Autumn statement 2016: Key climate and energy announcements
There were high hopes that today’s autumn statement, the Treasury’s second set of budgetary announcements for the year, would provide clarity on a number of ambiguous points in UK climate policy.
It was the first autumn statement by chancellor Philip Hammond. However, climate change received scant attention with the budget focused largely on attempting to grapple with the financial repercussions of the EU referendum.
Most of the important policy issues for the direction of the UK’s low-carbon future were delayed until future budgets. Nonetheless, there were a few notable announcements, particularly for the electric vehicle industry. Carbon Brief runs through the main points.
§ Carbon price floor
The government has confirmed that it will maintain the cap on the carbon price floor (CPF).
Carbon Price Floor: The UK’s top-up carbon tax, applied to power stations and designed to supplement inadequate prices on EU markets. When implemented in 2013, the floor was set to rise gradually to £74/tCO2 in 2030. However, it was later frozen at £18/t until 2019/20.
This is a tax that requires industries to pay a certain amount for every tonne of CO2 that they emit, on top of the price they pay through the EU emissions trading scheme.
There was speculation ahead of the autumn statement that the CPF could be scrapped. While the charge has been instrumental in driving coal out of the UK’s energy system, it is also unpopular with energy-intensive industries, such as steel, which have accused it of increasing their energy costs and driving them out of business (see Carbon Brief’s investigation into this claim).
In 2013, the Treasury confirmed the rising rates of the price floor, starting at £5 in 2013-14, rising to £18 in 2015-16, with an indication that it should rise to almost £25 by 2017-18. However, in March 2016, former chancellor George Osborne confirmed that the CPF would be capped at £18 per tonne of CO2 until 2019-20.
The autumn statement was supposed to set out the “long-term direction” for the CPF. While those who support the price are relieved that it has survived another budget, there is also some disappointment that its continuation into the next decade is not yet assured.
Liz Hutchins, senior campaigner at Friends of the Earth, said:
“This is the minimum the government needed to do to keep to its commitment of phasing out dirty coal power stations. But if it’s to complete the job of ending coal, the CPS [carbon price support] needs to be extended to 2025.”
The government has said that it will continue to consider “the appropriate mechanism for determining the carbon price in the 2020s”.
§ Levy Control Framework
Levy Control Framework: A nominal cap on the support for low-carbon energy which is paid via electricity bills. The cap has been set at £7.6bn in 2020/21. Subsidies may be allowed to temporarily exceed the cap by up to 20% as a result of external factors, such as wholesale energy price fluctuations. Above this headroom, the Department for Energy and Climate Change (DECC) must agree plans to control spending with the Treasury.
The Levy Control Framework (LCF), which caps subsidies for low-carbon energy to ensure consumer bills remain low, was also subject to speculation, as its future beyond 2020-21 also remains uncertain. Clarifying this budget is essential to allowing solar investors to plan ahead, according to the Solar Trade Association.
But the uncertainty will continue for a little while longer. The autumn statement refrained from making any announcements on the LCF, although it has promised to set out its future in the 2017 Budget. Tom Greatrex, chief executive of the Nuclear Industry Association, said:
“It is disappointing there was no further clarity on the direction of the Levy Control Framework which is important for investment in vital low carbon energy infrastructure. Extending the UK Guarantees Scheme to at least 2026 will be important in underpinning investor confidence as the UK replaces ageing fossil fuel power stations with low carbon generation, including new nuclear power.”
Meanwhile, the Office for Budget Responsibility, the body which oversees the sustainability of the UK’s public finances, has slightly decreased its projections for spending under the LCF.
Here are latest @OBR_UK projections for Levy Control Framework spend – slight decrease vs March-16 figures. pic.twitter.com/p0Iug3kJE0
— Richard Howard (@RichardHowardPX) November 23, 2016
Some commentators have noticed that the OBR’s forecasts for receipts from the CPF have been reduced slightly, suggesting that the phaseout of coal could reduce the Exchequer’s income more than it had anticipated.
.@LeoHickman And Climate Change Levy. £400m less expected from Carbon Price Floor, OBR expecting receipts in 2021/22. pic.twitter.com/R5nEtAea8F
— Jon Ferris (@fractalgrid) November 23, 2016
§ Electric vehicles and transport
The autumn statement focuses heavily on new investments for infrastructure, establishing a £23bn National Productivity Investment Fund targeting improvements in transport, digital communications, research and development, and housing.
Electric vehicles and cleaner transport are one industry that stands to gain from this fund. Hammond announced that it will invest £390m into ultra-low emissions vehicles (ULEV), renewable fuels and driverless cars by 2020-21. This includes £80m for ULEV charging infrastructure, £150m for low-emission buses and taxis, and £20m for developing alternative fuels for aviation and heavy goods vehicles.
The chancellor’s backing for electric vehicles was the “best news” of the statement, said Dustin Benton, deputy director of Green Alliance.
The chancellor also used the autumn statement to freeze fuel duty for the seventh year in a row. Jenny Jones, Green Party member of the House of Lords, deemed this a bad decision in view of the need to tackle climate change. She said:
“The chancellor’s decision to freeze fuel duty for the seventh year running is bad news for climate change, air pollution and public health. Our country has returned to the bad old days of rising traffic growth and the main political parties are competing over who will build more roads…The government should reverse the fuel duty freeze of recent years and reverse all the bus cuts. It could use the billions of pounds raised to give the rest of the country the quality of public transport that Londoner’s enjoy.”
§ Fossil fuels
The government’s support for shale remains steadfast, despite public opposition. The autumn statement includes some efforts to bring potentially affected communities around to the idea of fracking in their vicinity, promising up to £1bn of additional resources through the Shale Wealth Fund. “Local communities will benefit first and determine how the money is spent in their area,” the statement says.
While shale received a boost, the statement was a lacklustre event for those hoping to see further support for the struggling oil and gas sector in the North Sea.
The Scottish government, Scottish Labour and oil producers urged the chancellor to help out the industry ahead of the statement, while a group of climate change NGOs and thinktanks counterbalanced this with a letter in the Guardian, asking him to “put an end to the taxpayer-funded bonus for oil and gas companies and set the UK on a pathway to a more prosperous, clean energy future”.
In the end, the statement did not provide any new tax breaks for the North Sea sector, although it did commit to continue with the industry friendly framework put in place by Osborne, and to “ensure a stable tax regime that maximises economic recovery”.
Here’s how the OBR’s Environmental Levies forecasts have changed since March #AutumnStatementpic.twitter.com/EofRv4RRxW
— Leo Hickman (@LeoHickman) November 23, 2016
§ Flooding
Finally, the government has promised to invest £170m in flood defence and resilience measures, including £20m for new flood defence schemes, £50m for rail resilience projects, and £100m to improve the resilience of the roads to flooding.