Some feel it is not radical enough, given the urgency of the climate emergency.
Rishi Sunak said in his 2020 budget announcement: “We promised to deliver green growth and protect the environment, this budget gets it done.” However, there has been a mixed response from the business sector to the environmental measures in the budget. Most commentators agree it is a good start, although some feel it is not radical enough, given the urgency of the climate emergency. In particular, the Chancellor has faced criticism for continuing to freeze fuel duty and failing to cut road spending.
But there is good news for the environment in this budget. Given the government’s other priorities, it was given a significant amount of attention. The government has used the budget to introduce a billion pound package to encourage decarbonisation and electrification, to push the UK towards its net zero target. This is done primarily through both incentives and taxation.
What are the main environmental measures in the budget affecting businesses? In summary, the budget allocates new funding for:
- Incentives for businesses to switch to low carbon heating
- A scheme for Carbon Capture and Storage (CCS) facilities
- Investment in electric vehicle charging infrastructure
- Investment of more than £900 million of funding for research and innovation to reduce the costs of meeting net zero
Other measures introduced by the budget include:
- Red diesel tax relief will be abolished for most sectors from 2022 (except for agriculture, fishing, rail and domestic heating uses)
- Increases in Air Passenger Duty
- the Climate Change Levy on gas will rise in 2022-23 and 2023-24, whilst freezing the rate on electricity
- Climate Change Agreements will be extended by two years to support energy-intensive businesses
- The government will legislate in the Finance Bill 2020 to prepare for a UK Emissions Trading System (ETS), which could be linked to the EU ETS
- The government will introduce a carbon emissions tax and consult on the design of the tax in spring 2020
- The budget introduces a new plastic packaging tax at £200 per tonne for packaging with less than 30% recycled plastic
These proposals are discussed in more detail in the appendix below.
“To meet the net zero target, the UK must also decarbonise industry. There are a number of possible routes – from using low carbon energy sources like hydrogen or electricity, to capturing industrial emissions and storing them safely under the ground. This challenge provides opportunities not only to reduce emissions, but also to enable our manufacturing heartlands to become leaders in the green markets of the future.”
(Policy Paper Budget 2020, 12 March 2020)
In the year that the UK hosts the COP26 UN climate summit, this Budget has taken steps to decarbonise the economy. But is it bold enough?
Notably, plans for an integrated national public transport system were not included in the budget. Also there were no measures to improve energy efficiency in buildings. There was little on renewables. We feel there could have been stronger measures to reduce aviation carbon emissions, such as a frequent flyer levy.
The UK is currently off track to meet the existing Fourth and Fifth Carbon Budgets, so the government must put ambitious policies in place to meet those targets.
The government will publish a National Infrastructure Strategy later in the spring and this may fill some of the gaps, In addition, the Net Zero Review is due to be published in the autumn, ahead of COP26.
So while there is good news for the environment in this budget, it isn’t nearly done. Instead, the budget represents a step towards getting it done.
What are the environmental proposals in the budget affecting businesses?
The following measures are aimed at encouraging businesses to adopt low carbon methods of heating:
- Low carbon heat support – The government will consult on introducing a new grant scheme from April 2022 to help households and small businesses invest in heat pumps and biomass boilers, backed by £100 million of new funding
- Green Gas Levy – The government will also consult on introducing a Green Gas Levy to increase biomethane production for the gas grid
- The Renewable Heat Incentive (RHI) will be extended until March 2022
- Heat Networks Investment Project: The Budget included funding for the Heat Networks Investment Project to 2022 and provides £270 million of new funding to enable new and existing heat networks to adopt low carbon heat sources
Carbon Capture and Storage (CCS):
“Carbon capture and storage will be important to decarbonising both power and industry. It can provide flexible low carbon power and decarbonise many industrial processes, whilst also offering the option for negative emissions at scale.”
(Policy Paper Budget 2020, 12 March 2020)
The Budget announced a CCS Infrastructure Fund of at least £800m to establish at least two CCS clusters by 2030 – one in the mid-2020s and a second one by 2030. The Chancellor’s speech specifically mentioned Teesside, Humberside, Merseyside and St Fergus as possible sites. Budgets will be finalised at the Comprehensive Spending Review in July 2020.
The first CCS power plant in the UK will also be supported through consumer subsidies.
The Budget includes more than £27bn for improvement of motorways and roads (including a tunnel under Stonehenge) and will freeze fuel duty for the 10th consecutive year. This will be good news for many road users.
However, road transport is responsible for 91% of domestic transport emissions, and around a fifth of overall UK emissions. It is possible that the plans for improving roads will be subject to a legal challenge, due to the UK’s commitments under the Paris climate agreement.
Electric Vehicle Charging Infrastructure:
To encourage drivers to move away from polluting vehicles, the Budget includes investment in electric vehicle charging infrastructure, so that drivers are never more than 30 miles from a rapid charging station.
This will encourage property owners and developers to invest in vehicle charging points.
Plug-in car grants:
The government is considering future incentives for zero emission vehicles alongside the 2040 phase-out date for fossil fuel vehicles. Until then, the government will provide £533 million to extend Plug-in Grant schemes for ultra-low emission vehicles to 2023. This measure should increase the demand for low emission vehicles and ease the transition before the phase out date.
Red diesel tax relief
This will be abolished for most sectors from 2022, except agriculture, fishing, rail and domestic heating.
Therefore, a significant number of users of red diesel will still receive the relief after 2022.
Air Passenger Duty (APD) rates
APD rates will increase in line with RPI for 2021-22, meaning that short haul rates remain frozen at £13, benefitting 80% of passengers.
The rate for long haul economy will increase by £2, and the rates for those travelling in premium economy, business and first class will increase by £4. Those travelling long-haul by private jets will see the rate increase by £13.
Unlike most of the environmental measures in the budget, this is an increase in taxation. It falls short of the “frequent flyer levy” called for by the Committee on Climate Change. However, this will increase the cost of business travel and sends a signal to the business community.
The government will consult on aviation tax reform in spring 2020, including changing the APD for domestic flights, such as reintroducing a return leg exemption, and for increasing the number of international distance bands.
Climate Change Levy (CCL) and Climate Change Agreements (CCAs)
To encourage businesses to operate in a more environmentally friendly way, the government is raising the Climate Change Levy on gas in 2022-23 and 2023-24, whilst freezing the rate on electricity. Gas and electricity rates will be equal by 2025.The rate on gas will rise to £0.00568/kWh in 2022-23 and to £0.00672/kWh in 2023-24.
LPG rates will be frozen at 2019-20 levels until April 2024.
To support energy-intensive businesses, the government will reopen and extend the CCA scheme by two years. This scheme allows energy intensive businesses to reduce their CCL bill in exchange for meeting targets to improve their energy efficiency. The CCA is an important scheme for manufacturers in the UK, as it reduces their energy costs.
Carbon pricing and UK Emissions Trading Scheme (UK ETS):
The Carbon Price Support rate has been frozen at £18 per tonne in 2021-22.
From next year, UK will continue to apply carbon pricing. The government will legislate in the Finance Bill 2020 to prepare for a UK Emissions Trading System (ETS), which could be linked to the EU ETS.
Carbon Emissions Tax
The government will also legislate for a carbon emissions tax as an alternative carbon pricing policy and consult on the design of a tax in spring 2020.
This should be something to watch out for – will this be a simplified version of the CRC Energy Efficiency Scheme?
To meet its net zero target, the UK must decarbonise industry. Research and innovation will reduce the costs of meeting net zero and put the UK at the forefront of the new technologies needed to decarbonise the world economy. The Budget commits to:
- Doubling the size of the BEIS Energy Innovation Programme to £1bn.
- £800 million on a new R&D funding agency, modelled on ARPA in the US, to fund high-risk, high-reward science, including nuclear fusion.
- Increase R&D spending overall to £22bn a year by 2024-25 – including on nuclear fusion and electric vehicles.
The budget introduces a new plastic packaging tax at £200 per tonne for packaging with less than 30% recycled plastic. This measure has been welcomed by the recycling industry.