2012 Autumn Statement: environmental implications

Practical Law UK Legal Update 3-522-8421 (Approx. 14 pages)

2012 Autumn Statement: environmental implications

by PLC Environment

2012 Autumn Statement

On 5 December 2012, the Chancellor of the Exchequer, George Osborne, delivered the Autumn Statement, which sets out the government's economic and fiscal plans.

This update analyses the key environmental implications.

For an analysis of other aspects of the 2012 Autumn Statement (including property and construction implications), see PLC Autumn Statement 2012.

CRC Energy Efficiency Scheme

The government has announced that the:

CRC will be simplified from 2013, rather than scrapped.
CRC Performance League Table will be abolished from 2013.
Price of CRC allowances will be as follows:
- £12 per tonne of carbon dioxide (tCO2) in 2013-14;
- £16/tCO2 in 2014-15; and
- from 2015-16 onwards, the price will increase in line with the Retail Prices Index (RPI).
Government will review the effectiveness of the CRC in 2016 and consider whether the same policy objectives could be achieved in a different way.
Tax element of the CRC, introduced in the Spending Review 2010, will be a high priority for removal when public finances allow. However, the 2012 Autumn Statement does not explain what this means (see Comment: CRC below for further discussion on this point).

The Department of Energy and Climate Change (DECC) says on its website that details on the changes will be set out in the government's response to the consultation it carried out in March 2012 on proposals to simplify the CRC, and that it plans to publish that response "shortly" (see DECC: CRC Energy Efficiency Scheme (5 December 2012)). For more information on the March 2012 consultation, see Legal update, CRC: detailed analysis of DECC consultation on proposals to simplify the scheme.

For more information about the CRC in general, see:

(Autumn Statement, paragraphs 2.87-2.88.)

Gas Generation Strategy

DECC published a Gas Generation Strategy, alongside the 2012 Autumn Statement.

The Strategy confirms that gas will continue to have a major role in UK electricity generation. It sets out the measures the government is proposing to introduce to support new investment in gas generation, including:

Further details on how the capacity market will function and the proposed timetable for its introduction. The capacity market is part of Electricity Market Reform (EMR). Under capacity agreements, gas generation will provide a back-up source of electricity for intermittent and inflexible generation (such as renewable energy and nuclear power) (see Practice note, Electricity Market Reform (EMR): Capacity market). DECC states that it is "minded" to run the first capacity market auction in 2014, for delivery of capacity in 2018-19. A final decision has yet to be taken.
The government also intends to run pilot auctions. Any generators that begin construction between May 2012 and the first capacity auction will be eligible to participate in the capacity market as "new" plant (if new and existing plants end up being treated differently in capacity auctions). The legislation introducing the capacity market is set out in the Energy Bill 2012-13 (see Legal update, Energy Bill 2012-13: environmental implications: Capacity market).
Introducing powers in the Energy Bill 2012-13 to enable the government to improve wholesale electricity market liquidity (see Legal update, Energy Bill 2012-13: environmental implications: Access to markets).
Ensuring the security of the UK's gas supply. The Strategy sets out aims to improve gas storage, encourage the UK's position as a gas trading hub, and manage gas generation and supply infrastructure. For background information on gas security of supply, see Legal update, Ofgem gas security of supply report.

The Strategy refers to the work the government is doing to promote:

Carbon capture and storage (CCS) (see Carbon capture and storage below).
Develop the shale gas industry (see Shale gas tax regime below).
Reform the planning system (see Planning regime below).

The Strategy also explains DECC's current thinking on a decarbonisation target under the Energy Bill 2012-13, and the relationship between the decarbonisation target, the carbon budgets under the Climate Change Act 2008 and the EU trajectory for the reduction of carbon emissions.

For more information on the Strategy, see Legal update, DECC publishes Gas Generation Strategy: environmental implications.

Shale gas tax regime

The government announced that it will consult on a tax regime for shale gas. The government had already announced, in October 2012, that it would do this (see Legal update, Government announces a targeted tax regime for the shale gas industry). The Autumn Statement does not say when the consultation will be published.

For more information on shale gas in general, see:

(Autumn Statement, paragraphs 1.83 and 2.124.)

National Infrastructure Plan update

The government published the National Infrastructure Plan: update 2012 (NIP update 2012), alongside the 2012 Autumn Statement.

The NIP update 2012 sets out the progress the government has made in delivering its strategy for meeting the infrastructure needs of the UK economy, set out in the National Infrastructure Plan 2011 (NIP 2011) (see Practice note, National Infrastructure Plans: construction, environment and property implications).

The NIP update 2012 includes announcements on a number of developments that may be of interest to environmental lawyers (these are discussed below). This is not meant to be a comprehensive summary of the NIP update 2012.

Carbon capture and storage

The government will announce, in spring 2013, the projects to be supported under the UK's second CCS competition (NIP update 2012, paragraph 3.14).

For more information, see:

Nuclear power

The Office for Nuclear Regulation (ONR) is expected to finalise the Generic Design Assessment (GDA) for new nuclear reactor technologies by the end of 2012 (see Practice note, Proposals for new nuclear power stations: Generic Design Assessment).

The government expects to announce, in spring 2013, its planning decision on EDF's proposed new nuclear power station at Hinkley Point (see Legal update, Horizon Nuclear Power, Nuclear Industry Council and Nuclear Energy Supply Chain Action Plan: Other new nuclear power plants).

(NIP update 2012, paragraph 3.14.)

Development consent for NSIPs

The government will implement improvements identified in its review of the regime for nationally significant infrastructure projects (NSIPs) under the Planning Act 2008, including publishing:

New guidance on the pre-application process in December 2012.
Other guidance notes in early 2013.

(NIP update 2012, Annex A, Table A1.)

The government is also reviewing the thresholds for some of the existing categories of NSIP (NIP update 2012, paragraph 4.25).

For more information on:

The review of the NSIPs regime, see Legal update, DCLG consults on review of infrastructure planning guidance.
NSIPs in general, see Practice note, Planning Act 2008: environmental implications.

Hazardous Waste NPS

The government will publish the Hazardous Waste National Policy Statement (NPS) in spring 2013, following the consultation it carried out in summer 2011 (NIP update 2012, paragraph 3.34).

For more information, see:

EIAs

See Environmental impact assessments below.

Plan for Growth Implementation Update

HM Treasury and the Department for Business, Innovation and Skills (BIS) published Plan for Growth: Implementation Update, alongside the 2012 Autumn Statement.

The Plan for Growth Implementation Update sets out the progress made to date on the Plan for Growth, which was published as part of the 2011 Budget (see Legal update, 2011 Budget: environmental announcements).

We have focused on the sections in the Plan for Growth Implementation Update that are likely to be of interest to environmental lawyers. This is not meant to be a comprehensive summary of the Implementation Update.

Narrative reporting for companies

BIS is consulting on the draft Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, which will amend narrative reporting requirements for companies (including reporting on environmental issues).

For more information, see Legal update, Narrative reporting: BIS publishes a consultation on draft regulations: environmental implications.

(Plan for Growth Implementation Update, Part 3, action point 16.)

National infrastructure

In particular, the government:

Will prioritise the 40 key infrastructure projects that the government has identified as being of national significance and critical for growth (Plan for Growth Implementation Update, Part 5, action point 31).
Will consult on an aviation strategy in March 2013, which will explore all the options for maintaining the UK's aviation hub status with the exception of a third runway at Heathrow (Plan for Growth Implementation Update, Part 5, action point 32).
Will clear planning cases in the infrastructure planning backlog within three months once they are ready for a decision (Plan for Growth Implementation Update, Part 5, action point 34). Over 75% of energy cases have already been cleared.
Has set up a UK-wide taskforce to target metal thieves and scrap metal dealers who illegally trade in stolen metal (Plan for Growth Implementation Update, Part 5, action point 39). The taskforce contributed towards a 38% reduction in metal theft offences this year, potentially reducing costs to the UK from metal theft by £83m per year. In addition, cash payments for scrap metal are now prohibited (see Legal update, Scrap metal provisions in Legal Aid, Sentencing and Punishment of Offenders Act 2012 commenced and Scrap Metal Dealers Bill).

Low carbon investment

Globally, the low carbon and environmental goods and services sector (including renewable energy, carbon markets and environmental consultancy) was worth £3.3 trillion in 2010-11. The UK market ranks sixth, worth £122 billion, with over 50,000 companies employing 940,000 people. As the global market expands, there is potential for UK firms to expand into international markets and increase exports.

In particular, the government has:

Introduced a carbon price floor for electricity generation from 1 April 2013, to encourage investment in low-carbon power (Plan for Growth Implementation Update, Part 6, action point 42). This was enacted in the Finance Act 2012, which enabled carbon price floor relief to be applied to CCS technologies. For more information, see Practice note, Electricity Market Reform (EMR): Carbon price floor.
Scrapped the plans for a new CCS levy and launched a second competition for CCS pilot projects (Plan for Growth Implementation Update, Part 6, action point 43). For more information, see Practice note, Carbon capture and storage: UK regulatory regime.
Raised the cap on the cost of policies funded through energy bills (Plan for Growth Implementation Update, Part 6, action point 44). The Levy Control Framework (LCF) ensures that the government achieves energy and climate change goals in a way that minimises impacts on energy bills. A significantly higher funding cap of £7.6 billion on low carbon generation to 2020 has been agreed, which will include nuclear power fossil fuel plants with CCS, as well renewable energy (compared with £2.35 billion in 2012-13).
Set up the UK Green Investment Bank (UK GIB), which became operational in October 2012, to support the infrastructure development needed to enable the transition to a green economy, including waste and energy efficiency projects (Plan for Growth Implementation Update, Part 6, action point 45). For more information on the UK GIB, see Legal update, UK Green Investment Bank is open for business: environmental implications.
Promoted development of new markets in green goods and services, including through:
- smart meters roll-out programme (see Legal update, DECC issues smart meters implementation programme consultations);
- feed-in tariffs (FITs) (see Feed-in tariffs (FITs) toolkit);
- Green Deal (see Practice note, The Green Deal); and
- Renewable Heat Incentive (RHI) scheme (see Practice note, Renewable Heat Incentive (RHI)).
(Plan for Growth Implementation Update, Part 6, action point 46.)

Planning regime

In particular, the government has:

Produced a shorter, more focused and pro-growth National Planning Policy Framework (NPPF) in March 2012. The rate of approval of planning applications is now at a 10-year high of 87%, with higher approval rates of around 90% for major commercial and business development (Plan for Growth Implementation Update, Part 7, action point 49). For more information about the NPPF, see Practice note, National Planning Policy Framework (NPPF): an overview.
Started to streamline the planning applications and consent process (Plan for Growth Implementation Update, Part 7, action point 49). Any changes are likely to be introduced in early 2013.
Ensured key consenting and advisory agencies have a remit to meet a 13-week maximum timescale and to promote sustainable development as soon as the NPPF is finalised (Plan for Growth Implementation Update, Part 7, action point 57). The Environment Agency, Health and Safety Executive, Highways Agency, English Heritage and Natural England have published improvement plans setting out their remit for sustainable development and commitment to meet the 13-week timescale.

In addition, the government has made progress in:

Making the NSIPs regime more flexible (Plan for Growth Implementation Update, Part 7, action point 59). For more information, see National Infrastructure Plan update above.
Ensuring that compliance with the Habitats Directive (Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora) and the Wild Birds Directive (Directive 2009/147/EC on the conservation of wild birds) does not lead to unnecessary costs and delays to development (Plan for Growth Implementation Update, Part 7, action point 60). The government published its review of implementation of the Directives in March 2012 (see Legal update, Defra publishes review of Habitats and Wild Birds Directives implementation in England) and has now completed 13 of its 28 measures, which includes establishing the Major Infrastructure and Environment Unit (MIEU) to resolve issues relating to the Directives for high priority NSIPs.
Introducing, in April 2012, new permitted development rights for non-domestic electricity microgeneration in England and Wales (Plan for Growth Implementation Update, Part 7, action point 64). For more information, see Legal update, Permitted development rights regulations published and Legal update, Permitted development rights for microgeneration equipment extended in Wales.

Reducing the regulatory burden on business

The government carried out an extensive review of existing legislation across a wide range of sectors, as part of the Red Tape Challenge. Since the introduction of the government's "one-in, one-out" approach to regulation in January 2011, there has been a cumulative net reduction of regulation worth around £850 million a year to business. Over 70 measures reducing regulatory burdens will have taken effect by end of 2012. In November 2012, the government announced a "one-in, two-out" approach to regulation (see Red Tape Challenge below).

In particular, the government:

Announced, in September 2012, that, of 6,500 substantive regulations examined through the Red Tape Challenge, at least 3,000 will be abolished or reduced and 254 reforms are expected to be implemented by the end of 2012 (Plan for Growth Implementation Update, Part 10, action point 87). For more information on the environmental aspects of the Red Tape Challenge, see Legal update, Government publishes implementation plan for environment Red Tape Challenge.
Launched a review of regulators and will extend the Primary Authority Scheme and impose "sunset and review clauses" on new regulations under powers in the Enterprise, and Regulatory Reform Bill 2012-13 (Plan for Growth Implementation Update, Part 10, action point 116). For more information about the Bill, see Legal update, Enterprise and Regulatory Reform Bill 2012-13: environmental implications.
Implemented some of the recommendations in Professor Löfstedt's review of health and safety regulation (Plan for Growth Implementation Update, Part 10, action point 117). Seven statutory instruments have been revoked, with a further package of measures on track for removal by 2013 (see Legal update, BIS announces "red tape blitz" to end businesses' health and safety burden and Practice note, Reforming the UK's health and safety laws: Timetable to implement the Löfstedt report).

Environmental impact assessments

The government has announced that it will consult:

By the 2013 Budget, on updated guidance on how environmental impact assessments (EIAs) should be carried out.
Later in 2013, on raising the screening thresholds set out in the Town and Country Planning (Environmental Impact Assessment) Regulations 2011 (SI 2011/1824).

For more information about EIAs in general, see Practice note, Environmental impact assessments (EIAs): overview.

(Autumn Statement, paragraph 2.149.)

Red Tape Challenge

Water regulation

The government has announced that:

It will scrap or improve 63% of the 168 water regulations in scope.
Consider how flood consents could be simplified.
Review the trade effluent permitting regime.

For more information about the Red Tape Challenge, see:

(Autumn Statement, paragraph 2.135.)

"One-in, two-out" rule

As previously announced in November 2012, the government has confirmed that it will introduce a "one-in, two-out" rule for new regulations coming into force from January 2013. This means that, before any new regulations (excluding regulations needed to implement EU legislation) can be adopted, the sponsoring government department must identify cuts in other regulations that bring savings to business equivalent to double the cost of the new regulations. The rule was originally called "one-in, one-out".

For more information on this rule, see:

See also Reducing the regulatory burden on business above.

(Autumn Statement, paragraph 2.137.)

Flooding

The government has announced that it will allocate an additional £120 million to build new flood defences, over the current spending review period.

For more information about flooding in general, see Practice note, Managing flood risk.

(Autumn Statement, paragraph 1.87.)

PFI reform: PF2

The government has published, alongside the 2012 Autumn Statement, its conclusions on the private finance initiative (PFI) review and details of a new approach, called PF2 (see HM Treasury: A new approach to public private partnerships (December 2012) and HM Treasury: Standardisation of PF2 Contracts: Draft (December 2012)).

The government's aim is for a new, faster and more transparent model of infrastructure procurement, with:

An 18-month time limit on PFI bidding processes. If the process is not complete during this time, the funding may be lost.
PF2 project companies publishing their revenues and profits.
A projects approval tracker, set up by the Treasury, which will be published online and enable industry to check on progress of bids and see how business proposals are progressing.
Centralised procurement units managing procurement in certain sectors, such as education, health and the armed forces.

The government has indicated that a number of draft forms will be published for consultation, including a standard form services output template, a pro forma payment mechanism and a shareholder arrangement. The new forms will see the government take stakes in the majority of PF2 schemes to ensure any excess profits are shared with the taxpayer. The government equity stakes will be managed by a central unit at Treasury, and will see the government take a place on the board of project companies. The Autumn Statement states the first programme to use PF2 will be the £1.75 billion privately financed element of the Priority Schools Building Programme.

(Autumn Statement, paragraphs 1.97-1.98 and 2.128.)

For more information on the new PF2, see Legal update, 2012 Autumn Statement: PFI reform.

Comment

CRC

The announcement that the CRC will be retained will come as a disappointment to some. However, the decision is not entirely surprising in light of the government's need to raise as much revenue as possible to tackle the ongoing economic crisis.

As mentioned above (see CRC Energy Efficiency Scheme), the 2012 Autumn Statement states that the tax element of the CRC (which was introduced in the Spending Review 2010) will be a high priority for removal when public finances allow. The Autumn Statement does not explain what this means. One possible interpretation is that the government is planning to reintroduce recycling payments.

It was originally envisaged when the CRC was first launched that the revenue from the sale of CRC allowances would be recycled back to participants based on their rankings in the Performance League Table. However, the government announced in the Spending Review 2010 that this would no longer be the case and that the revenue would instead be used to support the public finances (see Legal update, CRC: Government scraps recycling of revenue from the sale of allowances). The announcement in the Spending Review 2010 was met with a great deal of criticism.

At this point, it is difficult to see how recycling payments could be reintroduced if the Performance League Tables are going to be scrapped, as announced in 2012 Autumn Statement. Presumably, the government would need to devise a new mechanism for deciding how the recycling payments should be distributed back to participants.

For further commentary on the CRC announcement, see Autumn Statement: Businesses call for clarity as CRC avoids the chop, BusinessGreen.com, 5 December 2012.

DECC has said it will publish details of how it plans to simplify the CRC "shortly". According to some press reports, this could be as early as 6 December 2012. PLC will report on this once the consultation has been published.

Gas Generation Strategy

The CBI has welcomed the Gas Generation Strategy as providing some certainty to investors. John Cridland, the CBI Director General, said:

"The Government's gas strategy will improve confidence for investors in the UK's energy sector. It makes sense to consult on the tax regime for shale gas so we maximise the amount of energy we can produce at home at reasonable cost. But we cannot become dependent on any one source of energy - gas will have an important role to play as part of a secure, low-carbon power mix alongside renewables, nuclear and carbon capture and storage."

(See CBI press release, Autumn Statement 2012: CBI full reaction, 5 December 2012.)

Not surprisingly, the energy industry body, Energy UK, welcomed the Strategy. Angela Knight CBE, Chief Executive of Energy UK said:

"Government has now made it clear that it sees gas as having an important role today and in the future and alongside the investment in new nuclear and renewables, gas will form part of the diverse and balanced energy mix that the UK needs to keep the lights on. This greater certainty on energy policy should also be a real confidence booster for establishing supply chains for all types of electricity generation...The capacity mechanism highlighted by the strategy is another piece in the jigsaw, as its importance is that it will help establish the right conditions for investors to build the necessary new and efficient gas power stations, and the jobs that will be created as a result."

(See Energy UK press release, Energy UK comments on the Gas Generation Strategy announcement, 5 December 2012.)

The renewables sector body, RenewableUK, took a different view. It points to a Cambridge Econometrics report commissioned by WWF-UK and Greenpeace, published on 4 December 2012, which compared a high wind and a high gas scenario in 2030. It concluded that UK GDP would be £20 billion higher in a high wind scenario compared to a high gas scenario, with 70,000 more full-time equivalent jobs created. RenewableUK's Chief Executive, Maria McCaffery, said:

"There are a number of elements in the Autumn Statement we wholeheartedly applaud. Green growth has been a key driver in manufacturing success and some of our home-grown supply chain companies can benefit from the extra incentives around domestic and export opportunities. However, the real spur to invest for these companies is the guarantee of a long term market...The Energy Bill has laid out a good framework, but there’s still a lack of clarity beyond the next five years, and for the supply chain to scale up and the UK reap the benefits of that in terms of skilled green jobs, we need to see the bigger picture. Based on what the Government has announced today, decisions on gas depend on what happens in 2014, and decarbonisation in 2030 depends on what happens in 2016 – so it feels like a lot of the important pieces are still in play. There’s still going to be a lot of movement over the next few years, so Government has its work cut out convincing world-leading companies it remains committed to low carbon generation."

(See RenewableUK press release, Useful elements of Autumn Statement but gas strategy means uncertainties still remain for investors, 5 December 2012.)

For more commentary, see Autumn Statement and Gas Strategy - the green reaction, BusinessGreen.com, 5 December 2012.

Energy Bill 2012-13

The 2012 Autumn Statement does not say anything new about the Energy Bill 2012-13, which had its first reading in the House of Commons on 29 November 2012. It merely restates that:

The Bill will provide greater certainty for investors and is expected to result in £110 billion of investment in new energy infrastructure (Autumn Statement, paragraph 1.82).
The government plans to exempt energy-intensive industries from the costs of Contracts for Difference (CfDs) under the Electricity Market Reform, subject to state aid clearance and a forthcoming consultation (Autumn Statement, paragraph 2.125).

For more information about the Bill (including the exemption for energy-intensive industries), see Legal update, Energy Bill 2012-13: environmental implications.

2012 Autumn Statement: environmental implications | Practical Law