CBI calls on Chancellor's Budget to support nuclear power

CBI director, John Cridland speaking at a recent conference sponsored by French nuclear company EDF, which stands most to benefit from the tax breaks

Ahead of next month's budget, business representatives are calling on the Chancellor to reduce taxes on carbon-emitting industries, support nuclear power and to merge the Carbon Reduction Commitment (CRC) and Climate Change Levy (CCL).

The CBI's director, John Cridland, has written to Number 11 with a shopping list of items he would like to see George Osborne announce in his Budget on March 21.

Support for nuclear power

Near the top is a request for capital allowances to be applicable to investment in infrastructure for which is currently not eligible; foremost among the list of examples is the building of nuclear power structures, as well as waste treatment structures and airport terminals.

It says that giving tax relief to the building of new nuclear power stations would reduce their cost by up to ￡30 million.

Prior to April 2008, nuclear power qualified for 4% annual capital allowances tax relief; this was abolished as part of a range of measures to protect public finances.

The CBI says the lack of any tax relief at all makes it around 20% more expensive to invest in a structure or building that does not qualify for capital allowances, compared to a plant that does receive standard capital allowances.

This means that there is not a level playing field internationally, and that the UK is therefore discouraging investments in some types of energy compared to similar projects overseas.

It says its proposals would cost the taxpayer an average of up to ￡200m per year if assets are depreciated over 25 years.

Its letter gives the example of a new nuclear power station costing ￡2 billion, which includes 30% of spending that is non-qualifying under the current capital allowances regime.

Applying the CBI's proposals would reduce the cost of the previously non-qualifying part of the project by 10%, or 7%, depending on the depreciation rate (4% or 2.5%).

This would in turn reduce the overall cost of the project by 3% or 2% respectively (￡30 million or ￡20 million), which, it says, either makes new nuclear power stations more likely to be built, or reduces costs to the end user, or both.

The letter says this approach would “complement the extra funding for infrastructure provided in the Autumn Statement" and private sector infrastructure investment.

It also wants to see more regulatory roadblocks removed and reform of Private Finance Initiative agreements to make them more attractive.

Were the Chancellor to consider changing the rules to support nuclear power, this would raise accusations from his Liberal Democrat Coalition partners that he was providing government support for the industry, to which they are staunchly opposed.

It would be French company EDF which would be most likely to benefit from such tax relief, since it is the one most advanced in its plans, to build a new nuclear opwer station at Hinckley Point, Somerset.

CBI also wants a change carbon reporting laws

The CBI is also calling for reform of the Climate Change Levy (CCL) and the Carbon Reduction Commitment (CRC).

It says that that while it supports the original objective behind the CRC to secure emissions reductions and promote energy efficiency, since the Chancellor chose to convert it to a straightforward carbon tax instead of recycling the revenue back to energy efficient companies, it is no longer an “effective and proportionate mix of the financial, reputational and reporting drivers required" to promote energy efficiency.

Instead, it proposes reforming the Climate Change Levy (CCL) as well as Mandatory Carbon Reporting (on which Defra consulted last year) to differentiate the rates of the CCL, which would allow the Treasury to protect this CRC revenue stream by removing unnecessary administration burdens on business.

At the same time, it urges protection for energy-intensive businesses so they are not unfairly penalised.

It says that introducing MCR would ensure that reducing emissions gets board level attention and would allow the companies which succeed most in reducing emissions to gain the most reputational advantage in the public eye.

It believes that business has dismissed the current CRC performance league table as part of a mere tax and the issue is not being considered at board level.

However, carbon reporting does retain credibility amongst companies, investors and NGOs. Emissions reporting under an MCR framework would therefore stand a better chance of getting results.

...And opposes carbon taxes

The CBI wouldn't be the CBI if it wasn't against taxes. So, in the same letter, it is calling for several policies on taxation which will ensure that carbon emissions do not fall.

It wants to see Air Passenger Duty (APD) to continue to be pegged to the rate of inflation for the foreseeable future, calling for the government to balance “the value of air travel's contribution to the Exchequer with the potential impact of further immediate rises on the UK as a place to trade and invest".

The duty would therefore rise in line with inflation by 5% this April. Currently it is slated to rise by 8%. This reduction would cost the taxpayer ￡145 million a year.

The CBI also reiterates its "robust opposition" to a Europe-wide carbon tax as proposed in the draft reforms to the Energy Taxation Directive (ETD), on the basis that tax is a national competency and imposing it would go against the principle of subsidiarity.

It points out that individual member states of the European Union are already working towards binding targets in 2020, and several existing European directives support this work.

Imposing the ETD would “reduce the ability of member states to choose the measures most appropriate to their circumstances to reach 2020 targets".

The current proposals for the directive are to split the minimum tax rate into two parts: one would be based on CO2 emissions of the energy product and be fixed at €20 per tonne of CO2.

The other would be based on the actual energy that a product generates and the minimum tax rate would be fixed at €9.6/GJ for motor fuels, and €0.15/GJ for heating fuels and be applied to all fuels used for transport and heating.

Consistent with this attitude, the CBI also calls for no further opportunistic tax raids on Britain's oil and gas industry.

It says this is important because the sector represents 7% of all business investment in the country, equivalent to around ￡8 billion last year.

It also calls for greater certainty over tax relief available for decommissioning old fields.

Green Deal

Finally, the CBI welcomes the ￡200 million allocated by the Treasury in the Autumn Statement to attract early adopters to the Green Deal.

It calls for an incentive scheme similar to the boiler “scrappage" scheme in 2010, where a voucher worth ￡400 was given to those who replaced their old boiler with something more efficient.

This succeeded because it was consumer friendly and simple. Another proposed option is a discount for early adopters such as “sign up now and get the 1st 6 months free".

The country will have to wait until 21 March to see how closely George Osborne listens to the voice of business.

Doubts over Green Investment Bank's future borrowing power

Serious doubts have arisen over whether the Treasury will allow the Green Investment Bank to begin borrowing money, as scheduled, in 2015/16.

The Department for Business, Investment and Skills, which is driving the setting up of the GIB, has told EaEM that the bank "will be given borrowing powers at this time subject to the targets for reduction in national debt being met and further state aid approval being granted".

The BIS spokesperson added that "GIB borrowing will score against the national debt".

The Aldersgate group, which represents big companies like BT, M&S and Microsoft, has been secretly lobbying for the government to remove this condition, which it says will curtail their ambitions.

She said: "We will need to ensure that the necessary controls are in place so that borrowing is transparent and liabilities can be managed effectively. The decision on the level of borrowing cannot be taken now.

"When considering it in the future, both investment requirements and wider fiscal affordability will be taken into account."

The question is: will the fiscal targets will be met, since the Chancellor George Osborne admitted last Autumn that it would take two years longer to pay off the country's debts than he had originally estimated when he set up the Bank?

The Treasury's target was, before the Autumn Statement, that by 2015-16, public sector net debt as a percentage of GDP must be falling.

The chances of this were then estimated by the independent Office of Budget Responsibility as only "greater than 50%".

Then, the Treasury said that by 2014-15 there would be additional reductions in current spending totals of ￡30 billion a year (these were fixed in the Chancellor's June 2010 Budget).

80% of the further reduction in the deficit at this time was already supposed to come from reductions in public spending.

Autumn Statement

But then came the Autumn Statement, and the OBR revised its fiscal portrait of the UK.

They said Britain has the highest structural budget deficit of any major economy in the world.

They forecast that the current structural deficit will fall from 4.6% of GDP this year to a current structural surplus of 0.5% in five years' time - not three years as previously thought.

The debt-to-GDP ratio – which is forecast to stand at 67% this year – would peak at 78% in 2014-15 and be falling by the end of the Parliament.

As a result, the Chancellor set revised expenditure totals for the two years following the end of the Spending Review period: 2015-16 and 2016-17, i.e., the point at which the Green Investment Bank is supposed to be able to borrow.

He said that Total Managed Expenditure would now fall during that period by 0.9% a year in real terms, but with a baseline that excludes all the additional investments in infrastructure he announced at the time; expenditure which excludes that of the GIB.

The consequence must be that there is now less than a 50% chance of the Treasury's target being met, of public sector net debt as a percentage of GDP falling by 2015-16.

In the same speech George Osborne infamously uttered the words "I am worried about the combined impact of the green policies adopted not just in Britain, but also by the European Union".

To borrow or not to borrow?

When the Green Investment Bank was set up, it was strongly advised that it be constituted as a proper bank, and there was even a call to permit anyone to invest in it, with ordinary people being able to buy Green Bonds in order to finance the green industrial revolution.

The Treasury decided this was too risky and unwieldy, and that it could not be seen to borrow more money at a time when the rest of Government borrowing was being cut.

Chris Huhne, the Secretary of State for Energy and Climate Change, fought, and lost, the battle for the Bank to be able to borrow from Day One and therefore to have more funds at its disposal.

Instead, the Treasury set the date at 2015/16, subject to the above target being met, which now seems increasingly unlikely.

￡100 billion by 2020 is a conservative estimate of the cost of the required upgrading of the National Grid, new renewable energy generation like energy-from-waste, the Green Deal, FITs, the Renewable Heat Incentive, ECO, and other measures to decarbonise and future-proof the UK economy and energy sector from the risks of fossil fuel price volatility and climate change.

The Green Investment Bank and the carbon price floor are the Treasury's key means of meeting this bill.

BIS' spokesperson told EaEM that "Our key priority at present is to ensure the establishment of the bank for 2013 and we are on target to achieve this. The GIB is being capitalised to an extent that it will not need to borrow before 2015/16."

The capitalisation is coming partly from the sale of government assets.

￡1 billion stems from standard departmental allocations, and ￡775 million has already been received from the net proceeds from the sale of the high speed rail link.

"The remaining ￡1.225 billion is expected to come from future asset sales," the spokesperson said, adding that "The Chancellor has said if these sales are not completed in time, this sum will be underwritten by the Treasury".

CBI slams Treasury interference

The Confederation of British Industry has long called for the Bank to be made effective, and today criticised the way the Green Deal and ECO are being set up, saying the Green Deal won't meet its targets as it is currently designed.

John Cridland, its Director-General, has warned that the Bank "certainly won't work if it needs the Treasury's permission to blow its nose.

"The bank needs to be able to get into the markets itself and do what it's intended to do."

If the date by which the Treasury is to permit it to do this is put off even further this will severely curtail its already reduced effectiveness.

Yet Mr Cridland has said it is crucial that the "Green Investment Bank deliver certainty for investors if it is to generate the scale and pace of investment needed to shift the UK to a low-carbon economy.

"I want it delivering growth - large-scale, mainstream economic growth. I want it delivering the low-carbon infrastructure, leveraging the ￡450bn we need by 2025, that'll bring jobs and opportunities to the UK," Mr Cridland added.

But unless it is released from the Treasury's tether, this can only happen later rather than sooner.

CBI urges Government to give investors certainty so business can fight climate change

Businesses want to and must maintain the trend to low carbon innovation, but need more investment, which requires commitment from politicians, both CBI Deputy Director-General Dr. Neil Bentley and Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC) told an audience of business leaders and the Energy Secretary Chris Huhne at the CBI’s first international Green Business Dinner in London last night.

Ms. Figueres also said that when countries like Britain fulfilled ambitious climate change targets this encouraged poorer countries like China and India to follow suit.

Companies are being given the wrong value by world stock markets, because the cost of their exposure to climate change is not being factored in, she said. "As long as these companies [that emit large quantities of greenhouse gases] have a high value, we are giving out the wrong signals," she said. "It has got to be that those companies that are investing in the technologies of the future are recognised."

She said that companies ought to take on board the political target of keeping global average temperatures below 2oC above pre-industrial levels. "We are moving to a low-carbon future – businesses need to understand that signal. This is a megatrend."

She said that by 2031 businesses will need to extract five times the economic value that they do today for every tonne of carbon dioxide emitted, calling on both governments and businesses to unleash the investment needed for "a transformation of the economy".

How committed are the Conservatives?

In the UK, the overwhelming feeling in the environmental industries sector is that George Osborne's speech to the Tory Party conference last week signalled an about-turn in Treasury thinking regarding support for low carbon technology.

Further evidence came from a Sunday Times article that Osborne is delaying rubber-stamping the Renewables Obligation Certificate banding review despite anger from David Cameron and other Ministers from DECC and Vince Cable's Business Department.

The consultation on an increase in speed limits, the proposal to reinstate weekly bin collections and, most importantly, Osborne's commitment to ensure the UK's carbon targets do not exceed those adopted by Europe were defended on Sunday's BBC Politics Show [22 minutes 20 seconds in] by Chris Huhne as marking either no change in the UK's position or not yet proven to have an impact on carbon emissions.

Osborne had hinted in his speech that part of his motivation for being cautious on the low carbon front was that there was opposition to green policies from members of the CBI.

Yet last night at the Green Business Dinner, the CBI’s Dr. Neil Bentley told the Government that British businesses are committed to tackling climate change, but blamed politicians at home and abroad for failing to provide clarity and certainty for investors about issues such as Electricity Market Reform, the Green Deal and a globally-binding emissions deal.

He said, "the case for a global emissions deal is even more compelling".

“Today, we find ourselves not ahead of the pack, but out on a limb," he said. "We’ve got no international deal, no global carbon price, no meaningful EU price and the UK tying itself in costly green policy knots.

"The UK is in danger of straining to hit its targets but missing the point: that we need an economy that’s low carbon and competitive.”

"We wanted first-mover advantage," he said, "We acted on the expectation of a global deal to address our competitiveness concerns. We acted without realising what was around the corner economically."

He blamed dithering and tinkering from Coalition politicians - such as making the Carbon Reduction Commitment into a straightforward tax, "adding to bottom-line costs and doing nothing to help businesses achieve their green goals" - as well as the low price of carbon due to an ineffectively managed EU Emissions Trading Scheme.

Europe's Environment Ministers, also meeting yesterday, are in agreement. They admitted that the number of "Assigned Amount Units (AAUs)" - free permits to pollute given to countries and industry - continues to be a problematic issue affecting the carbon price, but that suddenly reducing the number allocated would cause a mass sale and a price fall, which represents a double bind dilemma.

"We're going to have to continue to work on it," admitted Polish Environment Minister Andrzej Kraszewski after the meeting in Luxembourg.

Dr. Bentley also felt that that "the renewables target has skewed the economics of our energy market". The Treasury's carbon price floor is meant to address this but is not yet in force.

As a result, “investors are struggling to understand how to invest against the proposed framework while the resulting costs could damage parts of our manufacturing sector".

He also said there was "reluctance from financiers to take the risk of underwriting" the Green Deal, which could cause it to fail.

But yesterday, Energy and Climate Change Minister Greg Barker defended the Government's record.

In a statement responding on behalf of DECC to the Environmental Audit Committee's report on carbon budgets, which echoed the CBI leader's criticisms, he said the UK is "doing more than any other country in providing long term certainty to those investing in the low carbon economy".

He added the government was actually doing UK industry a favour by reviewing progress towards the EU emissions goal in 2014, to make sure it wasn't "disadvantaging British industry" and leading to "emissions being shipped overseas".

“Getting the rest of Europe to go further and faster in providing certainty to green investors is vital which is why we’re not letting up in pushing the EU to up its emissions reduction target to 30%,” Barker said.
 

The need for a deal at Durban

Dr. Bentley's speech underlined the necessity for a deal at the upcoming COP17 UNFCCC climate talks at Durban, since "last year saw the highest level of carbon emissions in history".

"Patience is wearing thin," he said, citing the failure at Copenhagen in 2009 and Cancun last year to reach global agreement. Wrangling "mustn’t drag on and on like the Doha Trade Round".
 
“In the absence of a deal," he continued, "companies have committed to get on with it because they understand that it’s not about what business can do for sustainability. It’s about what sustainability can do for business, driving innovation in new products and services."

He said the CBI is calling for two main outcomes from Durban: “Certainty that the Kyoto carbon markets will persist even if the protocol expires: if the Clean Development Mechanism is derailed, we’ll lose the most successful part of Kyoto and potential investment.
 
“And second, getting carbon finance flowing across the world, to places where it can encourage energy efficiency and help countries leapfrog high-carbon development and go straight for those green technologies. This will give the global economy the boost it needs."
 
He called for "a global, binding and comprehensive climate change deal. Otherwise business and nations will lose faith.”

EU ahead of targets

The EU will go to Durban well on its way to meeting its emissions targets from the Kyoto Treaty, which requires 20% cuts in Europe's emissions from 1990 levels by 2020.

Environment ministers in Luxembourg yesterday also committed to signing up to a 'Kyoto II' agreement at Durban, if other countries agreed.

Despite a 2.4 % emissions increase in 2010, and despite economic growth of 41% over the same period, Europe's greenhouse gas emissions were 15.5% below 1990 levels, according to estimates released yesterday by the European Environment Agency (EEA) on progress to meeting the continent's Kyoto targets.

In fact, the EU is likely to overshoot this target, which has inspired some member states, like the UK, to argue that it should be increased by to 30% cuts by 2020.

Climate Commissioner Connie Hedegaard said the figures showed that the EU has successfully decoupled emissions from economic growth through the wider use of low carbon technologies.

"The EU continued decoupling emissions from GDP during the recession," she said in a statement. "Between 2008 and 2009, emissions fell by 7.1 per cent in the EU-27, much more than the around four per cent contraction in GDP."

Of the 15 EU Member States with a common commitment under the Kyoto Protocol (the 'EU-15'), emissions were 10.7 % below base year levels (1990 in most cases), which is well beyond the collective 8 % reduction target. However, Austria, Italy and Luxembourg were still behind their targets.

"Many different policies have played an active role in bringing down greenhouse gas emissions", Professor Jacqueline McGlade, EEA Executive Director, said.

"Alongside renewable energy or energy efficiency, efforts to reduce water pollution from agriculture also led to emission reductions. This experience shows we can reduce emissions further if we consider the climate impacts of various policies more systematically."

Back at last night's Green Business Dinner, Christiana Figueres also was hoping that major progress will happen at Durban.

“Governments are willing to consider a document that is equivalent to a letter of intent of all Governments to move towards a comprehensive agreement that is binding to all and incentivising to all at some point in the future.”

She admitted that any agreement will take years to draw up but it would be a major leap forward if all countries agreed to the principal of a legally binding treaty.

She also hoped that Governments would agree on how to raise the $100 billion per year by 2020 they have committed to for adaptation to climate change, technology sharing and saving forests.

CBI agrees with Stern

A much greater sense of urgency is required if the UK is to meet its targets for reducing greenhouse gas emissions, says the CBI in its climate change report issued just prior to its recent conference.

It concludes that for an investment of around £100 a year per household (under 1% of GDP, around the same as Stern) by 2030, a more sustainable way of life using low carbon products and services is possible.

It says that "the UK we should not wait for others. The issue at hand is serious and requires an immediate response." Informed by a major study from McKinsey, its Task Force assessed the benefits and costs of options for reducing greenhouse gas emissions up to 2030 needed to meet the government’s 2050 target.

It calls therefore for:
• business to incorporate climate change policies into its DNA
• it needs to audit and reduce energy use
• reliable and consistent consumer information
• much wider access to low carbon products and services
• incentives to make low carbon investments
• more energy efficiency, especially in transport and buildings.

Both Gordon Brown and Alistair Darling told the CBI annual conference today and yesterday that "nuclear power potentially has a role to play in tackling climate change and improving energy security" and, "we will announce our final decision early in the New Year."

Does this by any chance mean that they have pre-judged the result of the nuclear consultation? Surely not!

> www.avtclient.co.uk/climatereport