Background Note
6.The carbon price floor (CPF) was introduced in Great Britain in 2013, introducing CPS rates of CCL and fuel duty on fossil fuels used in electricity generation. These rates top up the EU Emissions Trading System carbon price in order to create a long-term price for carbon in Great Britain and provide certainty for businesses investing in low carbon electricity generation.
7.CHP stations are a class of technology that enables the efficient use of fuel by producing both electricity and heat in a usable form from the same input of fuel. Where the efficiency of the combined production of heat and electricity exceeds certain thresholds the electricity generated is deemed to be good quality. The efficiency of CHP stations is monitored and certified by the CHP Quality Assurance (CHPQA) programme, operated by the Department of Energy and Climate Change.
8.Natural gas, liquid petroleum gas or solid fossil fuels used in electricity generation in Great Britain are liable to the CPS rates of CCL. CHP operators are deemed to have made a taxable supply to themselves when these CPS rate commodities are used to generate electricity in a CHP that has a generating capacity of more than 2 megawatts. However, where the commodities are used to produce heat, steam or mechanical power, no such self-supply occurs. A formula set out in regulations is used to determine the quantity of CPS rate commodities referable to the production of electricity.
9.Budget 2014 announced that from 1 April 2015 the government would make the change set out in this section so that the CPS rates of CCL do not become due where the above mentioned CPS rate commodities are used in a CHP station to generate good quality electricity consumed on-site. This mitigates the impact of the CPS rates of CCL on this carbon efficient form of heat and electricity generation and provides further support for UK manufacturing industry. Since Budget 2014, HMRC have worked with industry representatives on the definition of on-site and other details.
