A read-out of the key climate policy decisions set out by the UK government in its annual budget on Wednesday:
Carbon price freeze:
The budget statement reiterated last year’s decision to freeze the carbon price floor at fiscal 2015 levels of £18 for the rest of the decade.
The tax is levied on power producers regardless of EU ETS prices and on April 1 increases from current levels of £9.55 per tonne of CO2 to a level expected to be high enough to force a switch in some output from coal to cleaner gas over the next few years.
The budget statement this freeze, rather than the originally-intended upward trajectory to £30/tonne by 2020, would cost the government £340 in lost revenue in fiscal 2015, £615 in 2016, £870 in 2018 and £1 billion in 2019.
It also confirmed a decision late last year to introduce an exemption from the carbon floor price for combined heat and power plants, applying from April.
Industry compensation:
The budget brings forward planned compensation for heavy industry for the higher electricity prices due to renewable subsidies. This will apply from April at an expected cost to the government of £25 million this year.
The move was welcomed by UK Steel but the industry association was disappointed not to receive more support to shield them from the full cost of green subsidies.
“This deal will still leave energy intensive industries paying 80% of the costs of the renewables support until April 2016,” said UK Steel’s Gareth Stace.
“Until the whole compensation package is in place, we are competing with one hand tied behind our backs. Only the full compensation package will give us the ability to compete in this increasingly fierce global market”
Tidal power support:
In a boost for emission-free tidal power, the government said it would open talks with the planned £1 billion Swansea Bay Tidal Lagoon project on a Contract for Difference price for future electricity.
“There is significant potential for the deployment of tidal lagoons and tidal range technologies (which) could theoretically contribute up to 25TWh/year, or around 8% of current UK electricity consumption,” the budget statement said.
Consultancy EY questioned the focus on such a costly new project when other renewable types such as solar were becoming affordable yet struggling under the UK’s delayed support via Contract for Difference prices.
“It would be hugely beneficial for the UK renewables sector to see the same level of support for already proven and cost effective renewable,” said EY’s Environmental Finance Partner Ben Warren, in a statement.
Environmental campaigners agreed and said the move was “too little too late” for this government following its previous moves to promote fracking, give tax breaks to oil producers and its “neglect for the green technologies of the future”.
Oil industry relief:
British finance minister George Osborne handed a £1.3 billion lifeline to the UK’s oil industry ailing under the collapse in oil prices.
He slashed supplementary oil extraction charges to 20% from 30%, petroleum tax to 35% from 50% and introduced an investment allowance whereby drillers can qualify for tax relief.
Jon Fitzpatrick, head of oil and gas EMEA at bank Macquarie Capital, said the tax subsidies would be very welcome but were likely to only help small number of the North Sea producers struggling with low oil prices.
“There are a vast number of projects that are unfunded and unsustainable at current oil prices and many companies may not stay in the basin or business long enough to see the dawn of the oil price rising again,” he said.
By Ben Garside – ben@carbon-pulse.com
