the unanimous consent of the other Member
States.
10 See para. 23.2 above.
11 Capital Allowances Act 2001, ss.74(2)(b), 75(1).
12 Ibid., s.74(2)(c).
13 Ibid., s.45D.
14 Ibid., ss.45A–45C.
15 See para. 21.3.1 above (see also Capital Allowances Act 2001, ss.45H–J).
16 HM Treasury and Defra, following-on an early Consultation in July 2002.
Business Taxes 471
24.5 Urban regeneration
The taxes considered previously in this chapter need to be distinguished from the
fiscal changes made as a result of the report of Lord Rodgers’ Urban Task Force,
Towards an Urban Renaissance. The linkage between these changes, which were
designed to cost the Treasury as little as possible, and the 100 per cent first year
allowances for generating equipment designed to sit alongside the 80 per cent
reduction in climate change levy for those with IPPC problems who entered into
climate change agreements, is purely coincidental.17
The point has, furthermore, to be made that, in the course of the Marrakesh and
Johannesburg Environmental Summits, the focus of the ‘sustainable development’,
which the participant governments participating discussed, was shifted, subtly but
discernibly, from the protection of the environment to the assistance of the poor.18
24.5.1 Clean-up expenditure by purchasers
Where contaminated land is purchased and the purchaser carries out remedial works,
he can, in principle, obtain tax relief on a notional 150 per cent of expenditure incurred
after 11 May 2001.19 Relief is only available for acquisitions as trading stock or as
a capital asset of a trade or a Schedule A business.20 The limitations within those
categories are, however, significant, and reduce very materially the scope of this
concession:
1 Perhaps understandably, it is not available where the purchaser, or a person
connected with him, created the contamination.21
2 Also understandably, the relief should not be available if the expenditure was
grant-aided. But this particular disqualification also extends to situations in
which the purchaser obtains an indemnity from the vendor.22
3 It is not available if the expenditure is deductible as a trading expense,23 thus,
it seems, eliminating developers from the scope of beneficiaries. The Inland
Revenue have accepted, however, that land that is trading stock can be within the
relief.24
4 The relief is not available if the expenditure qualifies for capital allowances.25
17 That is, in current British political parlance, it is pure ‘spin’.
18 Which would, indeed, accord with the British position: see Chapter 5 above.
19 As to this relief, see Malcolm Gammie, QC, and Jeremy de Souza, Land Taxation, Release
53 (London: Sweet and Maxwell, looseleaf), para. C1.466B.
20 That is, acting as landlord.
21 Finance Act 2001, Sched. 22, paras 1(5), 31(3),(4).
22 Ibid., Sched. 22, paras 2(6), 8.
23 Ibid., Sched. 22, para. 1(4)(a).
24 Ibid., Sched. 22, para. 12 (see Taxation, 7 March 2002, p. 546).
25 Ibid., Sched. 22, para. 1(4)(b).
472 Environmental Taxation Law
24.5.2 Flats above shops
From the same date,26 100 per cent capital allowances were made available against
rental income for the conversion of space over shops into small self-contained flats,
provided that the rental level was modest.27 The ‘small print’ in the legislation is,
however, such that its effect will be limited.28
24.5.3 Stamp duty exemption in disadvantaged areas
It was intended to supplement these measures with total exemption from stamp duty
for purchases in disadvantaged areas.29 However, when it came to be implemented,
a value cap of £150,000 was imposed.30
The government subsequently proposed that European Commission consent
should be sought with a view to this being lifted for non-residential properties, and
implemented enabling legislation in 2002 to facilitate this in due course.31 Consent
was duly granted on 21 January 2003,32 albeit on terms that the scheme should only
last until 31 December 2006; that, recognition having been given to the limit nature
of the subsidy, further aid was not to be combined with it; and, note having been
taken of the serious environmental problems involved with the redevelopment of
brown-field sites, a series of reports were to be submitted to the Commission on the
effect of the subsidy on physical regeneration. The relief was brought into effect on
10 April 2003.33
24.6 Private residential landlords
From 6 April 2004 until 5 April 2009,34 landlords who pay income tax35 are able to
deduct from rental income up to £1,500 per building containing one or more dwelling
26 That is, 11 May 2001.
27 Capital Allowances Act 2001, s.393E.
28 Ibid., ss.393A–393V (as to this relief, see Gammie and de Souza, op. cit., para.
C1.466C).
29 Finance Act 2001, s.92.
30 Nonetheless, 35,000 houses came within the relief in the first year (see Economic Secretary
to the Treasury (Mr John Healey, MP), HC written answer to PQ, 7 November 2002, vol.
392, No. 203, col. 759W). See de Souza and Snape [2002] BTR 57–64.
31 Finance Act 2001, ss.92A, 92B.
32 Up to that date 758 commercial transactions had been exempted: Hansard, HC, 26
February 2003, vol. 400, No. 54, col. 574W.
33 Stamp Duty (Disadvantaged Areas) (Application of Exemptions) Regulations 2003, S.I.
2003 No. 1056. Finance Act 2003, Sched. 6, extended this to stamp duty land tax.
34 A limitation that only became clear with the publication of the Finance Bill.
35 Press Release REV BN 31. Companies resident in, or trading through a permanent
establishment in, the UK pay corporation tax and will not be able to participate in this
relief. Individuals, trustees and non-resident companies not trading in the UK pay income
tax on rental income.
Business Taxes 473
houses36 of capital expenditure on the installation of loft or cavity wall insulation in
let dwelling houses.37
24.7 Emissions trading scheme corporation tax and VAT treatment
Whilst no official statement has been made on this issue, the tax treatment of the
receipts and payments from UK ETS38 should not present problems. Although,
under Finance Act 1998, section 42(1), taxed profits have to be ascertained primarily
by reference to best UK GAAP, there is an overrider where an issue of law arises.
And it is generally considered that the critical distinction between capital and income
has still to be determined under this overrider.
The generally accepted test for whether a deduction is on revenue account is
that laid down by the House of Lords in British Insulated and Helsby Cables Ltd
v. Atherton,39 that is, whether an enduring advantage is being obtained from the
expenditure. The test for whether a receipt is on revenue account is similar.
It follows from this that the premium paid to direct participants in the 2002 UK
ETS40 would have been a capital receipt, subject to capital gains tax, rather than to
income tax. But, because the rights were not generated out of an existing asset, the
only deductions available would have been the professional fees incurred in entering
the process. The net amount would have been brought into charge at the recipient’s
marginal tax rate.
Other receipts and payments are, however, likely to be of a revenue nature because
the rights sold or acquired would be confined to the current compliance year. It is
clear that this is the case for trading by both direct participants and those involved
in climate change agreements.41 It also seems difficult to form any other conclusion
in relation to dealings in Green Certificates, irrespective of whether by one-way
conversion into UK ETS or by informal trading between power stations.42 In
principle, it seems that a revenue deduction should arise where, instead of trading
Green Certificates, a power station opted to make the full alternative payment to
36 See Energy Savings Items (Deductions for Expenditure, etc) Regulations 2004, S.I.
2004 No. 2664, regs 1(2) and 2, of which a draft was published during the Committee
Stage of the Finance Bill. With domestic energy consumption one of the two areas
in which the UK was regressing against its Kyoto targets, the House of Commons’
Environmental Audit Committee, in its Tenth Report of Session 2003–04, Budget 2004
and Energy, HC 490, published on 11 August 2004, expressed disappointment that it
had not been possible to provide a more significant package of measures than this (and
two small VAT) concessions and, in the light of the savings to be expected from caving
wall insulation, that the Energy Saving Trust had not been involved more fully (ibid.,
paras 63, 66).
37 Income and Corporation Taxes Act 1988, ss.31A, 31B.
38 See Chapter 20 above.
39 (1925) 10 TC 177.
40 See para. 20.2.
41 See para. 20.4.
42 See para. 20.6.
474 Environmental Taxation Law
Ofgem before the deadline.43 Where the obligation had not been balanced by the
deadline and voluntary payments to other suppliers were made by arrangement with
Ofgem, the position is likely to be the same.44 However, in the case of uncooperative
defaulters, penalties under any enforcement action taken45 might not qualify for a
tax deduction.46
The position may be different for EU ETS because the plant’s allocation of allowances
appears to be permanent.47 In this event, the allocation would be a non-wasting48
asset for capital gains tax, albeit without any acquisition cost.49 The possibility
that, under international accounting practice, recipients from the initial allocation
on 1 October 2004 may have to attribute an acquisition value – on the analogy that
the allocation is a government subsidy50 – would not mean that there could be a
taxable event for this purpose. Most plant operators will be subject to corporation
tax and, for them, there will be nothing to index and so each disposal will be taxable
in full at their marginal rate.51 Sole traders, trusts and partnerships of individuals
will, however, be entitled to claim business asset taper relief once the allocation has
been held for a year.52 Clearly total disposals are only likely to take place on the
sale or closure of a plant. More frequent will be partial realisations of the allocation
following either downsizing or (hopefully more frequently) technical upgrading.
These will constitute part disposals for CGT purposes53 or partial realisations in the
event of the corporation tax intangible fixed asset code applying.54
Where a ‘permanent’ allocation is acquired, this will clearly be capital expenditure
under the British Insulated and Helsby Cables test and therefore disallowed as a
trading expense for income tax computation purposes.55 But where the acquirer
is subject to corporation tax, if it is classed as an intangible asset for accounting
43 Ofgem’s first Renewables Obligation Annual Report, published on 27 February 2004,
reveals that, out of 66 companies, 13 opted for this course of action.
44 As happened in five cases. The accounting period in which relief would be obtained
would, of course, be a matter for accounting practice by reference to SSAP 17.
45 It was being considered in two cases.
46 See IRC v. Alexander von Glehn & Co Ltd, (1919) 12 TC 232.
47 See Chapter 28 below.
48 Taxation of Chargeable Gains Act 1992, s.44.
49 There appear to be similarities to milk quota, which was originally only transferable with
land. This did not, however, enable farmers to amalgamate it with that land for capital
gains tax base value purposes (see Cottle v. Coldicott, (1995) SpC 40). It would, of course,
be inconsistent with the concept of trading permits for there to be a land linkage for any
form of emissions trading scheme.
50 See Perry, ACCA’s Corporate Sector Review, April 2004, pp. 1–3, and Casamento,
Accounting & Business, April 2004, pp. 36–9. The authors are grateful to Judith Dahlgreen,
University of Leeds, for drawing this material to their attention.
51 Because there will have been no acquisition expenditure, it seems that this will also be the
case if the allocation is regarded for accounting purposes as an intangible asset, subject to
tax under Finance Act 2002, Sched. 29.
52 Taxation of Chargeable Gains Act 1992, Sched. A1, para. 5(1A).
53 Ibid., s.42.
54 Finance Act 2002, Sched. 29, para. 19(2).
55 Income and Corporation Taxes Act 1988, s.74(1)(f).
Business Taxes 475
purposes56 its cost may either be written down on an accounting basis57 or, by
election,58 on a 4 per cent reducing balance basis.59
However, if the allocation is traded on a ‘current compliance period only’ basis,60
then both the receipt and the expenditure will be treated as of revenue.61
For value added tax purposes, a disposal of either UK ETS or EU ETS, or any
derivative related to them, will be a supply of services62 chargeable at the standard
rate. Acquirers will be able to recover this in full by way of input tax unless they are
partially exempt, when a proportion will be disallowed either under the residuary
formula63 or a special scheme.64 Where both parties are in the UK, no output tax
accountability problem arises because this is clearly the responsibility of the vendor.
Where the counterparty is in another EU Member State, VAT will be chargeable in
accordance with the law of the vendor’s Member State.65
24.8 Direct tax treatment of environmental trust contributions
One of the reliefs available in relation to landfill tax is to make contributions to
environmental trusts.66 Under the scheme, it is of the essence that the reduction of
landfill tax is limited to 90 per cent.
Logically, the question should, therefore, arise as to whether the 10 per cent
additional liability falls to be deducted from the operator’s trading profits under
56 Finance Act 2002, Sched. 29, paras 2(1), 3(1).
57 Ibid., Sched. 29, para. 9.
58 Ibid., Sched. 29, para. 10.
59 Ibid., Sched. 29, para. 11.
60 Assuming this to be permissible. It will not be easy to integrate EU ETS with UK ETS
without such a facility.
61 Subject, however, to the correct accounting treatment in the event of the ‘totality’ having
been acquired, in which case Finance Act 2002, Sched. 29, para. 19(1)(b) may produce a
different computation.
62 Value Added Tax 1994, s.5(2)(b); Sixth VAT Directive, Arts 2(1), 5(1) (see para. 1.2.1.4
above).
63 Value Added Tax Regulations 1995, S.I. 1995 No. 2518, reg. 101(2)(d); Sixth VAT
Directive, Arts 17(5), 19(1) (see para. 1.2.1.4 above).
64 Value Added Tax Regulations 1995, reg. 102. It should be noted that such arrangements
may not be backdated.
65 Value Added Tax Act 1994, s.7(10). A reverse charge under ibid., s.8 would only arise if
it could be said that the allocation was a similar right to a copyright, patent, licence or
trademark: see ibid., Sched. 5, para. 1; Sixth VAT Directive (see para. 1.2.1.4 above),
Art. 9(1)(e). Initially, Customs’ view did not accord with this analysis, but, from 25
October 2004, they have agreed to follow the practice of other Member States, which
had been following that interpretation (see Business Brief 28/04 (25 October 2004)). That
Business Brief also indicated that brokers’ services needed to be evaluated differently.
Where ‘sufficient intermediation is performed’, the supply of those will take place in the
Member State where the ‘customer’ belongs. But where the broker’s service is of ‘mere
introduction’, the supply will take place where the ‘introducer’ belongs.
66 See para. 21.3.2 above.
476 Environmental Taxation Law
Income and Corporation Taxes Act 1988, s.74(1)(a), which provides that deduction is
only permitted where the liability is incurred wholly and exclusively for the purposes
of the trade.67 However, this was not h,ow the Inland Revenue saw matters, at least
initially. Their view was that the problem was the deductibility of the 90 per cent.68
Nonetheless, operators seem to have been very keen to take up their full quota
and the authors surmise that the problem may have been got round, in practice,
by presenting the whole operation as an advertising exercise (rather like sports
sponsorship). For example, the Annual Report and Accounts for the year to 27
March 1999 of Shanks and McEwan Group plc revealed that 100 ‘a(chǎn)wards’ had been
made and £14m distributed under the scheme since the inception of the rebating
arrangements. On p. 4 of the report, the following observation was made, that: ‘the
success of these initiatives brings considerable credit to the Group’.
If the operator is a close company, a further fiscal problem can arise unless
charitable recipients are selected.69 Because the intention is to confer a gratuitous
benefit, exemption cannot be available under Inheritance Tax Act 1984, s.10(1). An
immediate inheritance tax charge may therefore arise because a company cannot
make a potentially exempt transfer.70
67 See Malcolm Gammie, QC, and Jeremy de Souza, Land Taxation, release 53 (London:
Sweet and Maxwell, looseleaf), para. E3.008A.
68 Tax Bulletin No. 23 (June 1996).
69 Category (f) recipients – that is, the provision of financial, administrative and other
services confined to other environmental trusts – are, in particular, unlikely to be in this
category.
70 Inheritance Tax Act 1984, s.3A(6): see Gammie and de Souza, op. cit., para. E3.008A.
Division 2
The Provisions in Operation
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Chapter 25
Policies in Practice (2)
Most of the ‘green’ tax changes addressed in Chapters 22 to 24 have been of very
short duration. Their success (or otherwise) has not therefore been easy to judge
independently.1
Road transport has been the subject of a number of such initiatives. Following on
the apparent success of the Lawson differentiation of fuel duty in favour of unleaded
petrol, the present government has introduced more targeted measures both in relation
to VED (from 2003)2 and excise duty (from 2004),3 but both have to be seen against
the background of the abandonment of the ‘escalator’ as a result of the organised
protest boycott in 2000. One major area of uncertainty which has still to be resolved
is the position of LPG, in relation to which considerable investment appears to have
been made by manufacturers, only to have its environmental properties questioned.4
The relaxed capital allowances regime introduced for environmentally friendly cars
in 2002 may have some effect in the longer term (once the viability of electric cars has
become clearer),5 but this may be difficult to measure because the Inland Revenue do
not ask taxpayers for declarations by reference to specific allowances.6
Similarly the official investigation into the use of experimental fuels for commercial
vehicles,7 which seems likely to be overtaken by the introduction of a lorry road user
charge,8 may not bear fruit.
Turning, then, to the employee benefits aspects, the 2003 car scale reform (which
has been declared a success by the Inland Revenue)9 might have a major long-term
effect.10 The provision of income tax relief on employer assistance to come to work
other than by car has, of necessity, been rather limited and appears to have run its
course.11
Finally, it is necessary to address the incentives made available in relation to
premises. Capital allowances for environmentally friendly equipment12 may be
having some effect, but the cost of these to the Exchequer cannot be ascertained
because the Inland Revenue do not keep their statistics in a manner which permits
1 In which context, it should be noted that in only one case has there been an official
declaration of success: see para. 23.2 above.
2 See para. 22.2.1 above.
3 See para. 22.2.2 above.
4 See para. 22.2.2 above. See also ENDS Report 350 (March 2004), pp. 28–30.
5 See para. 24.3 above.
6 See ENDS Report 349 (February 2004), pp. 29–31.
7 See para. 22.3 above.
8 See para. 22.4 above.
9 See para. 23.2 above.
10 But see ENDS Report 352 (May 2004), pp. 12–13.
11 See para. 23.3 above.
12 See para. 24.4 above.
480 Environmental Taxation Law
them to measure it.13 Industrial sources suggest, moreover, that the success which
there has been in introducing, respectively more efficient boilers, driving motors and
fluorescent lighting was not affected by the enhanced capital allowances available.14
The 2002 first year allowance for the conversion of flats above shops15 and the 2004
revenue deduction for residential landlords’ expenditure on insulation16 have been
drawn in such a way as to make it difficult for, respectively, almost all and some
potential users to qualify. The corporation tax relief supplement introduced in 2001
for purchasers who incur clean-up expenditure on contaminated land has been the
subject of sufficient academic comment17 to lead the authors to conclude that use is
being made of it, albeit perhaps more in the field of asbestos removal than ‘brown
field’ site restoration.18
With one exception, the jury must, therefore, be regarded as still out on the
concessions discussed in the immediately preceding chapters.
The stamp duty and stamp duty land tax disadvantaged areas concessions19
are extremely difficult to justify on environmental grounds, not least because
the discrimination in favour of commercial properties is difficult to defend. The
availability of relief is determined by the average income level of residents in the
areas in question, rather than that of those who work there. This has led to commercial
conveyancing transactions being exempted from stamp duty land tax in the London
Docklands office complex known as Canary Wharf, the street in Leeds in which the
up-market ladies clothes shop, Harvey Nicholls, has its branch, the site of one of
the northeast’s largest retailing complexes and the area where a number of leading
private client solicitors’ firms have their offices, Lincoln’s Inn Fields. Suffice it to say
that the justification for this end result can only be regarded as obscure.20
13 See ENDS Report 349 (February 2004), pp. 29–31.
14 Ibid.
15 See para. 24.5.2 above.
16 See para. 24.6 above. See also ENDS Report (August 2004), p. 32.
17 Judging by the number of articles in journals, for example, Sheridan, Law Society’s Gazette,
11 May 2001, p. 34; O’Keefe, Taxation, 21 August 2001, p. 290, Davidson and Hallpike,
Property Law Journal, 17 September 2001, p. 13, Plager, Taxation, 11 October 2001, pp.
32–8, Jamieson, Taxation, 21 February 2001, pp. 498–500, Woodward and Yaard, The
Tax Journal, 18 August 2003, pp. 13–14, Taxation Query T16,279, 18 September 2003,
p. 680, Beaumont, Taxation, 25 September 2003, pp. 694–95, and Oliver and Butlin,
Estates Gazette, 22 November 2003, pp. 146–8.
18 In respect of which it is of the essence that the purchaser has not obtained a cost indemnity
from the vendor. The uncertainties are such that a prudent professional would be unlikely
to advise a purchaser against taking such an indemnity if one could be negotiated.
19 See para. 24.5.3 above.
20 But, to be fair, the same comment could not be made about the proposals, to be put to the
European Commission, in Capital Allowances: Renovation of Premises in Disadvantaged
Areas, although these have no environmental content.
PART IV
PROSPECTS AND
NEW DIRECTIONS
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Chapter 26
Environmental Taxes and the Tax Base
26.1 Introduction
It now falls to us to consider both the future prospects for exploiting environmental
policy as a source of government funding and the continuing viability of the historic
UK tax base. In this chapter, consideration is given to the concerns which must be
being addressed by the Chancellor of the Exchequer and his advisers. In Chapter 28,
the EU ETS, against which all environmental developments will, in the future, need
to be judged, is analysed at length. In Chapter 29, some tentative conclusions have
been drawn as to the position at which we found ourselves at the end of December
2004.
Although environmental taxes have been on the UK statute book since 1996, as
far as revenue raising capability is concerned, their potential has not yet been seen.
However, following the publication of Waste Not, Want Not, this could be about to
change.1 The catalyst is New Labour’s need to raise enormous sums in taxes to pay
for improvements in public services, the seriousness of continuing funding problems
for education,2 health3 and transport4 having become apparent during the first half
of 2003, and (with the assistance of having to pay for the forces in Iraq) acute by
autumn 2004.
Despite the relative novelty of environmental taxes, with the advent of a combination
of the European Single Market5 and internet-based international e-commerce, the UK
(and, indeed, other) governments may come (and perhaps even need) to rely on them
1 See para. 21.4.1 above.
2 Witness the university tuition fees issue, which nearly brought down the Blair
Government.
3 Where the vast amount of money raised by the 1 per cent NIC surcharge (see para. 21.2
above) does not seem to have made a material effect on the published performance
statistics for the National Health Service.
4 Where Railtrack (a listed company) has been replaced by Network Rail, a ‘not for profit’
company with only a nominal capital, and which is therefore reliant on loan finance.
The bondholders of the latter subscribed on the basis of a government guarantee. Others
dealing with the company are, presumably, only doing so on the assumption that, if things
went wrong again, the UK Government would have to bail the company out.
5 To which must be coupled the facility with which the ECJ has found it possible to
undermine Member States’ domestic tax base by reference to the freedom of establishment
principle in Art. 43 (ex 52) of the European Treaty. This has led to it being concluded by
the retiring chairman of the Law Society of England and Wales’s Tax Committee that the
UK Government’s August 2003 consultation on the future of corporation tax revealed
concern at the freedom of business movement underlying the decisions of the ECJ (see
Troup, Financial Times, 20 August 2003, p. 17). See also para. 26.4 below.
484 Environmental Taxation Law
for an increasing proportion of their revenue.6 In the Economist’s ‘Globalisation and
Tax’ survey in 2000, there was made the telling comment:7
And the harder it gets to tax mobile people and businesses, the bigger the burden that will
have to be borne by the immobile. Land taxes, which used to be one of the most important
revenue-earners, may regain their former pre-eminence. Consumption taxes on purchases
of physical goods and services which the taxman can track may have to rise. In future, local
environmental taxes – say pollution taxes or road prices – may well come to look attractive
to tax starved governments.
This seems to be the pattern developing in the UK. Almost the last fling of Prime
Minister John Major’s Conservative Government was the introduction of landfill
tax,8 the saving to be reflected in a reduction in employers’ NICs. Labour went
further, first increasing and then reformulating stamp duty on property transactions,
then introducing climate change levy and aggregates levy, having made available to
local authorities the powers to levy road user and workplace parking charges.
The theme was continued in relation to non-environmental land taxes. Partial
Regulatory Impact Assessment, Modernising Stamp Duty, published the same day
as Finance Bill 2003,9 said that stamp duty land tax, which was to take effect on 1
December 2003, was intended to be ‘revenue raising through improved compliance
and redefinition of the scope of the charge’10 and suggested that 5 per cent of
commercial property deals could be affected, with a slight reduction in transactions
anticipated.11
The UK has not joined the euro, but if it were to do so, as its Prime Minister, the Rt
Hon. Tony Blair, MP, still intends,12 then the associated requirement to comply with
the Stability Pact13 is likely to put pressure on the UK Government to increase its
yield from taxation rather than resort to increased borrowing.
6 There may be a repetition, where there is the option of additional environmental controls
at some future date of the dilemma which arose in July 1968 when Customs’ advised the
Wilson Government a proposed tobacco advertising ban proposed would have jeopardised
the government’s intention to raise an additional £30m from tobacco duty that year, with
subsequent consequences to the UK economy. This was revealed upon the release of
public archives in July 2003 (see Milne, Financial Times, 25 July 2003, p. 3).
7 Bishop, Economist, 29 January 2000, p. 18.
8 See Finance Act 1996, ss.39–68, and Sched. 5. The last property-based measure was the
tightening up of the VAT option to tax in Finance Act 1997, s.37.
9 16 April 2003.
10 Modernising Stamp Duty, para. 28.
11 Ibid., para. 29.
12 Although this project has had to be put on the back burner, not only as a result of
unfavourable economic conditions on the continent of Europe, when compared with the
UK, but also because the government has had to promise that the Constitutional Treaty
will be submitted to a referendum which it might be very hard pressed to win.
13 Of which the UK was alleged to be in breach in the autumn of 2004.
Environmental Taxes and the Tax Base 485
26.2 The consolidation of the tax base
The UK is not the only country to be increasing its reliance on property based taxation
in the face of the internet challenge to compliance.
26.2.1 Property transfer and planning permission taxes
The introduction of stamp duty land tax with effect from 1 December 2003, allegedly
to close loopholes in the old regime, could well presage an increase in the rates over
and above those proposed for leases.14 It needs to be remembered in this context that
it was the Labour Government who introduced the concept of value banding shortly
after taking office in 1997. With the introduction of stamp duty land tax, they took
the opportunity to increase the tax on lease rents15 and their new scheme for the
taxation of partnership transactions16 will also result in an increased tax take.17
Furthermore, the suggestions made during 2004 for residential planning consent
and flood plain development levies18 would, if implemented, be additional propertybased
taxes.
26.2.2 The local government tax base
Council tax and uniform business rates, which are the bedrock of local government
finance in mainland Britain, are also property based. Indeed they have built into them
fall-back collection provisions against, respectively, the owner and the (physical)
occupier which have the effect of providing an element of guarantee in favour of
collection as against the old community charge (or ‘poll tax’) for which default rates
were high in some areas. It is worthy of note, in this context, that, in its Ninth Report of
Session 2003–04, entitled Local Government Revenue, published on 16 July 2004,19 the
House of Commons ODPM: Housing, Planning, Local Government and the Regions
Committee considered both congestion charges (which had only been implemented in
two cities) and workplace parking levies (which had been implemented nowhere) in
the context of local authorities’ future income-raising potential.
14 Finance Act 2003, Sched. 5.
15 Albeit apparently ameliorated by the deduction of the threshold in all cases under changes
announced on 20 October 2003. However, when the draft statutory instruments were
published on 30 October 2003, some of the changes made appeared to bring agreements
for lease made before 11 July 2003, and where possession had been taken between that
date and 30 November 2003, within the charge to tax while still within their original
contractual term if there was a variation in their terms after 30 November 2003. This
problem appears to have been shut down under the Budget Resolutions which have been
passed, with effect from 17 March 2004.
16 Draft clauses were published for consultation the same day as the revised rental duty
scheme. An amended version of them was enacted by Finance Act 2004, Sched. 41.
17 See also Thomas and Keenay, The Times, 4 November 2003, Law 4.
18 See paras. 1.2 above and 27.2 below.
19 HC 402.
486 Environmental Taxation Law
26.2.3 National environmental taxes
The national environmental taxes20 are similarly based, and especially so following
the introduction of secondary liability (that is, deemed guarantors) in relation to some
of them.21 An example of this approach, albeit in an unrelated context, is the criminal
liability imposed in 2002 for the ‘manager’ of premises where unmarked tobacco
products are sold.22 It is, furthermore, significant that such draconian legislation was
introduced in the light of the difficulties faced by Customs in preventing (excise
duty) smuggling, following the introduction of the single market for VAT purposes.
Indeed, the same line of thinking may lie behind the apparent persistence of HM
Customs and Excise in seeking the introduction of a pesticides levy,23 the disastrous
effect such an impost would have on British farming (as especially the apple growers)
notwithstanding.24 It may turn out to be very fortunate for crop farmers that the
postulated fertiliser tax was seen off on environmental grounds very early in the day
before bureaucratic time had been ‘invested’ in consultations and draft legislation.
Similar concerns in relation to small quarries and those outside the core south
eastern region were insufficient to prevent the introduction of the aggregates levy,
after Customs had ‘invested’ in a number of consultations, including two rounds
of draft legislation.25 There cannot be said to be any economic case for this tax,
the export rebating provisions of which alone undermine the alleged justification of
supporting ‘environmentally friendly quarrying’.
It seems difficult to avoid the conclusion that environmental taxes, and the associated
trading markets in allowances and (in effect) permits, will increasingly become a
revenue producing milch cow. Indeed, the very existence of such markets will enable
taxes to be imposed on them in the same way as proved possible with the financial
futures markets through (for instance) stamp duty reserve tax. Furthermore, in the 2004
Pre-Budget Report,26 it was revealed that, out of the future increases in landfill tax,
local authorities would be insulated against the tax increases for 2005/06 (which was
expected to be an election year),27 and the allocation during the same year of £45m
from the ‘reform’ of the Waste Minimisation and Recycling Challenge Fund.28 There
was also to be a series of subscriptions29 to the Business Resource Efficiency and
Waste (‘BREW’) programme to be launched in April 2005, with a funding allocation
of £43m during its first year, £95m for 2006/07 and £146m for 2007/08.30
20 See Chapters 13–16 above.
21 See para. 16.16 above.
22 Tobacco Products Duty Act 1979, s.8H(8).
23 See para. 21.9.5 above.
24 See para. 21.5 above.
25 See para. 21.10 above.
26 Entitled Opportunity for All: The Strength to Take the Long-term Decisions for Britain,
Cmn 6408, 2 December 2004, www.hm-treasury.gov.uk.
27 Para. 7.55. In relation to which, as they are the biggest users, one might well ask what
effect the increase in the landfill tax rate was, in consequence, expected to have.
28 Para. 7.61.
29 Para. 7.55, which only quantified that for 2007/08.
30 Defra News Release 468/04, dated 22 November 2004 (www.defra.gov.uk), which
headlined the total of £284m!
Environmental Taxes and the Tax Base 487
26.3 The future of non-property-based taxes in the internet world
26.3.1 The non-resident
The most notable item in Budget 2003 may well turn out to have been the tacit
acceptance that bringing long-term residents who retained foreign domicile within
the income and capital gains tax systems on a world wide receipts basis remained
an improbability. Labour’s attempt to do this was not, of course, the first, the
Conservatives had also tried, but had, apparently, to capitulate to a coalition of Arab
oil royalty recipients and Norwegian and Greek shippers.
26.3.2 The avoidance/evasion borderline
Although some ministers and Inland Revenue officials seem to regard the terms as
interchangeable,31 it must be borne in mind that tax avoidance is, in principle, legal
at any rate where the taxpayer has put his cards on the table, but that evasion is
always illegal and normally a serious criminal offence. The distinction is, of course,
a critical one in the context of money laundering, because it is of the essence that a
criminal offence has been committed.
On the domestic front, the government’s campaign against single worker companies
(known as ‘IR 35’), the result in many cases of the non-availability of full time
employment for professionally qualified and skilled people in the market place
(including its extension to nannies in 2003),32 as well as the incredibly wide scope
of the Inland Revenue’s interpretation of professional firms’ prospective money
laundering obligations,33 are indicative of the fact that the black economy is considered
to be getting out of control. Clearly the end product of such a development would be
a serious reduction in the yield from both income tax and NICs (the latter being, as
indicated above, the lynchpin of the proposed funding of increased expenditure in
the public services).
Furthermore, while it remains to be seen how effective the e-commerce VAT
arrangements introduced by the EU from 1 July 2003 will be, it is hardly a secret
that enforcement is the major potential problem. The ‘carousel fraud’ based on the
formation of the single market for VAT had reached such proportions that, in 2003,
the UK Government sought legislative amendments which could have the effect of
making those in the same trading chain potentially liable for frauds committed by
others.34 This drew severe criticism on ECHR grounds from, inter alia, the House
31 This development appears to have arisen in parallel with the use of ‘evasion’ in the English
translation of EU Directives to cover both concepts. The retention of the distinction has
not been assisted by the adoption by the ECJ in cross-border VAT cases of the purposive
construction concept known as fraus legis in the Netherlands and abus de droit in
France (see Diamantis v. Greece, C–373/97, [2001] 3 CMLR 41, and Emsland-Stärke v.
Hauptzollamt Hamburg-Jonas, C–110/99).
32 Finance Act 2003, s.136.
33 Working Together 13 (June 2003): see www.inlandrevenue.gov.uk.
34 Value Added Tax Act 1994, s.77A and the revised Sched. 11, para. 4(2).
488 Environmental Taxation Law
of Lords’ Economic Affairs’ Sub-Committee on the Finance Bill.35 However, a
subsequent Court challenge on these grounds failed,36 although it did succeed in
having the issue of the validity of the provisions in question under Community Law
referred to the ECJ for expedited determination, albeit subject to Customs receiving
encouragement from a majority of the Court of Appeal to exercise their statutory
powers in the meantime.37
26.3.3 The losing battle against tax avoidance
26.3.3.1 The historic position
The traditional judicial approach to the interpretation of tax legislation in the UK has
been a literal one,38 well illustrated by the following famous quotation from Rowlatt,
J. in Cape Brandy Syndicate v. IRC:39
One has to look merely at what is clearly said. There is no room for any intendment. There
is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in,
nothing is to be implied. One can only look fairly at the language used.40
The high water mark of this approach was the well-known pre-War case in which the
Duke of Westminster was enabled to pay his gardener by deed of covenant.41 Since
1981, however, the UK courts have been taking a less open handed attitude to tax
avoidance. The background to this can perhaps be summarised as follows:
1 Since 1960, UK tax law has become increasingly complex, as government after
government enacted specific anti-avoidance provisions targeted against identified
loopholes in the statutory code; leading to
2 taxation becoming an increasingly specialist subject,42 in turn leading to
3 the creation of large tax departments in professional firms,
4 whose growth43 had become dependent by the end of the twentieth century upon
the initiation of work through the marketing of artificial schemes.
35 HL 109, ordered to be printed 10 June 2003: Chapter 5.
36 R (on the application of Federation of Technological Industries and others) v. C & E
Commrs and Attorney-General, [2004] STC 1008.
37 C & E Commrs and Attorney-General v. Federation of Technological Industries, [2004]
EWCA (Civ) 1020.
38 Ayrshire Employers Mutual Insurance Association v. IRC, (1945) 27 TC 331.
39 (1920) 12 TC 358.
40 Ibid., at 366.
41 IRC v. Duke of Westminster, (1935) 19 TC 490.
42 In the mid-1960s, it was still quite often possible for the audit manager at one of the large
accountancy firms to compute the statutory adjustments to the accounting profit. By the
end of the century, even tax departments were sub-departmentalised, with the ability to
take an overall view increasingly limited to very senior people and specialist Counsel.
43 A prerequisite for partners in the relevant department under the normal criteria for profit
distribution in large professional firms in the 1990s.
Environmental Taxes and the Tax Base 489
The critical case relating to tax avoidance in the UK44 was W T Ramsay Ltd v.
IRC.45 Under what is called the Ramsay Principle, the Courts may nullify a tax
advantage sought to be obtained where there is a pre-ordained series of transactions
or a single composite transaction, having one of the following characteristics:
1 circularity, such as (in Ramsay itself) the creation of two ‘debts’, one of which
increased in value but was considered for technical reasons not to generate a
profit for CGT purposes and the other creating a ‘loss’, the House of Lords
holding that the latter was not a real one; or
2 having steps inserted which have no commercial purpose other than the
avoidance of tax, such as (in the case of the sale of a company) arranging for it to
be taken over by an offshore company through a share exchange, with the latter
proceeding with the cash sale to the original purchaser.46
This doctrine is not a new one, merely a rule of statutory construction47 evolved
from previous case law. This limitation has, however, enabled a line to be drawn in
a number of cases.48
As a rule of statutory construction, it became clear fairly early on that the Courts
were likely to adopt a more broad brush approach where the statutory word was vague
– such as loss49 or disposal50 rather than an ordinary English word such as payment.
Indeed, when the House of Lords was confronted with the latter in 2001, in Macniven
v. Westmoreland Investments Ltd,51 Lord Hoffmann drew the distinction between
wording for which it was appropriate to adopt a normal (alias legal) construction
– when the Ramsay doctrine would be unlikely to be applied – from that for which a
commercial meaning was more appropriate. The second category of case was clearly
more vulnerable to the Ramsay approach.
In subsequent cases, the lower courts in the UK and those in other jurisdictions
found this distinction hard to operate in practice, and the issue was therefore clarified
44 There had been no such reluctance in the US (see, inter alia, Gregory v. Helvering, 293
US 465 (1935), and Laidlaw Transportation Inc v. Commissioner, 75 TCM (CCH) 2598
(1998)).
45 [1981] STC 174; it was followed by Burmah Oil Co Ltd v. IRC, [1982] STC 30, Furniss
v. Dawson, [1984] STC 153, Ensign Tankers (Leasing) Ltd v. Stokes, [1992] STC 226 and
IRC v. McGuckian, [1997] STC 908.
46 As in Furniss v. Dawson, [1984] STC 153. Lord Brightman’s formulation in this case also
involved the deployment of the concept of secondary findings of fact, by way of inference
from the primary findings. This part of his speech may enable some of the overseas case
law in the year preceding the House of Lords’ cases decided in November 2004 to be
distinguished.
47 For which purpose, it is necessary to distinguish between intended reliefs and artificial
avoidance (see Commissioner of Inland Revenue v. Challenge Corporation Ltd, [1986]
STC 548).
48 For example, Craven v. White, [1988] STC 476; IRC v. Fitzwilliam, [1993] STC 502;
Macniven v. Westmoreland Investments Ltd, [2001] STC 237.
49 In Ramsay itself, [1981] STC 174.
50 In Furniss v. Dawson, [1984] STC 153.
51 [2001] STC 237.
490 Environmental Taxation Law
by the House of Lords on 25 November 2004, in Barclays Mercantile Business
Finance Ltd v. Mawson.52 Their Lordships said that the modern approach to statutory
construction involved having regard to the purpose of a particular provision and,
insofar as possible, interpreting its language in a way which best gave effect to that
purpose.53 The essence of this approach was to adopt a purposive construction,54 and
not just for tax legislation.55 But it was necessary to focus carefully on the particular
statutory provision and identify its requirements, in which context the legal/
commercial distinction which had been formulated by Lord Hoffmann (who also
sat in Barclays Mercantile) while ‘not an unreasonable generalisation’ had not been
‘intended to provide a substitute for a close analysis of what the statute means’.56 In
Barclays Mercantile, the legislation under consideration related to a finance lessor’s
entitlement to capital allowances (in lieu of depreciation) for expenditure incurred.
There was no doubt that such expenditure had been incurred by the lessor, and the
fact that, as far as the lessee was concerned, all the money apart from the capital
allowances went round in a circle was immaterial for the purpose of determining the
lessor’s entitlement to those allowances.57
Insofar as the authors have been able to discover, the only widespread avoidance
which has occurred in relation to environmental taxes involved the environmental
trust deduction for landfill tax, and led to the rules having to be changed (that is,
resort to the traditional targeted anti-avoidance legislation).58 The Courts have,
however, on occasion resorted to a purposive approach, more in line with European
trends59 (where EU Directives tend to be construed by reference to their objectives,
as ascertainable from their recitals and the preceding legislative history).60 And there
is some evidence of the Courts being willing to adopt such an approach in relation
to the ordinary construction of landfill tax.61 A tribunal has, however, declined to
extend that approach to aggregates levy,62 and, in view of the lack of symmetry
between climate change levy and the electricity supply change,63 this would seem to
be inconceivable in relation to the latter tax.
52 [2004] UKHL 51, in an ‘opinion’ to which all five law lords contributed and which was
(unusually) not formulated as a ‘speech’ attributed to one of them and assented to by the
others. The same feature was to be found in a second Ramsay case decided on the same day,
IRC v. Scottish Provident Institution, [2004] UKHL 52, in which it was held that the Courts
were entitled to ignore ‘a(chǎn) commercially irrelevant contingency’ inserted by the parties in
order to make it possible to say that the course of events had not been pre-ordained.
53 [2004] UKHL 51, para. 28.
54 Ibid., para. 32.
55 Ibid., para. 33.
56 Ibid., para. 38.
57 Ibid., paras. 39–42.
58 See para. 21.3.2 above.
59 And, only subsequently, the views of the House of Lords!
60 As to which, see, in a tax avoidance context, IRC v. McGuckian, [1997] STC 908.
61 C & E Commrs v. Parkwood Landfill Ltd, [2002] STC 1536 (see para. 15.3 above) and
perhaps also Ebbcliff Ltd v. C & E Commrs, [2004] STC 1496 (see para. 15.4 above).
62 See Pat Munro-(Alness) Ltd v. C & E Commrs, (2004) A2, para. 13.2n above.
63 See para. 21.6 above.
Environmental Taxes and the Tax Base 491
As a means of discovering Parliament’s purpose, the Courts may well decide to have
more regard to extraneous evidence, such as the Explanatory Notes now published
with Bills64 or, in some circumstances, Hansard.65
26.3.3.2 The general anti-avoidance rule solution
In 1998 the UK Government decided that the traditional piecemeal approach,
under which each loophole which was identified became the subject of a targeted
antidote, was not working. It therefore went out to consultation on the possibility of
enacting general anti-avoidance rules (‘GAARs’), along the lines of those present
in the Australian and New Zealand tax codes. These were not proceeded with and
a system of notification instituted in 2004 instead. There appear to have been two
problem areas, that is, the fact that, despite the relevant statutory wording, the
Courts have sometimes rejected the attempts of the tax authorities to invoke such
provisions, as well as the lack of qualified staff to provide pre-activation clearances
on the scale likely to be required. The UK does not operate the US system of
binding rulings.
26.3.3.3 The ‘disclosure’ solution
In Budget 2004, provoked by a carefully marketed and concealed income tax
reduction scheme involving the use of gilt edged derivatives, the UK Government
announced that, in future, the promoters or, in some cases, the users of schemes the
main object of which is to reduce any form of tax may have to register them and,
in the case of promoters, have to obtain a scheme number for their clients to quote
in their tax returns.66 In theory, these provisions could be extended (by statutory
instrument) to any tax, irrespective of whichever part of HM Revenue and Customs
(as the amalgamated body is to be named)67 is responsible for collection or (indeed)
to locally collected taxes (although the latter is unlikely). The exact disclosure
requirements are to be promulgated in regulations from time to time.
In the case of VAT, there was to be an obligation for those with a turnover
exceeding £600,000 to notify those on a list to be published by Customs and
those with a turnover in excess of £10m to notify other deliberate tax reduction
arrangements.68
64 Which may be resorted to under Westminster City Council v. National Asylum Support
Service, [2002] UKHL 38.
65 To which reference may be made in order to ascertain whether the promoters gave clear
guidance on the point in question where the text is ambiguous, unclear or manifestly
unreasonable: Pepper v. Hart, [1992] STC 808, R v. Secretary of State for the Environment,
Transport and the Regions, ex p Spath Holme Ltd, [2001] 1 All ER 195.
66 Budget Day Press Release REV BN 28 (17 March 2004); Finance Act 2004, ss. 306–19.
67 See para. 4.2.1.2(2) above.
68 Budget Day Press Release BN 01/04 (17 March 2004); Value Added Tax Act 1994, Sched.
11A (inserted by Finance Act 2004, Sched. 2); draft regulations – to take effect on 1
August 2004 – were published on 28 May 2004. In the event those actually promulgated
differed significantly from the original published draft.
492 Environmental Taxation Law
Such arrangements had previously been pioneered in the US, where regulatory
enforcement activity was in progress against some of the international accountancy
practices, the promotional activities of whose tax departments had been the subject
of major controversy since the collapse of Enron in late 2001.
26.3.4 Cross-border transfer pricing
Furthermore, at the end of April 2004, an agreement in principle was reached between
the governments of Australia, Canada, UK and the US to set up an international tax
avoidance task force in New York to coordinate a crack down on tax avoidance. It
was mentioned, in this connection, that this was taking place at a time when ‘the
public finances of many developed countries [were] under pressure’.69 This position
was highlighted in a series of articles on transfer pricing and thin capitalisation in the
Financial Times at the end of July 2004.70
26.3.5 The need to fund social spending
This problem has arisen at a time when a shortfall in tax collection would have a
serious effect on the Blair Government’s plans for the improvement of public services
as set out in the Spending Review 2004.71 And yet the researches undertaken by the
House of Commons’ Environmental Audit Committee for its Report, Budget 2004 and
Energy,72 revealed that the revenue from environmental taxes as a proportion of total
taxes in 2003 stood at 9 per cent, the same figure as in 1993. Even this represented
a recovery from 8.6 per cent in 2001, after a high of 9.8 per cent in 1999.73 The
Committee expressed concern, in this context, that the Economic Secretary to the
Treasury74 did not appear to be aware of these figures.75
26.4 International trade treaty problem for federations and economic
areas
It is not just the world wide web which has been causing problems for government
tax collections in the developed world, however. Free trade areas76 share with
69 Crooks and Balls, Financial Times, 24–25 April 2004, p. 1.
70 Plender, 21 July 2004, p. 15; Plender and Simons, 2 July 2004, p. 15; second leader, 24–25
July 2004, p. 18; Plender, 26 July 2004, p. 20.
71 Cm 6237 (July 2004).
72 Tenth Report of Session 2003–04, HC 490, published 11 August 2004.
73 Ibid., para. 10.
74 Mr John Healey, MP.
75 HC 490, para. 12.
76 While the EU is the best known, both NAFTA (Canada, Mexico and USA) and
MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) are now significant, even
though each is dominated by one country.
Environmental Taxes and the Tax Base 493
‘genuine’ federations77 one fundamental legal principle, the need to prevent state
protectionism to the detriment of residents of other Member States.
Where, in a ‘genuine’ federation, it is the state element which has constitutional
protection, it is necessary to ascertain, in each case, whether it is the centre or the
states which hold the residuary powers. Except in the case of Canada, where the
UK Parliament deliberately made the federal part predominant, in the aftermath of
the American Civil War, and Belgium, where formal federalism was the product of
constitutional evolution between 1945 and 1993, the states have tended to hold the
residuary powers, usually because it was they who created the Federation, such as in
the case of the US and Australia.
In reality, however, courts have tended to interpret the devolved powers widely, to the
detriment of the holder of residuary power. This became particularly apparent during
the economic crisis of the 1930s, when federal governments tried to impose what, in the
US, was called New Deal legislation. The end result of that litigation was the opposite
of what one would have expected. Whilst the federal and Commonwealth governments
came out on top in the US and Australia,78 in Canada much of the Dominion (that is,
federal) legislation was struck down,79 making the Dominion Government extremely
weak politically as against the Provincial (that is, State) Governments.
It is, however, not necessary for a multinational entity to be on the road to union for
the issue of ‘interstate’ discrimination to arise. The North American Free Trade Area
(‘NAFTA’) came into being on 1 January 1994. The investment chapter of the treaty
enabled the US-based Ethyl Corporation to obtain both an apology and compensation
from the Canadian Government following the introduction by the latter, in 1996, of
a ban on the importation, and inter-Provincial trade, of a petroleum additive, MMT.
Ethyl Corporation was the sole producer and importer of MMT. The basis of the
company’s complaint was that there was insufficient evidence to introduce a trade
ban on health and environmental impact grounds.80
Whilst some Member States may see the EU as developing into a federation, the
current structure cannot be so described. Indeed, there is a strong movement in a
number of Member States, especially the UK, to prevent any further development
77 This qualification is needed to distinguish countries, such as India, where there is a federal
structure, but the federal government has reserve powers which allows it to override the
rights of state governments, such as (in that case) the ability to dismiss a state government
and declare President’s (that is, federal government) rule.
78 Where the tax-raising powers are split between the Commonwealth and the States, but
the former appears to have the power to nullify its exercise by the latter (see Federal
Commissioner of Taxation v. Farley, (1940) 63 CLR 278, 314 et seq. (Dixon, J.). Taxraising
powers have been split in a more recent federal creation, Spain, which is within
the EU.
79 In Attorney-General for British Columbia v. Attorney-General of Canada, [1937] AC
377, Attorney-General of Canada v. Attorney-General of Ontario, [1937] AC 326 and
Attorney-General of Canada v. Attorney-General of Ontario, [1937] AC 355.
80 See Luke Eric Peterson, UK Bilateral Investment Treaty Programme and Sustainable
Development: Implications of bilateral negotiations on investment regulation at a time
when multilateral talks are faltering (RIIA: Sustainable Development Programme
Briefing Paper No. 10, February 2004).
494 Environmental Taxation Law
along those lines. Nonetheless, the freedom of establishment provision of the
European Treaty81 seems to be performing, in relation to corporation tax, a very
similar role to that performed by the interstate commerce clauses in the New Deal
litigation.82 This development is especially significant in the EU because Member
States have not been able to achieve the degree of unanimity necessary to provide
for direct tax convergence through the route of Community legislation. But the ECJ,
which is going along a route which seems likely to achieve this, a development
which has implications83 for the soundness of the tax base of individual Member
States,84 driving them further down the road towards greater reliance on propertybased,
including environmental, taxation.
Indeed it might well be thought, from a Decision of the Court in November 2003,
that the Court had gone too far. In Proceedings brought by Lindman,85 a Finnish
resident who won on a ticket bought in a Swedish lottery was assessed to income
tax in Finland. Under Finnish law, only winners in Finnish lotteries were entitled
to exemption from that tax. The Court held, however, that such discrimination
was contrary to Art. 49, European Treaty (ex 59), on the basis that it constituted a
restriction or obstacle to freedom of services, in this case those of gaming!
The problem which is staring the UK’s Chancellor of the Exchequer in the face in
the autumn of 2004, at a time when the country’s budget deficit is above the EU’s 3
per cent norm, is the prospect of its future corporate tax take being undermined by
the ECJ, perhaps to the extent of £30bn per annum.86 And what goes for the UK must
clearly be capable of applying, albeit to differing extents, to other Member States.
All this, which has its genesis in the interstate commerce clause concept, will
accelerate the trend resulting from e-commerce, in making national governments
more dependent upon property-based taxes, included in which must be many
environmental taxes.
26.5 Employer’s national insurance contributions
Until 2002, it was accepted that a by-product of the introduction of environmental
taxes would be a reduction in a major business burden, the employer’s NICs. But
81 Art. 43, European Treaty (ex 52). See the Hoechst case, C–410/98, [2001] STC 452.
82 Especially the Canadian version of it (see above).
83 On top of (and, in the public perception, overshadowed by) the internet revolution.
84 Potentially one of the most serious avenues of potential loss for the UK is apparent
from the claim, upon which Park, J. refused to adjudicate outside the normal appeals
procedure – although the Court of Appeal, [2004] STC 1054, reversed his decision – in
The Claimants under the Loss Relief Group Litigation Order v. IRC, [2004] STC 594, that
the European Treaty combined with the non-discrimination clause in the UK-US double
taxation treaty enabled a UK parent company to claim relief in the UK for losses made by
its US trading subsidiaries.
85 C–42/02 [2005] 873.
86 Attributed to unnamed Inland Revenue officials by Brown, Financial Times, 11–12
September 2004, p. 1.
Environmental Taxes and the Tax Base 495
with the imposition of a flat 1 per cent on both employer and employee, this objective
has plainly gone into suspended animation.87
Nonetheless it was not until the Pre-Budget Report in November 2002 that it
became apparent that the formal linkage would be broken (albeit then in a form which
was not conceded as having this result). While landfill tax rates had been increased
without any reduction in NICs, the tax had not been self-supporting when account
was taken of the quantum of rebates made through the medium of environmental
trusts.88 The diversion of some of this money to ‘publicly funded’ projects is, in
reality, an appropriation of environmental tax money into the general tax pool.
This could turn out to be as significant as the removal many decades ago, of the
link between the road fund licence and the road building programme. Unfortunately
the current social spending obligations of the UK Government provide an ideal
background to the exploitation of environmental taxes as a general milch cow, rather
than as a targeted incentive to improved environmental compliance.
In its report issued in April 2004,89 the Commission on Sustainable Development90
deplored the failure to make further progress on environmental taxation at a time
when the depletion of natural resources and the built-up of long-term pollution and
the burden of waste was not adequately priced in. The abandonment of the fuel duty
escalator, the postponement of a pesticides tax and the confinement of climate change
levy to sectors of industry were instanced as examples.91
There had been no significant proportionate increase in the UK take of environmental
taxation over a five year period92 and the government needed to counter the political
pressures which make progress difficult with steps to raise public awareness to enable
the burden of taxation to be shifted from the taxation of ‘desirable goods’.93
Finally, it is, surely, worthy of note that, in relation to the consultation opened in
June 2004 in relation to catchment-sensitive farming,94 no pretence was made that
the net yield on any levies would be used to reduce employers’ NICs.
26.6 The advantage of environmental taxes
Environmental taxes are, generally speaking, indirect taxes.95 Indirect taxes, however,
are not necessarily also environmental taxes. Nonetheless both direct and indirect
taxes may have a part to play in environmental fiscal incentivisation.
87 See para. 21.2 above.
88 See para. 21.3.2 above.
89 Shows Promise. But Must Try Harder, paras. 42, 43.
90 See para. 4.2.1.4 above.
91 Shows Promise. But Must Try Harder, para. 61.
92 Ibid., para. 71.
93 For example, employment, which, it is not mentioned, is actually taxed far higher on the
continent of Europe, especially in the UK’s major industrial competitors there, France and
Germany (ibid., para. 77).
94 See para. 21.9.4 above.
95 See Chapter 1 above, especially para. 1.2.1.4 above.
496 Environmental Taxation Law
Where a tax is levied at a flat rate (or a flat rate with a ceiling and/or a cap), it may
be difficult to build an environmental role into its structure. The obvious example is
employers’ NICs. These are a fixed levy on payroll costs collected through the PAYE
system. It would therefore be difficult to build into such a business tax a differential
based, for instance, on the role o,f particular employees. Such a differential can only
really be achieved through taxing on a differential basis either the profit attributable
particular activities, or turnover by reference to the nature of the items sold. An
example of the former is the (very limited) income tax relief for clean-up costs
incurred on the purchase of polluted land where the purchaser is not responsible for
indemnification.96 An example of the latter is the application of the lower rate (5 per
cent) of VAT to the installation of grant-funded renewable source heating systems
introduced from 1 June 2002.97
On the other hand, it would be possible to build an environmental variable into
the taxation of employees, for example, by giving direct relief from income tax and
employee’s NICs for qualifying commuting costs;98 or, alternatively, by encouragement
in the form of differential congestion charging.99 The last of these is, of course, per
se an environmental tax, and, indeed, one which can have a more marked effect on
business behaviour,100 albeit one which was only espoused in principle in mid-2003
before it was clear that the necessary technology to give effect to it would be available.
In the light of this development, the minor concessions already in the public domain
in relation to commuting costs, would be unlikely to be added to, even were it not
apparent that the Treasury were not minded to proceed further along this route.
26.7 European Union limitations
It will also be apparent that the environmental encouragement made available to
businesses through the taxation of profits and taxing turnover is of a very marginal
nature. In relation to the government’s response to the Urban Task Force Report,101
the suspicion must be that the extraordinarily detailed limitations on the special
reliefs enacted subsequently was motivated by the Treasury’s desire (and, indeed,
need) to ‘cap’ the subsidy thereby made available out of public funds.
There have also, however, been other limitations caused by the UK’s Membership
of the EU.102 One of those reliefs, that from stamp duty and stamp duty land tax in
disadvantaged areas,103 could not be implemented on other than a short-term basis
(and only then because of its marginal effect) because of the rules against state aid.104
96 See paras. 21.3.3 and 24.5.1 above.
97 Value Added Tax Act 1994, Sched. 7A, Group 3, Notes 4A and 4B (see also para. 21.3.1
above).
98 See para. 23.3 above.
99 See para. 18.5 above.
100 See para. 18.4 above.
101 See paras. 21.3.3 and 24.5 above.
102 See Chapter 12 above.
103 See para. 24.5.3 above.
104 See paras. 12.2.7 and 12.3.5 above.
Environmental Taxes and the Tax Base 497
Where VAT is concerned, there is, furthermore, a need to justify the application of
the lower rate of tax by reference to social criteria.105 Not only has this limited the
scope for subsidisation of environmentally-friendly goods and services, but, where
new construction is concerned, the principal/ancillary supply rule has restricted its
application.106 Where a tax is a turnover tax, Art. 33 of the Sixth VAT Directive107
may prevent its implementation, although it has not, hitherto, in similar types of
case.108
A further limitation is the prohibition, under Art. 92, European Treaty (ex 98), of
charges on imports and the rebating of charges on exports where ‘direct’ taxes are
concerned.109 One of the objections taken, albeit unsuccessfully, to aggregates levy
was that it might be such a tax.110 This is likely to confine such taxes111 to ones such
as the regionally-imposed levy112 of one euro per day between 2002 and 2003 on
holiday makers in the Balearic Islands.113 This situation should be contrasted with
that in the US, where a tax per ton was imposed on petroleum and chemical products
under Hazardous Substance Response Revenue Act 1980.
It has been seen that landfill is a major problem area for the UK.114 The underlying
pressure here comes, however, from European Directives. Here again, the UK
Government hopes that trading, this time between local authorities, will have a role
to play in the outcome.115
Finally, all domestic environmental legislation, taxation included, has, henceforth,
to operate against the background of the EU ETS. This is discussed in the next
chapter.
105 See the two infraction proceedings cases: Commission of the European Communities v.
United Kingdom, C–353/85, [1988] STC 251, and C–416/85, [1988] STC 456.
106 See para. 21.3.1n above.
107 See para. 1.2.1.4 above.
108 See, for example, the consideration of, respectively, national meat and dairy products
marketing charges in Fazenda Pública v. Fricarnes SA, C–28/96, [1997] STC 1348, and
Fazenda Pública v. União das Cooperativas Abestacedoras de Leite de Lisboa, C–347/95,
[1997] STC 1337, stamp duty on construction contracts in Fazenda Pública v. Solisnor-
Estaleiros Navais SA, C–130/96, [1998] STC 191, and a local tax upon the gross receipts
from entertainment performances in NV Giant v. Commune of Overijse, C–109/90, [1993]
STC 651. It should be noted that this objection was not, however, raised in relation to
municipal parking charges in Fazenda Pública v. Câmera Municipal do Porto (Ministério
Público, third party), C–446/98, [2001] STC 560.
109 See para. 12.3.3.1(6) above.
110 See R (on the application of British Aggregates Association and others) v. C & E Commrs,
[2002] EWHC 926 (Admin), [2002] 2 CMLR 51, paras. 68-78. See paras. 12.3.3.1(6) and
21.10 above.
111 If, indeed, such can be classified as ‘environmental’ taxes, which the authors consider to
be very debatable (see para. 1.2.1.5 above).
112 Which is interesting because it is an example of a state-level tax within a federal structure
(see para. 26.4n above).
113 It seems that this levy was introduced at the instance of Green Party membership of
a rainbow coalition, and abolished after that administration lost office after the next
following election (see para. 12.3.2n above).
114 See paras. 2.3 and 21.4.l above.
115 See para. 20.7 above.
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Chapter 27
Government Proposals
27.1 Introduction
At the time of writing, there are a number of proposals for environmental taxes and
other economic instruments at various stages of design and implementation. This
chapter seeks to review what is so far known about them.
During the present government’s final period in opposition, the shadow cabinet
member responsible for environmental policy, Mr Michael Meacher, had undertaken
a detailed study into the part taxation might play in achieving the next government’s
environmental objectives.1 Following the government’s return in the May 1997
General Election, Mr Meacher (a left winger) was not given a Cabinet seat, but
was created a Privy Councillor and appointed to the position of Minister of State
at the mammoth DETR,2 with responsibility for environmental policy. The ‘grey’
discussion document, Economic Instruments for Water Pollution3 was the result of
Mr Meacher’s researches while in Opposition. It concentrated on three possibilities:
a tax on fertilisers, a tax on pesticides and transferable water pollution permits, with
special reference to the Thames Estuary.
Much more recently, in a Study into the Environmental Impacts of Increasing the
Supply of Housing in the UK, published by Defra in May 2004, it has been recommended
that an assessment be made of the extent to which economic instruments could have
an effect on the location of housing development,4 and also managing its demand
and addressing the environmental impacts of construction and occupation.5
Although each of the above proposals may, or may not, yet come to fruition, the
government has now taken the decision to introduce a satellite-based national scheme
for charging heavy lorries by reference to all road usage, with the possibility of
extending it to other vehicles. Moreover, by May 2003, the DFT had indicated that it
was considering the possibility of replacing VED on cars6 with a ‘main road’ congestion
charge, possibly even before 2010. In addition, the government has signalled its
intention to work for the inclusion of aviation in the EU ETS7 from 2008, something
which it will have the opportunity to do on taking up the EU presidency in 2005.
With the creation of recycling facilities having an unacceptably small effect on the
amount of waste consigned to landfill, the possibility of giving recycling a further
1 Landfill tax had already been introduced by the pre-1997 Conservative Government (see
paras 11.4 and 15.1 above).
2 See para. 4.2.1.2(1) above.
3 Published by the DETR on 20 January 1998.
4 Para. 6.3.
5 Para. 6.3.1.
6 See para. 22.2.1 above.
7 See Chapter 28 below.
500 Environmental Taxation Law
boost by the imposition of a tax on waste incineration has also been considered, but,
at the moment, there appears to be no intention of taking this forward.8
27.2 Economic instruments and housing development
As mentioned in the Introduction to the present chapter, in a Study into the
Environmental Impacts of Increasing the Supply of Housing in the UK,9 published by
Defra in May 2004, it was recommended that an assessment be made of the extent to
which economic instruments could be used in connection with housing. The assessment
could embrace the extent to which economic instruments could have an effect on the
location of housing development,10 and also managing its demand and addressing
the environmental impacts of construction and occupation.11 In the case of a tax, this
would have to reflect the external cost.12 The inability of the market to reflect the
uncompensated effect on third parties was considered to be a form of market failure,13
suggesting the possibility of government intervention via economic instruments to:
1 protect undeveloped land;
2 encourage the regeneration of brown field land;
3 reduce the environmental impact of construction; and
4 reduce the environmental impact of occupation.14
1 and 2 were currently addressed primarily through the planning system,15 but some
tax incentives had been introduced.16 Forms of development or land-holding tax had
also been proposed by the Urban Task Force17 and by the Barker Report.18 As to 3,
the aggregates levy was already in existence.19 As to 4, landfill tax addressed waste
8 See para. 27.7 below.
9 See above.
10 Para. 6.3.
11 Para. 6.3.1.
12 As to which more work needed to be done (ibid., paras 6.3.2, 6.3.3). An external effect
arises where the welfare of another agent is affected without the producer paying
compensation (ibid., para. 2.7.1n.1). See also para. 5.4 above.
13 Ibid., para. 2.7.2.
14 Ibid., para. 2.7.3.
15 Ibid., para. 2.7.4.
16 Ibid., para. 2.7.5 (see para. 24.5 above).
17 Ibid., paras 2.7.6, 2.7.7.
18 To which the study was supplemental (ibid., para. 1.1.12). Her Final Report was published
on 17 March 2004, and suggested the replacement of the collection of social housing
contributions by local authorities through the mechanism of agreements under Town and
Country Planning Act 1990, s.106 (which was not being done on a consistent basis) by a
charge payable by the landowner when detailed planning consent for housing was granted
by the local authority. The government is currently considering this recommendation. It is
understood from the Defra consultation, initiated in July 2004, Making Space for Water,
para. 16.19, that a ‘package’ is likely to emerge by the end of 2005. It also seems possible,
from para. 7.21, that developers in flood plains may have to fund remediation works.
19 Para. 2.7.8 (see para. 11.3.2 above, Chapter 13 above and (especially) para. 21.8 above).
Government Proposals 501
generation,20 climate change levy energy use,21 and efficient appliances certain other
problems.22 Water costs were reflected in its price.23
27.3 Road pricing for heavy lorries
The government has, as mentioned at the beginning of the chapter, decided to introduce
a satellite-based24 national scheme for charging heavy lorries25 by reference to all26
road usage.27 If such a scheme could be set up, it could also be extended to other
vehicles.28 Leeds was, originally, intended to be used for a pilot study.29
20 See Chapter 15 above.
21 See Chapter 14 above.
22 See para. 24.4 above.
23 Study into the Environmental Impacts of Increasing the Supply of Housing in the UK,
para. 2.7.9.
24 It is hoped that this will dovetail in with an embryo European scheme. Switzerland,
Germany and Austria operate on the basis of micro-based systems: HM Treasury,
Modernising the Taxation of the Haulage Industry – Lorry Road User Charge: Progress
Report Two (London: HM Treasury, 2003). The failure of the less sophisticated German
scheme in early 2004 was, however, clearly likely to delay the introduction of the UK one:
Benoit and Wright, Financial Times, 18 February 2004, p. 8. The system was, however,
resuscitated on 1 March 2004, albeit to take effect in 2006 (see BBC Business News, 1
March 2004).
25 The definition of heavy lorry which has been adopted is that used by Switzerland (which
introduced a scheme on 1 January 2001), Germany, whose scheme was supposed to start
on 31 August 2003, and Austria, whose scheme starts on 1 January 2004: HM Treasury,
op. cit.. In the event, although the German technology became operational on 31 August
2003, tolls did not become payable under it under 2 November 2003, and the German
Government’s support for domestic hauliers had become the subject of a discrimination
enquiry by the European Commission: Williamson, Financial Times, 2 August 2003, p. 6.
The problem was settled after the German Minister of Transport gave an undertaking
not to introduce subsidies for German hauliers without the Commission’s consent: (see
Williamson, Financial Times, 27 August 2003, p. 10).
26 As in Switzerland, Germany and Austria confining their schemes to motorways:
Modernising the Taxation of the Haulage Industry – Lorry Road User Charge: Progress
Report Two (6 May 2003).
27 Under Finance Act 2002, s.137: this had been anticipated to be put in place in 2005 or
2006, with offsetting reductions to ensure that the UK haulage industry did not pay more
as a result (see Written Answer by the Economic Secretary to the Treasury (Mr John
Healey, MP), Hansard, HC, 15 January 2003, Vol. 397, No. 193, col. 664W). In the event,
the charging system adopted would apply to lorries from other Member States and the
UK industry would be able to benefit from reductions in diesel duty under the terms of
the proposed Energy Products Directive (Council Directive 03/96/EC, (2003) OJ L283
51): HM Treasury, op. cit. For details of the Energy Products Directive, see para. 12.3.4
above.
28 See para. 19.5 above. A proposal for such a system, albeit not then based on satellite
technology was put forward as early as 1966 by A. Roth, A Self-Financing Road System
(London: Institute of Economic Affairs, 1966).
29 Guha, Financial Times, 23 July 2002, p. 2.
502 Environmental Taxation Law
It seemed possible, however, that the original scheme (which would also be applied
to lorries from other Member States of the EU)30 might not be permissible under
Community Law.31 There seems, nonetheless, to be political reluctance to substitute
a system of Community-wide road tolls for the Eurovignette licence for lorries to use
the motorways of the seven Member States who do not levy such tolls.32
The government’s intention is to introduce a lorry road-user charge based on
distance travelled. The target date had been 2006,33 with the technology is expected
to be put out to tender at the end of 2003, and the legislation contained in Finance Bill
2004.34 In March 2004, this had, however, been put back to 2008, both in the light
of problems with the German scheme and in order to provide time for pilot testing of
an arrangement based on an on-board unit. Truckers would be compensated with a
fuel duty rebate, via a repayment scheme. There would, furthermore, be an electronic
scheme for occasional users.35 On 9 June 2004, however, Customs indicated in an
Information Guide, that the charge would be introduced in 2007/08 for lorries of
above 3.5 tonnes and there would be both: a Frequent User Scheme for regular users,
based on on-board equipment; and an Occasional User Scheme for infrequent users,
who would be able to opt for a low-use on-board unit.
The quantum of the charge may vary depending upon axle weight and whether
environmentally-friendly emission control systems are installed.36
Progress Report 2 has already been referred to in connection with excise duties.37
Progress Report 3 was published on Budget Day 2004.38 It revealed that the
projected lorry road user charge would be administered by a LRUC Management
Authority within Customs.39 The procurement arrangements, which had to be run
in accordance with EU advertising and evaluation procedures, would consist of
three contractual packages – central services, roadside equipment and on-board
30 This problem is to be covered, as in Switzerland and Germany, by enabling occasional
users to pay for a ticket along a predetermined route before travelling. Austria requires
such users to have the micro-device installed (see HM Treasury, op. cit.).
31 Andreas Hoves Internationaler Transport-Service SARL v. Finanzamt Borker, C–115/00.
32 Dombey, Financial Times, 7 February 2003, p.8. The UK’s first toll motorway bypassed a
particularly congested part of the M6, where traffic speeds average 17 mph, and was only
27 miles long (see www.m6toll.co.uk). Its standard lorry charge of £11, including VAT,
was to be the most expensive in Europe: Jowit, Financial Times, 7 May 2003, p. 2. But
haulier pressure led to it being cut from its initial level of £10 to £6 until the end of 2005
(see Guthrie, Financial Times, 23 July 2004, p. 5). The government’s road programme,
announced in July 2004, had envisaged an additional parallel paying extension of the M6.
Whether this will turn out to be a project contractors are prepared to bid for remains to be
seen.
33 HM Treasury’s Budget 2003 (9 April 2003), para. 7.38.
34 HM Treasury, op. cit.
35 Wright, Financial Times, 18 March 2004, p.12: Modernising the Taxation of the Haulage
Industry – Lorry Road User Charge: Progress Report 3 (17 March 2004).
36 That is, as in Germany (see HM Treasury, op. cit.).
37 See para. 22.3 above.
38 17 March 2004.
39 On the same day, it was announced in the Budget that Customs would be merged with the
Inland Revenue! (See para. 4.2.1.2(2) above.)
Government Proposals 503
equipment. Finance Bill 200440 contained the initial legislation, but that relating to
structure, collection and administration was deferred until 2005. Under the published
timetable, it was envisaged that contracts would be awarded by the end of 2005. The
roadside equipment would be installed, staff recruited and trained and the necessary
regulations promulgated during 2006. Equipment would be installed in vehicles
during 2007 and the system would go live in early 2008. A slippage in the timetable
of two years had, therefore, to be accepted.
27.4 Nationwide satellite-based congestion charging
On 25 February 2003, the Commission for Integrated Transport41 published two
Fact Sheets, Nos 8 and 9, on its website.42 The first43 advocated the use of global
positioning technology, using position-fixing satellites, by imposing flexible charges
on 47 per cent of travelling time, and producing revenue either to lower fuel duty by
12p or to abolish vehicle excise duty and reduce fuel duty by 2p. This technology
would:
1 detect vehicles entering areas for which charges are to be made (including 10 per
cent of the motorway and trunk road network);
2 distinguishing not only the published periods when they are in force; but also
3 waiving the charge if the route was not in fact congested at the time; and also
4 identifying the type of vehicle, so that a reduced charge could be imposed for
green vehicles (it being estimated that heavy goods vehicles would be paying 11
per cent of the total charges); with
5 users paying by card or monthly invoice.
It was estimated that congestion would be reduced by 44 per cent nationally, with
savings in journey times of 34 per cent in Central London, 5 per cent in inner London,
35 per cent in the conurbations, 11–12 per cent in small urban areas and 11 per cent
on rural roads.
The anticipated reductions in traffic would be:
1 5 per cent nationally;
2 20 per cent in Central London;
3 16 per cent in inner London;
4 11–13 per cent in outer London, and the inner areas of Birmingham, Manchester,
Leeds and Liverpool;
40 Published 8 April 2004.
41 See para. 4.2.1.4 above.
42 See www.cfit.gov.uk.
43 The second gave examples of the effect on a variety of road users and estimated how the
imposition of such a scheme might both affect their current routine and enable them to
make savings in their transport costs.
504 Environmental Taxation Law
5 8–9 per cent in large cities, such as Hull, Southampton, Leicester and
Middlesborough;
6 2.6 per cent on motorways; and
7 2.4 per cent on rural roads.
By the end of April, however, it had become clear that the government’s Ten-Year
Transport Plan44 would not be capable of being modified to encompass so big a
change, indeed progress overall was likely to regress as against the original proposals
made under the stewardship of Mr John Prescott.45 Nonetheless, at the end of May,
there were indications that Mr Alastair Darling, the Secretary of State for Transport,
was thinking in terms of replacing vehicle excise duty on cars46 with a ‘main road’
congestion charge, and possibly even before 2010.47 This was confirmed when the
government’s £7bn road investment programme was unveiled in July 2003,48 albeit
subject to the proviso that, technologically, this involved a far bigger step forward
than the lorry scheme.
Nonetheless, in the White Paper published the following month, The Future
of Transport, it was clear that this was to be the cornerstone of the government’s
forward planning.49
27.5 Pricing air passenger transport
Airliners are very heavy consumers of petroleum products and, although less so than
formerly, it goes without saying that they are also very noisy.50 It might be thought,
therefore, that, carbon dioxide emissions from this source in the UK having increased
by 85 per cent between 1990 and 2000, and being estimated to rise by 30 per cent
44 Transport 2010: the Ten Year Plan (DETR, July 2000), which had been severely affected
by the tragedy of the Hatfield rail crash of October 2001.
45 Jowit, Financial Times, 26–27 April 2003, p. 4.
46 See para. 21.2 above.
47 Newman, Financial Times, 24–25 May 2003, p. 1: this was supported by the remarks made
by The Rt Hon. Alastair Darling, MP (Secretary of State for Transport) in an interview
with Mr Jeremy Paxman on BBC2’s Newsnight programme on 29 May 2003. These
indications were followed, on 16 June 2003, by the publication of Transport Pricing:
Better for Travellers by the Independent Transport Commission, a body set up in 1999
under the auspices of the University of Southampton. In this document, the ITC (which
had published a number of studies and reports on the wider implications of government
policy as set out in Transport 2010: The Ten Year Plan), advocated nationwide satellitebased
road user pricing in place of excise duties on fuel. The document itself was based on
the more extensive Summary and Technical Reports, Transport Pricing and Investment
in England, by Prof. Stephen Glaister and Dr Dan Graham of the Department of Civil
Engineering, Imperial College, London, published by the ITC on 31 May 2003.
48 Guha, Bream and Blitz, Financial Times, 10 July 2003, p. 5.
49 Wright, Financial Times, 24–25 July 2004, p. 11.
50 See John Sheail, An Environmental History of Twentieth-Century Britain (Basingstoke:
Palgrave, 2002), pp. 191–6.
Government Proposals 505
during the current decade, aircraft emissions would be thought to be an appropriate
subject for environmental taxation.51 However, air transport falls outside the
Kyoto Protocol.52 Airline travel by passengers is zero-rated for VAT.53 The Energy
Products Directive54 exempts airliners from excise duties on fuel consumption
within the EU. Under the Chicago Convention the taxation of fuel for international
flights is prohibited.55 Additional restrictions are imposed under bilateral air service
agreements to which the UK is a party.56
Although air passenger duty was introduced in 1994,57 it was as a revenue-raising
measure, and, despite the UK government classifying it as an environmental tax,
there are no environmental aspects to it.58 The current standard rates of duty are £10
per passenger per flight to destinations in the European Economic Area59 and £40
to anywhere else. Although there appears to have been a strong lobby in favour of
increasing air passenger duty at the time the Air Transport White Paper was coming
up to completion,60 ministers decided not to follow that route in the event.61
As a prelude to the preparation of an Air Transport White Paper, for publication at the
end of 2003, the government issued a discussion paper62 on how economic measures
could be used to encourage the industry to take more account of its environmental
impact.63 This concentrated on the external costs relating to four aspects:
1 climate change – an issue because aircraft engines emit both carbon dioxide (a
GHG in itself) and nitrogen oxides, which produce ozone, both being contributors
to global warming, and therefore climate change;64 estimates for 2000 suggested
51 Houlder, Financial Times, 16 December 2002, p. 2.
52 See para. 8.3.1.4 above.
53 Value Added Tax Act 1994, Sched. 8, Group 8, item 4(a),(c).
54 See para. 12.3.4 above. It is worthy of note, however, that two of the incoming Barroso
Commissioners, Mr Jacques Barrot and Mr Stavros Dimas, advocated a jet fuel tax on
inter-EU flights in their European Parliament confirmation hearings (see Minder, Financial
Times, 30 September 2003, p.8).
55 See para. 8.5 above.
56 Aviation and the Environment: Using Economic Instruments (HM Treasury, Department
for Transport, 14 March 2003), Box 2 (Legal Issues).
57 See para. 1.2.1.5(2) above.
58 Indeed, it seems clear that the 1996 rate increases hit tour operators rather than BAA plc
or airlines (see Investors Chronicle, 29 November 1996, p.10).
59 And this appears to have been the result of pressure from the European Commission (see
Skapinker, Financial Times, 11 November 1999, p. 11).
60 Newman, Financial Times, 13–14 December 2003, p. 1. Done, Financial Times, 17
December 2003, p. 4.
61 Newman, Financial Times, 15 December 2003, p. 9.
62 Aviation and the Environment: Using Economic Instruments (HM Treasury, Department
for Transport, 14 March 2003). This was followed by the Fourth Report of the House of
Commons’ Environmental Audit Committee, issued on 1 April 2003, HC 167, para. 39 of
which was not complimentary about the Department for Transport’s attitude to this issue.
63 HMT 39/03 (14 March 2003).
64 Aviation and the Environment: Using Economic Instruments (HM Treasury, Department
for Transport, 14 March 2003), paras 3.3–3.11, Annexes A–D.
506 Environmental Taxation Law
that civil passenger aviation was responsible for 5 per cent of UK carbon dioxide
emissions, with an increase of 2.3 times in prospect by 2030 giving rise to
between 10 and 12 per cent of such emissions;65
2 noise;66 and
3 local air quality, which is the product of take-offs, landings and associated ground
vehicles, for which mandatory EU limits for the two principal gases are to be in
place by 2010;67 as well as touching on
4 congestion in the skies and around airports, albeit with external costs thought
likely to be minimal, except in relation to surface traffic around airports.68 The
observation was made, however, that the lack of market mechanisms in the
current slot allocation system resulted in an inefficient use of airport capacity.69
This approach did not go down well with the House of Commons Environmental
Audit Committee, who, in Budget 2003 and Aviation, their Ninth Report of Session
2002–03, published on 29 July 2003.70 considered that the passive acceptance of a
4 per cent annual increase in traffic for 30 years, coupled with a decrease in fares of
40 per cent gave rise to concern. In the Committee’s view, government policy should
aid to decouple growth in air travel from economic growth; when the increase in cost
of aviation emissions would wipe out the economic case for runway expansion; with
the impact of noise pollution underestimated;71 and no account having been taken of
catastrophic changes to the atmosphere.72
The Environmental Audit Committee could, furthermore, see no reason why aviation
should be treated differently from motoring as far as fiscal policy was concerned73
and recommended the replacement of air passenger duty with an emissions charge74
levied on flights which was ‘displayed clearly’ on travel documentation. It also
recommended that examination should be given to a dual-till system to ensure that
airlines paid a greater share of infrastructure costs; and that the European Commission
should institute regular auctions of slots, so that demand was reflected in the price.
65 Ibid., paras 3.9, 3.11. The government’s calculations indicated that the external climate
change cost could rise from £1.4bn to £4.8bn over this 30 year-period (ibid., para. 3.22).
66 Ibid., paras 3.12–3.15, Annex E.
67 Ibid., paras 3.16–3.18, Annex F.
68 Ibid., paras 3.19–3.20.
69 In relation to which the government had been pressing the European Commission for
reform (ibid., para. 3.21).
70 HC 672.
71 Ibid., paras 57–9.
72 It is worthy of note that the Committee contrasted the approach in this case with the initial
approach to landfill tax and aggregates levy (ibid., para. 53).
73 Ibid., paras 71–3.
74 Because it is not possible to tax airline fuel (ibid., para. 74), where reference is made to an
emissions charge levied at Zurich Airport and Norway’s carbon-emission based national
aviation green tax. In evidence given to the House of Commons’ Environmental Audit
Committee on 12 May 2004, Q233, Mr John Healey, MP, the Economic Secretary to
the Treasury, emphasised the legal framework within which any proposal to ‘reform’ air
passenger duty into a tax which might operate as an environmental instrument.
Government Proposals 507
Following this, the Commission for Integrated Transport called for, albeit without
much expectation of the same being adopted,75 an EU-wide carbon dioxide emission
charge of £70 per tonne; and a charge based on aircraft noise, with both being funded
by increased fares. In early December 2003, however, this issue became subsumed in
the controversy over whether the UK Government had the ability, under the Air Quality
Framework Directive,76 to authorise the construction of a third runway at Heathrow
(the airline industry’s preference), as against a second runway at Stanstead.77
The White Paper itself, The Future of Air Transport,78 published on 16 December
2003, sought to provide a 30-year framework for tackling the enormous growth
in air traffic anticipated over that period.79 The central issue was the provision of
additional runway space in the south east, with the first choice being a second runway
at Stanstead by 2011–1280 and the second a third runway at Heathrow by 2015–-2081
if emissions control permitted. The alternative was a second runway at Gatwick,
which it had been agreed as part of a planning agreement would not be built before
2019. The environmental problem relating to Heathrow was the EU restriction on the
level of pollutants in the air, irrespective of source, coming into effect in 2005 for
particulates and 2010 for nitrogen dioxide.82 The proposed solution to the emissions
problem was to work, up to and during the UK presidency of the EU in 2005, for the
inclusion of aviation in the EU ETS from 2008.83
The White Paper was, however, savaged by the House of Commons’ Environmental
Audit Committee in its Pre-Budget Report 2003: Aviation Follow-Up, published on
10 March 2004.84 The central criticism was that the White Paper ‘a(chǎn)ctively’ promoted
a huge growth in air travel over the next 30 years and that there would be a ‘massive’
environmental impact, in terms of emissions and aviation’s contribution to global
warning. In the opinion of the Committee, the DFT had failed to give adequate
consideration to the latter.85 Furthermore, by restricting its economic appraisals to
the provision of new runways, the DFT had failed to provide an overall appraisal
of the economic impact from air travel. The Committee was also sceptical as to
whether there was any real prospect of the UK Presidency of the EU securing the
inclusion of aviation within EU ETS,86 even assuming that that, or a similar, trading
75 Spiegel, Financial Times, 1 September 2003, p. 2.
76 See para. 12.2.6.2 above.
77 Newman, Financial Times, 29–30 November 2003, p. 1, Wright, Financial Times, 1
December 2003, p. 4, Done, Financial Times, 3 December 2003, p. 9, Done, Financial
Times, 6–7 December 2003, p. 11.
78 Cm 6046.
79 Ibid., Annex A.
80 Which, it was anticipated, would lead to low-cost airlines ‘resisting’ higher fees from
BAA plc (see para. 2.6 above) to finance this (see Done, Financial Times, 18 December
2003, p. 3).
81 Cm 6046, para. 11.66.
82 Ibid., para. 3.29.
83 Ibid., Annex B.
84 HC 233.
85 Even in its subsequently-produced supporting paper, Aviation and Global Warming.
86 See Chapter 28 below. See also Houlder, Financial Times, 23 September 2004, p. 9.
508 Environmental Taxation Law
system was capable of delivering carbon reductions of the size required on the basis
of the envisaged expansion of civil aviation. Indeed, in the opinion of the Committee,
an increase in aviation emissions of the size envisaged by the DFT would make
the UK’s 60 per cent carbon emissions reduction target set by the UK Government
in 2003 ‘meaningless and unachievable’. The best the Committee felt it would be
realistic to hope for would be 35 per cent.
The DFT published its response to the Environmental Audit Committee’s report
in June 200487 and, in the same month, the Committee issued its (third) Report,88
to which the DFT responded in August and the Committee its (fourth) Report in
September 2004.89 Suffice it to say that the Committee thought it necessary to record
that there remained ‘fundamental and apparently irreconcilable differences’ between
it and the ministry.90
27.6 Litter taxes
The packaging problem generally has been discussed in Chapter 19 above. It was
reported, however, in May 2002, that Mr Michael Meacher (the Environment Minister
at that time) was considering the imposition of a tax on the 8m plastic bags used by
retailers every year.91 It was envisaged that this would be similar to that, imposed at
15c per bag, the previous March in Eire, which, it later transpired, raised EUR 3.5m
in its first three months and reduced usage by 90 per cent.92 In the UK only one in 200
was recycled (when shredded and compacted plastic bags can be used as bedding for
roads).93 Denmark also has such a tax. One leading supermarket operator, Safeway,
let it be known, however, that it considered that the 1997 Regulations imposed a
similar levy.94 At the beginning of September 2002, the Co-op introduced a type of
plastic bag which did biodegrade substantially between 18 months and three years
after manufacture and it was understood that other UK supermarkets were likely to
follow suit.
On 22 October 2002, however, the Economic Secretary to the Treasury announced,
in a written answer, that there were no plans to introduce such a tax.95 Nonetheless,
shortly afterwards, Durham Council let it be known that they were considering such
87 Cm 60l63.
88 HC 233.
89 HCC 1063: see also HC 263 [Seventh Report of 2003–04].
90 HCC 1063, para. 6.
91 Mason, Financial Times, 21 May 2002, p. 2.
92 Albeit offset by a significant increase in the sale of bin liners (see Tighe, Financial Times,
19 December 2002, p. 4). Success seems, however, to be infectious because, on 15 July
2003, the BBC 6 O’Clock News reported that the Irish Government was planning to
introduce a hypothecated litter levy on chewing gum, polystyrene wrappers and cash till
receipts.
93 Peachey, The Independent, 21 August 2002, p. 3.
94 Mason, Financial Times, 21 May 2002, p.2,
95 Official Report HC, Vol. 391, No. 194, col. 212W (Mr John Healey, MP).
Government Proposals 509
a levy on a local basis.96 A one-month pilot project supported by three major retailers
suggested, however, that shoppers could be persuaded to buy ‘bags for life’ in large
enough numbers to make a tax incentive unnecessary.97
Levies of this nature can, however, have unexpected results. At the instance of its
Green Party Environment Minister, Mr Trittin, the German Government sought to
promote the substitution of refillable drinks containers for cans by the imposition,
from 2002, of a deposit of 25 to 50 cents payable at the time of purchase and only
refundable upon return at the point of sale. This made the purchase of canned drinks at
petrol stations unattractive to the public. More materially, the decline in trade created
by that generally resulted, by June 2003, in four major retailers deciding not to stock
drinks in such a form. This undermined the incentive for the retail industry to set up
a national collection infrastructure. The resulting 60–70 per cent decline in canned
beer sales led to the German canning industry laying off workers, with the prospect
of painful restructuring by five large brewers.98 Modifications were introduced.
On the technical side, the effect on can manufacturers in other EU Member States
attracted the attention of the European Commission, from the point of view of noncompliance
with the free market parts of the Treaty.99 The problem centres on the
fact that German manufacturers use reusable glass bottles, whereas imports (mainly
from France) are in disposable plastic bottles.100
27.7 Taxing incineration
An incineration tax was a possibility raised at the end of 2002 in Waste Not Want
Not,101 although it was not taken any further at that time. Waste Not Want Not did,
however, note that there were planning problems. As a solution, incineration is not
one which it is easy for a local authority to adopt under the current town and country
planning system. On 23 April 2003, the House of Commons Environmental Audit
Committee recommended a freeze on planning consents for new incinerators.102
The issue next returned to the public domain during the House of Commons Report
Stage of the Waste Emissions and Trading Bill on 28 October 2003, when both
main Opposition parties expressed concern at the effect of the tabled new clauses
96 Tighe, Financial Times, 19 December 2002, p. 4.
97 Tighe, Financial Times, 6 November 2003, p. 4. The debate over biodegradable bags
continued, with concern at the possibility of their finding their way to recycling facilities
and contaminating the plastic there (see Houlder, Financial Times, 28–29 February 2004,
p. 5). The development of such bags was, furthermore, not being supported by the UK
Government because of the release of methane in the breaking-down process (see Mr
Elliot Morley, MP, Minister of State for the Environment, Hansard, 23 February 2004,
WA 153745, col. 124W).
98 Benoit and Williamson, Financial Times, 9 July 2003, p. 12.
99 That is, the old ‘inter-state commerce clause problem’ which bedeviled the New Deal
legislation in the 1930s (see para. 26.4 above).
100 BBC 1/News 24, The World Today, 22 September 2003.
101 Downing Street Strategy Unit: see paras. 6.3.2 and 21.4.1 above.
102 In Waste – An Audit, Fifth Special Report of Session 2002–03, HC 99, para. 63.
510 Environmental Taxation Law
on Ministerial Reporting to Parliament, which were to form Chapter 3 of the new
Act. Their concern was that a regime which limited the use of landfill in the manner
proposed would inevitably result in local authorities resorting to increased use of
incineration,103 and indeed, in the light of the stringency imposed by the Incineration
Emissions Directive,104 to the construction of new large105 facilities on the basis of
fixed term contracts,106 which would create not only a chimney emissions problem
but also a transport emissions one107 and the dispatch of fly ash to landfill.108
There appears, however, to have been a difference of approach between the two
main opposition parties to the use of incineration as an acceptable alternative to
landfill. The Liberal Democrats were totally opposed, being concerned at the
additional environmental damage which would be inflicted. The Conservatives,
however, seemed to envisage some circumstances in which an incineration option
would be acceptable, in particular those in which the incinerator could be the source
of CHP generation.
The minister in charge said, during this debate, that although it had been suggested
by various bodies that an incineration tax might be an option, the government had no
plans for the introduction of such a tax.109
At the same time as the release of estimates showing that the external cost of
incineration was £3–£4 per tonne higher than that for landfill,110 it was said in the
2004 Pre-Budget Report111 that the government was not convinced that there was a
strong case for the introduction of a tax on incinerated waste.112
27.8 Conclusions
It is ironic that New Labour’s first environmental instruments candidate in 1997 was
water,113 that nothing transpired in relation to that,114 but that, come the summer of
103 See, especially, Mr Norman Baker, MP (Liberal Democrat), Official Report HC debates,
col. 190.
104 2000/76/EC. As to this, see the remarks of the Minister for the Environment (Mr Elliot
Morley, MP) at ibid., col. 233.
105 The only amelioration considered possible from this was the possibility, mentioned by Mr
Bill Wiggin, MP (Conservative) of the creation of CHP.
106 Mr Norman Baker, MP, Official Report HC debates, col. 227.
107 Ibid., col. 223.
108 Ibid., col. 227.
109 Mr Elliot Morley, MP, ibid., col. 239.
110 Combining the Government’s Two Health and Environmental Studies to Calculate
Estimates for the External Costs of Landfill and Incineration: published 2 December 2004
on www.hmce.gov.uk.
111 Entitled Opportunity for All: The Strength to Take the Long-term Decisions for Britain,
Cmn 6408, 2 December 2004, www.hm-treasury.gov.uk.
112 Para. 7.60.
113 See para. 21.9.1 above.
114 Primarily, it seems, because US experience related to discrete catchment areas and had not
been a great success: see para. 20.3 above.
Government Proposals 511
2004 and the pending advent of an EU Directive, the government’s attention has had
to be redirected to this possibility, albeit through a reconsideration of the possibility
of taxing fertilisers.115 But following the responses to the consultation116 showing
no enthusiasm for an economic instrument based solution to the catchment area
problem, no further mention was made of this possibility in the written Parliamentary
Statement made by the Minister for the Environment and Agri-Environment on the
same day as the Pre-Budget Report.117
Related to this has, throughout, been the possibility of taxing pesticides, which
is partly an issue of public safety and (in the current financial/political climate)
partly of broadening the tax base.118 But Defra-watchers’ attention on the former
became diverted by the GM crops issue, which has only recently (summer 2004)
been defused.119
At the same time, interest has been aroused, and then dampened, in the waste
disposal sphere by the possibility of plastic bag taxes120 and an incineration tax.121
Instead the possibility of economic instruments has been considered in the fields
of housing development,122 road pricing for lorries,123 nationwide satellite-based
congestion charging,124 and building the environmental cost into air passenger
transport pricing.125 It is worthy of note, in the context of transport, that the
Consultation on the review of the UK Climate Change Programme126 revealed that
carbon dioxide emissions increased between 1999 and 2002 by 7 per cent from
road transport and 35 per cent from domestic air transport.127 The responses to the
government’s April 2004 consultation on a possible biofuels strategy128 revealed
some scepticism with (and strong opposition from the oil companies to) the idea of
a renewables obligation.129 Nonetheless the government announced that it would be
undertaking a feasibility study into the possibility of a Renewable Transport Fuels
Obligation.130
115 See para. 21.9.4 above.
116 Published on www.defra.gov.uk on 2 December 2004.
117 Mr Elliot Morley, MP, HC, 2 December 2004, col. 51WS.
118 See para. 21.9.5 above. In the 2004 Pre-Budget Report, Cmn 6408, paras 7.65–66, the
government’s options were held open in relation to what happens when the voluntary
programme comes to an end in 2006.
119 See para. 21.9.6 above.
120 See para. 27.6 above.
121 See para. 27.7 above.
122 See para. 27.2 above.
123 See para. 27.3 above.
124 See para. 27.4 above.
125 See para. 27.5 above.
126 Issued 2 December 2004: www.defra.gov.uk.
127 Para. 3.5: it should be noted that those from international air transport were also increasing
but not quantified because they are not part of the Kyoto Protocol.
128 See http://www.dft,gov.uk/stellent/groups/dft_roads/documents/page/dft_roads_033085.
hcsp.
129 Para. 2.
130 See Review of the UK Climate Change Programme, para. 8.17, and http://www.hmtreasury.
gov.uk/media/92C/1C/pbr04_ch07_323.pdf.
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Chapter 28
The EU Emissions Trading Directive
28.1 Introduction
The European Community is a party to the 1992 United Nations Framework
Convention on Climate Change1 and to its famous Kyoto Protocol of 1997.2 Moreover,
the Community’s Sixth Environmental Action Programme of 2002 nominated the
tackling of climate change and, specifically, the ratification and implementation of
the Kyoto Protocol as one of four priority areas for action.3 As already discussed,4
the significance of Kyoto resides to a considerable extent in the introduction of the
three ‘Kyoto’ or ‘flexible’ mechanisms’ for use by industrialised countries in meeting
their emissions reduction targets. In addition to Joint Implementation (‘JI’) and the
Clean Development Mechanism (‘CDM’),5 these flexible mechanisms include the
development of emissions trading schemes.
The EU Emissions Trading Directive (‘the EU ETS Directive’)6 ‘establishes a scheme
for GHG allowance trading within the Community … in order to promote reductions
of greenhouse gas emissions in a cost-effective and economically efficient manner’.7
Addressed to the Member States, the Directive entered into force on 25 October 2003,
being the date of its publication in the Official Journal.8 In what follows,9 the scheme
is referred to as the EU ETS, to distinguish it from the UK ETS, which was discussed
in the previous chapter. Although in conception, the EU ETS has points of similarity
both with the UK ETS and with similar schemes in the United States,10 there are also,
as will become apparent from the present chapter, some very significant differences
between the EU ETS and existing national schemes. Indeed, at the time of writing,
an intractable issue is the working out of a relationship between the UK ETS and the
EU ETS. Some of the highly complex issues raised by the relationship are discussed
in para. 28.4 below. Meantime, however, it is necessary to examine the background
to the EU ETS Directive and to outline its principal provisions.
1 Approved by Council Decision 94/69/EC, (1994) OJ L33 11.
2 See paras 8.3.1.3 and 8.3.1.4 above.
3 See para. 12.2.3 above.
4 See para. 8.3.1.4 above.
5 Ibid.
6 European Parliament and Council Directive 03/87/EC Establishing a Scheme for
Greenhouse Gas Emission Allowance Trading within the Community and Ame,nding
Council Directive 96/61/EC, (2003) OJ L275 32. (For Directive 96/61/EC (that is, the
IPPC Directive), see para. 12.2.2 above.)
7 Directive 03/87/EC, Art. 1.
8 That is, of the EU (see Directive 03/87/EC, Art. 32).
9 That is, mainly in para. 28.3 below.
10 As to which, see Joanne Scott, EC Environmental Law (London: Longman, 1998),
p. 55n.
514 Environmental Taxation Law
Whatever the strengths and weaknesses of the EU ETS, its main importance will
remain the fact that it is the first such multinational scheme to make the transition
from dream to reality.11 Its realisation stands in marked contrast to the Commission’s
1992 proposal,12 subsequently withdrawn, for a harmonised tax on carbon dioxide
emissions and energy content.13 Moreover, it is crucially important for the EU
ETS to be seen to be successful, since, without a credible programme for reducing
GHG emissions, it may yet be extremely difficult for the Community to persuade
industrialised third countries to ratify the Kyoto Protocol.
28.2 Background to the EU Emissions Trading Directive
28.2.1 General
The Treaty base of the Directive is Art. 175(1), European Treaty (ex 130s),14 which
requires the Council,15 acting in accordance with the co-decision procedure,16 and after
consulting ECOSOC17 and the Committee of the Regions,18 to decide what action is to
be taken by the Community to achieve the objectives in Art. 174, European Treaty (ex
130r).19 The co-decision procedure, set out in Art. 251, European Treaty (ex 189b), is
designed to prevent the adoption of a measure without the approval both of the Council
and of the Parliament.20 The emphasis in Art. 251 on the need for a jointly approved
legislative text21 is vividly illustrated by the fact that, from the Commission’s first
transmitting the text of the proposed Directive to the Council and the Parliament,22
11 See Philippe Sands, Principles of International Environmental Law, 2nd edn (Cambridge:
Cambridge University Press, 2003), p. 161.
12 Proposal for a Council Directive Introducing a Tax on Carbon Dioxide Emissions and
Energy, COM (92) 226 final, (1992) OJ C196 1.
13 The 2003 Energy Products Directive (Council Directive 03/96/EC: see para. 12.3.4
above) is the emasculated successor, not only to the 1992 proposal, with its harmonised
carbon/energy tax proposal (amended in 1995 (see COM (95) 172 final, available on
PreLex, at www.europa.eu.int/prelex) but also to a proposal of 1997 for a Council
Directive restructuring the Community framework for the taxation of energy products,
(1997) OJ C139 14. For the story of the 1992 proposal, see Scott, op. cit., pp. 45–50 and,
for early (economic) views on a Community-wide carbon/energy tax, see, for example,
Carlo Carraro and Domenico Siniscalco (eds), The European Carbon Tax: An Economic
Assessment (Dordrecht: Kluwer, 1993).
14 See para. 12.2.1 above.
15 See para. 4.3.1 above.
16 See para. 4.3.3 above.
17 See para. 4.3.4 above.
18 See para. 4.3.6 above.
19 See para. 12.2.1 above.
20 See para. 4.3.3 above.
21 See Paul Craig and Gráinne de Búrca, EU Law: Text, Cases and Materials, 3rd edn
(Oxford: Oxford University Press, 2003), p. 144.
22 23 October 2001. (All details of the procedure in this chapter are from PreLex, at www.
europa.eu.int/prelex.)
The EU Emissions Trading Directive 515
to the EU ETS Directive’s final signature by the two institutions, was a period of
almost two years.23 Throughout, the Environment DG of the Commission, under the
Environment Commissioner, Mrs Margot Wallström,24 has had primary responsibility
for the Directive.
28.2.2 The Commission’s Green Paper on emissions trading
In March 2000, against the backdrop of the ECCP,25 the Commission26 adopted a
Green Paper on GHG emissions trading within the EU.27 Referring to Art. 17 of the
Kyoto Protocol,28 the Green Paper identified emissions trading schemes as one of
the three Kyoto mechanisms, which together would facilitate the Protocol’s costeffective
implementation.29 Having accepted the differentiated reduction targets in
Annex B to the Protocol,30 each of the parties thereto was, emphasised the Paper,
entitled to participate in international emissions trading under the Protocol. This
being so, the Paper invited all governmental and non-governmental stakeholders
to give their opinions on how the EU should ‘strike the right balance’ in the use
of emissions trading.31 To this end, the Green Paper asked respondents 10 specific
questions about the design of such a scheme.32
According to the Green Paper, the main economic rationale for emissions trading33
was the use of market mechanisms to make sure that ‘emissions reductions required
to achieve a pre-determined environmental outcome take place where the cost of
reduction is the lowest’.34 Although there had hitherto been no major application
of tradable allowances in the Community’s environmental policy, the Green Paper
emphasised that Community law did contain a number of similar concepts, for
23 That is, 23 October 2001 to 13 October 2003.
24 Mrs Margot Wallström was confirmed as Environment Commissioner in September 1999
and expressed her belief in emissions trading at her confirmation hearing (see 296 ENDS
Report (1999)). Commissioner Wallström has had a long domestic political career, both
as a Member of the Swedish Parliament and in the Swedish Government, having been
Minister for Consumer Affairs, Women and Youth (1988–1991), Minister for Culture
(1994–1996) and Minister for Social Affairs (1996–1998). She is the only member of the
‘Prodi Commission’ to be reappointed to the post-2004 ‘Barroso Commission’.
25 See para. 12.2.6.2 above.
26 See para. 4.3.2 above.
27 COM (00) 87 final, available on EurLex, at www.europa.eu.int (referred to below as the
‘Green Paper’).
28 See para. 8.3.1.4 above.
29 Green Paper, para. 1.
30 See para. 8.3.1.4 above.
31 Green Paper, para. 2.
32 Green Paper, paras 6.3, 7.4, 8.5 and 9.4.
33 Emissions trading was defined in the Green Paper as ‘a(chǎn) scheme whereby companies are
allocated allowances for their emissions of greenhouse gases according to the overall
environmental ambitions of their government, which they can trade subsequently with
each other’ (Green Paper, para. 3).
34 Green Paper, para. 3.
516 Environmental Taxation Law
example: quotas for ozone-depleting chemicals under the 1987 Montreal Protocol;35
fish catch quotas under the common fisheries policy;36 and milk quotas under the
CAP.37 Alluding to the burden-sharing agreement between Member States,38 the
Green Paper stressed that the agreement did not constrain the use of the Kyoto
mechanisms,39 but, equally, that any EU-wide emissions trading scheme would not
necessarily be identical to an international emissions trading scheme as envisaged
by Art. 17 of the Kyoto Protocol.40 In particular, said the Green Paper, the fact that
Art. 17 did not refer to the involvement of ‘entities’ in emissions trading schemes did
not disturb the Commission’s view that the involvement of companies in emissions
trading ‘represent[ed] a unique opportunity for a cost-effective implementation of
the Kyoto commitments’.41 The prudent approach to the development of emissions
trading at Community level, according to the Paper, was for the Community to
confine itself initially to ‘large fixed point sources of carbon dioxide’, since this would
facilitate the monitoring and supervision of the scheme.42 This was a significant
limitation on the scope of emissions trading, since, for the present at least, it would
be excluded from the scope of any scheme of the other five GHGs. A Communitywide
trading scheme would lead to a single price for allowances traded by scheme
companies.43 Although the scheme would need to be carefully designed to protect
the internal market and so as not to infringe international treaty obligations,44 it
would be possible to organise the scheme at one of at least three different levels:
least ambitiously, a series of national schemes in the Member States, overseen by the
Commission; more ambitiously, a coordinated Community scheme that nonetheless
allowed Member States a degree of discretion; or, most ambitiously, a harmonised
Community-wide scheme which would limit the discretion of Member States and in
which the design of all of the essential elements of the scheme would be agreed at
the level of the Community.45
On the question of which industrial sectors should be included within the scheme,
the Green Paper identified six sectors which together were responsible for something
over 45.1 per cent of carbon dioxide emissions within the (then) 15 Member States,
that is:
35 See European Parliament and Council Regulation EC/2037/00. See also para. 8.3.1.5
above.
36 See Council Regulation EC/2371/02, (2002) OJ L358 59.
37 See Council Regulation EC/856/84, (1984) OJ L90 10; Commission Regulation
EC/1392/01, (2001) OJ L187 19; and Council Regulation EC/1788/03, (2003) OJ L270
123.
38 See para. 8.2.2n above.
39 Green Paper, para. 4.1.
40 Ibid., para. 4.2.
41 Ibid., para. 4.2.
42 Ibid., para. 4.3.
43 Ibid., para. 5.1.
44 Ibid., para. 5.2.
45 Ibid., para. 5.3.
The EU Emissions Trading Directive 517
1 electricity and heat generation;
2 the iron and steel industries;
3 oil refining;
4 the chemical industry;
5 the glass, pottery and building materials (including cement) industries; and
6 the paper and printing industries (including paper pulping).46
The selection of these six sectors, according to one early commentator on the Green
Paper, represented not only a significant limitation on the proposed scheme, but also
showed the potential difficulties of relating it to the UK ETS, then at a relatively
early planning stage. In identifying the six sectors, the Commission had bowed to the
political realities preventing the creation of an upstream scheme which, in embracing
all energy sources, might therefore have covered all economic sectors, including
not only industrial sectors such as transport, but also non-industrial sectors, such as
households. The same commentator also predicted that it was unlikely that electricity
or heat generators would be eligible to participate in the UK scheme, given that the
UK ETS was designed to operate within the structural constraints imposed by the
climate change levy which was, of course, a downstream tax on the final use of
energy by industrial/commercial consumers.47
The Green Paper then turned to the question of the speed at which any scheme
should be introduced and the stages in which the relevant sectors would be covered.
It put forward three possibilities:48
1 a common Community scheme, which would apply from the outset to the same
sectors in all the Member States;
2 a coordinated ‘opt-in’ scheme, agreed on at the outset by Member States, which
Member States might ‘opt-in’ to; and
3 a coordinated ‘opt-out’ scheme, again agreed on at the outset by the Member
States, under which they would agree as to which sectors should in principle
be covered by the scheme but which would leave them free to ‘opt-out’, either
completely or in respect of certain sectors.
The Green Paper emphasised, however, that possibilities 2 and 3 above would be
subject to the condition that sectors not covered by the scheme should be regulated by
other measures ‘that represent at least a similar economic effort in terms of emissions
abatement’.49 Although not developed in detail in the Green Paper, it was expressly
recognised that possibilities 2 and 3 raise complex competition concerns.50
Potentially more contentious even than issues of sector coverage and coordination,
however, were questions of emissions allocation. In para. 7.2 of the Green Paper, the
46 Green Paper, para. 6.1, Table 1.
47 See 302 ENDS Report (2000). In the event, this indeed proved to be the case, electricity
and heat generation being excluded from the UK ETS (see para. 20.4 above).
48 Green Paper, para. 6.2.
49 Ibid., para. 6.2.2.
50 Ibid.
518 Environmental Taxation Law
Commission carefully avoided a categorical statement of the role of the Community
in the allocation of emissions allowances to Member States, preferring instead to
refer generally to the Commission’s role in intervening to safeguard fair competition
and freedom of establishment within the internal market:
However, the need for and nature of such intervention will depend very much upon the
choices that are made. If the Community were to agree on the quantity of the emissions
of the trading sectors in each Member State, possible distortive allocations to individual
sectors or companies would be significantly limited. Hence, existing guidelines for state aid
in the field of the environment would be sufficient to check whether allowances allocated
to companies would respect EC competition law.51
Nonetheless, ‘… lack of agreement on what quantity of emissions should be allocated
to the trading sectors in each Member State will require detailed and tight guidelines
on how allocations are made to individual sectors and companies, and close scrutiny
of every single case’.52
In addition to the contentious and no doubt highly political issues just discussed,
there were also issues of a more technical nature and, in this regard, the Green
Paper emphasised that it was still for clarification as to how technical regulation (for
example, the Large Combustion Plant Directive53 and the IPPC Directive),54 taxation
(for example, the Energy Products Directive)55 and environmental agreements (for
example, those with ACEA, JAMA and KAMA)56 were respectively substitutes for,
or complementary to, an emissions trading scheme.57 Moreover, there were issues
as to compliance and enforcement, both in relation to individual companies and to
Member States.58
On the basis of all of the foregoing, the Green Paper was able to ask the ten questions
referred to above on the design of the scheme. These are worth setting out in full,
since they show the highly purposeful and ‘directed’ nature of the consultation, as
well as highlighting certain issues that tend to recur in discussions of the EU ETS
Directive:
1 as to which sectors should be covered by the scheme (that is, whether it should be tied
into the IPPC regime);59
2 as to whether there should be a common Community scheme;60
51 Green Paper, para. 7.2.1.
52 Ibid., para. 7.2.1.
53 See para. 12.2.6.2 above.
54 See para. 12.2.2 above.
55 See para. 12.3.4 above.
56 See para. 12.2.6.4(2) above.
57 Green Paper, para. 8.
58 Ibid., para. 9.
59 Ibid., Question 1, para. 6.3.
60 Ibid., Question 2, para. 6.3.
The EU Emissions Trading Directive 519
3 as to whether there should be a coordinated ‘opt-in’ or ‘opt-out’ scheme, with regard
to the requirements of the internal market and the potential for complexity in either of
these possibilities;61
4 as to the scope, if any, for Member States to include more sectors in their domestic
trading scheme than might be covered by a Community scheme;62
5 as to whether the overall amount of allowances allocated should be subject to agreement
at Community level;63
6 as to whether the way in which allowances are allocated should be subject to agreement
at Community level or whether detailed guidelines based on existing competition law
would be sufficient;64
7 as to the balance to be struck between sectors involved in the scheme and other
sectors;65
8 as to how the mix of emissions trading, energy taxes and environmental agreements
might be geared towards environmental effectiveness and transparency;66
9 as to whether, given that the scheme would require a robust enforcement regime in
order to be successful, pre-existing Community enforcement mechanisms would be
adequate or whether it would be necessary to develop additional ones;67 and
10 finally, as to whether compliance and enforcement should be harmonised or coordinated
at Community level.68
28.2.3 Developments subsequent to the Green Paper
To the ten specific questions raised in the Green Paper, the Commission subsequently
reported that there had been approximately 100 responses, of which the majority
were ‘overwhelmingly in favour’ of emissions trading.69 Whilst this may well have
been the case, such a statement did not however reveal anything about the shades
of opinion on the ten specific questions thereby raised. That the creation of an EUwide
GHG emissions trading scheme was seen by the Commission and the Council
at least as an imperative was however abundantly clear from the conclusions of its
2334th meeting in Brussels, on 8 March 2001,70 when the Council singled out the
Commission’s work on the Green Paper as being, together with the ECCP, of the
greatest importance.71
61 Ibid., Question 3, para. 6.3.
62 Ibid., Question 4, para. 6.3.
63 Ibid., Question 5, para. 7.4.
64 Ibid., Question 6, para. 7.4.
65 Ibid., Question 7, para. 8.5.
66 Ibid., Question 8, para. 8.5.
67 Ibid., Question 9, para. 9.4.
68 Ibid., Question 10, para. 9.4.
69 See the Explanatory Memorandum to the Proposal for the EU ETS, discussed below, para.
1.1.
70 At which the UK was represented by The Rt Hon. Michael Meacher, MP, (then) Minister
of State for Environment at the (then) DETR (see para. 4.2.1.2(1) above), and Mr Sam
Galbraith, MSP, then Minister for the Environment, Sport and Culture, in the Scottish
Executive (see para. 4.2.2 above).
71 See PRES/01/93, 8 March 2001, available from www.europa.eu.int. See also para. 12.2.6.2
above.
520 Environmental Taxation Law
The Commission adopted its Proposal for the EU ETS Directive72 on 23 October
2001,73 sending it both to the Council and to Parliament, in accordance with the Art.
175 procedure.74 According to the Explanatory Memorandum that formed part of
the Proposal, the latter relied on two central concepts, that is, a GHG ‘permit’, which
would be required by all installations falling within the scope of the proposed scheme,
and GHG ‘a(chǎn)llowances’, denominated in metric tonnes of carbon dioxide equivalent
and which would entitle the holder to emit a corresponding quantity of GHGs.75 The
six sectors listed in the Green Paper became the nine types of installation which were
eventually to be listed in the EU ETS Directive itself.76
Certain features of the Proposal were perhaps rather surprising. For instance, the
indications in the Green Paper77 that the Commission was prepared to consider a
transitional introduction of the EU ETS, with trading not initially being compulsory
for all six sectors were not, however, reflected in the Proposal. The Proposal did,
however, embody a concession in relation to the method of allocating allowances. By
Art. 10 of the Proposal, it was envisaged that, between 1 January 2005, and 1 January
2008, Member States should allocate allowances free of charge, with a harmonised
scheme to apply for the five-year period beginning on 1 January 2008. This was
in response to the criticism made by UNICE and others78 that, to leave allocation
methods in the hands of Member States (albeit subject to the state aid rules)79 would
confer unfair competitive advantages on industries in certain States. Allocating
allowances free of charge, however, would involve grandfathering, that is, basing
allowances for 2005–2007 on past emissions. In order to avoid the possibility that
grandfathering would therefore allow firms to derive windfall gains from selling
surplus credits thus generated, the criteria for national allocation plans contained in
Annex III to the Proposal included the requirement that ‘[q]uantities of allowances
to be allocated shall be consistent with the technological potential of installations to
reduce emissions’. Such national allocation plans were, in any event, subject to the
Commission’s veto.80 The scheme thus envisaged disclosed an important point of
difference with the UK ETS. Given the electronic auction of allowances under the
UK ETS,81 the grandfathering rights in the EU ETS did not arise in relation to the
UK ETS, ‘… especially as regards so-called ‘direct participants’ outside the sectoral
climate change agreements. They presume a depth of knowledge about, and official
72 COM (01) 581 final, (2002) OJ C75E 33.
73 All details of the institutional progress of the Directive are taken from the PreLex database
on www.europa.eu.int/prelex.
74 What follows in this para. traces only the main features of the legislative process. The
process, including, for example, the contributions of ECOSOC and the Committee of the
Regions, can be traced in full at www.europa.eu.int/prelex.
75 See Proposal, para. 1.2.
76 See para. 28.3 below.
77 See Green Paper, para. 6.2.
78 See 321 ENDS Report (2001).
79 As envisaged by Green Paper, para. 7.2 (see above). As to state aids, see para. 12.2.7
above.
80 COM (01) 581 final, Art. 9.
81 See para. 20.2 above.
The EU Emissions Trading Directive 521
second-guessing of, greenhouse gas abatement opportunities across industry which
would erode the attractiveness of trading to both business and governments’.82
Although, following the objections to the Green Paper just discussed, the Proposal
contained a concession on the question of the method of allocation of allowances, it
confirmed the view in para. 4.3 of the Green Paper that the scheme should initially
cover carbon dioxide only, given the perceived difficulties of measuring the other
five GHGs. On this basis, Annex I to the Proposal confined the gases to be subject to
the scheme to carbon dioxide, whilst giving the Commission the opportunity to make
a further proposal by 31 December 2004, for the inclusion of other GHGs.83
Despite the differences with the UK ETS referred to above, in at least one other
area, the Proposal appeared to be consistent with other Community and domestic
regulation, that is, in relation to the criteria for national allowance allocation plans
contained in Annex III to the EU ETS. Criterion 4 in Annex III required national
allocation plans to be consistent with other EC legislative and policy instruments:
In particular, no allowances should be allocated to cover emissions which would be
reduced or eliminated as a consequence of Community legislation on renewable energy in
electricity production, and account should be taken of unavoidable increases in emissions
resulting from new legislative requirements.84
This part of the Proposal was consistent with the national indicative targets, already
discussed in this study, for renewables output in 2010, and which are contained both
in the Renewables Directive85 and in domestic UK law.86
With the Proposal indicating considerable scope for difficulty, it may have seemed
that the omens for an amicable discussion of the Proposal at the 2457th meeting
of the Council in Luxembourg, on 17 October 2002,87 were hardly auspicious.
Denmark, then holding the Presidency of the Council,88 had tabled a compromise
proposal on the Proposal but, given that some Member States said that they were not
yet ready to discuss the details, the discussion became a general debate, with political
agreement on the Proposal being held over until the Council Meeting scheduled for 19
December 2002.89 Following the October 2002 Council Meeting, a number of issues
remained, therefore, including: whether participation in the proposed scheme should
82 321 ENDS Report (2001).
83 COM (01) 581 final, Art. 26(1).
84 Ibid., Annex III, para. 4.
85 See paras 12.2.6.3(1) and 12.2.6.3(2) above.
86 See paras 6.4 and 12.2.6.3(2) above. See also paras 6.4.3.1(2) and 21.5 above, for
Renewable Obligation (or ‘Green’) Certificates (‘ROCs’).
87 See PRES/2002/320, available on PreLex, at www.europa.eu.int/prelex. The UK was
there represented by The Rt Hon. Mrs Margaret Beckett, MP, Secretary of State for
Environment, Food and Rural Affairs and The Rt Hon. Michael Meacher, MP (then)
Minister of State for Environment at Defra (see para. 4.2.1.2(1) above).
88 See Art. 203, European Treaty (ex 146). Since the 2457th Council Meeting concerned
the environment, the President was Mr Hans Christian Schmidt, the Danish Environment
Minister.
89 The account of the proceedings here is taken from 333 ENDS Report (2002).
522 Environmental Taxation Law
be compulsory or voluntary; whether the proposed scheme should be restricted to
the nine types of installation contained in the Proposal; whether allowances should
be grandfathered or auctioned; and whether Member States which were struggling
to meet their targets under the burden-sharing agreement90 should be able to buy-in
credits from emissions reduction schemes carried out in third countries under JI and
CDM.91 The European Parliament had already registered its view on each of these
matters on 10 October 2002, when, at the first reading of the Proposal, it had voted
for 73 amendments to the Proposal, including:
1 allowing Member States to apply to the Commission for the temporary exclusion
of certain installations from the proposed scheme, provided that the installations
thus excluded had satisfied the Commission that their emissions would be
reduced as much as if they had participated in the scheme;92
2 enabling Member States to extend the scheme to additional sectors, activities and
installations;93
3 requiring the auctioning of 15 per cent of allowances for both 2005–2007 and
2008–2012;94 and
4 excluding credits from CDM/JI projects in third countries under the Kyoto
Protocol until 2008.
Only on 4, prior to the October 2002 Council meeting, were Commission and
Parliament agreed. As to the others, Commissioner Wallström expressed the views, in
a speech to a Eurelectric Workshop on 15 October 2002, that voluntary participation
would produce competitive distortions; that the extension of the scope of the scheme
to GHGs other than carbon dioxide would overburden the scheme; and that any
amount of auctioning, however small, would make it even harder for businesses to
accept emissions trading.95 These Commission objections were accordingly reflected
in the amended Proposal adopted by the Commission on 27 November 2002.96
The amended Proposal did not include any provision for voluntary participation,
the Commission insisting on a mandatory scheme as of 2005.97 Neither was there
90 See para. 8.2.2 above.
91 The UK was one of a group of Member States who wanted participation to be voluntary
until the beginning of 2008 (see 333 ENDS Report (2002)). This position no doubt owed
something to the originally voluntary nature of the UK ETS.
92 See (2003) OJ C279E 20 and the Report of the Committee on the Environment, Public
Health and Consumer Policy on the Proposal for a European Parliament and Council
Directive establishing a Scheme for Greenhouse Gas Emission Allowance Trading within
the Community and amending Council Directive 96/61/EC, A5-0303/2002, 13 September
2002, Part 1, p. 32 (the Portuguese MEP, Mr Jorge Moreira da Silva, Rapporteur),
amendment 50 (inserting a new Art. 23a into the Proposal), available on PreLex, at www.
europa.eu.int/prelex.
93 See A5–0303/2002, Part 1, p.15, amendments 16 and 17 (amending Art. 2 of the
Proposal).
94 See 333 ENDS Report (2002).
95 Speech 02/481, 15 October 2002, available from www.europa.eu.int.
96 COM (02) 680 final.
97 Ibid., p. 11.
The EU Emissions Trading Directive 523
any provision for the voluntary and unilateral ‘opt-in’ of additional activities, the
Commission’s argument being that this would distort competition and undermine the
scheme’s environmental integrity.98 Finally, since the Commission was opposed to
any auctioning at all in the period 2005–2008, the allocation of allowances was to be
on a ‘free of charge’ basis.99
Accordingly, on 9 December 2002, the amended Proposal having been transmitted
to the Council and Parliament on 27 November the two institutions reached political
agreement on a common position on the amended Proposal. This was that Parliament
and the Council would provide the Member States with the option of applying to the
Commission for the temporary exclusion of certain installations and activities until
31 December 2007; that Member States would be at liberty to allocate allowances
free of charge in the period 1 January 2005 to 31 December 2007, 90 per cent being
allocated free of charge in the period 1 January 2008 to 31 December 2012; that
Member States would be allowed to grant operators that carry on the same activity
to form a pool, with a trustee having responsibility for managing the allowances on
their behalf;100 and, finally, that penalties of 40 euros would be fixed for the period
1 January 2005 to 31 December 2007 and of 100 euros in the period 1 January
2008 to 31 December 2012, for each tonne of carbon dioxide emitted that exceeded
the allowances granted. Speaking on the same day, Commissioner Wallström was
reported as saying:
This is a landmark decision for the EU’s strategy to fight climate change … It proves that
the EU is taking action on climate change and gets emissions down, and that we do so in
a way that minimises the cost to the economy. The world’s eyes have been upon us to see
whether we will succeed in creating the biggest emissions trading scheme world-wide so
far. We have succeeded. It will help all member States, as well as the EU as a whole, to
reach their Kyoto targets while cutting costs at the same time.101
The result was satisfying to the UK, since it had seen most of its demands met.
In particular, the opt-out would allow it some flexibility in managing its transition
from the UK ETS to the EU ETS.102 How the opt-out criteria were to be met was a
different matter, however, given that the electricity generation and heat generation
sectors were excluded from the UK ETS. However, it was also reported that
Parliament’s Rapporteur for the Directive, the Portuguese MEP, Mr Jorge Moreira da
Silva, was predicting that Parliament was unlikely to agree to the amended proposal
at its second reading. This, of course, gave rise to the possibility that the adoption of
the EU ETS Directive could be delayed as it worked its way through the conciliation
procedure.103 A defeat for the UK, however, was the fact that the Commission
98 COM (02) 680 final, p. 7.
99 Ibid., p. 9.
100 This had been included to accommodate Germany’s concerns as to the preservation of its
sectoral climate change agreements (see 335 ENDS Report (2002)).
101 Press Release IP/02/1832, available from www.europa.eu.int.
102 See 335 ENDS Report (2002). See further para. 28.4 below.
103 See 335 ENDS Report (2002). For the conciliation procedure, see Craig and de Búrca, op.
cit., pp. 80–81 and 148.
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retained its right of veto over national allocation plans, for the deletion of which veto
the UK Minister of State for Environment, The Rt Hon. Michael Meacher, MP, had
previously announced he would be pressing strongly.104
This was how matters stood at the time of the 2494th meeting of the Council in
Brussels, on 17–18 March 2003.105 There, the Council formally adopted a common
position106 on the amended Proposal and, in accordance with the co-decision
procedure, forwarded the common position to Parliament for its second reading. In
its statement of reasons annexed to the common position, the Council stated:
Of the 73 amendments proposed by the European Parliament in first reading, the common
position incorporates 23 (totally, in part or in principle, by means of identical or similar
wording, or in spirit). The Council considers that the common position does not alter
the approach and aims of the original proposal from the Commission and notes that the
Commission also supports the common position as it stands.107
In a Communication of 25 March 2003, the Commission, pursuant to Art. 251(2),
European Treaty (ex 189b), notified Parliament fully of its position.108 Parliament
sought to amend the common position further at the second reading of the
Proposal,109 adopting 17 amendments to the Council’s common position, all of
which the Commission subsequently approved, considering ‘that the principal aims
of the EC emissions trading scheme are safeguarded by the compromise package
that these amendments constitute’.110 Accordingly, the Commission amended
the Proposal pursuant to Art. 250(2), European Treaty (ex 189a(2)), the Council
finally adopting the EU ETS Directive at its 2524th meeting in Brussels on 22 July
2003.111
The EU ETS Directive was ultimately signed off by both Parliament and the Council
on 13 October 2003.
104 See 335 ENDS Report (2002).
105 See PRES/2003/76, available on PreLex, at www.europa.eu.int/prelex. The UK was there
represented by Lord Whitty, Parliamentary Under-Secretary of State, Defra, and Mr Ross
Finnie, MSP, Minister for Environment and Rural Development in the Scottish Executive
(see para. 4.2.2 above).
106 Common Position (EC) No 28/2003 adopted by the Council on 18 March 2003, (2003) OJ
C 125 E 72.
107 Ibid., 89.
108 SEC (03) 364 final.
109 See Recommendation for Second Reading on the Council Common Position for adopting
a European Parliament and Council directive establishing a scheme for greenhouse
gas emission allowance trading within the Community and amending Council Directive
96/61/EC, A5–0207/2003, 12 June 2003 (Mr Jorge Moreira da Silva, Rapporteur).
110 COM (03) 463 final, available from PreLex, at www.europa.eu.int/prelex.
111 See PRES/2003/215, available on PreLex, at www.europa.eu.int/prelex. On this occasion,
the UK was represented by Mrs Margaret Beckett, above, and by Mr Ben Bradshaw, MP,
Parliamentary Secretary, Privy Council Office.
The EU Emissions Trading Directive 525
28.3 Provisions of the EU ETS Directive
The installations and the single GHG to which the Directive currently applies are
set out in Annex I thereto. Annex I draws within the scope of the EU ETS Directive
emissions of carbon dioxide only from each of the following:112
Energy activities
Combustion installations with a rated thermal input exceeding 20 MW (except hazardous
or municipal waste installations)
Mineral oil refineries
Coke ovens
Production and processing of ferrous metals
Metal ore (including sulphide ore) roasting or sintering installations
Installations for the production of pig iron or steel (primary or secondary fusion) including
continuous casting, with a capacity exceeding 2.5 tonnes per hour
Mineral industry
Installations for the production of cement clinker in rotary kilns with a
production capacity exceeding 500 tonnes per day or lime in rotary kilns with a production
capacity exceeding 50 tonnes per day or in other furnaces with a production capacity
exceeding 50 tonnes per day
Installations for the manufacture of glass including glass fibre with a melting capacity
exceeding 20 tonnes per day
Installations for the manufacture of ceramic products by firing, in particular roofing
tiles, bricks, refractory bricks, tiles, stoneware or porcelain, with a production capacity
exceeding 75 tonnes per day, and/or with a kiln capacity exceeding 4m3 and with a setting
density per kiln exceeding 300 kg/m3
Other activities
Industrial plants for the production of
(a) pulp from timber or other fibrous materials
(b) paper and board with a production capacity exceeding 20 tonnes per day
The list in Annex I is worth setting out in full in this way, since it is identical to
that set out in Annex I to the original Proposal for the EU ETS Directive of
October 2001,113 and that has so far been alluded to only briefly in this discussion.
Furthermore, although Annex II contains the full list of GHGs contained in Annex A
to the Kyoto Protocol,114 there is provision for the Commission to make a proposal
to Parliament and the Council by 31 December 2004, to amend Annex I to include
other activities and emissions of other GHGs listed in Annex II.115 Although, as
mentioned above, Parliament had wanted to include a provision for Member States
112 See Henry van Geen, ‘Emission Allowance Trading in the EU’, [2003] 1 IELTR 299–
305.
113 See para. 28.2.3 above.
114 See para. 8.3.1.4 above.
115 Directive 03/87/EC, Art. 30(1).
526 Environmental Taxation Law
to be entitled to extend the scheme, its temporary confinement to carbon dioxide
reflects the Commission’s fears about ‘overburdening’ it. The amendment to the
Commission’s proposal agreed on 9 December 2002, which allows Member States
to apply for the temporary exclusion of certain installations from the EU ETS until
31 December 2007, appears as Art. 27.
Article 4 of the Directive requires Member States to ensure that, from 1 January
2005, in any case where the operator of an installation carries on any of the activities
mentioned above and the activity results in the emissions specified, then that operator
must hold a permit duly issued by a competent authority.116 By Art. 6(2) of the
Directive, in addition to certain administrative details, such GHG emissions permits
must contain:
an obligation to surrender allowances equal to the total emissions of the installation in each
calendar year, as verified in accordance with Article 15,117 within four months following
the end of that year.118
For the three-year period beginning on 1 January 2005 (‘the first phase’), as well as
the five-year period beginning on 1 January 2008 and each five-year period thereafter
(‘the second and subsequent phases’), each Member State must develop a national
plan, setting out the total quantity of allowances that it intends to allocate for that
phase and how it proposes to allocate them.119 By Art. 9(1) of the Directive, the
criteria for the allocation, on which the plan is based, must include those set out in
Annex III to the Directive and, by Art. 9(3), the Commission (who must be notified
of the plan) may (with reasons) accept or reject the plan.
For the first phase, each Member State must decide on the total quantity of
allowances to be allocated for that phase and the allocation of those allowances to
the operator of each installation.120 For the second and subsequent phases, each
Member State must decide on the total quantity of allowances it will allocate for that
phase and begin the process for the allocation of those allowances to the operator of
each installation.121 Each of these allocation rounds must take place within certain
time periods, must be based on the national allocation plan of the Member State
in question and must take due account of comments from the public.122 Allocation
decisions must also take account of the provisions of the European Treaty, especially
116 Applications, conditions for and contents of, GHG emissions permits are covered in
Directive 03/87/EC, Arts 5 and 6. Article 8, Directive 03/87/EC, requires Member States to
take the measures necessary to ensure that the conditions for the issue of a GHG emissions
permit are coordinated with those for the issue of a permit under the IPPC Directive; the
requirements for the issue of a GHG emissions permit under Directive 03/87/EC may be
integrated with those applicable under the IPPC Directive (see para. 12.2.2 above).
117 See below in this para.
118 Directive 03/87/EC, Art. 6(2)(e).
119 Ibid., Art. 9(1).
120 Ibid., Art. 11(1).
121 Ibid., Art. 11(2).
122 Ibid., Arts 11(1) and 11(2).
123 See para. 12.2.7.1 above.
The EU Emissions Trading Directive 527
those on state aids,123 as well as of the need to provide access to allowances for
new entrants.124 For the first phase, at least 95 per cent of the allowances must be
allocated free of charge and; in the subsequent phase, at least 90 per cent of the
allowances must also be allocated free of charge.125 The scope thus embodied in the
Directive for at least some auctioning of allowances in the period 2005–2007 was
part of the final compromise struck between Parliament and the Commission in July
2003.126
Article 12 of the Directive deals with the transfer, surrender and cancellation of
allowances. Four distinct obligations are placed on Member States. First, Member
States must ensure that allowances can be transferred, not only between persons
within the Community, but also, subject to the provisions of Art. 25,127 between
persons within the Community and persons in third countries.128 Secondly, Member
States must ensure that, no later than 30 April each year:
… the operator of each installation surrenders a number of allowances equal to the total
emissions from that installation during the preceding calendar year as verified in accordance
with Article 15, and that these are subsequently cancelled.129
Thirdly, Member States must make sure that, for the purposes of meeting the
operator’s obligation to surrender allowances, allowances issued by a competent
authority of another Member State are duly recognised.130 Finally, Member States
must take the necessary steps to ensure that allowances will be cancelled at any time
at the request of the person holding them.131
Other Articles provide for the adoption of guidelines for the monitoring and reporting
of emissions;132 the adoption of rules for the imposition of penalties for breach of the
national provisions adopted pursuant to the Directive;133 access to decisions relating
to matters such as the allocation of allowances;134 the designation of the competent
authority and registry for accounting for the issue, holding, transfer and cancellation
of allowances;135 the designation of a central administrator;136 and for reporting
by Member States.137 Rules on the imposition of penalties are contained in Art. 16,
124 Ibid., Art. 11(3).
125 Ibid., Art. 10.
126 COM 903, 463 final. See para. 28.2.3 above.
127 See below.
128 Directive 03/87/EC, Art. 12(1).
129 Ibid., Art. 12(3).
130 Ibid., Art. 12(2).
131 Ibid., Art. 12(4).
132 Ibid., Art. 14. Such guidelines are to be based on the principles for monitoring and
reporting set out in Annex IV to the Directive.
133 Ibid., Art. 16.
134 Ibid., Art. 17.
135 Ibid., Arts 18 and 19.
136 Ibid., Art. 20.
137 Ibid., Art. 21.
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which provides both for the imposition of ‘effective, proportionate and dissuasive’
penalties138 and for the naming and shaming of operators who are in breach of their
obligation to surrender sufficient allowances under Art. 12.139 In particular, by Art.
16(3):
Member States shall ensure that any operator who does not surrender sufficient allowances by
30 April of each year to cover its emissions during the preceding year shall be held liable for
the payment of an excess emissions penalty. The excess emissions penalty shall be EUR 100
for each tonne of carbon dioxide equivalent emitted by that installation for which the operator
has not surrendered allowances. Payment of the excess emissions penalty shall not release
the operator from the obligation to surrender an amount of allowances equal to those excess
emissions when surrendering allowances in relation to the following calendar year.140
The amendments to the IPPC Directive necessitated by the EU ETS Directive are
contained in Art. 26. These consist of the addition to Art. 9(3) of the IPPC Directive141
of four further sub-paragraphs. Article 9(3) relates to the inclusion in permits of
emission limit values based on the BATs for certain pollutants. The main addition
to Art. 9(3), provided for by Art. 26, is that, where emissions of a GHG from an
installation are specified in Annex I to the Directive,142 in relation to an activity
carried out in that installation, ‘the permit shall not include an emission limit value
for direct emissions of that gas unless it is necessary to ensure that no significant
local pollution is caused’.143 The amendment to the IPPC Directive contained in
Art. 26 has been included in anticipation of gases other than carbon dioxide being
included within the scope of the EU ETS Directive,144 in which event IPPC permits
will not generally contain a limit value for any such additional gas or gases.
Article 15 of the Directive provides that, when emissions are reported, they are
to be verified in accordance with the criteria specified in Annex V to the Directive.
Furthermore, in the absence of such verification by 31 March in each year, for
emissions during the preceding year, the operator in question may not make any
further transfers of allowances.
The pooling of installations, as required by Germany especially,145 is provided for
by Art. 28 of the Directive.
Finally, Art. 25 of the Directive provides for the linking of the EU ETS to other
GHG emissions trading schemes. Article 25(1) states that agreements should
be concluded with third countries146 to provide for the mutual recognition of
138 Ibid., Art. 16(1).
139 See above in this para.
140 But note that a lower penalty of EUR 40 will be applicable in the initial period referred to
above (that is, the three years beginning with 1 January 2005).
141 See para. 12.2.2 above.
142 See above in this para.
143 Directive 03/87/EC, Art. 26.
144 Ibid., Art. 30(1).
145 See para. 28.2.3n above.
146 That is, as listed in Annex B to the Kyoto Protocol, such third countries having ratified the
Protocol (see para. 8.3.1.4 above).
The EU Emissions Trading Directive 529
allowances under other GHG emissions trading schemes. At the time of writing,
some progress has been made with regard to such linking, a Proposal for a Directive
of the European Parliament and of the Council, amending the EU ETS, in respect of
the Kyoto Protocol’s flexible mechanisms, having been adopted by the Commission
in July 2003 under Art. 175, European Treaty (ex 130s).147 This has reached the
stage of being discussed by the Council at its 2556th meeting in Brussels on 22
December 2003.148 Whilst the Commission has argued that the Proposal for the
linking Directive will have economic benefits, environmental groups contend that it
will have the effect of flooding the market with cheap credits from schemes having
little or no environmental integrity.149
28.4 Transposition of the EU ETS Directive into UK law
Article 31 of the Directive requires Member States to bring into force the measures
necessary to comply with the Directive no later than 31 December 2003.150
Characteristically, the UK has sought to comply with its Treaty obligations with an
exhaustive 67-page piece of secondary legislation,151 the Greenhouse Gas Emissions
Trading Scheme Regulations 2003,152 which came into force on 31 December
2003.153
The basis for Regulations is the European Communities Act 1972, s.2(2), which
allows any designated Minister or Department154 to make provision for the purpose
of implementing any Community obligation of the UK.155 This is without, at this
stage, an RIA having been conducted and less than three months after the publication
of the EU ETS Directive in the Official Journal.
The purpose of the Regulations is, of course, to transcribe the EU ETS Directive
into UK law. Although, the Regulations apply to the UK as a whole, provision is
made in reg. 2 for the Scottish Ministers, the Department of the Environment in
Northern Ireland and the National Assembly for Wales156 to act as the ‘a(chǎn)ppropriate
authority’ for their respective Principalities. As regards England and any of its offshore
147 COM (03) 403 final, available on PreLex, at www.europa.eu.int/prelex.
148 See PRES/2003/376, available from www.europa.eu.int.
149 See 343 ENDS Report (2003).
150 The issues surrounding implementation of the Directive are discussed in detail in Fiona
Mullins and Jacqueline Karas, EU Emissions Trading: Challenges and Implications of
National Implementation (London: Royal Institute of International Affairs, November
2003).
151 A bulk which illustrative of a characteristically British activity, known as ‘gold-plating’
(see Moules, Financial Times, 3 January 2004, p. 3).
152 S.I. 2003 No. 3311.
153 Ibid., reg. 1.
154 In this case, The Rt Hon. Elliot Morley, MP, Minister of State for Environment, being a
minister designated for the purpose of s.2(2), European Communities Act 1972, in relation
to air pollution.
155 The Regulations were made on 18 December 2003.
156 See para. 4.2.2 above.
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installations, ,the appropriate authority is the Secretary of State for Environment,
Food and Rural Affairs.157
Schedule 1 to the Regulations specifies the installations158 and activities covered
by the Regulations by transcribing, with only slight adjustments, the table in Annex
I to the EU ETS Directive.159 Excluded from the scope of the Regulations, as
also from the Directive itself, are installations used for research, development and
testing of new products and processes.160 Even so, in the UK, the total number of
installations expected to be subject to the scheme has been estimated at between
1,500 and 2,000.161 Regulation 11 contains the provision allowing operators of
installations to apply to the responsible authority162 for temporary exclusion of an
installation from the scheme, as provided for by Art. 27(2) of the Directive. The
announcement in the 2003 Pre-Budget Report that firms within sectoral climate
change agreements (that is, umbrella agreements)163 will retain their climate
change levy discount if they opt into the EU ETS should minimise the number of
opt-outs under Regulation 11.164 Nevertheless, one of the big differences between
the UK ETS and the EU ETS is the inclusion in the latter of the heat generation and
electricity generation sectors.
The Regulations themselves are divided into three substantive parts, dealing
respectively with the granting, transfer and revocation of GHG Emissions Permits;165
the allocation and issue of allowances;166 and the monitoring and enforcement
of compliance.167 There are then six other Parts, dealing with matters such as:
interpretation and commencement of the Regulations; appeals; information; offences
and civil penalties; the powers of the appropriate authorities in respect to regulators,
etc.; and consequential amendments to other legislation.168 The regulator of the EU
ETS in relation to installations located in England and Wales will be the Environment
Agency.169
157 See para. 4.2.1.2(1) above.
158 See S.I. 2003 No. 3311, Sched. 1 and reg. 2(1).
159 See para. 28.3 above, where this is set out in full.
160 Directive 03/87/EC, Annex I, para. 1; S.I. 2003 No. 3311, Sched. 1, Part 2, para. 2.
161 See 347 ENDS Report (2003). The same source gives a figure of 17,000 for the number
of installations to be in subject to the Directive in both pre-2004 and post-2004 Member
States.
162 Which is not necessarily the same as the ‘a(chǎn)ppropriate authority’ relevant to other regs (see
S.I. 2003 No. 3311, reg. 11(7)).
163 See para. 14.6 above.
164 See HM Treasury PN3, Protecting and Improving the Environment, 10 December 2003.
See also 347 ENDS Report (2003).
165 S.I. 2003 No. 3311, Part 2.
166 Ibid., Part 3.
167 Ibid., Part 4.
168 Ibid., Parts 1 and 5–9.
169 Ibid., reg. 2(1). See para. 4.2.1.3 above. In relation to installations located in Scotland,
the regulator is SEPA and in relation to those located in Northern Ireland, it is the chief
inspector duly constituted under the Pollution Prevention and Control Regulations
(Northern Ireland) 2003, S.R. (N.I.) 2003 No. 46.
The EU Emissions Trading Directive 531
Part 2 of the Regulations deals with the matters covered by Arts 4–8 and 12 of
the EU ETS Directive,170 that is, applications for GHG Emissions Permits,171 the
conditions which must be included therein,172 their variation,173 their transfer174 and
their revocation.175 There is a slight difference of terminology between the Directive
and the Regulations, however, in that, whilst Art. 12 of the former refers to the
transfer of ‘a(chǎn)llowances’ between persons in the Community, etc., reg. 14 of the latter
refers to the transfer of GHG Emission Permits between operators of installations.
By reg. 10 of the Regulations, GHG Emissions Permits must contain, among other
matters, such conditions as the regulator considers appropriate ‘… to ensure that the
operator surrenders allowances equal to the annual reportable emissions from the
installation within four months of the end of the scheme year176 during which those
emissions arose’.177
The allocation and issue of allowances is, as mentioned above, covered by Part
3 of the Regulations. Regulation 18 provides for the Secretary of State to develop
a national allocation plan, in accordance with Arts 9(1) and 10 of, and Annex III
to, the Directive, for the first phase (2005–2007) and for the second (2008–2012)
and subsequent phases.178 The Secretary of State is empowered to decide on three
matters, that is, ‘(1) the total quantity of allowances to be allocated for the phase in
question; (2) the allocation of allowances to each installation’, including the number
of those allowances to be issued in each scheme year in that phase; and (3), where
there is more than one GHG Emissions Permit relating to an installation, the division
of the allowances allocated to that installation under (2).179 The final allocation
decision for the first phase must be made by 1 October 2004.180 The power to make
this final allocation decision may, in relation to installations situated within the
Principalities, only be reached by agreement with the devolved administrations.181
However, there is a power for the Secretary of State to act in default of agreement,
where this is necessary to ensure that the UK complies with its obligations under
the Directive.182 The Secretary of State published her draft national allocation plan
on 19 January 2004, based on a reduction in carbon dioxide emissions of 20 per
cent on 1990 levels by 2010, and requesting responses both to the draft plan and
to other important aspects of the EU ETS, by 12 March 2004.183 The reason for
170 See para. 28.3 above.
171 S.I. 2003 No. 3311, reg. 8.
172 Ibid., reg. 10.
173 Ibid., reg. 13.
174 Ibid., reg. 14.
175 Ibid., reg. 16.
176 That is, a year beginning with 1 January in the first, second or subsequent phases of the
scheme (see S.I. 2003 No. 3311, reg. 2(1)).
177 See Directive 03/87/EC, Art. 12(3).
178 See para. 28.3 above.
179 S.I. 2003 No. 3311, reg. 19.
180 Ibid., reg. 19(3)(a).
181 Ibid., reg. 19(15)(a).
182 Ibid., reg. 19(16) and 19(17).
183 The consultation documentation is available from www.defra.gov.uk.
532 Environmental Taxation Law
the truncated consultation period is that, according to Art. 9(1) of the Directive, the
national allocation plan must be ‘published and notified to the Commission and to the
other Member States by 31 March 2004 at the latest’. Such a period is, of course, far
too short for a measure of such complexity as the allocation of allowances under the
Directive,184 even allowing for Defra’s two-stage consultancy project on allocation
methodologies conducted in summer 2003.185
The registry required to be set up by Art. 19 of the Directive186 is provided for by
reg. 20 of the Regulations and reg. 21 allows one or more operators of installations
to make a joint application to the appropriate authority to form a pool187 for either or
both of the first or second phases of the scheme.
Regulations 22 to 25 make up the final substantive Part of the Regulations, Part
4, on the monitoring and enforcement of compliance. The basic rule, which is
contained in reg. 22, is that, where a GHG Emissions Permit is in force, the regulator
has the duty of taking such action under the Regulations ‘a(chǎn)s may be necessary to
ensure that the monitoring and reporting conditions are complied with’. In addition
to powers to determine the reportable emissions188 from an installation189 and to
serve enforcement notices in respect of likely or actual contravention of monitoring
and reporting conditions,190 the Secretary of State has power to authorise suitable
persons in writing to enter offshore installations191 to check for compliance.192
A number of issues not discussed above, such as the tax treatment of the EU ETS
mechanisms for corporation tax and VAT purposes, remain under discussion.193
28.5 Developments since transposition of the EU ETS Directive
By the spring of 2004, however, progress across the EU was somewhat behind
schedule. Only five Member States met the 31 March deadline for notifying their
allocation plans to the Commission.194 Surprisingly, perhaps, the UK was not among
184 Cold comfort may, however, have been afforded to interested parties by the holding of a
Defra-DTI-Devolved Administrations seminar on the consultation on 28 January 2004, at
the National Exhibition Centre, Birmingham! (See Defra News Release, UK Announces
Consultation on Draft National Allocation Plan for the EU Emissions Trading Scheme,
19 January 2003 [sic].)
185 See 341 ENDS Report (2003).
186 See para. 28.3 above.
187 Ibid.
188 Defined in S.I. 2003 No. 3311, reg. 2(1).
189 Ibid., reg. 24.
190 Ibid., reg. 23.
191 Ibid., reg. 2(1).
192 The powers are framed by reference to the Offshore Combustion Installations (Prevention
and Control of Pollution) Regulations 2001, S.I. 2001 No. 1091.
193 Mullins and Karas, op. cit., p. 27. See para. 24.7 above.
194 Luxembourg and the Netherlands had filed in April 2004. By contrast, Latvia and Slovenia,
two of the ten new Member States who joined the EU on 1 May 2004 (who had to file by
30 April), had already done so (see Minder, Financial Times, 20 April 2004, p. 10).
The EU Emissions Trading Directive 533
them, the DTI having estimated that emissions allocations would result in electricity
price rises of 3 per cent for domestic consumers and 6 per cent for industrial
ones.195 Spain had also failed to file, being on the verge of an unexpected change of
Government following the tragedy of the Madrid railway bombings. Spain was at
that time, in any event, over target in emissions by 17 per cent and there was a deep
division between generators as to the pros and cons of adopting either historical or
current generating mixes as the basis of allocation.196 Although Germany had filed
in time, after a major political row within the governing coalition, its plan appeared
to permit the older lignite-based plants to continue operating.197 Indeed, there was
some disquiet among commentators and governments at the plans which had been
filed by the deadline. As one commentator said:
Those that have published allocation plans have, mostly, erred on the side of leniency
– so lenient that it is by no means impossible that the Commission will reject them out of
hand.198
This cautionary note was echoed in a Joint Statement issued by Mrs Margaret Beckett,
the Secretary of State for the Environment, Food and Rural Affairs,199 and Sir Digby
Jones, Director-General of the CBI,200 on 9 June 2004, following the UK’s own late
filing of its plan:
At stake is the credibility of emissions trading as a mechanism for engaging other key
countries, including the United States. The UK national plan, recently submitted to
Brussels, involves real effort by business that will help ensure that we not only meet our
Kyoto target, but go beyond it.
Many other EU countries face a stiffer challenge simply to meet their Kyoto targets. The
Commission must see to it that their plans at the very least deliver on these commitments.
British business sees it as vital that they are operating on level ground.
The European Commission has an important job to do. The British Government and
British business will be watching to make sure it does the job properly.201
The UK’s final filing, in October 2004, revealed an increase of 7.6 per cent in the
number of installations covered, but less than 3 per cent in the number of allowances.202
195 The UK’s late filing was, however, accepted by the Commission on 7 July 2004:
IP/04/862. Those from Austria, Denmark, Eire, Germany, the Netherlands, Slovenia and
Sweden were accepted on the same date. In the case of three countries, including the UK,
approval was conditional upon the making of technical changes. In the case of Austria and
Germany, this included the abandonment of an automatic reallocation mechanism and, in
the case of the UK, the provision of adequate information on how new entrants would be
able to participate.
196 Lex, Financial Times, 19 April 2004, p. 20.
197 Ibid.
198 Ibid.
199 See para. 4.2.1.2(1) above.
200 See para. 2.2n above.
201 See www.defra.gov.uk.
202 Mrs Margaret Beckett, HC, 27 October 2004, col. 49WS.
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But this did not deal with the allocation of that total between individual installations,
a task the DTI was to complete in early 2005. This was the cause of some concern to
British industry.203
On 7 December 2004, Mrs Beckett indicated that the government’s 2010 emissions
target was unlikely to be met.204 The following day, Defra launched Consultation
on the Review of the UK Climate Change Programme,205 which revealed that the
progress which had been made since 1990 had been mainly due to energy supply
industry restructuring.206
28.6 Concluding observations
The EU ETS will surely prove to be of decisive importance for the future of the
flexible mechanisms for the mitigation of climate change in the Kyoto Protocol. If
it is seen to be successful, it may yet be of crucial importance in persuading those
countries who have not yet done so to ratify the Kyoto Protocol. The vigour with
which the EU ETS project has been pursued at the European level is no doubt greatly
attributable to the vision and drive of the Environment Commissioner at that time,
Mrs Margot Wallström, but, given the dramatically foreshortened timetable for the
introduction of the EU ETS by 1 January 2005, it seems unlikely that such qualities,
even if replicated in the relevant government ministers of the Member States, will be
enough to ensure the smooth introduction of the EU ETS across Europe.207
The authors feel that it is appropriate to end this chapter by putting on record that,
in early December 2004, it was understood that some Member States had still not yet
filed their allocations with the Commission!
203 Harvey and Eaglesham, Financial Times, 27 October 2004, p. 2; Harvey, Financial Times,
29 October 2004, p. 5.
204 Eaglesham and Harvey, Financial Times, 8 December 2004, p. 4.
205 www.defra.gov.uk.
206 Para. 3.2. See paras. 2.4.1 and 6.4.3.1 above.
207 Trading in such permits through investment banks had, however, been taking place for
some months: Harvey, Financial Times, 11 October 2004, p. 5.
PART V
PROVISIONAL ASSESSMENT
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Chapter 29
The Current State of Play
29.1 The problem of measuring success
It will have been seen that the system of environmental taxation in the UK is to
a large extent still in its exploratory stages. And major parts of it may need to be
reformulated in the context of experience with the EU ETS. But this development
should not obscure the fact that environmental taxation has had one spectacular
success during the 1990s, namely as a carrot to both the private and business motorist
to switch to more environmentally friendly fuels.1 It is therefore appropriate to
choose HM Customs and Excise as the source of what environmental taxation is
all about:
Environmental taxation must, however, meet the general tests of good taxation. It must be
well designed, to meet objectives without undesirable side-effects; it must keep compliance
costs down to a minimum; distributional impact, including regional impact and effects on
social inclusion, must be acceptable; and care must be had to the implications for the
international competitiveness of UK business.2
29.2 How do the UK taxes measure up to this standard?
It is therefore appropriate, not least in the context of the government need to find
additional sources of revenue,3 to ask whether the other environmental taxes under
Customs’ care measure up to this standard:
1 One cannot other than start by saying that it is difficult to envisage taxes which
are more anti-UK business than aggregates levy or levies on fertilisers and
pesticides.
• One of the objectives of aggregates levy is to preserve virgin sources, and yet
the tax is rebated if extracted aggregate is exported.4
1 See Chapter 22 above. But note the doubts expressed as to the likely effectiveness of the
proposed degree of relief for bioethanol during the Committee Stage of Finance Bill 2004
(see para. 22.3n above).
2 Hydrocarbon Oil Duty: Consultation on Duty Friendly Differentials for More
Environmentally Friendly Rebated Oils (9 July 2003), para. 4. 5.
3 Giles and Houlder, Financial Times, 29 October 2003, p. 3.
4 See paras 8.4.5.1 and 21.10 above.
538 Environmental Taxation Law
• It has been admitted that a levy on nitrogenous fertiliser would harm British
farmers unless measures taken by other Member States restored their
competitive price position.5
• It is also clear from official research that the imposition of a pesticides levy
would undermine English apple growers.6
2 It would be difficult to design a tax which is more complicated, or difficult to
reconcile with environmental objectives, than climate change levy.7 In The State
of the Nation 2004,8 the Institution of Civil Engineers described the background
against which this tax has to operate:
• the reduction in coal generation from 35 per cent in 2004 to 17 per cent in
2010 being central to the attainment of the UK Government’s target of a 20
per cent reduction in CO2 emissions by the latter date; and
• with nuclear reducing from 22 per cent to 17 per cent over the same period;
and
• with no realistic savings having been made in commercial and domestic
heating and transport emissions; and
• a prospective reliance on gas for 60 per cent by 2010; when
• North Sea gas reserves will be reaching exhaustion, necessitating the
expansion of imported gas storage facilities;9 with
• renewables, energy efficiency and CHP intended to fill the gap against the
background of increasing prices; but
• wind farm development hindered by planning delays and Defence Ministry
objections; coupled with
• a need to extend the National Grid to link in sources of renewable energy.
Furthermore, the House of Commons’ Environmental Audit Committee, in its
Tenth Report of Session 2003–04, Budget 2004 and Energy, published on 11
August 2004,10 drew attention to the fact that domestic carbon emissions was
one of the two sectors (the other being transport) in which movement had been
in the wrong direction.
5 See para. 21.9 above.
6 Ibid.
7 The reason is, of course, the policy constraint indicated in para. 21.4.2 above. In this
context, it has to be said that the debates on the House of Lords’ amendments to the
Energy Bill in the House of Commons’ Standing Committee B on 20 May and 8 June
2004 can only be seen as indicative of a reluctance on the part of the UK Government
machine to be tied down to a realistic Parliamentary Kyoto progress control mechanism
which would satisfy not only the main Opposition parties but also its own backbenchers.
8 Published on 15 June 2004: available from www.ice.org.uk.
9 This issue was gone into by the House of Lords European Union Committee’s 17th Report
of Session 2003–04, Gas: Liberalised Markets and Security of Supply, HL 105, published
24 June 2004. Interestingly, the Committee’s most serious concern was the possibility of
winter peak demand not being met in the shorter term (ibid., para. 112).
10 HC 490.
The Current State of Play 539
• A ‘carbon gap’ between the savings expected from the government’s Climate
Change Programme and the target to reduce carbon emissions by 20 per cent
by 2010 had been identified by the Carbon Trust,11 with:
° difficulty in addressing energy efficiency against baseline forecasts
which turn out to be inaccurate;12 and
° the Action Plan which did not address how to achieve this in relation to
building procurement.13
• In the narrower field of domestic energy efficiency – where because of the 5
per cent VAT rate and exemption from climate change levy, the only means
of fiscal incentivisation available has to take the form of tax concessions on
the necessary capital expenditure:
° the Committee were not convinced that the income tax14 and VAT15
concessions in the 2004 Budget would have any significant impact and
expressed disappointment that a consultation which had taken place over
two years had failed to come up with something more significant;16 and
° noted,17 and (in the context of the Energy Efficiency Commitment)
shared,18 the concern of the Energy Saving Trust over the degree of
commitment to achieve the 70 per cent savings expected by the EU from
cavity wall insulation, requiring 4.5m installations.
3 With the exception of Lloyd George’s Constitution-shattering 1910 land tax19
and the various attempts to tax development value,20 it would be difficult to
name a tax which had been more ineffective in achieving its objective (recycling)
than landfill tax.21
Between 1996/97 and 2002/03, municipal waste in England grew by 19.2 per
cent. Although, within the context of that difference:
• the proportion being disposed of as landfill fell from 84 per cent to 75 per
cent;
11 Ibid., para. 54.
12 Ibid., para. 56.
13 Ibid., para. 57.
14 See para. 24.6 above.
15 See para. 21.3.1 above.
16 HC 490, para. 63.
17 Ibid., para. 65.
18 Ibid., para. 66.
19 Finance (1909–10) Act 1910, ss.1–42, which included a mineral rights duty (ibid., ss.20–
24).
20 That is, its nationalisation under Town and Country Planning Act 1947, Land Commission
Act 1967, Finance Act 1974 (development gains tax) and Development Land Tax Act
1976. See also para. 27.2 above as to possible variants under current consideration.
21 See, especially, para. 21.3.2 above.
540 Environmental Taxation Law
• the proportion being incinerated with the production of electricity from waste
rose from 6 per cent to 9 per cent; and
• disposal by recycling or composting rose from 7 per cent to 16 per cent;
there was still an increase of 6.49 per cent in the amount sent to landfill.
In The State of the Nation 2004,22 the Institution of Civil Engineers highlighted
the following:
• the growing waste generation problem ‘is not going to go away’;
• nobody accepting responsibility for coordinating the management of
hazardous waste disposal, for which restrictions were one month off coming
into force; and with
• non-domestic waste exceeding domestic;
• a serious risk of increased fly-tipping;
• the hostile attitude of the public towards planning applications for the
necessary new facilities, at a time when commissioning takes five years and
the first EU target for landfill reduction only six years away; and
• between 1,500 and 2,300 new facilities required by 2020.
4 Air passenger duty, although held out as an environmental tax, not only is
not,23 but seems to have had no effect on the increase in civil aviation, where
international treaties prevent effective taxation being imposed.24 Furthermore, it
is instructive to note, in this context, that:
• the DFT’s rejection25 of the House of Commons’ Environmental Audit
Committee’s Report26 on The Future of Air Transport White Paper was itself
criticised by the Committee27 as ‘poor and not of the standard we would
normally expect’,28 leading to the conclusion that the government’s aviation
policy ‘remains the most glaring example of the failure of government to put
sustainable development at the heart of policy making’;29 and
• in The State of the Nation 2004,30 the Institution of Civil Engineers
commented that, in the long term, uncontrolled growth of air travel could
not be sustained without the installation of additional surface transport
facilities.
5 The House of Commons’ Environmental Audit Committee, in its Tenth Report
of Session 2003–04, Budget 2004 and Energy, published on 11 August 2004,
22 Published on 15 June 2004: www.ice.org.uk.
23 See para. 1.2.1.5(2) above.
24 See paras. 8.5 and 27.5 above.
25 That is, in May 2004.
26 See para. 27.5 above.
27 On 7 June 2004.
28 HC 623, Conclusions and Recommendations, paras. 1, 7.
29 Ibid., para. 30.
30 Published on 15 June 2004: www.ice.org.uk.
The Current State of Play 541
highlighted the fact that carbon emissions from transport were moving in the
wrong direction.31 It represented one of the most serious problems being faced.32
The following concerns were expressed by the Committee:
• that the voluntary agreement with European car-makers might not deliver the
anticipated emissions reductions;33
• the attempt to set additional targets for low carbon vehicles in 2010 and 2020
had not been particularly helpful; and
• there had been insufficient government support for, or coordination between,
the various bodies involved in dispensing capital grants and investment
subsidies;34
• while the introduction of the Alternative Fuels Framework35 was welcomed,
major choices needed to be made and long-term investment in alternative
fuels would only come from a longer-term strategy than that provided by
this;36
• the fuel duty rises (which, for political reasons,37 had been put on hold
following the summer 2004 surge in international oil prices) should be
implemented ‘a(chǎn)t the earliest opportunity’;38
• disappointment was expressed at the failure of the DFT’s White Paper, Future
of Transport, to tackle the emissions issue, since the introduction of national
road charging would take between ten and 15 years;39 and
• furthermore, such an instrument would be far more ‘blunt’ than the current
system under which it was possible to promote a shift40 to low carbon
vehicles through the use of differentials in the fuel duty and VED systems;41
although
• according to the government’s own evaluation, the current VED differentials
were insufficient to promote behavioural change.42
The most serious criticisms of the Environmental Audit Committee were,
however:
31 Ibid., para. 25.
32 Ibid., para. 45.
33 Ibid., para. 29.
34 Ibid., para. 33.
35 See para. 22.2 above.
36 www.ice.org.uk, para. 40.
37 Ibid., para. 44.
38 Ibid., para. 45.
39 Ibid., para. 46.
40 Surprise was expressed, however, that the responsible minister did not appear to accept
that one of the main objectives of the VED changes had been to influence buying decisions
(ibid., para. 51).
41 Ibid., para. 46. It was also noted that the company car tax scheme afforded additional
potential in this respect (ibid., para. 47).
42 Ibid., para. 51.
542 Environmental Taxation Law
• the absence of reliable data making assessment of the impact of the various
measures and initiatives taken difficult to assess;43 and
• concern that the reviews to be undertaken by HM Treasury might fail to
exploit opportunities for more imaginative policy initiatives which might
deliver:
° step changes; rather than
° steady incremental progress.44
29.3 Success stories
However, on the positive side, there is evidence that two minor tax changes are
having a material environmental impact, that is,45 against most forecasts,46 the
Central London congestion charge;47 and, according to initial official research,48 the
revised company car (employee benefits) code.49
29.4 Comparing 1997 with 2004
One closing observation has, however, to be made.
Despite the Statement of Intent on Environmental Taxation published as a Annex
to a Press Release on the occasion of its first Budget in July 1997, that the new
government would ‘over time … reform the tax system to increase incentives to
reduce environmental damage’, New Labour’s approach to environmental taxation
has been distinctly strange.
While there are clearly some fiscal objectives, not least in the original objective of
relieving general business costs through reductions in employers’ national insurance
contributions, an environmental objective was said to be behind each of the taxes
introduced or amended under the Blair government’s stewardship.
43 Ibid., para. 78.
44 Ibid., para. 79.
45 Perhaps fortuitously, these are in a sphere, transport, in which GHG emissions rose by 47
per cent between 1990 and 2002, as against a reduction of 15 per cent in other industries
(see Houlder, Financial Times, 23 July 2004, p. 4).
46 See also Wolf, Financial Times, 6 August 2004, p. 17.
47 See para. 18.2 above. The DFT hopes to build on this both in the short term through offering
financial inducements to other cities to adopt congestion charging and subsequently
through the adoption of a nationwide satellite-based road charging system (as to which
see para. 27.4 above) in place of current taxes (see The Future of Transport, Cm 6234,
a White Paper published on 22 July 2004, and the criticism of it by Wright, Financial
Times, 24–25 July 2004, p. 11.
48 Noted by the House of Commons’ Environmental Audit Committee, in its Tenth Report of
Session 2003–04, Budget 2004 and Energy, HC 490, published on 11 August 2004, para.
47.
49 See para. 23.2 above.
The Current State of Play 543
The question has to be asked as to why it was decided to proceed with the introduction
of climate change levy before the publication of the 2003 Energy White Paper?50
A similar issue arises as to why the new threshold rate of £35 per tonne for landfill
tax was announced not only before the public consideration of 10 Downing Street’s
Waste Not, Want Not 51 but also, apparently, the commissioning of the necessary
research on comparative costings eventually published 15 months later.52
It is also, to put it at its lowest, very difficult to see how the introduction of aggregates
levy had any economic or environmental justification,53 not least in the context of the
Government’s road programme being the largest user of the end product.
Finally, the authors think it is relevant to draw attention to the fact that, shortly
before this book went to press, the principal Minister responsible for climate change
policy, Mrs Margaret Beckett, conceded that events were ‘not presently on track’
for the attainment of the government’s main climate change target, cutting carbon
dioxide emissions by 20 per cent by 2010.54
50 See para. 21.6 above.
51 See paras. 6.3.2 and 21.4.1 above.
52 See para. 21.4.1 above.
53 See para. 21.8 above.
54 Eaglesham and Harvey, Financial Times, 8 December 2004, p. 4.
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Postscript
We mention elsewhere that, over the period of writing the book, new governmental
material has appeared almost weekly. In the main text, we have tried to reflect
developments, legal and otherwise, as at December 2004, the day on which that
year’s Pre-Budget report was published.
The pace of change in the subsequent 10-month period, over which the manuscript
has been reviewed and prepared for publication, has been somewhat less feverish.
Nonetheless, there have been a number of important developments, some of which
we think it is worth recording here.
The question of whether any or all of the levies discussed in the book satisfy the
technical definition of a ‘tax’ has arisen in two, rather different, contexts.1 One of
these is the proposal for a plastic bag levy in Scotland. The projected levy, which is
being promoted by the Liberal Democrat, Mike Pringle, MSP, seeks to ‘place a levy
on all plastic bags made wholly or in part of plastic … [including] paper bags that
have a laminate coating … [the levy being] set at 10p, to be paid by the customer
receiving the bag’.2 The detail of the proposal is contained in the Environmental Levy
on Plastic Bags (Scotland) Bill,3 which was introduced in the Scottish Parliament on
17 June 2005. It is understood that, rather than relying on some non-existent taxraising
power, the Bill seeks to makes use of the Scottish Parliament’s power to
legislate in relation to ‘local taxes to fund local authority expenditure’.4 It remains to
be seen what the Bill’s fate will be.5
The other context in which the question of the definition of a ‘tax’ may become
acute is in relation to the recent and somewhat humorously publicised dispute over
whether foreign diplomats in London should be liable to pay the congestion charge.6
If the ‘charge’ is a tax, rather than a charge or fee, properly so called, then it looks
more like a direct tax than an indirect one and, as such, there must at least be a
technical question as to whether there is a liability on diplomatic staff to pay it.7 This
1 See paras 1.2.1.1, 7.2 and 7.3 above.
2 See Environmental Levy on Plastic Bags (Scotland) Bill: Policy Memorandum (Edinburgh:
Scottish Parliamentary Corporate Body, 2005), para. 57 (available from www.scottish.
parliament.uk).
3 Also available from www.scottish.parliament.uk.
4 See para. 4.2.2 above. The authors would like to thank David Cullum of the Non-Executive
Bills Unit, Scottish Parliament, for clarifying this point.
5 For developments thus far, see 353 ENDS Report (2004) 53; 358 ENDS Report (2004)
33–34; 366 ENDS Report (2005) 37; and 368 ENDS Report (2005) 29.
6 See paras 1.4.2.4 and 18.2 above.
7 See Sherwood, Financial Times, 19 October 2005, p. 3. The report suggests that the US
mission (and presumably also the German one, which is also refusing to pay) is seeking to
rely on the 1961 Vienna Convention on Diplomatic Relations (presumably Art. 34 thereof,
546 Environmental Taxation Law
question aside, however, there is a much more interesting issue as to whether, given
the almost universal problem of traffic congestion in developed economies,8 foreign
diplomats nonetheless ought to pay it.9
The main institutional development, already envisaged in the text itself,10 has
been the amalgamation of the Inland Revenue and Customs and Excise in a new
Department, called HM Revenue and Customs (‘HMRC’).11 The creation of the new
Department promises a greater accountability in environmental tax administration,
as in tax administration generally. In this sense, the amalgamation of the two old
Departments in a new statutory framework12 is a very significant development.
However, it does not affect the discussion in the main text; references to ‘the Revenue’
and to ‘Customs’ can simply be read as references to HMRC.13
February 2005, as is well known, saw the long-awaited entry into force of the Kyoto
Protocol.14 However, no sooner had one treaty became a reality than the likelihood of
another taking effect dramatically receded: the European Constitutional Treaty was,
of course, rejected in the Dutch and French referenda. Nonetheless, the significance
of the rejection for Community environmental law and policy could be overstated.
Bell and McGillivray conclude that: ‘[t]he environmental provisions of Article 2
EC15 remain essentially unchanged, and although the environmental integration
principle in Article 6 EC16 has been moved to a position further back in the draft
Constitution its legal status is probably unaffected’.17
A succession of both EU and domestic policy documents continues to appear. At
the UK national level, there is, however, evidence of the effectiveness of the various
levies and other economic instruments being subject to ever-closer scrutiny. Some
salient features of these developments are as follows.
as to which see, for example, Luke T. Lee, Vienna Convention on Consular Relations
(Durham N.C.: Rule of Law Press, 1966), ch. 18; Grant V. McClanahan, Diplomatic
Immunity: Principles, Practices, Problems (London: Hurst, 1989), pp. 56–67). The way
in which Art. 34 is drafted may also make it necessary, at some stage, to consider the
concept of ‘dues’ in the present context.
8 Traffic congestion, rather than emissions, being the chief justification for such levies.
9 As, it would appear, are diplomats from the Russian, Japanese and Spanish missions.
10 See para. 4.2.1.2(2) above.
11 See www.hmrc.gov.uk.
12 Commissioners of Revenue and Customs Act 2005, s. 4.
13 See the useful discussion in the new edition of John Tiley’s incomparable book (see John
Tiley, Revenue Law, 5th edn (Oxford: Hart Publishing, 2005), pp. 62–65).
14 See paras 8.3.1.4 and 20.2 above. See also the criticisms of Kyoto’s target-based approach
in House of Lords Economic Affairs Committee, 2nd Report. The Economics of Climate
Change (House of Lords Papers, Session 2005–2006, HL Paper 12–I) (see para. 4.2.1.1(3)n
above).
15 See para. 12.2.1 above.
16 Ibid.
17 See Stuart Bell and Donald McGillivray, Environmental Law, 6th edn (Oxford: Oxford
University Press, 2005), p. 198.
Postscript 547
January 2005 saw the launch of the European Commission’s work programme18 for
2005.19 Although, by placing emphasis on the three ‘key priorities’ of ‘prosperity’,
‘solidarity and security’ and ‘enhanced external responsibility’, the programme has
raised concerns about the relative weight being given to environmental questions,20
a document containing seven environmental strategic themes is expected later in
the autumn. Meantime, there have been developments in relation to a number of
matters of detail, among them the adoption by the Council of Ministers of a common
position on modernising the Waste Shipment Regulation21 and agreement on the new
directive which will amend European Parliament and Council Directive 1999/62/
EC on lorry charging (the ‘Eurovignette’ Directive).22 Whilst it obviously does not
obligate Member States to introduce lorry-charging schemes, the proposed amending
Directive does insist on a common model and, as such, has had rather more success
than the UK’s plans for a national scheme for charging heavy lorries,23 which were
abandoned in July.24 For the reasons discussed in the text,25 this represents a rare,
possibly unique, case of the scrapping of an environmental levy actually angering the
industry sector affected by it (i.e. truckers).26
On the emissions front, the implementation of the EU ETS seems also to have
lost much of the momentum that it once had. In April 2005, the government applied
to the European Commission for the exclusion from the first phase of the EU ETS
of parties to climate change agreements, together representing nearly a third of the
installations in the UK NAP.27 This followed an application to the CFI for review
of the Commission’s refusal to allow the UK to increase its emissions allocation.28
Against this background, Defra’s own refusal, in its Consultation Paper on the EU
Emissions Trading Scheme Phase II (2008–2012)29 unilaterally to extend the UK’s
implementation of the EU ETS so as to cover GHGs other than carbon dioxide seems
a realistic one. It should be noted in this regard that the original 2003 regulations
18 See para 4.3.2 above.
19 See COM (2005) 15 final. The proposals contained in the work programme are subject
to integrated impact assessment (see Communication from the Commission on Impact
Assessment, COM (2002) 276 final). We are indebted to Helen Toner for drawing the
Communication to our attention.
20 See 361 ENDS Report (2005) 52–54; 365 ENDS Report (2005) 22–24.
21 Council Regulation 259/93/EEC, (1993) OJ L30 1 (see para 12.2.5.1(4) above); see 367
ENDS Report (2005) 45–46.
22 364 ENDS Report (2005) 44 (see para. 12.2.6.4(2) above).
23 See para 27.3 above.
24 See 366 ENDS Report (2005) 44, which comments that, at the point at which the plans
were dropped, £39 million had been spent on its development.
25 See para 2.6n above.
26 See 366 ENDS Report (2005) 44.
27 See Defra, UK Application for Approval of Temporary Exclusion from the EU Emissions
Trading Scheme for Climate Change Agreements Participants, 23 March 2005 (available
from www.defra.gov.uk).
28 See 363 ENDS Report (2005) 43–44.
29 (London: Defra, 2005) (available from www.defra.gov.uk).
548 Environmental Taxation Law
implementing the EU ETS in the UK, as well as the 2004 amendment regulations,
have already been consolidated in the Greenhouse Gas Emissions Trading Scheme
Regulations 2005.30
In the light of all this, it would be surprising if Parliamentary Select Committees
were not beginning to ask ever-more searching questions about policy choices and
their effectiveness. Although Budget 2005 did not make changes to the existing
‘main’ environmental taxes, namely, aggregates levy, climate change levy and
landfill tax, it was the occasion of the Chancellor of the Exchequer’s claim that,
not only was the government reaching its environmental policy objectives, it was
actually exceeding them.31 In April 2005, the Environmental Audit Committee,32 in
a substantial report,33 criticised the lack of new environmental taxation measures in
Budget 2005.34 Indeed, the Committee opined:
… It is reasonable to ask whether the Treasury has an environmental tax strategy at all.
In previous reports, we have welcomed the Statement of Intent35 as a strategic aim but
criticised the Treasury for failing to put in place an adequate strategy to implement it – an
omission which the Treasury’s 2002 document, Tax and the Environment: Using Economic
Instruments,36 signally failed to rectify.37
The Committee also pressed the government to consider again proposals for a ‘Green
Tax Commission’.38
Since it has been an election year, 2005 has also seen, not one, but two, Finance
Acts. Consistent with Budget 2005, however, neither of these contains any relevant
legislative developments in relation to the three ‘big’ environmental taxes. Instead,
there has been a certain amount of ‘tinkering’, via secondary legislation, with climate
change levy and landfill tax exemptions. The Climate Change Levy (Miscellaneous
Amendments) Regulations 200539 bring in changes, as from 22 July 2005, in the
way in which exemptions and reliefs from the levy are administered.40 Likewise,
30 S.I. 2005 No. 925 (see para 28.4 above).
31 See HM Treasury, Budget 2005 – Investing for Our Future: Fairness and Opportunity for
Britain’s Hard-Working Families (House of Commons Papers, 16 March 2005, HC 372),
p. 151. The Budget Report refers to a generally favourable Cambridge Econometrics
evaluation of climate change levy (ibid., p. 156).
32 See para 4.2.1.1(3) above.
33 See House of Commons Environmental Audit Committee. 7th Report. Pre-Budget 2004
and Budget 2005 – Tax, Appraisal, and the Environment (House of Commons Papers,
Session 2004–2005, HC 261).
34 Ibid., para. 10.
35 See para. 5.3 above.
36 Discussed in Chapter 5 above.
37 House of Commons Environmental Audit Committee, op. cit., para. 31.
38 Ibid., para. 36.
39 S.I. 2005 No. 1716.
40 The regulations amend the Climate Change Levy (General) Regulations 2001, S.I. 2001
No. 838, and ‘elucidate’ part of the Climate Change Levy (Registration and Miscellaneous
Provisions) Regulations 2001, S.I. 2001 No. 7.
Postscript 549
the Finance Act 2003, Sections 189 and 190, (Appointed Day) Order 2005,41 make
certain provisions in relation to supplies of taxable commodities, as regards basing
the exemption for CHP source electricity on efficiency percentages42 and supplies
of taxable commodities when circumstances change.43 Rules relating to CHP-source
electricity are now consolidated in the Climate Change Levy (Combined Heat and
Power Stations) Regulations 2005.44 Various amendments to landfill tax exemptions
have been made in the Landfill Tax (Site Restoration, Quarries and Pet Cemeteries)
Order 200545 and the Landfill Tax (Amendment) Regulations 2005,46 to take account
of developments on the IPPC front.
Finally, amendments to the Capital Allowances (Environmentally Beneficial Plant
and Machinery) Order47 have been made, such as to replace existing definitions and
augment the technologies that qualify for special direct tax treatment.48 A similar
order has been made in relation to energy-saving plant and machinery.49
For reasons of space, it has not been possible to do more than to highlight certain
salient developments in this Postscript. The interested reader is referred to the
various websites detailed in the footnotes for further information. (The Defra website
is particularly detailed.)
J.S.,
J. de S.,
25 October 2005.
41 S.I. 2005 No. 1713.
42 Finance Act 2003, s. 189.
43 Ibid., s. 190.
44 S.I. 2005 No. 1714.
45 S.I. 2005 No. 725 (see Business Brief 9/05 (4 April 2005)).
46 S.I. 2005 No. 759.
47 S.I. 2003 No. 2076 (see para. 24.2 above).
48 See the Capital Allowances (Environmentally Beneficial Plant and Machinery)
(Amendment) Order 2005, S.I. 2005, No. 2423.
49 See the Capital Allowances (Energy-saving Plant and Machinery) (Amendment) Order
2005, S.I. 2005, No. 2424 (amending the Capital Allowances (Energy-saving Plant and
Machinery) (Amendment) Order 2001, S.I. 2001, No. 2541.
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Select Bibliography
For reasons of space, the list below does not include every publication to which
reference is made in the footnotes. Readers are referred to the relevant paras of the
text for fuller citations.
Andersen, Mikael Skou, Governance by green taxes: Making Pollution Prevention
Pay (Manchester: Manchester University Press, 1994)
Arnold, Brian and McIntyre, Michael, International Tax Primer, 2nd edn (The
Hague: Kluwer, 1995)
Aust, Anthony, Modern Treaty Law and Practice (Cambridge: Cambridge University
Press, 2000)
Baldwin, Robert and Cave, Martin, Understanding Regulation – Theory, Strategy
and Practice (Oxford: Oxford University Press, 1999)
Baldwin, Robert, Scott, Colin and Hood, Christopher (eds), A Reader in Regulation
(Oxford: Oxford University Press, 1998)
Barlow, Ian and Milne, David (eds), CCH Tax Statutes and Statutory Instruments
2003–04 with Concessions and Statements of Practice (Banbury: Croner CCH,
2003)
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aggregates levy
bad debt relief 16.10
credits 16.9
definition of aggregate 13.4
exempt materials 13.4
exempt processes 13.5
export subsidies 8.4.5, 21.8
generally 1.4.2.3, 11.3.2
history 11.3.2, 13.1
inter-site material transfers 13.3
non-business exclusion 13.2, 13.3
occupiers 13.3,16.16
rate of tax 13.1
registered persons 13.2
registrable persons 13.3, 16.16
site registration 13.2, 16.8
tax point 13.2
variation in scope between
enactment and commencement 21.8
air and atmospheric pollution 6.4, 12.2.6
air passenger duty 1.2.1.5, 27.5, 29.3
airliner emissions charge, proposal 27.5
airport expansion in the UK 27.5
anti-avoidance
fraus legis 26.3.3.1
Ramsay principle 26.3.3.1
appeals
aggregates levy 16.13
climate change levy 16.13
generally 4.2.1.5
landfill tax 16.13
aviation 6.5, 12.2.6.4, 27.5
bad debt relief
aggregates levy 16.10
climate change levy 16.10
landfill tax 16.10
biomass 21.4.4
buildings
energy efficiency 21.6.1, 21.6.3, 24.6
flats above shops 24.5.2
stamp duty in disadvantaged
areas 7.3.4,24.5.3
business taxes
cars 23.2, 29.3
environmentally friendly equipment 24.4
urban regeneration 24.5
capital allowances
flats above shops 24.5.2
for environmentally friendly cars 24.3
for environmentally friendly
energy equipment 21.3.1, 24.4
water technologies 21.3.1, 24.4
capital gains tax
definition 1.4.3.1
charge
meaning 1.2.1.1, 7.2.2
civil penalties
aggregates levy 16.14
climate change levy 16.14
landfill tax 16.14
clean development mechanism 8.3.1.4
climate change 6.4
climate change levy
bad debt relief 16.10
climate change agreements 14.6
combined heat and power 14.5
credits 16.9
dual use 14.5
exclusions 14.4
export subsidies 8.4.5.1
generally 1.4.2.2, 7.3.3
genesis 4.6.1
landlord 14.2, 14.3
methane from coal mines 14.5
pollution permit trading 14.6, 20.4
rates of tax 14.2
recipient liability 21.7
reduced rate regimes 14.3
renewable source 14.5
temporary reliefs 14.3
coal 2.4.3, 6.4.3.4, 12.2.6.3, 21.4.4
common agricultural policy 21.9
congestion charges 1.4.2.4, 7.8.3
elsewhere 18.3
London 18.2, 29.3
national 27.4
contaminated land 6.7, 7.3.4, 24.5.1
Index
558 Environmental Taxation Law
corporation tax
definition 1.4.3.1
cost benefit analysis 5.5
credits
aggregates levy 16.9
climate change levy 16.9
landfill tax 16.9
criminal prosecution
aggregates levy 16.14
climate change levy 16.14
landfill tax 16.14
customs duties
charges having equivalent effect 12.3.2.2
GATT 1994 restrictions 8.4.3
devolved administrations
Northern Ireland 4.2.2
Scotland 4.2.2
Wales 4.2.2
diesel
excise duty 22.2.1, 22.3
direct taxes 1.2.1.2, 1.1.3
future declining role of 26.1
drinks containers 12.4, 27.6
economic instruments 1.4.2.2, 8.3.2, 27.2
electrical equipment
disposal 19.6
electricity industry 2.4.1, 12.2.6.3,
21.6, 21.7
emissions trading schemes 1.4.2.2
biodegradable municipal
waste 20.3, 21.3.2
combined heat and power 14.5, 20.6
compulsory energy participation 20.3
direct participants 20.5
European 20.2, 20.3, 28.2, 28.3
history 20.1, 20.2, 28.4
income tax 24.7
initial objective 20.3
Kyoto Protocol 8.3.1.4, 20.3
methane from coal mines 21.6, 20.3
mode of operation 20.4
possible development 20.3
projects entry route 20.3
renewable obligations
certificates 20.6, 21.5
transport 20.3
electricity transmission
BETTA 6.4.3.1
NETA 21.4.3
employee benefits
company cars 23.2
environmentally friendly means of
transport 23.3
enforcement powers
aggregates levy 16.15
climate change levy 16.15
landfill tax 16.15
energy
efficiency 21.6.3
guarantees of origin 6.4.3.1
intensive sectors 2.4.5
markets 12.2.6.4
policy 12.2.6.3, 21.6.1, 21.6.2, 21.6.2
renewable sources 6.4.3.1
saving installations 21.6.1, 24.6
town and country planning 21.6.3
environment
meaning 1.2.1.5
environmental levies 7.3.1
environmental improvement funding
aggregates 21.3.1
climate change 21.3.1
landfill 21.3.2
environmental impact assessments 12.2.4
environmental policy
quarrying 21.8
waste management 12.2.5.1
environmental subsidies
within environmental taxes 7.3.3
within other taxes 7.3.4
environmental tax
advantages of 26.6
European policies 12.3.1
European Treaty 12.2.2.1
meaning 1.2.1.5
national 26.2, 26.3
success stories 29.2, 29.3
tax subsidies within 7.3.3
environmental trusts 21.3.2
direct tax aspects 24.8
European Union
Council of the Communities 4.3.1
Commission of the Communities 4.3.2
Court of Justice 4.3.7
Economic and Social Committee 4.3.4
emissions trading 28.2, 28.3
energy law and policy 12.2.6.3
environmental action programmes 12.2.3
environmental objectives 12.2.1
European Environment Agency 4.3.5
European Parliament 4.3.3
Index 559
transport law and policy 12.2.6.4
waste management 12.2.5.1
European Union restraints
environmental control 12.2.3
environmental taxation 26.7
fiscal barriers to trade 12.3.3
free movement of goods 12.3.4
general regulatory aspects 12.2.1
state aid 12.2.7
excise duties 22.1–4
farming
catchment-sensitive 21.9.3.3
education schemes 21.9.3.3
fertilisers 21.9.4
GM crops 21.9.6
history since the War 21.9.2
pesticides 21.9.5
single income payments 21.9.3.1
trading schemes 20.3
WTO 21.9.3.2
federal structure problems 26.4
fiscal neutrality
barriers to trade 12.3.2.1
fertilisers, possible taxation of 21.9.4
fly-tipping 15.6
fossil fuel levy 21.4.4, 21.6
free movement of goods 12.4
fuel poverty 21.4.2
gas 2.4.2, 6.4.3.2, 12.2.6.3
General Agreement on Tariffs and Trade 8.4
1947 8.4.1
1994 8.4.1
and EEC Treaty 8.4.1
and UK green levies 8.4.5.1
anti-subsidy provisions 8.4.4
in the UK 8.4.5.2
border tax restrictions 8.4.3
customs restrictions 8.4.3
genetically modified crops 21.9.6
Green Certificates 21.5
levies and subsidies 5.4
trading 5.3, 21.5, 20.6
transfer 21.5, 20.6
greenhouse gasses problem 8.3.1.4
horticulture
transitional improvement funding 21.3.1
transitional rate of climate change
levy 14.3
housing: economic instruments 27.2
hydrocarbons 2.4.4, 12.2.6.3
oil based fuels 6.4.3.3
oil emissions 22.4
hydro-electricity 21.4.4
incineration
effect on waste permit trading 20.7
possible tax 27.7
income tax
meaning 1.4.3.1
relief for environmental trust
contributions 24.8
relief for insulation expenditure 24.6
relief for remediation 7.3.4, 21.3.3
treatment of ETS 24.7
inheritance tax
definition 1.4.3.1
inspection
aggregates levy 16.12
climate change levy 16.12
landfill tax 16.12
interest
aggregates levy 16.14
climate change levy 16.14
landfill tax 16.14
integrated pollution control 6.2.1, 6.2.2,
12.2.2
integrated pollution prevention and
control 6.2.1, 6.2.3, 6.3.2
invoicing
aggregates levy 16.9
climate change levy 16.9
landfill tax 16.9
Kyoto Protocol 5.2, 5.3, 5.6.1, 6.4, 8.1,
8.2.2, 8.3.1.4, 14.2, 20.2, 20.3,
21.3.1, 21.4.3
Landfill
European policy 12.2.5.1
Landfill Allowances Trading
Scheme 1.4.2.2, 20.7
landfill tax
clean-up relief 15.5
credits 16.9
bad debt relief 16.10
disposal criteria 15.3
environmental trust linkage 21.3.2
exclusions 15.4
fly-tipping 15.6
generally 1.4.2.1, 5.6.3, 6.3.3, 7.3.3, 15.4
inert waste 15.2
560 Environmental Taxation Law
rates of tax 15.2
registration 15.3, 16.2
secondary liability 15.3, 16.2, 16.16
Select Committee evaluation 21.4.1
temporary exemption 15.5
landlords’ problems
aggregates levy 16.16
building improvement works 24.6
climate change levy 14.2, 14.3, 16.16
emissions trading 16.16
landfill tax 16.16
legislation
outline of UK tax legislation 1.4.3.1
local government
England and Wales 4.2.3
tax base 26.2.2
Marshall Report 11.3.1
mineral extraction 2.5
Montreal Protocol 8.3.1.4
National Insurance contributions 7.3.4
meaning 1.4.3.1
reductions 21.2, 26.5
North Atlantic Free Trade Area
and trade restraints 26.4
Northern Ireland
aggregates levy relief 21.8
natural gas climate change levy
exemption 14.4
report on effect of aggregates levy 21.8
nuclear power 21.4.4, 21.6, 21.7
Organisation for Economic Co-operation
and Development 4.4.2
1991 Council Resolution 8.2.5
policy on correcting market failure 5.4
ozone layer 8.3.1.5
packaging 19.1–7
packaging waste recovery notes 1.4.2.1,
19.5, 19.7
pesticides, possible taxation of 21.9.5
Pigou, AC 5.4
planning permission, possible taxation
of 26.2.1
plastic bags, possible taxation of 27.6
political issues
coal policy 21.4.3
Council Tax rates 21.4.1
domestic electricity prices 21.4.2
nuclear energy policy 21.4.4, 21.6
renewable energy sources 21.4.4, 21.6
polluter pays principle 8.2.3
pollution abatement 7.2, 23.5.1
of the air 8.3.1.5, 12.2.6.2
pressure groups 2.2
property-based taxes, future role of 26.2.1
public international law 8.2.1
arbitrations 8.3.1.2
customary 8.2.3
general principles 8.2.4
‘hard’ 8.2.1-5
judicial decisions 8.2.5
jurisprudential writings 8.2.5
‘soft’ 8.2.6
quarrying 6.6
Ramsay doctrine 26.3.3.1
record keeping
aggregates levy 16.12
climate change levy 16.12
landfill tax 16.12
recovery of overpaid tax
aggregates levy 16.13
climate change levy 16.13
landfill tax 16.13
registration
with Customs and Excise 16.2
divisional 16.6
group 16.6
non-resident 16.7
partnership 16.4
site 16.8
trust fund 16.5
unincorporated association 16.4
with Emissions Trading Authority 20.4
with Environment Agency 19.4
regulatory context 6.1, 6.9
climate change 6.4
contaminated land 6.7
pollution control 6.2
quarrying 6.6
transport 6.5
waste management 6.3
regulatory impact assessments 5.6, 11.2
review by Customs
aggregates levy 16.13
climate change levy 16.13
landfill tax 16.13
Rio Declaration 4.2.1.2, 5.2, 8.2.3,
8.2.5, 8.3.1.3
Index 561
road user charging
elsewhere in England and
Wales 18.3, 27.4
generally 1.4.2.2
Greater London 18.2, 18.4
heavy lorries 27.3
Rome, Treaty of 8.4.1
stamp duties
disadvantaged areas 7.3.4, 24.5.3
meaning 1.4.3.1
state aid, prohibition under
Community Law 12.3.5,21.10
under GATT 1994 8.4.4, 8.4.5.2
subsidies
UK Government’s justification 5.4
use to correct market failures 5.4
sustainable development
objectives of UK Government 5.2
and taxation 5.3
tax
appeals 4.2.1.5
avoidance 26.3.2
base 26.1, 26.2
and correcting market failures 5.4
evasion 26.3.2
legal nature 1.2.1.1, 7.2.2
in Commonwealth jurisprudence 7.2.2.2
in European Community
jurisprudence 7.2.2.3
in UK case law 7.2.2.1
meaning 1.2.1.1
non-residence 26.3.1
and subsidisation 7.2–3
and sustainable development 5.3
and trade 26.4
transfer pricing 26.3.4
tax authorities
Customs and Excise 1.5
Inland Revenue 1.5
tidal power 21.4.4
toll motorways 27.3
transfer of going concern 16.6
transferable permits 1.4.2
aviation 27.8, 20.3
biodegradable municipal waste 5.3,
21.3.2, 20.7
combined heat and power 14.5, 20.6
energy 5.3, 20.3
farming 20.3, 21.9.3
EU permits 20.3, 28.2
Kyoto compliance 20.3, 28.2
methane from coal 21.6, 20.3
renewable obligation
certificates 5.3, 21.5, 20.6
transport 20.3
water 21.9.1
transitional provisions
aggregates levy 16.11
climate change levy 16.11
landfill tax 16.11
transport 1.4.2.4, 6.5, 12.2.6.4
air 2.6, 27.8
capital expenditure on cars by a
business 21.2
car fuel 22.2
company cars 22.2
environmentally friendly 23.3
heavy goods fuel 22.3
policy 12.2.5.1
regulation 6.5.3
road 2.6
travel to work 7.3.4, 22.1
turnover tax, European restrictions
on 1.2.1.4
urban regeneration 24.5
United Kingdom
advisory bodies 4.2.1.4
definitions of 1.4.3.2
devolved administrations 4.2.2
government of 4.2.1.2
local government
(England and Wales) 4.2.3
non-departmental public bodies
and agencies 4.2.1.3
UK Parliament 4.2.1.1
United Nations 4.4.3
UN Committee on Sustainable
Development 4.4.3
UN Economic Council for Europe 4.4.3
UN Environment Programme 4.4.3
Uruguay round 8.4.1
value added tax
ETS 24.7
fraud 26.3.2
meaning 1.4.3.1
rate for domestic electricity 21.4.2
562 Environmental Taxation Law
relief for domestic energy saving
installation 7.3.4, 21.3.1
vans 22.2
vehicles
disposal of 19.6
vehicle excise duty 21.2.1, 22.2, 21.3, 29.3
waste management obligations
handling: statutory duty of care 6.3.2
management 2.3, 6.3
management licensing 6.3.2
waste
concept 12.2.5.2
generation 21.4.4
hazardous 12.2.5.1
landfill 12.2.5.1
management 12.2.5.1
shipment 12.2.5.1
waste pollution, international
obligations 8.3.2
waste recycling credits 1.4.2.1
water pollution 21.9.1
wind power 21.4.4, 21.6
workplace parking levy
elsewhere in England and
Wales 17.1–3, 17.5–6
generally 1.4.2.2
Greater London 17.1, 17.4, 17.6
world trade law 8.2.1
World Trade Organization 4.3.2, 4.4.1,
8.2.1,8.4.1
farming 21.9.3.2
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