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Is there a ‘climate-shaped hole’ in the Summer Budget?

George Osborne’s Summer Budget presents new challenges and uncertainty for green business, with commentators describing its announcements as both “bizarre” and a “great opportunity”.

George Osborne’s Summer Budget presents new challenges and uncertainty for green business, with commentators describing its announcements as both “bizarre” and a “great opportunity”.

The Summer Budget, the Chancellor’s second in four months and the first all-Conservative Budget in nearly two decades, made a number of important announcements for the green economy, focusing specifically on energy and energy efficiency taxes:

  • From 1 August 2015, electricity generated from renewable sources will no longer be exempt from the Climate Change Levy (CCL), a tax on energy bills for businesses designed to encourage energy efficiency and renewable energy generation
  • A consultation will be launched in Autumn 2015 to review energy efficiency taxes on businesses and consider new approaches to improve the effectiveness of energy efficiency policy
  • The government will continue to push for a global climate deal at the UN climate summit in Paris this December to limit global warming to 2 degrees, while still expanding investment in North Sea oil and gas and shale gas development
  • Vehicle Excise Duty (VED) will be reformed from 2018 to bring in new charging bands that will only incentivise zero emission vehicles, with all revenue raised to be invested in new road building programmes from 2020/21.

Green Party MP, Caroline Lucas, described the budget as leaving “an enormous climate-shaped hole” in government policy.

Climate Change Levy

According to the Treasury, removing the CCL exemption for renewables will boost income from the tax by nearly £4 billion over the course of this Parliament and prevent taxpayer money benefitting renewable electricity generation abroad instead of in the UK. 

However, it means that businesses purchasing electricity from renewable sources will see bills rise. The Anaerobic Digestion and Bioresources Association (ADBA) has already calculated that the move will cost the anaerobic digestion (AD) industry £11 million a year alone. 

‘Bizarre’

Dr Nina Skorupska, chief executive of the Renewable Energy Association (REA), warned that the move “turns a measure designed to encourage low carbon electricity into just an electricity tax for businesses”, adding that it “will have a significant effect for our members immediately and will undermine investor confidence.”

Green campaigners were even more critical of the move. Alasdair Camerson, senior economics campaigner at Friends of the Earth, said: “This is totally bizarre. Making renewable electricity pay a carbon tax is completely counterproductive – like making apple juice pay an alcohol tax.”

Energy efficiency

The announcement to review the energy efficiency tax landscape (which includes the CCL, the Carbon Reduction Commitment scheme and the Energy Saving Obligation Scheme, among others) was largely considered a positive move by commentators. 

In an announcement following the Budget, energy and climate secretary, Amber Rudd, said: “We want to create a simple business energy tax system that rewards energy and carbon saving, as part of our long-term plan to back businesses to increase productivity, support growth and jobs and secure their place in a competitive global market.”

‘Great opportunity’

Paul Raynes, director of policy for the manufacturers’ organisation, EEF, welcomed the move, describing it as an opportunity to revisit “fifteen years of layering and tinkering with policy [that] has left us with a vast patchwork of expensive, inefficient and incoherent policy drivers for decarbonisation.”

Mark Hurley, head of environmental at global consultancy firm WSP, added: “The CCL will raise around £2.3 billion next year and the autumn’s review of business energy efficiency provides a great opportunity to use this revenue to promote energy efficiency.”

Vehicle Excise Duty

The announcement on VED means that, from 2018, cars will no longer be charged according their emissions rate unless they emit zero emissions.

Three new annual charging bands will be introduced: a zero emission rate of £0; a premium rate of £310 for cars with a list price above £40,000; and a standard rate of £140 for all other cars, which represent 95 per cent of the national car fleet. 

The Chancellor argued that this was necessary to ensure fairness for consumers that cannot afford new lower emission cars.  

However, Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: “While we are pleased that zero emission cars will remain exempt from VED, the new regime will disincentivise take-up of low emission vehicles.”