Thursday, October 21, 2010

Budgets slashed but programmes to continue

It could have been worse. With both environment departments, DECC and DEFRA, having their budgets slashed by around 30%, funding for climate change and transport infrastructure remains relatively intact, although the delivery channels and funding mechanisms are set to change radically. Here is a summary:


The review pledges to support transport infrastructure, including £14 billion for national rail improvements, the construction of Crossrail, plans to create a new high-speed rail network, an incentive scheme offering up to £5000 towards the cost of a new ultra low emission vehicle from January 2011 and electric car charging infrastructure.

International development

This is an area that has been ring-fenced, with an increase in Official Development Assistance to 0.7% of gross national income from 2013, and a new watchdog, the Commission on Aid Impact, to keep an eye on value for money and whether UK plc receives benefit from the spending.

£2.9 billion is pledged over the spending review period for international climate finance, to be funded jointly by DfID, DECC and DEFRA, in line with agreements made at Copenhagen and the UN climate talks.

Climate change and energy

£200 million is pledged to make sure that offshore wind plans continue, including the vital adaptation of ports to be able to accept the large vessels that are required for installing the huge turbines.

The Renewable Heat Incentive, which was in doubt and the subject of energetic lobbying, is to go ahead, as is the Green Deal. The RHI is to be funded by £860 million of Annual Managed Expenditure from next April. It is expected to encourage investment in anaerobic digestion, solar water heating and biomass projects.

"The Government will not be taking forward the previous administration's plans of funding this scheme through an overly complex Renewable Heat levy," the review adds. I.e., it will be funded by the government rather than the market.

The review says, “this will ensure the UK meets its 2020 renewable energy targets while making efficiency savings of 20%, or £105 million a year, by 2014-15 compared with the previous government’s plans."

The Green Investment Bank is to be set up using £1 billion, carved from departmental budgets and what the Chancellor called "additional significant proceeds from asset sales", to provide collateral for private financial investments in green infrastructure projects, such as offshore wind farms.

The paybacks received by customers signing up to Feed-in Tariffs may be reduced or, in the language of the report, “improved... rebalancing them in favour of more cost-effective carbon abatement technologies". This will happen at the next review stage for the FITs, and save £40 million in 2014-15. A further 70 million a year on average will apparently also be saved by using “support for lower value innovation and technology projects".

Up to £1 billion is to go towards the first for carbon capture and storage (CCS) plants – see separate post. This money comes from general taxation and will not require an increase on electricity bills. Whether such an increase will be introduced in future will be decided at the same time as the reform of the climate change Levy to support the carbon price, after spring 2011.

However, DECC's core budget is being slashed by 30% in real terms by 2014-15 by focusing on key priorities and cutting projects which do not give “value for money".

DECC says it will reduce resource spending by 18% in real terms, and increase capital spending by 41% in real terms. The Department’s Administration budget will be reduced by 33%.

The status of the Marine Renewables Development Fund, which allocates funding for wave and tidal, is at this stage unclear.

The government remains committed to obtaining 15% of energy from renewables by 2020.

Continuing to protect the stockpiles of nuclear waste at Sellafield is assured: no cuts there. In fact, spending will increase, to compensate for a projected decrease in the Nuclear Decommissioning Authority's income.

But future nuclear power takes a hit with the axing of Government funding for the National Nuclear Centre of Excellence.

DECC is reviewing the work delivered at arm’s length by bodies such as the Carbon Trust, Energy Saving Trust, and the delivery arm of Ofgem. The Energy Efficiency Partnership for Homes is also being reviewed.

Fuel poverty and energy efficiency

DECC is to undertake a review of fuel poverty policy to address this stubborn problem. The language here, as with the Green Deal, is “working as an an enabler rather than the default provider" of energy efficiency services to households, in partnership with the private sector.

So, it is envisaged that private enterprise will take over gradually from the Warm Front programme, saving £345 million by 2013-14. There is no indication, as yet, what kind of quality controls will be in place to avoid quick fixes and get long-term value for money.

From April 2011, energy suppliers will provide greater help with the financial costs of energy bills to more of the most vulnerable fuel poor households, through Social Price Support – with total support of £250 million in 2011-12 rising to £310 million in 2014-15.

The Carbon Reduction Commitment Energy Efficiency scheme, which met with loud opposition from quarters in the private sector, is to be simplified. The first allowance of sales for 2011-12 emissions will now take place in 2012, not 2011.

In a surprise move for participants, revenues from these sales, totalling an anticipated £1 billion per year by 2014-15 world, rather than being recycled to participants in the scheme, go into the Treasury coffers [see separate post], making it a carbon tax.

The government will make permanent the temporary increases to Cold Weather Payments provided in the past two winters, at a cost of £50 million a year, so that eligible households receive £25 for each seven day cold spell recorded or forecast where they live.

DECC will issue guidance to re-emphasise best practice on heating, cooling and lighting Government buildings. This guidance will encourage departments to reduce waste on energy costs, helping to reduce the Government’s £95 million annual energy bill, whilst saving carbon emissions at the same time.

Environmental management

DEFRA will continue to invest in flood defences and coastal erosion risk management, with £2 billion allocated over the spending review period.

DEFRA has had its budget cut by a similarly huge amount to DECC - 29% - by more than halving its number of Arms Length Bodies to 39. It will reduce its running costs by £174 million over the period.

The environmental stewardship scheme, which pay farmers to take conservation measures to protect biodiversity, has had its budget slashed by £66 million by 2014-15, but the review says it will remain open to all farmers in England.

Seven waste PFI projects face the axe, because it's judged they aren't required any more to meet landfill diversion targets, saving £3 million. These include the North London Waste Authority's plans, which received the single largest award of waste PFI funding in March 2010 and the £1 billion Cheshire project. The full list is:

• Cheshire West and Chester, and Cheshire East
• Coventry, Solihull and Warwickshire (‘Project Transform')
• Gloucestershire
• Leicestershire
• Milton Keynes and Northamptonshire
• North London Waste Authority
• South London Waste Partnership.

11 other waste PFI projects currently in procurement well remain so, and the 21 other deals that had already been signed are secure.


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