Autumn Budget 2017 – How will it affect the UK's green economy?
The Chancellor's Autumn Budget pledged to build an economy "fit for the future" by announcing new air quality funding, tax incentives for electric cars and measures to combat plastic waste. However, it was not all good news for the green economy as the Government announced that there will be no new support for new renewables projects post-2020 and no clarity on how the Government intends to decarbonise heat post-2020/21.
Here is a summary of some of the key announcements affecting the UK's renewables and decentralised energy sectors.
Levy Control Framework
The Budget confirmed that the Government "will not introduce new low carbon electricity levies until the burden of such costs are falling". This means, in practice, that no new funds will be made available for the Levy Control Framework (LCF) until what is likely to be 2025. The LCF sets the Government's expenditure on renewable energy support up to 2020. It was confirmed that existing auctions commitments up to 2020 will still be honoured.
It was hoped that the Chancellor would maintain a meaningful and robust carbon price to help the UK to meet its climate change pledges. However, the Government announced that the "Total Carbon Price, currently created by the combination of the EU Emission Trading System and the Carbon Price Support, is set at the right level…until unabated coal is no longer used." Given the current ambition to phase out coal generation by 2025, it appears that the Government is not intending to raise, or provide a trajectory for, the carbon price for some time.
Low emission and autonomous vehicles
It was positive news for the low emission transport sector as support was proposed for the wider roll-out of charging infrastructure. £200 million will be invested, to be matched by private investment, into a new £400 million Charging Investment Infrastructure Fund. In addition, the Government will also provide £100 million to guarantee the continuation of the Plug-In Car Grant to 2020 to help consumers with the cost of purchasing a new battery electric vehicle.
Taxes, tax relief and fuel duty
Climate Change Levy (CCL) - The Government will set CCL main rates for 2020-21 and 2021 22 at the Autumn Budget 2018. To ensure better consistency between portable fuels for commercial premises not connected to the gas grid, the Government will freeze the CCL main rate for LPG at the 2019-20 level until April 2022. To ensure that the CCL exemptions for businesses that operate mineralogical and metallurgical processes remain operable post-Brexit, the Government will clarify the definition of the exemptions in the Finance Bill 2018-19.
Enhanced Capital Allowances (ECAs) - The list of designated energy-saving technologies qualifying for an ECA, which support investment in energy-saving plant or machinery that might otherwise be too expensive, will be updated through the Finance Bill 2017-18. This list does not currently include technologies like solar PV or energy storage, which have not been included in the past. However, there is now an opportunity to revisit the Energy Technology List.
In support of the National Air Quality Plan published in July of this year, the Government will provide £220 million into a new Clean Air Fund to provide support for the implementation of local air quality plans.
Tackling plastic waste
The Government will launch a call for evidence in 2018 seeking views on how the tax system or charges could reduce the amount of single-use plastics waste, building on the success of the existing plastic carrier bag charge. It is hoped that this will lead to stronger policies on producer responsibility.
What wasn’t mentioned?
- Future Contracts for Difference (CfD) auctions – following the announcement set out above regarding the LCF, there is no clarity from the Government on how new renewables projects will be supported following the existing rounds of CfD auctions in 2020.
- Heat projects – there is lack of clarity on how future heat projects will be supported including how the Government intends to support the decarbonisation of heat post-2020/21, an issue which the heat sector has been lobbying the Government for some time.
- Solar PV – after a steep drop in solar deployment in the UK this year, many industry participants were seeking some form of solar tax benefit such as business rate exceptions and/or 100% capital allowances which are currently granted to some fossil fuel applications.
- Domestic battery storage – there was no reduction of VAT on domestic battery storage despite a growing number of homes in the UK that already have solar PV installed that wish to install battery storage.
What does this mean for the energy sector?
Whilst the support for the roll-out of electric vehicles is encouraging, the Government's announcements that no new support for renewables projects post-2020 plus a freeze on carbon taxes and a lack of clarity regarding future heat projects may lead to a hiatus in green infrastructure investment. As a large part of the UK's existing electrical generation capacity is set to be retired by 2035, largely nuclear and coal, it is now even more important that the Government considers their replacement so the economy is indeed "fit for the future".
If you would like to discuss any part of this summary, please contact Jonathan Cohen.