The 2007 Pre-Budget Report was delivered by the Chancellor on 9 October 2007. This legal update summarises the principal environmental announcements.
Introduction
The following is a summary of the principal environmental announcements in the 2007 Pre-Budget Report. For the full text of all environmental announcements, see Chapter 7 of the 2007 Pre-Budget Report.
For a summary of the full 2007 Pre-Budget Report, see PLC Tax, Legal update, Pre-Budget Report 2007. For the full text of the 2007 Pre-Budget Report and accompanying documents, see the HM Treasury website.
Implementing the Stern Review
The Government has published, alongside the 2007 Pre-Budget Report, a report entitled Moving to a Global Low Carbon Economy: Implementing the Stern Review which summarises what the Government is doing to implement the recommendations contained in the Stern Report on the economics of climate change. The report does not contain any new announcements but is a useful summary of the overall package of UK measures on climate change.
The Government is pressing the EU to set stricter caps on national allowances under the EU Emissions Trading Scheme (EU ETS) to ensure there is a scarcity of allowances in Phase II of the EU ETS (2008-2012).
The Government will be auctioning 7% of allowances in the UK's National Allocation Plan (NAP) for Phase II of the EU ETS, as well as any allowances from site closures or surplus from the New Entrants Reserve (rather than awarding those allowances to the relevant companies for free).
The Government indicated that it will be making greater use of auctioning of national allowances under Phase III of the EU ETS (2013-2017).
The Government will host an international conference on the development of a global carbon trading market in London in November 2007. The conference is expected to focus on how to link the EU ETS to carbon trading markets in other countries.
The Government aims to make London the world's leading centre for global carbon trading (see HM Treasury press release).
Further information on EU ETS
The European Commission is expected to publish, in December 2007, its proposals on the future of the EU Emissions Trading Scheme post-2012.
Subject to state aid clearance from the EU, the Government will not include investment in microgeneration equipment (such a micro-wind turbines) on commercial premises in ad hoc re-assessment of business rates liability from 2008, as the installation of this type of equipment can trigger increased liability for business rates. These investments will now only be taken into account at the five-year re-valuation stage of business rates.
The Government has written to the European Commission and other member states calling on the EU to:
Make clear the EU's priorities, targets and future plans for energy efficiency standards for products in offices and homes.
Develop, as a matter of urgency, mandatory energy efficiency standards for priority products.
Allow the introduction as soon as possible of a reduced VAT rate for the most energy-efficient products.
At the national level, the Government is seeking voluntary commitments from retailers, manufacturers and service providers to phase out the least energy efficient products and to raise their own standards. For example, the Government announced in September 2007 that major retailers in the UK, with the support of manufacturers and energy companies, have agreed to phase out inefficient light bulbs by 2011 (see Defra press release).
The Government indicated that the Secretary of State for Business, Enterprise and Regulatory Reform will be announcing today (9 October) details of a competition for a demonstration project on carbon capture and storage (CCS) and that there will be a short period of discussion with industry prior to the formal start of the competition in November 2007. However, these details are not yet available on the Department for Business, Enterprise and Regulatory Reform's (BERR) website. PLC Environment will alert subscribers when these details become available.
The Government will make £1.2 billion available to create an Environmental Transformation Fund (ETF) to support (among other things) demonstration projects and the commercialisation of new low carbon energy technologies in the UK. The ETF will be funded by both BERR and the Department for Environment, Food and Rural Affairs.
The ETF will support the work of the Energy Technologies Institute (ETI). The ETI is a new 50:50 public-private partnership (including BP, Shell, E.ON and EDF Energy) aimed at raising up to £1.1 billion over a 10 year period for low-carbon technologies. The ETI is expected to be operational in 2008.
The Government will publish a new strategy on low carbon energy technology in 2008.
Biofuels
The Government announced that:
It has laid the draft Renewable Transport Fuel Obligation (RTFO) Order in Parliament today (9 October). However, the draft Order is not yet available online. PLC Environment will alert subscribers when this becomes available.
From 2011, the RTFO will only reward biofuels that meet appropriate sustainability standards. No mention is made in the 2007 Pre-Budget Report on how these standards will be set. Presumably details have been set out in the draft RTFO Order.
It has decided to abandon plans for an enhanced capital allowances (ECA) scheme for the cleanest biofuel plants. It considers that making the scheme compliant with EU state aid rules would mean it would offer little value. The Government will instead focus on the RTFO.
It will extend the current fuel duty incentive for biofuels to biobutenol on a pilot basis. For further details, see PBRN 27.
The Government will replace the current air passenger duty with a new duty payable per plane rather than per passenger with effect from 1 November 2009. The aim is to ensure aviation makes a greater contribution to tackling climate change, in particular by encouraging airlines to fly their planes at full capacity. The Government indicated that it will consult on the detail of this shortly. Air passenger duty rates will be frozen at their current level for 2008-2009. For further information, see 2007 Pre-Budget Report - PBRN 24.
The Government is also a firm supporter of the European Commission's plans to include the aviation sector in the EU ETS (see EU Emissions Trading Scheme above).
Greener vehicles
King Review
The Government published the interim report of the King Review on vehicles and fuel technologies which could help reduce carbon dioxide emissions from the road transport sector in the UK over the next 25 years. The final report, including recommendations, will be published in time for the 2008 Budget.
The interim report of the King Review indicates that:
Reduction of carbon dioxide emissions from road transport in the long term is achievable but will require clean power sources and major breakthroughs in vehicle technology.
In the meantime, there is significant potential for reducing emissions immediately at low cost. There is already vehicle technology that can deliver carbon dioxide reductions of 30%, which could be standard within 5-10 years if manufacturers were to see a market for it.
Fuels need to be assessed on a full life-cycle ("well-to-wheel") basis since there are different levels of emissions at different stages in the production, transport and use of fuels.
For information on the European Commission's proposals on increased efficiency of cars and fuels, see:
Company car tax thresholds for 2010-2011 will be announced in the 2008 Budget. The tax is based on carbon emissions to encourage companies to use more fuel-efficient cars in their fleets.
From 6 April 2008, the fixed figure on which the company car fuel benefit charge is based will be increased from £14,400 to £16,900, in line with the change in the retail prices index to increase the environmental incentive to drive fewer miles.
Landfill tax
Remediation of contaminated land
In the 2007 Budget, the Government launched a consultation on tax relief for the remediation of contaminated land and an extension of the landfill tax exemption for waste arising from the remediation of contaminated land.
The Government has announced in the 2007 Pre-Budget Report that responses to that consultation supported the proposed reforms and that it will consider further reforms in these areas to bring more brownfield land back into effective use. The Government intends to publish responses to the consultation shortly and make further announcements in the 2008 Budget.
The Government confirmed that, from 1 April 2008 until at least 2010-2011, the standard rate of landfill tax will increase by £8 per tonne each year and the lower rate of landfill tax will increase from £2 to £2.50 per tonne.
For further information on the landfill tax, see Practice note, Landfill tax.
Subject to EU state aid clearance, climate change agreements (CCAs) will continue until 2017. The Government plans to discuss with businesses the best way of taking this forward.
The Government will increase funding for waste management options through the Private Finance Initiatives (PFIs), from £280 million in 2007-2008 to £700 million in 2010-2011.