2009 Pre-Budget Report: environmental announcements | Practical Law

2009 Pre-Budget Report: environmental announcements | Practical Law

An update on the main environmental announcements in the 2009 Pre-Budget Report, delivered by the Chancellor on 9 December 2009.

2009 Pre-Budget Report: environmental announcements

Practical Law UK Legal Update 4-500-9729 (Approx. 7 pages)

2009 Pre-Budget Report: environmental announcements

by PLC Environment
Published on 09 Dec 2009 • England, Wales
An update on the main environmental announcements in the 2009 Pre-Budget Report, delivered by the Chancellor on 9 December 2009.
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This update summarises the main environmental announcements in the 2009 Pre-Budget Report, delivered by the Chancellor, Alistair Darling, on 9 December 2009.

Introduction

The following is a summary of the principal environmental announcements in the 2009 Pre-Budget Report (PBR).
For more information on the PBR as a whole, see:
The main environmental announcements are contained in Chapter 7 (Supporting Low-Carbon Growth) of the full PBR.

Investment in a low-carbon economy

Infrastructure UK

The Government has announced the establishment of Infrastructure UK (IUK), which will be based in HM Treasury, with Paul Skinner (former Chair of Rio Tinto) as Chair and James Stewart (currently Chief Executive of Partnerships UK) as Chief Executive.
IUK's role will include:
  • Advising the Government on long-term priorities for national infrastructure, including how to deliver the country's transition to a low carbon economy.
  • Developing a strategy for national infrastructure over the next 5 to 50 years, which will be published in the Budget 2010. The strategy will include recommendations on how best to increase private sector investment in infrastructure and on new funding models.
  • Investing EUR100 million (£90 million) in a fund for low-carbon infrastructure led by the European Investment Bank (also known as the 2020 European Fund for Energy, Climate Change and Infrastructure), which will establish the UK as a core sponsor of the Fund.
  • Exploring the case for the creation of a low-carbon investment institution.
Essentially, the purpose of the IUK is to provide a more strategic approach to long-term investment in infrastructure and streamline the Government's policy and support mechanisms for infrastructure investment.

Strategic Investment Fund

The Government has announced an additional £200 million in funding for the Strategic Investment Fund (SIF), which will include £150 million for low-carbon investments.
The SIF was introduced in the Budget 2009 to support advanced industrial projects of strategic importance, and included £250 million for low-carbon projects.
SIF projects include:
  • £50 million to encourage manufacturing facilities in offshore wind industry.
  • £30 million to help the chemicals industry on Teeside demonstrate new technologies to 'decarbonise' their industrial processes (which could then be applied across the sector in the UK and abroad).
  • £30 million for low-carbon transport.
  • £40 million for other low-carbon projects.

Additional funding for low-carbon growth

The Government has announced an additional £400 million to support business investment in "low-carbon growth" and help households reduce their energy bills.
Highlights include:
  • Confirmation that certain types of offshore wind projects will be eligible for two Renewables Obligation Certificates (ROCs) under the Renewables Obligation (RO) (see Offshore wind below).
  • Confirmation that the Government will double its support for carbon capture and storage (CCS) projects (see Carbon capture and storage below).
  • Establishment of the IUK to promote key national infrastructure (see Infrastructure UK above).
  • Providing £200 million to improve energy efficiency and tackle fuel poverty, by offering £400 per household, for up to 125,000 households (to a total of £50 million) to upgrade their boilers to more energy efficient models (the Green Boiler Incentive), and providing an additional £150 million for the Warm Front scheme to help 75,000 of the most vulnerable households with heating and insulation.
  • Increasing the amount of help provided by energy companies to one million vulnerable households, from £150 million to £300 million by 2013-14. The Government plans to introduce legislation to make this a legal requirement when the current voluntary agreement ends in March 2011.
  • Increasing support for low-carbon vehicles (see Electric cars and vans below).
  • Confirmation that the income received by households that generate small-scale renewable electricity under the proposed feed-in tariffs (FITs) will be tax free.

Offshore wind

Earlier in 2009, the Government launched an early review of the banding of ROCs for offshore wind. The PBR clarifies that the eligibility criteria for ROCs under the RO will be amended so that offshore wind projects accredited between April 2010 and March 2014 will receive two ROCs. This is expected to provide an additional £400 million of support for investment in offshore wind.
The Government has also indicated that it plans to publish, later this week, its response to the current consultation on technical changes to the RO (including increasing the headroom to 10% from 2011-2012 rather than gradually).
In addition the Government has said that it will invest a further £50 million to develop the UK offshore wind industry, including funding for new manufacturing and testing facilities.
For more information on:

Carbon capture and storage

The Government has confirmed its plans to finance four commercial-scale CCS demonstration plants, as announced in November 2009 in its response to the consultation on a framework for development of clean coal (see Legal update, DECC publishes policy framework for development of clean coal and guidance on CCS readiness).
The Energy Bill 2009, which had its second reading in the House of Commons on 7 December 2009, contains provisions to create a financial mechanism to support the CCS demonstration projects, through a new levy on electricity supplies (see Legal update, New Energy Bill published).
For background information on CCS, see Practice note, Carbon capture and storage: overview.

Feed-in tariffs for households

The Government has confirmed that households that generate electricity from small-scale renewable technologies (microgeneration), mainly for their own use, will not be subject to income tax on any FITs (also known as "clean energy cash-back") they receive. If necessary, the Government will introduce legislation, with effect from 1 April 2010.
For more information on FITs, see Practice note, FITs: feed-in tariffs for small-scale generation of renewable electricity.

Carbon budgets under Climate Change Act 2008

The Government has indicated that it accepts the Committee on Climate Change's recommendation that any overachievement made against the first carbon budget (2008-2012) that results from the current economic downturn should not be carried forward to the second carbon budget (2013-2017) to allow for higher emissions during that period (see Legal update, Committee on Climate Change calls for radical action).
The first three carbon budgets for the period 2008-2022, which were announced in April 2009, are intended to reduce greenhouse gas emissions in the UK by 34% by 2020, with a view to reducing emissions by 80% by 2050.
For more information on the carbon budgets and the Climate Change Act 2008, see Practice note, Climate Change Act 2008.

Electric cars and vans

The Government will:
  • Provide a greater incentive for businesses to reduce the emissions from their company car fleets and reward manufacturers of lower-emissions vehicles by:
    • exempting electric cars from company car tax (CCT) for five years from 2010; and
    • extending CCT bandings in 2012.
  • Exempt electric vans from van benefit charge for five years and introduce (subject to confirming compatibility with state aid rules) a 100% first-year allowance for business expenditure on new electric vans.
  • Increase the fuel benefit charge multiplier, to reduce the incentive for employers to provide unlimited free fuel to their employees.
For more information on these announcements, see:

Biofuels

The Government has confirmed that the 20 pence per litre duty differential for biofuels (biodiesel and bioethanol) will end from 1 April 2010. This was announced in the Budget 2008 because the tax discount cannot distinguish between sustainable and unsustainable biofuels. However, the duty differential will continue for two years for biodiesel produced from waste cooking oil.
For more information on:

Climate change levy

At present those who are subject to the climate change levy (CCL) can benefit from an 80% discount on the CCL if they have entered into climate change agreements (CCAs) and have met their targets under those agreements. From 1 April 2011, this will be reduced to a 65% discount.
For more information on the:

Landfill tax

The Government is consulting on proposals to modernise the existing landfill tax regime (see Legal update, Government consults on revising landfill tax).
A summary of the responses to that consultation was published on 4 December 2009.
The Government has indicated in the PBR that it plans to have further discussions with landfill operators, the Department for Environment, Food and Rural Affairs (Defra), the devolved administrations and environment agencies on a number of issues that have arisen from the responses to the consultation. It has also indicated that daily coverage will be taxed.
The Government plans to publish its response in spring 2010.
For more information on landfill tax in general, see Practice note, Landfill tax.

Comment

The Government has positioned low-carbon growth as central to the PBR's overall objective of securing the UK's economic recovery. It wants to be seen as leading the way on climate change both internationally and nationally, from driving an ambitious outcome at Copenhagen (see Practice note, Copenhagen conference: post-Kyoto Protocol), to encouraging development of, and investment in, renewable energy and CCS. There is of course the additional driver of the carbon budgets under the Climate Change Act 2008.
The additional investment in low-carbon technologies, infrastructure and research and development will be welcomed by industry and financiers. However, low-carbon industry bodies (such as the Renewable Energy Association and the British Wind Energy Association) have been calling for more money, greater certainty, and swifter implementation. The CCS demonstration competition and the treatment of FITs are good examples of these concerns. The measures in the PBR do little to satisfy their demands.
Media reports so far have focused on the homes energy saving measures. However, the inefficient boiler scrappage scheme will only affect some 125,000 homes out of the estimated four million inefficient domestic boilers that need replacement.
So will all of this be enough to secure the recovery the country so desperately needs, or is it just green tinkering? The CBI has its doubts (see CBI press release). According to the CBI's Director-General, Richard Lambert:
"There were two tests for this Pre-Budget report. First, would it increase the credibility of Government plans to restore the public finances? Second, would it be a platform for job creation and economic growth? The Government has failed on both counts."