UK: Green Highlights of a Brown Budget

Last Updated: 20 March 2008
Article by Becky Warren

The 2008 Budget has already drawn criticism from the Green lobby who have billed it as a "Brown Budget". Set out below is a look at some of the environmental highlights and how they may affect different sectors. None of the announcements are particularly surprising - many of them have already been 'trailered' in the 2007 Pre Budget Report or are an obvious conclusion to the debate on environmental matters and more particularly climate change issues that has been ongoing over the last year.

Transport

Transport is one of the harder areas of carbon emissions for government policy to reach. Unlike large power stations or energy consumption in industrial buildings, it is the aggregate of emissions from millions of transport users that account for 28 per cent of the UK's emissions (road transport representing 20 per cent and aviation representing 6 per cent ). However, a growing awareness in the press and in government has seen a rising tide of fiscal measures attempting to encourage uptake of lower emission cars and greener fuels. The government estimates that drivers could reduce C02 and fuel bills by 25 per cent by choosing the lower emission vehicles. Published alongside this budget was the King Report which reviewed the vehicle and fuel technologies that would help to decarbonise road transport over the next 25 years. The Government have promised a response to this in the summer. Meanwhile measures announced in this budget were:

  • A significant reform of Vehicle Excise Duty (VED); from 2009 VED will be banded according to carbon emissions.

Year

Measure

2009 - 2010

6 new VED bands - a top band M for cars that emit more than 255g C02 per km

Reducing the standard rate of VED for new and existing cars that emit 150g of C02 per km and increasing the standard rate of VED on the most polluting cars to £425

Providing a £15 or £20 discount for alternatively fuelled cars

2010 - 2011

Extending the zero rate of VED during the first year of ownership to all new cars that emit less than 130g C02 km

Holding the 1st year rate for all new cars emitting between 131 - 160g C02 per km to the standard rate

Introducing a first year rate of £950 for the most polluting cars

Providing a £10 discount for alternatively fuelled cars and aligning the alternative fuel and standard rates of VED

  • Taxation of business travel - the reform to the company car tax regime in 2002 is now extended through a raft of measures; (i) replacing the existing capital allowances treatment for business cars with an emissions based approach. There will be 2 capital allowance pools - cars with emissions above 160g C02 per km will receive lower allowances. There will also be a 100% allowance for the first year in relation to cars with emissions that do not exceed 110g C02 per km; (ii) in 2010 - 11, company car tax rates will increase for all except the cleanest cars - those emitting less than 135g C02 per km; (iii) lower mileage will be incentivised through changes to the fuel benefit charge in 2009; (iv) a lower VED for diesel vans that meet the EU air quality emissions standards; and (v) tax free mileage allowances will be maintained although following a review the tax and NIC treatment of them may be aligned. It is hoped that these measures will incentivise European car manufactures to follow the lead set by Japan and develop low emissions and hybrid vehicles.
  • The Government have stated that they will press the EU to set a longer term target to reduce the average new car C02 emissions to 100g per km. This will be unwelcome news to the automotive sector who are unlikely to meet the voluntary target of 140g C02 per km by 2008-9 and who may struggle to achieve the EU's target of 130 kg per km by 2012 set last year.
  • Through the Low Carbon Vehicle Partnership, the government will explore how changing consumer behaviour (which King identifies as key to decarbonising road transport) can be encouraged. Ideas such as colour coded tax discs and dashboard technology to encourage smarter driving will be amongst those considered.
  • Cleaner fuels - following significant concerns expressed in parliament (the House of Commons Environmental Audit Committee report in 2007-08) as well as in the media regarding the sustainability of biofuels (issues such as land use changes - deforestation, fertiliser inputs and transport of biofuels) the Secretary for Transport announced that Ed Gallagher (Chairman of the Renewable Fuels Agency) would lead a study of the wider economic and environmental impacts of the different forms of biofuels - the budget announced that the terms of reference for this review will be published imminently. The Pre Budget Report of 2005 had already announced the introduction of the Renewable Transport Fuel Obligation (RTFO) in 2008 as the existing duty differential had limited scope to recognise the different impacts of different biofuels. This budget announced that the duty differential would cease in 2010 and that the RTFO will be set at 30p per litre which should better incentivise the use of biofuels. Addressing sustainability concerns, the budget announced that the government have written to the EU to outline the sustainability principles on which they believe the 10% biofuel target by 2020 that they have imposed should be based.
  • £40 million will be spent on an R&D demonstration programme focussing on low carbon vehicles and their commercialisation.
  • Aviation - the 2007 Pre-Budget Report had already announced that the air passenger duty would be replaced by a duty that was payable per plane - which should encourage airlines to fill planes. Consultation on the design of this duty began in January - responses should be sent in by 24 April. The budget announced that the government will increase forecast tax revenues from the new duty by 10 per cent in the second year of operation.

Energy Supply

As the largest single source of the UK's emissions, the energy supply sector is bound to face regular changes that require further reductions to its carbon emissions. The government has previously announced (in the UK National Allocation Plan for Phase II of the EU Emissions Trading Scheme (EU ETS)) that auctioning of allowances would be introduced in Phase II (the current EU ETS phase) up to 7 per cent. This budget announced that in Phase III the UK will auction 100 per cent of allowances to the large electricity producers sector. The government has also stated that it continues to urge the EU Commission to revise the EU ETS directive to allow for more flexibility in relation to how much of its allowances can be auctioned (there is currently an 10 per cent limit imposed on Members States).

The budget announced that the government will launch a consultation on what the UK should do to increase renewable energy use so that it meets its share of the EU target of 20 per cent by 2020.

In relation to Carbon Capture and Storage (CCS), in addition to the competition to design and build the world's 1st post-combustion coal CCS power station, the Department for Business Enterprise and Regulatory Reform (BERR) will soon announce a call for expressions of interest under the Environmental Transformation Fund to support the development of CCS components. The budget also announced a forthcoming consultation relating to the CCS regulations and what it would mean for a new coal fired power station to be 'capture ready' (i.e. able to retrofit CCS technology) and whether all new fossil fuel power stations should have to demonstrate this.

Another interesting change will be the introduction of a requirement for energy suppliers to provide smart metering to medium and large businesses within the next 5 years - something that will assist the introduction (and possibly later expansion) of the Carbon Reduction Commitment.

Business and Public Sector Emissions

Announcements in the 2007 Pre Budget Report and the 2007 Budget extended the Climate Change Agreements (CCAs - the schemes that provide participants with an 80 per cent discount from the Climate Change Levy) until 2017 subject to state aid approval and increased CCL rates in line with inflation from 1 April 2008 (respectively). This budget announced that CCL rates will also be raised in line with inflation from 1 April 2009.

Last year there was much discussion of the government's announcement that it aimed for all new homes to be zero carbon by 2016 and the planning for the first eco-town is now in progress. This budget extends the government's zero carbon ambition to incorporate all new non-domestic zero carbon buildings from 2019 and for all new public sector buildings by 2018. The government estimates that approximately 75 MtC02 can be saved in the next 30 years if this vision is achieved. Acknowledging some of the key hurdles to achieving this vision (e.g. what exactly a zero carbon home or office comprises and how this can be achieved and at what cost) the government announced on Wednesday that it would establish a taskforce to advise on the timeline, how to make the necessary carbon reductions and the particular challenges buildings like hospitals, prisons and defence establishments would face.

In terms of the existing building stock, the budget confirms the implementation by 1 October 2008 of the 2007 Pre Budget Report announcement that microgeneration investments would not be subject to reassessment of business rates liability. The budget also announced that the government will consider further the use of fiscal instruments to promote energy efficiency in non-domestic buildings.

Individuals

Public debate over the last year has increasingly recognised that individual action was necessary to reduce the UK's carbon emissions - households account for 14 per cent of the UK's emissions. This budget announced that £26 million would be provided to the Green Homes Service whose introduction was announced by the Prime Minister in November 2007 and which will be launched on 1 April this year. The service aims to provide householders with information about how to reduce their carbon emissions, reduce transport and conserve water. The government has announced that it will also convene a Green Homes Forum in the Autumn to continue to drive momentum in this area. Further, Ofgem will publish guidelines this summer on the differences between various green electricity tariffs and the government will work with the Energy Saving Trust and Ofgem to provide information to consumers who wish to install microgeneration in their homes and sell electricity back to the grid.

In relation to the zero carbon homes ambition, the government will set out a definition of a zero carbon home by the end of this year following a consultation over the summer. A new '2016 Delivery Unit' will receive funding to guide and monitor the zero carbon homes programme.

Other

Other environmental measures announced include:

  • The continued increase in the standard rate of landfill tax (by £8/tonne per year) beyond 2010-11 but that the lower rate for inactive waste would be frozen at £2.50 per tonne in 2009-10.
  • The exemption from landfill tax for waste arising from remediation of contaminated land is to be removed by 1 April 2012 and the resulting revenue will be used to extend (from 1 April 2009) the land remediation relief to expenditure on bringing derelict land back into use and the removal of Japanese knotweed.
  • That legislation to impose charges on single use carrier bags would be introduced if significant progress is not made by retailers on their voluntary action in this area.
  • Following on from the inflation related increase in the aggregates levy in last year's budget, this budget announced that the levy would increase from £1.95/ tonne to £2/ tonne from 1 April 2009.

Conclusion

There were not a lot of surprises in this budget vis-a-vis the environment. It does, perhaps, continue to point out the path that this government has chosen for its environmental measures; incremental changes being made that will, it is hoped, result in a changed landscape as regards environmental legislation and practice when one looks back over time.

Greenpeace made the point that green taxes will only be acceptable to the public if the resulting funds they raise are spent on environmental projects. The extent to which these new fiscal measures will be 'ringfenced' is not yet clear but this is a point that is likely to continue to be raised as the debate on how to encourage/ coerce businesses and individuals to change their behaviour and lessen their impact on the environment and particularly their carbon footprints continues to rage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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