UK: Budget 2009 And The Environment

Last Updated: 24 April 2009
Article by Michelle T. Davies

In the Budget the Government stated that it is committed to ensuring the long term environmental ambitions, as defined by carbon budgets, are not jeopardised by short term economic conditions. Brief details of the environmental measures are set out below.

Climate change: carbon budgets

As required by the Climate Change Act 2008, the Budget sets out the Government's first three five-year carbon budgets, covering the periods to 2008-2022. As announced in December 2008 it is intended that there will be a reduction in greenhouse gas emissions by 34 per cent below the 1990 level by 2020. The budgets, based on the advice of the Climate Change Committee, are interim in nature and may be revised following any new international climate change agreement that may replace the Kyoto Protocol following the Copenhagen meeting in December this year.

The Energy and Climate Change Strategy to be published this summer will contain details of the proposal for meeting such budgets. It is, however, now the Government's stated intention to meet these budgets through domestic reductions and without using carbon offset credits which, if implemented, will require greater than anticipated cuts in emission by UK businesses. However, the Government has stated that it would expect the purchase of credits to form an important part of the additional effort needed to meet more challenging carbon budgets under an international deal.

Renewable energy and low carbon industries

The Government has announced that it will provide over £1.4 billion of additional funding for the renewable energy and low carbon sectors, detailed below. In addition up to £4 billion of new funding for renewable energy projects in the UK is to be provided by the European Investment Bank.

  • Increase of renewable obligation certificates (ROCs) from 1.5 to 2 ROCs and 1.75 ROC's per megawatt hour of electricity produced. The Government estimates this will be worth £3.5 billion over the lifetime of qualifying projects (Ofgem refers to 3GW of planned projects benefiting). Whilst this additional funding is welcome it arguably falls short of what those responsible for developing clean energy may have anticipated The conditionality attached to the availability of the increased ROCs is also not ideal. It will clearly assist those projects reaching financial close/execution of contracts between 23 April 2009 and 31 March 2010 as these projects will qualify for 2 ROC's. Those which reach the same milestone between 1 April 2010 and 2011 and which commence offshore work prior to 31 December 2012 will qualify for 1.75 ROC's. Ofgem has confirmed that this assistance is for a limited period only because it anticipates market conditions to improve over the next 12 to 24 months. The increase will not benefit Round 3 which is of concern because developers will be expected to commit to these projects by the end of this year without the certainty of increased ROC's or improved market conditions. DECC is to produce further details on the criteria for increased ROC's the week commencing 27 April 2009.
  • £405 million to support low carbon industries (including the development of wind and marine energy, for example by the construction of facilities to test prototype models) and "advanced green manufacturing". Such funding will be made available through existing schemes such as the Environmental Transformation Fund and the new Strategic Investment Fund (which is to make £750m available for advanced industrial projects of strategic importance, including £250m earmarked for low-carbon projects).
  • £375 million to support energy and resource efficiencies in business, public buildings and households over the next 2 years. This is to include £100 million each for the improvement of insulation for homes in the social sector, the construction of new homes with a higher energy efficiency standard and for funding of low cost loans to be provided by the Carbon Trust to small and medium sized business. £65 million will be to fund loans to install energy efficient measures in public buildings. £10m will be for waste infrastructure projects.
  • £70 million to fund decentralised and community low-carbon energy. This is to include £45 million for small scale renewable electricity and heat technology and £25 million for funding of low carbon community heating schemes.
  • £90 million to fund engineering and design for Carbon Capture and Storage.

Changes will be made to the North Sea oil and gas regime to remove fiscal barriers to the reuse of that regime's infrastructure for other purposes, including CCS and wind energy projects.

Carbon capture and storage (CCS)

£90 million (of which £30 million is in existing environmental budgets) is to be made available to provide detailed preparatory studies to reduce the technical risk and give greater clarity into the costs of CCS technology.

The Government has stated an intention to put in place a levy mechanism to deliver up to 4 demonstration or pilot CCS projects but implementation of this proposal is dependent on the outcome of the next Spending Review.

Combined Heat and Power (CHP)

With the stated intention of helping investors in CHP plan with greater certainty and to create a significant number of new jobs, the climate change levy exemption for indirect sales of CHP electricity will remain beyond 2013 until 2023 (subject to state aid approval). The climate change levy is to remain at its current levels for 2010–2011.

Automotive industry and transport taxes

The headline grabbing car scrappage scheme is a measure principally aimed at helping the automotive industry but the Government hopes that (on the basis that newer cars are more efficient) its environmental effect will be neutral or modestly positive. There is no requirement that the new car acquired in place of the scrapped car be a low-emission model.

The main fuel duty is to be increased by 2p per litre from 1 September 2009 and 1p per litre in real terms each year from 2010 to 2013. Other measures (including changes to the rates of fuel duty, the method of charging vehicle excise duty and to company car taxation) are aimed at encouraging investment in the development of, and the purchase of, vehicles with lower carbon dioxide emissions.

Landfill tax and waste infrastructure

The standard rate of tax is to be increased by £8 per tonne to £48 per tonne with effect from 1 April 2010. It will increase by a further £8 per tonne on each subsequent 1 April from 20011 to 2013. The lower rate will be frozen at £2.50 per tonne for 2010-11.

From 1 September 2009 certain material used site restoration and other purposes at the landfill site will be subject to the tax, thereby reversing for the future the decision in the Waste Recycling Group Limited case. The Government is also consulting on the modernisation if the tax, including as to which disposals are to be treated as taxable and the administration of the tax.

An additional £10m is of grants is to be made available for anaerobic digestion and in-vessel composting infrastructures, in addition to the already announced PFI credits.

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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