Whilst yesterday's Budget contained very few energy announcements compared to previous years, industry will welcome more long-term clarity on carbon pricing and the support to business with high energy use. However, the end of Enhanced Capital Allowances for clean technologies and the lack of support for clean energy generation has led to many commentators viewing the Budget as another missed opportunity by the Chancellor to make British industry a leader in the global clean energy markets and promote investment in the green energy sector. In addition, the entire Budget is caveated with the proviso that it is conditional on the outcome of Brexit negotiations and in the event of a "no-deal Brexit", the government would need to come forward with a new Budget which would involve a "different response", with "fiscal buffers" being maintained to provide support for the economy.
The key energy announcements contained in yesterday's Budget are set out below:
- Clarity on carbon pricing - the Carbon Price Support (CPS) rate is frozen at £18/tCO2 for 2020-21. From 2021-22, the government will seek to reduce the CPS rate if the Total Carbon Price (EU Emissions Trading System + Carbon Price Support) remains high.
- No Deal Brexit - in the event of a “No Deal” Brexit and the UK departing from the EU ETS in 2019, the government will introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act 2008. The tax would apply to all stationary installations currently participating in the EU Emissions Trading Scheme (EU ETS) from 1 April 2019. A rate of £16/tCO2 would apply to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS. The government also committed to bring forward new legislation so it can prepare for a “range of long-term carbon pricing options”.
- Climate Change Levy (CCL) - the CCL is a tax on energy delivered to non-domestic users in the United Kingdom. Its aim is to provide an incentive to increase energy efficiency and to reduce carbon emission. Some sectors are exempted through Climate Change Agreements (CCAs), charities, and the non-domestic users consuming no more than 4.4MWh of gas per month, or 1MWh of electricity per month. The Budget sets the CCL main rates for 2020-21 and 2021-22 and continues with the government’s commitment to rebalance the main rates paid for gas and electricity. The electricity rate will be lowered in 2020-21 and 2021-22. The gas rate will increase in 2020-21 and 2021-22 so it reaches 60% of the electricity main rate by 2021-22. The measure was first sign-posted in the government’s 2016 Budget which outlined plans to rebalance CCL rates for different fuel types to reflect recent data on the fuel mix used in generation rebalancing the rates to reach a ratio of 1:1 (electricity:gas) rates by 2025. The ratio for the current year (2018-19) is 2.8:1 and for next year (2019-20) is 2.5:1.
- Reform of Enhanced Capital Allowances (ECAs) - the government will end ECAs and First Year Tax Credits for technologies on the Energy Technology List and Water Technology List from April 2020. The savings will be reinvested in an Industrial Energy Transformation Fund, to “support significant energy users to cut their energy bills and transition UK industry to a low carbon future.” The government will extend ECAs for companies investing in electric vehicle charge points to 31 March 2023.
- Business low-carbon funding - as part of the Industrial Strategy, the government will establish an Industrial Energy Transformation Fund, backed by up to £315mn of investment, to support businesses with high energy use to transition to a low-carbon future and to cut their bills through increased energy efficiency. The government will also issue a call for evidence on introducing a new Business Energy Efficiency Scheme, focused on smaller businesses.
- Encouraging innovation in regulated utilities – accompanying the Budget, BEIS and Treasury launched a consultation on how to encourage greater innovation in the utilities sectors. Views are sought by 15 January 2019.