UK Budget 2011 - What’s Green And What’s Greenwash

Posted on 23. Mar, 2011 by Ross in Government Policy, United Kingdom

Here’s all the key green (or really-not-so-green!) changes in UK government policy in today’s 2011 Budget.

Fuel Duty.

Green policies? Run away!

Previous Labour governments declared war on motorists, consistently and unashamedly increasing fuel tax with an aim not just to make more money (although this was hardly a happy accident) but to also drive down the escalation of car usage in the UK. Fuel costs have risen dramatically over the past 15 years, even when the price of oil dropped with the onset of the worldwide recession.

However, as part of their effort to not alienate every single person in the country through their spending cuts, the coalition government has decided in the 2011 Budget to give drivers a momentary reprieve by cancelling a planned 4p per litre fuel tax rise and instead cut fuel duty by 1p per litre instead. Great news for drivers (especially in rural environments where public transport is all but impossible and driving is a matter of survival rather than an option) but from a green perspective this is a definite step backwards if the government continues to aim to tax people out of their cars and onto public transport.

The cut is being paid for by oil companies as part of a Fair Fuel Stabiliser system - something thought to be too expensive for the Treasury to stomach, so the government has shifted the burden to the oil companies instead. Oil companies will foot the bill for less fuel duty whilst oil prices are high (during which time fuel duties will rise by inflation only), whereas lower oil prices will leave more room for duties to increase through the traditional escalator system.

Approved Mileage Allowance

More money for more travelling

Unexpectedly, the 2011 Budget created another incentive for greater car use. The Approved Mileage Allowance Payements was increased from 40p per mile to 45p - something which will likely increase both the use of cars and the use of larger, less efficient cars to boot.

The Green Investment Bank.

Still waiting for a free cashier

The green investment bank took a big hit in the 2011 Budget today, despite being a manifesto pledge of both coalition parties as well as being enshrined in the coalition agreement. Despite general acknowledgement that the green investment bank would only be able to properly fulfil it’s role by being able to independently borrow and issue bonds, Treasury officials have managed to defer any such powers until 2014, if at all. Why? Because due to pesky accounting rules, any borrowing that the green investment bank does will show itself up on the national debt, causing the Treasury a minor panic attack.

As a result the green investment bank will cease to function properly until 2014, enabling ministers to technically keep their promises whilst abandoning the necessary improvements to carbon-related infrastructure for the rest of this parliament. Energy companies - especially renewable energy manufacturers and smart grid suppliers - will be furious at this particular stalling tactic.

To mitigate this particular gripe, the government’s own seed money for the green investment bank has been tripled to £3bn, funded through extra asset sales unspecified in the speech although the High Speed Rail 1 link is cited in the 2011 Budget document. By doing so, the 2011 Budget has allowed the green investment bank to start operation a year earlier than planned in 2012, but it will likely struggle to bring in the necessary private sector funding until it can successfully issue bonds.

Air Taxes.

No extra air pain at the airport

Another retreat from previous green budgets comes in the form of the scrapped increase in air passenger duty. The Liberal Democrat policy of switching from a per-passenger to a per-plane tax was quickly shelved by the coalition due to international law issues, and now the consolatory increases in air passenger taxes is being scrapped too. Despite aviation emissions making up a sizeable proportion of the national total, there is still insufficient political willpower to tackle the issue rationally.

CCS (Carbon Capture and Storage).

Take from the rich and give to the rich. Then take from everybody else too. And hope it works.

Finding £1bn in the last budget for the country’s first long-overdue CCS trial was heralded at the time as a coup for the green agenda at a time when cuts were being piled high on every single department, despite the fact that the money was actually just a fraction of that being robbed from companies in the CRC Energy Efficiency scheme by changing the scheme from a revenue-neutral initiative to an out-and-out green tax.

The initial trial money hasn’t even been allocated yet, despite there being only one project now left in the running, but in today’s 2011 Budget it was announced that three more CCS projects due to be paid for with higher consumer energy bills will now not be paid for by a formerly-touted Climate Change Levy in energy bills but will be paid for by general taxation instead. Noticeably absent is any form of timetable for these further demonstration projects, however there is sufficient controversy over the possible effectiveness of ‘clean’ coal that most environmentalists will hardly be losing much sleep over this one. Besides, CCS supporters would have been hoping that the next measure drives investment instead…

Carbon Floor Price

Too low to make a difference… for now

The energy companies have long claimed that without a greater cost for carbon in the marketplace, there is no financial incentive for decent investment in low-carbon energy generation technologies such as renewables, CCS and nuclear power.

The government finally chose to act on this in today’s 2011 Budget by instituting a floor price for carbon of £16 per tCO2 from 2013. However, it’s own data shows that this price will fail to drive investment - after all, prices for carbon in the European emissions trading scheme (ETS) have perpetually hovered around the €15 mark with little effect, whilst the CRC Energy Efficiency scheme floor price of £12 per tCO2 isn’t expected to rise until trading begins during the next phase.

However, the 2011 Budget also has set a defined increase rate for the floor price for carbon as well. To counter concerns over long-term price uncertainty, the carbon floor price will increase linearly from £16 in 2013 to £30 in 2030 - roughly a £1 increase every year. A £30 floor price is far closer to the kind of price which really will drive low-carbon decision-making, so some companies will respond positively to the future figures rather than the current ones.

The government will also be laughing all the way to the Bank (of England) with this one too: £1.4bn in brand new revenues in 2015-16 alone (strangely double what is projected for 2013-14).