The climate change levy is a tax on the use of energy, which offsets cuts in employers' National Insurance Contributions and funds support for energy efficiency and renewable sources of energy.
"According to the evaluation accepted by the Government, the Levy will reduce annual UK CO2 emissions by 12.8M tonnes by 2010. But according to this work, these savings have come mainly from the effect its announcement had on raising awareness of the potential for energy savings; most of these savings were therefore the result of actions taken before the tax actually came into operation.
"The Levy itself (i.e., the amount of tax it imposes on energy use) has had relatively little effect on business emissions, especially in the case of SMEs and large but non-energy intensive organisations," according to the report.
The finding has consequences for green electricity generation, according to the report. "The exemptions on the Climate Change Levy for 'green electricity' and combined heat and power (CHP) have had minimal effect on the construction of new renewables and CHP capacity, essentially because they are worth too little money."
"The CCL has not worked quite as expected. According to economic theory, businesses should have acted rationally by seeking to reduce their costs through increased energy efficiency. In practice, they appear to have needed an extra stimulus to change their approach to energy use. This has profound implications for climate change policy more widely.
"If even large companies require additional policies to drive behavioural change, this must be all the more true for small businesses, public bodies, and private households. The Government should report on how it is applying this lesson the across the whole of the UK Climate Change Programme."