2013 Budget: key environmental announcements

Practical Law UK Legal Update 1-525-3020 (Approx. 10 pages)

2013 Budget: key environmental announcements

by PLC Environment

Climate change levy (CCL) and carbon price floor (CPF)

CPF and CCL

As announced in 2011, the government will introduce a carbon price floor (CPF) in April 2013 to support the generation of low carbon electricity. The CPF is part of the government's wider package of measures to implement the Electricity Market Reform (EMR) (see Practice note, Electricity Market Reform (EMR): Carbon price floor).

The CPF is being implemented through changes to the climate change levy (CCL). The CCL has already been amended so that supplies of coal, gas and liquefied petroleum gas (LPG) used in most forms of electricity generation will be subject to new carbon price support (CPS) rates of CCL (see Practice note, Climate change levy and climate change agreements).

Most of the necessary changes have been made though the Finance Act 2011 and Finance Act 2012.

CCL rates

The government has announced that the CCL rates will increase in line with the retail price index (RPI) from 1 April 2014. This will be done through the Finance Bill 2013.

CPF rates

The government will set 2015-16 CPS rates equivalent to £18.08 per tonne of carbon dioxide (tCO2) in line with the CPF set out at the 2011 Budget. This will be done through the Finance Bill 2013.

The indicative rates for 2016-17 and 2017-18 are equivalent to £21.20 and £24.62 per tCO2, respectively.

HMRC has indicated in its Tax Information and Impact Note (TIIN): Carbon price floor: rates from 2015-16, exemption for Northern Ireland and technical changes that:

All solid fuels (such as lignite and coke, as well as coal) will be liable to CPS rates of CCL.
Coal slurry will not be taxed.
Fuel used in emergency standby generators will not be taxed.
A credit from CPS rates of CCL will be allowed when fuel that has been taxed, but not used, is moved from one generation station to another.

These changes will be introduced by the Climate Change Levy (General) (Amendment) Regulations 2013, which will be laid before Parliament before the end of March 2013.

HMRC has already published draft guidance on its approach to the CPF (see Legal update, HMRC publishes draft guidance on the carbon price floor).

Support for energy-intensive industries to prevent carbon leakage

The government will continue to provide support to energy-intensive industries to compensate for the indirect cost of the CPF in 2015-16. It states that further details will be announced at the next spending round.

It consulted on compensation proposals in 2012 (see Legal update, EU ETS and carbon price floor: government consults on energy intensive industries compensation scheme).

CCL exemptions for metallurgical and mineralogical processes

The government will introduce exemptions from the CCL for energy used in metallurgical and mineralogical processes from 1 April 2014. The government will consult on these exemptions and will publish draft legislation in the 2013 Autumn Statement.

The changes will be introduced through the Finance Bill 2014.

CPS rates for hydrocarbon oil duty

The Hydrocarbon Oil Duties (Reliefs for Electricity Generation) (Amendment for Carbon Price Support) Regulations 2013 (SI 2013/657), which were laid before Parliament on 20 March 2013 (at the same time as the 2013 Budget) and come into force on 1 April 2013, create CPS rates of fuel duty.

The 2013 Regulations amend the Hydrocarbon Oil Duties (Reliefs for Electricity Generation) Regulations 2005 (SI 2005/3320). The 2005 Regulations introduced relief from excise duty for rebated oils used to produce electricity. The 2013 Regulations amend the 2005 Regulations to reduce the amount of relief that can be claimed by the amounts set out in Schedule 2 to the 2013 Regulations (the CPS rates).

The CPS rates of fuel duty do not apply to Northern Ireland.

Carbon capture and storage (CCS)

The government has announced the two preferred bidders for the next stage (detailed planning and design) of the UK carbon capture and storage (CCS) demonstration projects. This is also known as the Carbon Capture and Storage Commercialisation Programme Competition.

The two preferred bidders are Peterhead Project in Aberdeenshire and the White Rose Project in Yorkshire. A final investment decision will be taken by the government in early 2015 on the construction of up to two projects (see DECC press release, Preferred bidders announced in UK’s £1bn CCS Competition, 20 March 2013).

For more information about CCS in general, see Practice note, Carbon capture and storage: overview.

Shale gas

Tax support regime for shale gas

The government has announced that it will:

Introduce a new field allowance for shale gas, similar to the one for North Sea oil (see Practice note, Oil taxation).
Extend the Ring Fence Expenditure Supplement for shale gas projects from six to ten years (see HMRC: Oil and Gas Taxation: Ring Fence Expenditure Supplement).
Consult on the detail of these measures, including on whether they should be extended to other forms of unconventional onshore gas.

This follows the government's previous announcement in October 2012 that it would develop a targeted tax regime to support the UK shale gas industry (see Legal update, Government announces a targeted tax regime for the shale gas industry).

Office for Unconventional Gas and Oil

The government has announced the scope, responsibilities and objectives of the new Office for Unconventional Gas and Oil (OUGO), which will be headed up by Duarte Figueira (see DECC press release, New Office to look at community benefits for shale gas projects, 20 March 2013).

The government had previously announced in the December 2012 Gas Generation Strategy that it would set up OUGO to provide a single point of contact for investors and ensure a simplified and streamlined regulatory process for shale gas (see Legal update, DECC publishes Gas Generation Strategy: environmental implications: Shale gas).

Planning regime for shale gas

The government has announced that it will:

By July 2013, produce technical planning guidance on shale gas to clarify how the planning regime applies to shale gas exploration.
By the end of 2013, produce guidance to ensure that the planning regime is properly aligned with the licensing and regulatory regimes (in particular health and safety and environmental regimes).
By summer 2013, develop proposals to ensure that local communities will benefit from shale gas projects in their area.
Keep under review whether the largest shale gas projects should have the option to apply to be treated as a nationally significant infrastructure project (NSIP) (see Planning Act 2008: environmental implications: Planning Act 2008: development consent for major infrastructure projects).

Background information on shale gas

For more information on shale gas in general, see:

Nuclear power

The Chancellor in his Budget speech said that the granting of planning permission for a new nuclear plant at Hinkley Point was a major step forward for new nuclear power. This will be the first new nuclear power station to be built in the UK since 1995.

NNB Generation Company Limited, which is a subsidiary of EDF Energy, was granted planning consent on 19 March 2013 for a new nuclear power station at Hinkley Point in Somerset (see DECC press release, New nuclear power station gets planning permission, 19 March 2013 and Oral statement to Parliament, Edward Davey statement on Hinkley Point C nuclear power station, 19 March).

The proposal had already been granted a nuclear site licence in November 2012 (see Legal update, ONR grants first new site licence for a UK nuclear power station in 25 years).

Meanwhile, negotiations between EDF and the government are still ongoing as to what the strike price should be in the new Contracts for Difference (CFDs) under the government's EMR proposals (see Government denies EDF strike price talks have stalled, BusinessGreen.com, 12 February 2013). The strike price will be crucial for the financial viability of new nuclear power stations.

For more information on:

CFDs and the strike price, see Practice note, Electricity Market Reform (EMR): Contracts for Difference (CFD).
New nuclear power plants in general, see Practice note, Proposals for new nuclear power stations.

Landfill tax

The standard rate of landfill tax will increase by £8 to £80 per tonne from 1 April 2014. The lower rate of landfill tax (for inert waste) will remain unchanged at £2.50 per tonne in 2014-15.

The value of the Landfill Communities Fund for 2013-14 will remain unchanged at £78.1 million. As a result, the maximum credit that a landfill site operator may claim against his annual landfill tax liability has been amended from 5.6% to 6.8% by the Landfill Tax (Amendment) Regulations 2013 (SI 2013/658). The government has said that future decisions on the value of the Landfill Communities Fund will take into account the level of unspent funds held by environmental bodies.

For more information on the landfill tax in general and Landfill Communities Fund, see Practice note, Landfill tax.

Aggregates levy

The aggregates levy rate will remain at £2 per tonne in 2013-14.

For more information on the aggregates levy in general, see Practice note, Aggregates levy.

Marine

The government has announced that it will introduce a new system to speed up the implementation of international maritime agreements into UK law. It has also confirmed that it will scrap or improve around two thirds of the maritime legislation identified in the Red Tape Challenge (see Legal update, Government Red Tape Challenge spotlights water and marine regulation).

For more information on the Red Tape Challenge in general, see PLC Environment legislation tracker: Red Tape Challenge.

ECAs for energy-saving and water efficient technologies

Subject to EU state aid approval, the enhanced capital allowances (ECA) schemes for energy-saving and water-efficient technologies will be updated in summer 2013, mainly to include and remove a number of technologies. The qualifying criteria for a number of technologies in both ECA schemes will also be revised.

The schemes allow 100% of the cost of an investment in qualifying plant and machinery to be written off against the taxable profits of the period in which the investment is made, benefiting a business's cash flow.

For more information about ECAs in general, see Practice note, Enhanced capital allowances (ECAs) for investment in environmental technologies.

Low emissions vehicles

Legislation will be introduced in the Finance Bill 2015 to extend the 100% first year allowance (FYA) for expenditure incurred on cars with low carbon dioxide emissions and electrically propelled cars for an additional three years to 31 March 2018.

From April 2015, the carbon dioxide emissions threshold will be reduced from 95 grammes per kilometre (g/km) to 75 g/km.

Zero carbon homes

The government has confirmed that it is committed to a target of zero carbon homes by 2016.

The Department for Communities and Local Government (DCLG) will publish, by May 2013, a detailed plan setting out its response to the 2012 consultation on changes to Part L (which deals with conservation of fuel and power) of the Building Regulations 2010 (see Legal update, Consultations on changes to the Building Regulations 2010).

The government will then consult, by the summer recess, on next steps, including on the means of delivering "allowable solutions".

For more information on zero carbon homes and allowable solutions, Practice note, Zero carbon buildings.

Planning guidance and judicial review time limits

The government has announced that it will:

In spring 2013, set out its plans for shortening the time limits for planning judicial reviews (see Legal update, MoJ consults on proposals to reform judicial review).
By summer 2013, develop further measures to streamline planning judicial reviews.
In summer 2013, publish significantly reduced planning guidance in line with Lord Taylor's recommendations (see Legal update, Consultation on planning practice guidance: environmental implications).

National Infrastructure Plan: infrastructure delivery update

The government has published, alongside the 2013 Budget, an update on delivery of the key 40 projects identified in the National Infrastructure Plan (NIP) 2011 (National Infrastructure Plan: Infrastructure delivery update (20 March 2013)). The NIP 2011 sets out the government's overall approach to strengthening infrastructure in the UK.

The main aspects of the March 2013 infrastructure delivery update that may be of interest to environmental lawyers are as follows:

Drax Power has been offered a guarantee of up to £75 million of debt from the Green Investment Bank for the partial conversion of its power station from coal to biomass (see Drax: About Drax's biomass plans).
A second phase of the Red Tape Challenge will be launched in summer 2013, to help streamline planning and regulation in order to reduce delay in bringing forward infrastructure projects.
The government will announce its decisions on revised sustainability criteria for biomass under the Renewables Obligation in summer 2013 (see Practice note, Renewables Obligation).

For more information about the NIP in general, see Practice note, National Infrastructure Plans: construction, environment and property implications.

Plan for Growth: implementation update

The government has published, alongside the 2013 Budget, the Plan for Growth implementation update (March 2013). The last update was published alongside the 2012 Autumn Statement in December 2012 (see Legal update, 2012 Autumn Statement: environmental implications: Plan for Growth Implementation Update).

The main aspects of the March 2013 implementation update that may be of interest to environmental lawyers are as follows:

The government is providing greater certainty for the energy market through the:
- EMR, which is being implemented principally under the Energy Bill 2012-13 (see Practice note, Electricity Market Reform (EMR)); and
- Gas Generation Strategy, which was published in December 2012 (see Legal update, DECC publishes Gas Generation Strategy: environmental implications).
Since January 2013, the government has upped its deregulation ambitions from a "one-in, one-out" rule for new legislation to a "one-in, two-out" rule (see Legal update, 2012 Autumn Statement: environmental implications: "One-in, two-out" rule).
The government will publish an Aviation Policy Framework in March 2013 (see Legal update, Government consults on draft aviation policy framework: environmental implications).
Final guidance on the EU Habitats and Wild Birds Directives will be published shortly, alongside plans to simplify significantly more than 2,500 pages of existing guidance (see Legal update, Defra launches consultation on simplified guidance on Habitats and Wild Birds Directives).

Comment

The announcement on the two preferred bidders for the next stage of the CCS demonstration project will be good news for industry and environmental lobby groups.

The CBI welcomed the announcement on the CCS projects and said that the improvements to the tax regime for shale gas were "welcome steps towards achieving a balanced and secure energy mix" (see CBI press release, Budget 2013: Full CBI reaction, 20 March 2013). However, environmental NGOs have expressed dismay at the measures. Greenpeace energy campaigner, Lawrence Carter, said:

"Bungs to the gas industry make it harder for Britain to meet its climate targets and stifle the low carbon sector, which provided one third of all UK growth between 2011-2012. Green jobs and investment are at risk here. George Osborne needs to stop playing Britain’s JR Ewing and instead back the shift to carbon free energy, which will create jobs and be cleaner, safer and cheaper over time."

(See Greenpeace press release, The budget - Greenpeace responds, 20 March 2013.)

An event was held on 20 March 2013 to discuss the policy brief published by the Grantham Institute for Climate Change, which analyses whether the shift from coal to natural gas will help the UK power sector to decarbonise. Samuel Frankhauser, a co-director at the Grantham Institute and member of the Climate Change Committee, observed that the differences between the situations of the UK and the US could mean that shale gas might not lower carbon emissions and could actually increase the UK's emissions. In particular, he noted that, in the UK, shale gas would be replacing low carbon energy not coal generation. This could increase the UK's use of shale gas and result in a carbon penalty.

Commentators have also highlighted the disparity between the nil-interest loans under the new Help to Buy scheme announced in the 2013 Budget, which offers to help home-buyers get on the property ladder, and the cost of loans for energy efficiency measures under the government's Green Deal scheme, which launched in January 2013 (see Green campaigners dismayed by Budget, bbc.co.uk, 20 March 2013).

The Department of Energy and Climate Change, the Department for Environment, Food and Rural Affairs and the Department for Communities and Local Government (along with other government departments) will have to face yet more spending cuts, which some have argued could weaken support for a green economy (see Budget 2013: Defra facing £37m budget cut by 2015, guardian.co.uk, 20 March 2013).

2013 Budget documents

For links to the relevant Budget documents on the Treasury and HMRC websites, see:

Further PLC analysis on the 2013 Budget

For further analysis from PLC on the 2013 Budget, see:

Legal update, 2013 Budget: property implications.
Legal update, 2013 Budget: construction industry implications.
Legal update, 2013 Budget: key business tax announcements.
PLC 2013 Budget.

2013 Budget: key environmental announcements | Practical Law