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2015 Autumn Statement and Spending Review: key environmental announcements
Practical Law UK Legal Update 3-620-2482 (Approx. 9 pages)
2015 Autumn Statement and Spending Review: key environmental announcements
| Published on 25 Nov 2015 • United Kingdom |
The Chancellor of the Exchequer, George Osborne, delivered the 2015 Autumn Statement and Spending Review on 25 November 2015. This update analyses the key environmental announcements. (Free access.)
Speedread
On 25 November 2015, the Chancellor of the Exchequer, George Osborne, delivered the 2015 Autumn Statement and Spending Review.
This update analyses the key environmental announcements, including in particular:
- Replacing the Energy Companies Obligation (ECO) from April 2017 with a new energy efficiency supplier obligation, which will run for five years.
- Reforming the Renewable Heat Incentive (RHI) to improve cost control, as well as increasing funding for it.
- Closing the transitional period for the renewable electricity exemption for the climate change levy (CCL) on 31 March 2018.
- Reducing the maximum credit that a landfill site operator will be able to claim against its annual landfill tax liability for contributions made to environmental bodies enrolled under the Landfill Communities Fund (LCF). The government also published its response to its March 2015 consultation on reform of the LCF.
Rather surprisingly, also on 25 November 2015, the government announced separately to the London Stock Exchange that the UK carbon capture and storage (CCS) demonstration pilot will no longer be able to proceed because the government has withdrawn the £1 billion capital budget that had been ring-fenced for this.
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2015 Autumn Statement and Spending Review
On 25 November 2015, the Chancellor of the Exchequer, George Osborne, delivered the 2015 Autumn Statement and Spending Review, which sets out the UK government's economic and fiscal plans.
This update analyses the key environmental announcements.
For more information on other aspects of the 2015 Autumn Statement and Spending Review including property, planning, agriculture and construction, see Practical Law: 2015 Autumn Statement.
For a summary of environmental announcements in previous Autumn Statements and Budgets, see Practice note, Government budgets and autumn statements: environmental announcements.
Energy
Reform of Energy Companies Obligation (ECO)
The government will replace the Energy Companies Obligation (ECO) from April 2017 with a new, cheaper energy efficiency supplier obligation to reduce carbon emissions, which will run for five years. The government intends that the new scheme will improve the energy efficiency of over 200,000 homes per year.
(Autumn Statement and Spending Review 2015, paragraphs 1.139 and 3.114.)
The current ECO runs until March 2017.
For more information on the ECO, see Practice note, Energy Company Obligation (ECO) and its predecessors, CERT and EEC.
Warm Home Discount
The government will extend the Warm Home Discount scheme to 2020-2021. It is currently due to close in March 2016.
(Autumn Statement and Spending Review 2015, paragraphs 1.141 and 3.113.)
For more information on the Warm Home Discount, see Practice note, Energy efficiency in buildings: overview: Warm Home Discount.
Renewables Obligation (RO) and feed-in tariffs (FITs)
The government will shortly publish a response to its consultations on changes to the Renewables Obligation (RO) and feed-in tariffs (FITs). The government responses will set out how the government will implement cost control on these schemes.
(Autumn Statement and Spending Review 2015, paragraph 1.140.)
For more information on:
- The RO, see Practice note, Renewables Obligation.
Renewable Heat Incentive
The government will introduce reforms to the Renewable Heat Incentive (RHI) to strengthen cost control and deliver better value for money. It will also increase funding for the RHI to £1.15 billion by 2020-21.
(Autumn Statement and Spending Review 2015, paragraphs 1.204 and 3.115.)
For more information on the RHI, see:
Venture capital relief for community energy schemes
The 2015 Autumn Statement and Spending Review confirmed the government's announcement at the Report stage of the Finance (No.2) Act 2015 that the Social Investment Tax Relief (SITR) would not be made available to community energy projects as an alternative to replace the other venture capital reliefs that are being withdrawn (Venture Capital Trusts (VCTs), Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)).
This is a reversal of the government's previous indication in the March 2015 Budget, that the SITR was to be expanded to provide an alternative tax relief for community energy generation under FITs, in line with its strategy to support community energy (see Legal update, Regulations exclude community energy organisations from scope of VCTs, EIS and SEIS).
The government will exclude all remaining energy generation activities from the venture capital relief schemes from 6 April 2016.
(Autumn Statement and Spending Review 2015, paragraphs 1.151 and 3.23.)
For more information on community energy schemes, see Practice note, Renewable energy: overview: Support of community projects.
Reduced VAT rates for energy-saving materials
The government will consult on legislation for the Finance Bill 2016 to ensure that the reduced rate of VAT on energy-saving materials is maintained in line with EU law.
(Autumn Statement and Spending Review 2015, paragraph 3.64.)
A reduced VAT rate of 5% applies to the installation of certain energy-saving products and materials in residential properties. In June 2015, the Court of Justice of the European Union (ECJ) decided that the UK's application of the reduced rate breaches EU law (see Legal update, ECJ: UK reduced rate VAT for energy-efficient materials infringes VAT Directive).
For more information, see Practice note, Energy efficiency in buildings: overview: Reduced VAT rates for energy-saving materials.
Climate change levy
The Finance Bill 2016 will include legislation for a transitional period for electricity suppliers to apply the climate change levy (CCL) exemption on electricity generated from renewable sources before 1 August 2015. The transitional period will end on 31 March 2018.
(Autumn Statement and Spending Review 2015, paragraph 3.67.)
In August 2015, HM Revenue & Customs (HMRC) launched an informal consultation on the length of the transitional period following withdrawal of this exemption. Section 49 of the Finance (No. 2) Act 2015 came into force on 18 November 2015 and provides that electricity from renewable sources generated on or after 1 August 2015 is no longer eligible for the CCL exemption.
Shale Wealth Fund
The government will establish a Shale Wealth Fund from shale gas revenues. Up to 10% of tax revenues from shale gas will be paid into the fund, to be spent in local areas.
(Autumn Statement and Spending Review 2015, paragraphs 1.205, 1.255 and 3.68.)
For more information on shale gas, see Practice note, Shale gas in the UK: environmental issues.
Nuclear
The government will invest £250 million in research and development for nuclear. This will be part of the government's increased spend on energy innovation (see Energy innovation below).
It will include a competition to identify the best value small modular reactor design for the UK, to pave the way to building one of the world's first small modular reactors in the UK in the 2020s. The government will publish detailed plans for the competition in early 2016.
(Autumn Statement and Spending Review 2015, paragraph 1.202.)
For more information on nuclear power, see Practice note, Proposals for new nuclear power stations.
Energy innovation
The government will double its spend on energy innovation to £500 million over five years, to boost energy security and reduce the costs of decarbonisation.
(Autumn Statement and Spending Review 2015, paragraphs 1.95, 1.201 and 2.93.)
Energy intensive industries
The government will provide an exemption for energy intensive industries (EIIs) from the policy costs of the RO and FITs.
(Autumn Statement and Spending Review 2015, paragraphs 1.203 and 2.79.)
The government has been developing a scheme for support for EIIs from the costs of the RO and FITs. For more information, see Practice note, Carbon leakage and support for energy intensive industry (EII): CFDs, RO and FITs: UK government support.
International Climate Fund
The government will increase funding for developing countries to tackle and adapt to climate change by 50% over the next five years.
(Autumn Statement and Spending Review 2015, paragraphs 1.94 and 2.27.)
Reform of the Landfill Communities Fund
The government will set the value of the Landfill Communities Fund (LCF) for 2016-17 at £39.3 million. The maximum credit that a landfill site operator will be able to claim against its annual landfill tax liability for contributions made to environmental bodies enrolled under the LCF will be reduced to 4.2%. The LCF enables landfill site operators to obtain tax credits by making contributions to various approved environmental bodies.
The Environment Agency will receive £20 million of the additional landfill tax revenues from the change in credits, to address waste crime in the next five years.
(Autumn Statement and Spending Review 2015, paragraph 3.69.)
Also on 25 November 2015, HMRC published a response to its March 2015 consultation on proposals to reform the LCF (see Legal update, Landfill tax: HMRC publishes response to its consultation on reform of Landfill Communities Fund).
For more information on landfill tax in general, see Practice note, Landfill tax.
Regeneration of brownfield land
As part of its support for Starter Homes, the government will amend planning policy to support regeneration of previously developed, brownfield sites in the greenbelt. It will allow these sites to be built on in the same way as brownfield sites in other areas, provided they deliver Starter Homes and subject to local consultation.
(Autumn Statement and Spending Review 2015, paragraph 3.107.)
For more information on policies to support development of brownfield land, see Land contamination toolkit: Role of planning process in clean-up of land contamination.
Environmental information
The government confirmed that the Department for Environment, Food and Rural Affairs (Defra) will make 8,000 datasets available, to enable the public to make better use of data to protect the environment and drive innovation in food and farming.
(Autumn Statement and Spending Review 2015, paragraph 1.303.)
Defra announced its plans to make data available in July 2015 (see Legal update, Defra announces proposals to give the public free access to its data reserves).
Flooding
The government confirmed that the Flood Reinsurance (Flood Re) scheme has been designated and will be consolidated into the accounts of Defra.
(Autumn Statement and Spending Review 2015, paragraph 3.116.)
The Flood Reinsurance (Scheme Funding and Administration) Regulations 2015 (SI 2015/1902) and the Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015 (SI 2015/1875) came into force on 11 November 2015. These regulations establish Flood Re and are supported by the Scheme Document issued by Flood Re (dated 22 June 2015) (see Legal update, Flood Re regulations in force).
Carbon capture and storage
Rather surprisingly, the most significant environmental announcement of 25 November 2015 was not actually contained in the 2015 Autumn Statement and Spending Review. According to press reports, the government informed the London Stock Exchange that:
"Today, following the Chancellor's Autumn Statement, HM Government confirms that the £1 billion ring-fenced capital budget for the Carbon Capture and Storage (CCS) Competition is no longer available. This decision means that the CCS Competition cannot proceed on its current basis. We will engage closely with the bidders on the implications of this decision for them."
For more information on carbon capture and storage (CCS), see Practice note, Carbon capture and storage: overview.
Comment
The cancellation of the CCS competition is undoubtedly a devastating blow to the CCS industry and a potentially embarrassing political move with a only few days left to go before the international climate change talks in Paris. For more information on the Paris climate change talks, see Practice note, UNFCCC Conferences: COP 21/CMP 11: Paris Conference in 2015.
Separately, the absence of detail on how the RHI will be reformed will add even more pressure on a renewables industry that is already struggling to cope with ongoing subsidy cuts, including cuts to support renewable electricity as well as renewable heat.