The Spring Budget revealed important changes in energy taxation for businesses and increased funding for smart technologies, but failed to set out a clear future for renewable energy.
Following a public consultation on energy efficiency taxation in 2015, George Osborne’s main green budget announcement was the abolition of the Carbon Reduction Commitment (CRC), a compulsory reporting and carbon-buying scheme for large energy users.
The CRC scheme will end after its 2018-19 compliance period, and will be offset by an increase in the Climate Change Levy (CCL).
The CCL is a levy added to all non-domestic electricity and gas bills, designed to encourage energy efficiency.
The move aims to “significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers”.
Discouraging gas use
The Government also plans to change CCL rates from April 2019 to incentivise a move away from gas towards electricity.
Businesses currently pay a lower CCL rate on gas, but by 2025 the Government plans to rebalance the rates for electricity and gas completely to “strongly incentivise reductions in the use of gas, in support of the UK’s climate change targets”.
The existing Climate Change Agreement (CCA) scheme providing some sectors with discounts on CCL rates will remain in place until at least 2023.
‘Marker in the sand’
With energy taxation now clarified, a new consultation will be launched in summer 2016 to feed into the creation of a single energy and carbon reporting scheme for large businesses.
The changes were generally received well by industry.
Richard Griffiths, senior policy advisor at the UK Green Building Council, said: “Energy efficiency has stagnated a lot over the last few years and there’s a real marker in the sand now where we can really introduce a new policy regime which is simpler but hopefully more effective”.
However, as an exemption from paying the CCL on electricity generated from renewables was cancelled in 2015, the increase in CCL also represents an increase in tax on renewable energy.
In comparison, the budget announced new tax support worth £1 billion for the oil and gas industry.
On funding for large renewable energy projects, the Chancellor announced £730 million would be delivered during the current Parliament for offshore wind and other less established renewable technologies.
However, there was no decision on the level of future support to be offered for more mature renewable technologies such as solar, onshore wind and biomass.
A decision on the funding that will be available after 2020 has also been delayed until the autumn.
Other announcements included increased support for research into energy storage technologies, smart grids and small modular nuclear reactors.
Most notably, at least £50 million will be provided over the course of the Parliament to encourage the development of energy storage, demand response and other smart technologies.
The announcement follows recommendations from the National Infrastructure Commission, which calculated that support in these areas could save consumers £8 billion by 2030.
Despite freezing fuel duty for the sixth year in a row, the budget also delivered new measures to support the uptake of cleaner, low emission vehicles.
The 100 per cent first year allowance capital claims scheme for businesses purchasing low emission cars will be extended to April 2021, while the van benefit charge will be made substantially lower for zero emission vans with immediate effect.
Meanwhile, an additional £700 million will be spent on flood defences over the course of the Parliament in response to the extreme floods experienced over the winter period.