A legal view of Drax’s challenge to the CCL changes

“Public bodies are supposed to allow appropriate periods of time when implementing their decisions”

It is not entirely surprising that judicial review proceedings have been issued against HM Treasury in relation to the announcement in the summer budget that the exemption from Climate Change Levy (CCL)for electricity generated from renewable sources was to be removed. Clearly, governments are entitled to make whatever changes they see fit to the tax regime, and there have been changes to the CCL exemption arrangements before, most notably the removal of the exemption for combined heat and power plants, but in this case just 24 days elapsed between the budget announcement and the change coming into force on 1 August 2015.

The proceedings have been initiated by Drax Group and Infinis Energy on the grounds that the renewable electricity CCL exemption was removed without an appropriate notice period, and the court is asked to consider “what a reasonable and proportionate notice period would be”. This is, of course, couched in the language of administrative law, which can seem somewhat arcane, relating as it does to things procedural rather than substantive, but this distinction is at the heart of the application by Drax and Infinis. Their claim is not that the decision to remove the CCL exemption is wrong in any way. Instead it relates to whether or not the Treasury has acted legally in the way in which the decision was taken and implemented.  

Public bodies are supposed to act fairly when taking decisions, and that includes allowing appropriate periods of time when implementing their decisions. Levy exemption certificates income has been an important part of the financial models of many renewable projects and the impact of removing it is likely to be significant in many cases. No-one is immune to change in law risk, but there is a general assumption that changes in law will occur after due process. While the formal judicial review application is not yet publicly available, it seems that Drax and Infinis are arguing that this due process has not been followed.

Judicial review is not an easy, or cheap, process for the applicant. There are many complicated procedural hoops that must be leapt through just to get the case to court, and assuming that the application is allowed and the challenge is upheld, the remedies available to the successful applicant are limited, and would not include financial damages in this case. What Drax and Infinis seem to be seeking is the determination of what longer notice period for the withdrawal of the exemption removal is appropriate. Assuming the court finds in their favour and issues a declaration in those terms, whether or not that would offer any practical relief for the renewables industry is not at all clear.

Lis Blunson, of counsel, Orrick & Herrington
& Sutcliffe LLP