High energy users to get support to cut bills by up to 10%

Amongst the Christmas presents the Chancellor George Osborne is expected to give to the British economy today in his Autumn Statement, is one high on the wish list of energy-intensive businesses: relief on their carbon taxes.

But critics say that many of the have already been given a free ride, and have plenty of opportunity to reduce their energy costs.

It's expected that the combined effect of the compensations offered by Osborne will be to reduce energy bills for such firms by 5-10%.

The rebate will be worth a total of about £212 million for the period 2012-2016 to those affected by the EU Emissions Trading Scheme (EU-ETS) tax and the Climate Change Levy (CCL), and £250 million in the form of rebates and compensation for those affected by the upcoming carbon price floor.

High energy users, backed by free-market Conservatives, have been complaining that these taxes harm their international competitiveness, citing the fact that their German competitors, for instance, benefit from carbon tax rebates worth more than €5 billion a year, paying only €0.5 of a €35 tax.

For example, medium-sized cement manufacturer CEMEX faces an alleged £20 million bill for complying with carbon legislation, and the multinational Tata Steel has claimed that the tax proposals are making it think twice about a £1.2 billion investment in the UK.

Critics argue that a rebate will reduce the incentive on firms to save energy, saying that the Climate Change Agreements (CCA), which thousands of such firms have signed up to and which entitle them to reductions on the Levy in return for saving energy, are creating real savings in energy bills and carbon emissions.

The Department for Business will consult on the proposals soon.

Carbon price controversy

The EU-ETS sets a cap on companies’ carbon emissions. If they want to emit more, they must buy credits that each represent one tonne of CO2.

The Treasury's planned compensation for the effect of the EU-ETS on big emitters will total £12 million in 2012/13 and £50 million in each of the following tax years.

The new carbon price floor, to be introduced in 2013, will artificially increase the price of these credits from that set by the market to that set by the government; the Treasury's proposal is for this to be almost double the current, lowest-ever, market price: £16 per tonne of CO2 in 18 months' time, rising to £30 per tonne by 2020.

The effect of the price floor is therefore likely to be keenly felt, since the price of carbon is rock bottom now.

The compensation amount suggested to cushion this effect is £40 million in 2013 and £60 million in 2014.

The purpose of the price floor is to provide funding for investment in green technology; whereas the CCL revenue disappears into the Treasury's general accounts. (The Labour government had originally intended the CCL also to fund green investment, but Osborne grabbed it to pay off the defecit.)

The Treasury has also signalled that the discount on the CCL for those signed up to the CCA will rise to 90% from April 1, 2013, instead of the 80% already scheduled. This follows Osborne's reduction of it from 80% (set by Labour) to 65% earlier this year - another U-turn by Osborne.

This change will cost the taxpayer £40m over 2013-2015.

Furthermore, the energy-guzzling industries, which include the glass, paper, cement, chemicals, oil, metals, plastics and food sectors, will also receive protection from any price changes resulting from the measures to reform the electricity market currently being discussed.

"(The measures) will help make sure energy intensive industries are internationally competitive, but the government remains committed to the green agenda and to cutting carbon emissions by 80 percent by 2050," a Treasury source said.

Greenpeace was quick to criticise the proposals. “Energy intensive users already received a huge windfall when they were handed free pollution permits under the emissions trading scheme," said Doug Parr, its policy director.

"Now is not the time for George Osborne to be caving in to the special pleading of vested interests.”

I believe that several companies, such as Rio Tinto, are blaming carbon taxes simply because they want any burden reduced, whereas in fact it is the general reduction in demand for commodities and the higher price of fossil fuels that is the main cause of any economic woes. 

Osborne's pale green budget offers crumbs to the green sector

Chancellor George Osborne's first budget was billed as a “budget for growth", but the green shoots of recovery could have been stimulated to rise much faster. It offers crumbs to the green sector while doing nothing to tax pollution or wean the UK off oil.

Budget 2011 contains limited measures for funding investment in green technology, and for meeting the skills and enterprise gap perceived in not just the green sector but other sectors necessary to help Britain compete in a global economy.

These general measures include 21 new enterprise zones, new export credits, a technology and innovation centre, nine new university centres, doubling the number of university technical colleges to 24, an increase in work experience schemes and apprenticeships, as well as £100m of investment in new science facilities, income tax relief on enterprise investment schemes rising from 20% to 30%, and an increase in small companies' research and development tax credit to 200% in April and 225% in 2012.

On to the specific environmental measures.

Planning reform

In planning, there will be a new presumption in favour of sustainable development, so that the default answer to development is ‘yes’ to planning applications, although what this means in practice is yet to be defined.

Planning decisions will be localised about the use of previously developed land, removing nationally imposed targets while retaining existing controls on greenbelt land.

Surplus military land will be auctioned off for housing. This means that 20,000 new low carbon homes should be built by 2015, the budget says.

Mr Osborne announced a 12 month limit on considering planning applications, including appeals, as part otherwise yet-to-be-specified measures to “streamline the planning applications and related consents regimes removing bureaucracy from the system and speeding it up”. It's unsure what this means for local accountability.

Green Investment Bank

The Green Investment Bank is to operate from 2012-13. The UK devoted just £12.6bn towards green investment in 2009-10 according to an independent report from the Public Interest Research Centre (PIRC), released yesterday.

This is half the minimum of £20bn that must be invested in each of the next ten years, according to the Treasury, and is less than 1% of UK GDP - or less than what Britain spends on furniture each year.

This is why it is welcome that the Chancellor George Osborne announced £3 billion rather than the £1 billion previously announced to set up the Bank, with £2 billion to be funded from the sale of assets, which includes £775 million net proceeds already received from the sale of High Speed I.

Mr Osborne said that the Bank would “support low-carbon investment where the returns are too long-term or too risky for the market”.

However, he resisted calls that the bank be allowed to borrow and lend with immediate effect, saying instead that it will have to wait until 2016 to do so.

Andrew Raingold, executive director of the Aldersgate Group, was amongst critics of this, saying: "We welcome the additional finance for the Green Investment Bank but it must have the power to borrow from day one. This would put the bank at the heart of Chancellor's plan for growth and not wait until the UK is overtaken in key green industries by competitors."

Mr Osborne did argue that the £3 billion will allow a further £15bn to be raised privately for investment in green infrastructure by 2014-15.

Carbon price floor

Besides the GIB, the Government is to introduce a carbon price floor for electricity generation from 1 April 2013.

This will start at around £16 per tonne of carbon dioxide and follow a linear path to £30 per tonne in 2020 to drive investment in the low-carbon power sector. The Treasury says that the carbon price support rates for 2013-14 will be equivalent to £4.94 per tonne of carbon dioxide.

It means that signatories to the Emissions Trading Scheme (ETS) will make up the difference between the actual price of carbon permits under the ETS and the agreed floor price. It expects to raise £740 million in the first year, rising to £1.07bn in the second year and £1.4 billion in the third year.

Friends of the Earth complained that the floor price is too low to make much difference (it is currently only £1.30 less than that) and will provide a "windfall for existing nuclear power".

Meanwhile, income from the Climate Change Levy is projected to increase from £0.7 billion now to £2 billion in 2015-16.

Other environmental taxes

Reform to the Climate Change Agreements, which rewards businesses for energy efficiency, will cost the Treasury £140 million in 2013-16. These tax discounts will stay at 80% not reduce to 65% in 2013 as previously proposed, and the scheme will continue till 2023.

Adjustments to company car tax rates from 2013-14 are expected to bring in to the Treasury over the following three years an additional £390 million. A slight change to the Climate Change Levy exemptions in Northern Ireland will bring in an additional £15 million in the same period.

Negatively for the environment, the Aggregates Levy, which is intended to cut landfill from construction, is having its rate increase postponed this year, at a total cost to the Treasury of £90 million, but it will continue until 2021.

Similarly, the proposed increase in air passenger duty is to be deferred and this will cost the Treasury £145 million. However, wealthy owners of private jets will have to pay fuel duty for the first time.

The fuel duty escalator is also being cancelled, as long as oil prices remain high, and fuel duty is to be cut by 1p. Friends of the Earth wondered what this means for David Cameron's recent promise to "wean the UK off oil". Interestingly, the Treasury is predicting that oil prices will come down from today's highs of £69.3 per barrel to £66.2 in 2015-16.

As previously announced, there will be an increase in the standard rate of landfill tax by £8 per tonne to £56 per tonne on April 1 2011 and to £64 per tonne on 1 April 2012 but the lower rate of landfill tax will be frozen at £2.50 per tonne in 2012-13. The value of the Landfill Communities Fund will rise in line with inflation in 2011-12 to £78.1 million.

The proportion of the landfill tax liability paid by landfill operators into it will remain the same. Future decisions on the value of the fund will take into account the success of environmental bodies in reducing the level of unspent funds that they hold.

Despite previous promises to tax pollution more, there were no new initiatives here.

Carbon capture and storage

As predicted yesterday, carbon capture and storage is to get £1bn but there will be no special levy to support this technology, and any additional support will be funded from general spending.

Although Osbourne says that the government remains committed to providing public funding for four Carbon Capture and Storage (CCS) demonstration plants, there are concerns over whether the necessary development of this technology, seen as being crucial to reducing carbon emissions from existing and new fossil fuel plants, will go ahead on schedule.

Water shortages

To address the issue of water shortages, The Government is to consult shortly on making reforms to the existing WaterSure scheme, the approach to company social tariffs and options for additional government spending to provide further support for water affordability.

The Budget 2011 documents are available on the Treasury website.

Pale green budget tomorrow will cancel CCS levy and forbid Green Investment Bank from borrowing

George Osborne's first budget tomorrow will say that the Green Investment Bank will not be allowed to raise its own finance for some time.

And the levy on electricity bills which had been proposed to raise finance for carbon capture and storage (CCS) plants is to be dropped.

The levy was touted in last autumn's Spending Review as a means of raising billions of pounds for flagship CCS projects. In the review, Osborne said £1 billion was set aside for at least one CCS pilot, with a further three projects to be financed either by the levy or by public money.

But the levy is no longer on the cards following lobbying from industry. This argued that effectively there will already be four carbon taxes, which is complicated enough, and the levy would be a fifth - just too much. The four taxes are:

• the Climate Change Levy (CCL) - since 2001, taxing fossil fuel energy supply to those businesses without a climate change agreement (CCA) with DECC (which gives 80% - reducing to 65% from next month - reduction on this tax)


• the CRC Energy Efficiency Scheme - beginning in 2012, which will raise £1 billion a year by 2014-15 from businesses who consumed over 6,000 MWh in 2008


• the EU Emissions Trading Scheme (affecting generators and the metals, mineral, and pulp and paper industries) - now, most permits are given away free, but the proportion will reduce significantly in 2013


• the new carbon price support mechanism (CPSM), designed to tax fossil fuels used in electricity generation (by removing CCL exemptions from 2013) to make generators' investment in CCS, renewable and nuclear generation more favourable.

The carbon price support mechanism, currently the subject of a consultation, is also to be further described in tomorrow's budget.

City accountancy firm PricewaterhouseCoopers was amongst those arguing against the CCS levy. Its partner Mark Schofield has written: “The introduction of a floor price would be a significant change for many companies with high emissions, particularly if the Government decides to set this higher than the EU ETS traded permit price. It is likely that the Government will set a lower price initially, rising over time, but they can’t be too generous.

“One of the main criticisms from the industry is that the carbon floor price will add another layer of policy complexity to an already overcrowded energy supply chain policy mix. It may be difficult for potential investors in low carbon generation to distil from these overlapping policy measures a reliable carbon price signal to guide investment decisions, and for users of energy to understand the overall policy objective.”

This raises questions over how or whether the three further CCS projects will be built. Scottish and Southern Energy, Powerfuel Power Limited, Alstom UK and Ayrshire Power are amongst the companies competing to build them.

The prospect of being able to capture carbon from fossil fuel burning power stations has become key to many policies about tackling climate change while keeping business as usual. This is despite the fact that there is no large-scale commercial demonstration that the technology works anywhere in the world.

The EU will be part subsidising the projects. CCS supporters are hoping that the floor price for carbon will be set high enough to raise sufficient funding for CCS. But then so will renewable energy generators and nuclear newbuild supporters.

The Treasury itself says (in the CPSM consultation document) that around £110 billion in new generation and grid connections alone is required by 2020. The same amount again will be required for further upgrades.

The Green Investment Bank

Where will this investment come from? Great hopes have been pinned on the Green Investment Bank.

Osborne is expected to pledge tomorrow that £3 billion will be given to kickstart the Bank. He will say that he believes this will be enough to raise £18 billion of investment into green projects by 2014-15, with the rest coming from the private sector.

This is still a fraction of what is required, which has raised criticism of the Treasury for blocking Energy Secretary Chris Huhne's demand that the new Bank be able to borrow money itself.

Osborne will say tomorrow that the Bank will be able to issue bonds once the nation's debt is falling as a poor portion of grass domestic product–anticipated after April 2015. But for many this will not be soon enough.

Huhne has been locking horns with the Treasury, demanding that it be created as a fully fledged bank. The Treasury's line has been that allowing small investors to take part in the bank's investments would be too complicated, and any borrowing liabilities would be on the government balance sheet, thereby making the deficit appear worse.

“This throws into doubt Britain’s chances of building a low carbon economy and means we will now lose jobs and industries to places like China, Germany and Silicon Valley in California,” said John Sauven, Greenpeace executive director.

The bank is expected to be funded by sales of assets, such as the government one third share in Urenco, the company which enriches uranium for nuclear power stations.

The Coalition's Carbon Plan is a rehash - what should it really say?

It certainly comes across as well-meaning and earnest. There are no less than 186 measures in the Excel spreadsheet accompanying The Carbon Plan launched jointly today by the leaders of the Conservative-Liberal Democrat coalition government.

But the Plan currently – it is a draft - is little more than a summary of already existing government policies. What it indicates is that the coalition is keen to regain the initiative after criticism that it is not meeting its promise to be the “greenest government ever".

Critics will be asking why, if the government wants to get us onto public transport, are so many bus services being cut across the country?

They will say, why are the revenues from the Carbon Reduction Commitment, and the forthcoming climate change levy (CCL) on all fossil fuels used in electricity generation, instead of being ploughed directly into low carbon activities, to go to the Treasury to fill the budget deficit?

Much of the commentary in the Plan will be familiar to long-term observers of government attempts to reduce the nation's environmental impact. One must ask: if governments have failed before, what are the real impediments to progress that this one must overcome in order to succeed? How can future drafts improve on this one?

Undoubtedly the Plan's signatories, David Cameron, Nick Clegg and Chris Huhne, need to lean on the Treasury. Its mandarins have been opposing Huhne's attempts to set up the Green Investment Bank as a proper bank.

They appear to have failed in this - it will be launched next year - but they have recently succeeded in blocking a source of finance for the bank by issuing green investment bonds for the public to buy. For the Treasury, such a solution is too messy - they prefer to stick with the big investors. And yet, if we could all invest in the green industrial revolution this would certainly galvanise a much greater proportion of the population.

Planning is another obstacle to be surmounted. The Carbon Plan acknowledges this by saying, for example “The Government is committed to reducing carbon emissions from new buildings through successive changes to The Building Regulations and to enabling new non-domestic buildings to be zero carbon from 2019."

But alongside this, it needs vigorously to retrain and motivate planning departments across the country to support low carbon designs, which all too often fall foul of petty objections. Furthermore, Building Controllers need to be retrained and motivated to properly police implementation of the environmental aspects of the Building Regulations and, if necessary prosecute offenders with the same rigour as is applied to Health and Safety breaches. No one has ever yet been prosecuted for a breach of Part L.

The use of passive solar architecture for heating and cooling of buildings has huge potential. The utilization of solar gain, and standards similar to the ‘Passivhaus’ standard, can help to curb the rate of growth in demand for electricity for these purposes.

Reducing demand is far more cost-effective than building new power stations. But if we are going to build new power stations, then "renewable energy technologies are the only ones to offer a reduction of price rather than an increase in the future" [Arnulf Jäger-Waldau, PV Status Report 2008, Renewable Energy Unit, European Commission].

So, in the long-term, we are undoubtedly shielding ourselves from future pricing insecurity by investing in renewable energy. The Government evades the criticism that politicians only make short-term decisions by acknowledging this.

What it needs to do however, is look more carefully at which technologies it should back - such as the extremely reliable and almost market-ready marine current turbines and anaerobic digestion.

For example, it wants us to “move away from gas boilers to low carbon alternatives, such as heat pumps". And yet in most cases replacing a gas boiler with a heat pump would not result in carbon savings. Has it looked at the carbon balance of this?

Why is it that yet again solar thermal heating hardly gets a mention? If the Government wants to get more carbon savings for its £££s it is far better spending its money on this than photovoltaics. A study [B. Croxford and K. Scott, Can PV or Solar Thermal Systems Be Cost Effective? London, 2008.] found that the costs of reducing overall carbon dioxide emissions using a solar photovoltaic roof are £196/tonne CO2, but for solar thermal individual systems are £65/tonne CO2 and for community solar thermal five times better at £38/tonne CO2.

The Plan is right to support distributed energy, whose benefits coincide with the ideology of the new Localism: local ownership, reduced transmission losses and greater efficiency. At too small a scale, however, the economy of scale is lost because of unnecessary duplication of system components such as inverters (house-by-house, instead of street-by-street).

Renewable energy and building refurbishment at village, street or town scale therefore have a part to play in community regeneration, as communities come together to take responsibility for their own energy consumption and learn what it means.

Consumers of energy also have a lot to learn about how their pattern of use affects overall demand, and how they can reduce their energy consumption. It is hoped as well that the rollout of the ‘smart grid’ can help to manage or smooth out peak loads and reduce overall requirements for generation capacity.

We are on a huge learning climb. The road to a low carbon future will be made up of a million incremental steps that we all must take. Undoubtedly there will be some trips along the way.