Mixed Response to the UK’s First Budget Since Committing to Net-Zero Emissions by 2050

Despite the Chancellor, Rishi Sunak declaring that he was moving the UK towards a low-carbon economy with the introduction of new measures, environmentalists are not entirely happy. Though he has promised green measures that have been long-awaited he has at the same time frozen fuel duty for a 10th year and laid out plans for the expansion of roads.

The tax, levied on sales of petrol and diesel, has remained at a rate of 58 pence per litre, plus VAT, since 2011.

Steven Sorrell, Professor of Energy Policy at the University of Sussex Business School, said:

“It is a mistake to freeze the fuel duty escalator for the tenth year in a row, threatening attainment of UK’s net zero target, and damaging the UK’s credibility in advance of hosting the UN climate conference in December. Car drivers have enjoyed a large price cut in real terms since 2010, since the price of gasoline and diesel has not kept pace with inflation. At the same time, public transport fares have risen faster than inflation and bus travel has declined. Cheap fuel prices have encouraged people to purchase gas-guzzling SUVs which now account for one-quarter of new car sales. Carbon emissions from transport are rising, and cars now emit more carbon dioxide than power stations. These trends are not sustainable. The fall in global oil prices provides an opportunity to reinstate the escalator. Since low-income households are less likely to own a car, or to travel long distances, much of the burden will fall on high-income groups.”

It is possible that the planned road expansion could be challenged in the courts for breaching the UK’s laws on climate change.

While he has removed the tax break on red diesel for industrial vehicles (except for agriculture and rail) at a cost to the Treasury of some £2.4bn per year in lost revenue, he has made no legislative change for the oil and gas industry.

The Chancellor said that the sales of red diesel made up 15% of all diesel sales which he said in his budget amounted to a “tax relief on nearly 14 million tonnes of CO2 every year”.

Rishi Sunak said that removing the tax break would reduce air pollution in cities.

The decision to hold steady for the oil and gas industry has pleased Derek Leith, EY’s Global Oil and Gas Tax Lead.

He said:

“In recent years we’ve seen significant change to the tax landscape for the oil and gas sector, with successive governments acknowledging the maturity of the basin and the need to have stable fiscal conditions for investment. Last weekend’s drop in oil price demonstrates that there is significant volatility in the sector with global demand faltering and supply-side discipline disappearing. A return of the oil price to the $55 (£42.6) – $65 (£50.4) range would be beneficial to the industry as it seeks to maximise economic recovery whilst taking steps to decarbonise production facilities. A stable oil and gas industry in the UK offers the best possible foundation for the oilfield services sector and supply chain to start to transition its technical competence into alternative energy.”

An analysis published this week by Carbon Brief revealed that the UK’s C02 emissions are up 5% higher than they would have been if fuel duty had increased as planned, rather than remaining frozen.

The amount of CO2 released by road transport has risen by 3% over the past decade and the transport sector overall is now the single-largest contributor to UK carbon emissions.

Further research has been conducted by the campaign group Greener Journeys which suggests the fuel-duty freeze has also “led to 5% more traffic, 250m fewer bus journeys and 75m fewer rail journeys”.

Understandably the budget was dominated by the response to the Coronavirus outbreak. However, the new Chancellor managed to commit more time to climate measures than previous chancellors. This is a great improvement as the 2018 budget speech made no reference to climate change at all. The question that one has to ask is whether there have been nearly enough measures put in place to reach net-zero emissions by 2050. This was of course the first budget since the UK committed to this target.

On the positive side the Chancellor has reduced the tax on electricity which comes increasingly from renewable sources of energy while raising tax on polluting gas.

He is also going to invest £1bn to double research and development into energy research.

Interestingly the Treasury’s budget which contains more detail than the Chancellor’s speech uses the phrase “net-zero” 17 times, with a further 31 mentions of “climate”. One example of this in the red book says:

“The transition to a net-zero economy by 2050 will require radical changes in every sector.” It also calls cutting carbon a “major government priority”.

Another significant move by the Chancellor is the reiteration of his pledge to double spending on flood defences, committing a further £5.2bn to protect more than 300,000 homes over the next six years.

Emma Howard Boyd, chair of the Environment Agency, said:

“This is hugely significant. As the climate emergency increases flood risk, this funding will allow us to invest in infrastructure and nature-based solutions so that otherwise vulnerable communities can both have better protection against flooding and be more resilient when it happens.”

The budget has also announced a fundamental review of business rates which has been welcomed by the Solar Trade Association. They say that business rates are the “main barrier to the deployment of large rooftop PV”.

Decarbonising the UK’s heating systems is one of the biggest challenges we face in reaching net-zero emissions by 2050. Last year, the Committee on Climate Change (CCC) said there was “still no serious plan for decarbonising UK heating systems”.

The budget red book stated the following:

“The heating of our homes will need to be virtually zero carbon by 2050, replacing natural gas and other fossil fuels with low-carbon alternatives – likely to be primarily a mix of green gas, heat pumps and heat networks.”

The government has addressed this need by extending the Renewable Heat Incentive (RHI) for an extra year, until 31 March 2022.

The RHI is a subsidy provided to producers of renewable heat, supporting biomass boilers, heat pumps and solar thermal by paying a tariff per unit of heat energy supplied.

Up until now the government hasn’t been forthcoming in announcing strategies to promote low-carbon heating after the date RHI was due to expire which was March 2021.

Further to this extension of RHI the government has said it will consult on a new “low-carbon heat support scheme” to replace the RHI from April 2022. It said this would give grants to “help households and small businesses invest in heat pumps and biomass boilers, backed by £100m of new exchequer funding”.

The budget committed to another £96m in 2020-22 for a scheme that supports district-heat networks.

In a promising statement, the government went on to say:

“After this, the government will invest a further £270m in a new green heat networks scheme, enabling new and existing heat networks to be low carbon and connect to waste heat that would otherwise be released into the atmosphere.”

Apart from this and subject to consultation a new “green gas levy” will be applied to consumer gas bills. This will support the production of “biomethane”, for use in the gas grid, from food waste and other, biomass. According to Emily Gosden, the Times’ energy editor, the Treasury expects the levy to initially cost £1 per household per year, rising to £5 by 2025.

Many environmentalists and those working in the renewable industry are worried that the government just isn’t doing enough.

STA Chief Executive Chris Hewett noted:

“Unfortunately, this Budget is thin on measures to tackle climate change and support the transition to a low carbon economy. Renewables are vital to reaching net zero and without good policies in place to support the uptake of solar we will fall well short of the 40GW needed by 2030 to keep on track. Time is running out to act.”

He suggested that the freeze on the carbon price support rate and the lack of any “meaningful” energy efficiency policy” was “particularly disappointing” and added:

“We do welcome the decision to hold a review of business rates, which are the main barrier to the deployment of large rooftop PV. Additionally, we are pleased to see an extension to the Renewable Heat Incentive and the introduction of a Low Carbon Heat Support Scheme which categorically must apply to solar heat technologies.”

Leave a Reply

Your email address will not be published. Required fields are marked *