Budget 2011

The government is pushing ahead with its plans for a pioneering carbon floor price, in the face of criticism from industry and major green NGOs. Chancellor George Osborne’s 2011 Budget confirmed the UK will introduce the floor price on 1 April 2013, set at £16 per tonne in 2013 and rising to £30/t by 2020.

His speech, and the raft of accompanying documents, had several important environmental elements – including a significant weakening of the low-carbon standard set for zero-carbon new homes in 2016. Using Treasury figures, ENDS estimates the changes in environmental and road transport taxes announced in the Budget will generate an extra £1.2bn a year in government revenue by 2015/2016.

The floor price is a major plank of the government’s plans to secure massive private sector investment in low carbon generation over the next decade. The thinking is that investment will flow if investors are given the certainty of a steadily rising carbon price, making conventional fossil fuel generation less and less competitive against nuclear, renewables and carbon capture and storage.

But EU emissions trading scheme allowances for delivery in 2014 were trading at over £17 as ENDS went to press, according to Point Carbon. This suggests the new top up carbon tax which will deliver the floor price may not be triggered, at least initially.

It will operate by limiting fossil-fuel generators’ existing exemption from the climate change levy on gas and coal, and from fuel oil duty. The Treasury says it will add about 1-3% to electricity bills. The Conservatives said money from the floor price would go back to electricity consumers. The Budget now says it will be used to “support the long-term sustainability of the public finances", raising £740m in 2013/14 rising to £1.4bn in 2015/16. Several energy utilities recently called for the floor price’s introduction to be delayed until 2018.

Given project development timelags, any new low-carbon infrastructure which it brings into being will not be operational until at least that year. Along with green groups, they complain that it simply provides windfall profits to existing renewable and nuclear generators. Centrica and EDF, Britain’s existing nuclear generators, welcomed the chancellor’s announcement.

Matthew Spencer, director of thinktank Green Alliance, called for these windfall profits to be taxed. He and others want the steadily rising floor price underwritten by long-term contracts with generators, to give investors certainty and remove the risk that a chancellor could change the floor price’s pre-ordained trajectory from year to year. Some argue that the revenues should be used to tackle fuel poverty and boost energy efficiency.

The chancellor had some comfort for industries which, as heavy electricity consumers, could be hard hit by the new floor price. He said that Climate Change Agreements, which enable 54 energy intensive sectors to partially escape the Climate Change Levy, are now to be extended until 2023. The current agreements had been due to expire in 2013, and government had been considering scrapping them.

The level of relief from the CCL for electricity use will also be increased to 80%, from 65%, in April 2013. A consultation on simplifying CCAs will be published in the summer.

Green Investment Bank (GIB): The government’s new lender and investor for low-carbon projects will have an extra £2bn of state funding on top of the initial £1bn announced in October’s Comprehensive Spending Review (CSR), said Mr Osborne. The extra money will come from sales of state assets.He said a further £15bn could be secured from the private sector during the current CSR period, which ends in 2014/15.

The GIB will now start operating in 2012. But the chancellor said the GIB will not be able to start borrowing money by issuing billions of pounds worth of green bonds until 2015/16 – and only if the government’s overall target to clamp down on rising public debt had been hit by then. The Aldersgate Group, the CBI and major green NGOs all criticised this three year delay in the GIB becoming a fully functioning investment bank.

Ed Matthew, programme director for green investment campaign group Transform UK, told ENDS: “The decision… is a massive mistake, because it will constrain the ability to achieve a low-carbon recovery for the UK.”

Carbon capture and storage (CCS): The budget reaffirms that government will fund four CCS demonstration plants for coal or gas-fired power stations, but it will not use a levy on electricity bills to fund them – as had been proposed by the previous government. The Comprehensive Spending Review set aside £1bn for the first demonstration plant, to be chosen through a competition among power generators. But only one would-be CCS prototype has chosen to stay in the competition: Scottish Power’s Longannet coal-fired plant in Fife.

Carbon Reduction Commitment (CRC): The budget confirms the cost of allowances under the CRC will be £12/t. The government will publish draft regulations to implement allowance sales in 2011.

Zero-carbon homes: The government has weakened its policy to require housebuilders to construct all new homes to a new zero-carbon standard by 2016. As a result, new homes will only be two-thirds of the way to being zero-carbon. The zero-carbon concept relied on builders delivering highly energy efficient homes with on-site renewable energy generation, and compensating for the remaining emissions through off-site emissions savings known as allowable solutions.

The budget says the government will introduce “more realistic” requirements. Housebuilders will only be accountable for CO2 emissions from energy use for heating, hot water, fixed lighting and building services – and not those responsible for emissions from plug-in appliances and cookers. This means there will be reduced requirement for allowable solutions, such as housebuilders paying into a fund for local renewable energy.

But the government endorses recommendations from the Zero Carbon Hub, an industry and government expert body, for on-site carbon reductions for zero-carbon housing developments as the starting point for future consultation.

Other measures: The chancellor’s most populist move was to replace the previous government’s gradual road fuel duty escalator with a “fair fuel stabiliser”. When global oil prices are high, as they are now, fuel duty will be lowered, with the loss of revenue compensated for by extra tax on profits for companies producing UK North Sea oil and gas. When, or if, oil prices fall below $75 a barrel, the fuel duty escalator will resume.

Mr Osborne scrapped the coalition’s pledge to replace air passenger duty with a green tax on entire flights rather than individual passengers. And he delayed an increase in airline passenger duty which had been due in April. The budget accelerated the coalition’s reform of the planning system, with a number of measures aimed at encouraging more construction of homes and workplaces. These drew angry protests from planning organisations and the Campaign to Protect Rural England.

Comments from NGOs:

The Green Alliance says: “This could have been a major green budget, but the chancellor has rained on his own parade by putting the brake on the best announcements and indulging in fuel price gimmicks”

The verdict from Greenpeace is that the “'Greenest government ever' keeps us addicted to oil and other dirty energies”

The New Economic Foundation is pretty damning on all counts: http://www.neweconomics.org/press-releases/budget-response

Friends of the Earth says the Budget fails to tackle oil dependency: http://www.foe.co.uk/news/budget_news_reaction_30099.html

The Campaign for Better Transport slams the cut in fuel duty and the lack of help for public transport users http://www.bettertransport.org.uk/campaigns/public_transport/budget-2011

The Campaign to Protect Rural England “labels the Budget, ‘a massive threat to the environment’. The triple whammy of scrapping national brownfield targets, introducing a default yes to development, and pursuing half-baked proposals for land auctions could be devastating to treasured countryside.”

Comment from business:

The Food and Drink Federation supports the decision to extend the Climate Change Levy to 2023 and to restore the Climate Change Levy discount on electricity to 2013. It’s also happy that the planned increases on fuel duty have been scrapped: http://www.fdf.org.uk/news.aspx?article=5306

The British Retail Consortium thinks the budget is a ‘useful start’ and particularly likes the relaxation of the planning laws and the scrapping of the increase in fuel duty http://www.brc.org.uk/brc_news_detail.asp?id=1927&kCat=&kData=1

The Confederation of British Industry says: "This budget will help businesses grow and create jobs. The chancellor has made clear the UK is open for business." On the Green Investment Bank: “The Green Investment Bank will play an important role in mitigating some of the risks for companies planning major low-carbon investments. The additional £2bn is welcome, but the bank should have powers to borrow from the outset to give investors confidence.”
http://www.cbi.org.uk/ndbs/press.nsf/0363c1f07c6ca12a8025671c00381cc7/d…