UK: The Budget 2011: Clean Energy And Environment Incentives

The March 2011 Budget repeated the commitment by the Government to be "the greenest Government ever" and announced specific measures designed to deliver it.  The measures range from the very general to the very specific. They reflect pre-existing initiatives and regulations. The Government's plainly states that it intends to increase the proportion of tax revenue accounted for by environment related taxation. It aims to do this principally by using market-based solutions and encouraging the growth of investment in clean energy sources.  Whilst the Budget measures focus primarily on clean energy (of various forms and applicable in various sectors) rather than clean technology and resource efficiency applicable in sectors such as consumer products, transport, waste, and water, there is perhaps a message that once the framework is in place for the clean energy and energy efficiency, similar principles may be applied to other sectors, most particularly with regard to resource efficiency.

Carbon Price

A carbon floor price will be introduced from 1 April 2013, starting at around £16 per tonne of CO2 and following a linear path to £30 per tonne in 2020.  The carbon price support rates for 2013-14 will be equivalent to £4.94 per tonne.  This level of tax is higher than previously expected by experts and is intended to promote investment in low-carbon power.  Nuclear and renewable energy companies (both new and existing) stand to reap the benefits of higher electricity prices, whilst paying little carbon tax compared with fossil fuel competitors.

Despite the Government's attempts to avoid uncertainty and the overlap of policy instruments, there is considerable overlap with the various existing carbon incentive mechanisms (such as the CRC Energy Efficiency SchemeClimate Change Agreements ("CCAs") and the Climate Change Levy. The carbon price will also have to be looked at within the context of the cost of compliance with the EU Emissions Trading Scheme ("EU ETS").

It may be difficult, given these overlapping policy measures, for investors in low carbon generation to ascertain the carbon price trends in order to guide investment, and indeed for users of energy to appreciate the underlying policy objectives.

Climate Change Agreements: CCAs will be reformed and extended to 2023.  CCAs provide a mechanism for the Government and industry to agree targets and for companies to claim a reduction from the Climate Change Levy, which was introduced on 1 April 2001.

Climate Change Levy: Climate Change Levy rates will increase in line with RPI, whilst the discount on electricity for CCA participants in the energy sector will be increased from 65% to 80% from April 2013 to continue to support energy intensive businesses exposed to international competition. Companies will be awarded a reduction of the levy if they agree to high targets for improving their energy efficiency or reducing carbon emissions.  

The Government's extension of CCAs and an increased discount on the Climate Change Levy is a key indication of support for the manufacturing industry. 

CRC Energy Efficiency Scheme:  CRCEES is a mandatory scheme to improve energy efficiency and cut CO2 emissions in large public and private sector organisations.  It is currently the subject of a simplification review by DECC and includes the possibility of excluding groups or sites with a CCA or in EU ETS as it is possible that occupiers could be caught by both the CRCEES and the Climate Change Levy.  As the cost of carbon rises both owners and occupiers will be subject to increased costs whilst heavier emitters are afforded a more cost-effective means of participating in the schemes.  The Government will need to address this disparity as part of its attempts to simplify the CRCEES.

CCS Levy: The Government announced plans to cancel the proposed CCS Levy which would have placed a levy on electricity bills to fund technology designed to capture the carbon from coal-fired power stations. The Government's proposed electricity market reforms are now deemed to provide an incentive for energy companies to develop CCS plants without the need for a specific levy. The Government  confirmed that it will provide public funding for four CCS demonstration plants from general taxation.

The "Green Deal"

Amongst other low-carbon policies, the Government confirmed its commitment to the "Green Deal" - a framework to enable private firms to offer energy efficiency improvements to homes and businesses. 

Low Carbon Vehicles

There is financial encouragement for businesses to use "ultra low carbon cars", by freezing Company Car Tax for cars emitting less than 95g/km, whilst increasing the tax, by 1%,  on all vehicles emitting more than 95g/km. This is a small initiative but is perhaps worth keeping an eye on as a potential indicative trend.

The Green Investment Bank

The Budget outlined measures to be implemented in relation to the Green Investment Bank ("GIB"). The GIB's purpose is to fund clean energy and low carbon projects with a view to promoting the UK as a low-carbon economy. The GIB will assist in financing schemes of a size likely to help catalyse an increase in lower carbon sources.  The initial capitalisation of the GIB will be £3 billion, and it is planned that its operation will commence in 2012-13 (a year earlier than previously anticipated).

The Spending Review allocated £1 billion for the GIB, and in order to ensure that GIB investment funding is in place, the Government is aiming for the remaining £2 billion to be funded from the sale of assets such as the £775 million received from the sale of High Speed I (the Channel Tunnel Rail Link). The GIB may gain borrowing powers from 2015-16. According to the Budget, government funding and private finance should lead to an additional £18 billion of investment in green infrastructure by 2014-15.

Sustainable Development – the "default setting"

The Budget also detailed the Government's plans to introduce "a powerful new presumption" in favour of sustainable development: the "default setting" should be that if the proposed development is "sustainable" it should be granted permission. 

There has been some concern regarding exactly what this presumption means. Some commentators have said that the presumption may act as a guiding principle for all development decisions to be made in accordance with a sustainable development framework. Others, however, argue that the policy may be more of a radical idea which, in the absence of other local plans, could mean that any proposal which is sustainable will be eligible for consent. The key, of course, will be what is meant by "sustainable development", a term that has been debated for decades.

Conclusion

Overall, the Budget provides an insight into aspects of the Government's plans for a push towards a low-carbon economy and energy-efficiency. In an era of financial austerity and uncertainty, the green or clean sector is identified as a favoured sector, the implications of which cut across all other sectors.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/03/2011.

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