Environmentally sustainable must be financially sustainable

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As the dust settles on another Budget, Fergus McReynolds, Senior Climate & Environment Policy Adviser at EEF looks at the impact on green policies of a Budget designed to support growth.

The overall picture for green policies was a bit of a mixed bag; the government reiterated their commitment to investment in a world-leading energy sector and restated that renewables are a crucial part of the energy mix for the UK. However the Chancellor committed to being “alert to the costs we are asking families and businesses to bear”, saying that “Environmentally sustainable has to be fiscally sustainable too”. This supports EEF's view, presented in our Green and Growth report, that renewables are an essential part of the mix, but policy should be should focus on decarbonising the grid and not prescribe the route. A leaked letter to the EU Commission last week shows that the government agrees.

The Chancellor also highlighted that the Green Investment Bank's pathfinder – UK Green Investments – is now open for business, with over 20 individual projects under active consideration including in renewable energy, waste management and energy efficiency and is on track to make its first investments next month.

On specific policies; the Government have stuck with their trajectory for the Carbon Price Floor. This will almost double the rate of the 'Carbon Price Support' levied on fossil fuels used for power generation from 2013 to 2014. The decision locks the UK into a system with higher energy taxes than our competitors, regardless of the European carbon price. This is yet another unilateral increase in carbon taxation, coming at a time when the economy is still in recovery, and will only serve to widen further the gap between electricity prices in the UK and those in our competitors in Europe.

At current prices, this will see the rate go from £4.94 per tonne of CO2 in 2013/14 to £9.55 per tonne in 2014/15. A tax on this scale would push industrial electricity prices up a further 6-7% on top of the host of existing policy measures already adding to energy costs.

The decision also directly contradicts the government's stance that the UK will go no faster than our partners in Europe and hamper its plans to rebalance the economy. The more government policies push up the cost of operating in the UK, the harder it will be for manufacturers to invest, create jobs and compete in global markets. A silver lining in this Budget announcement is that the Government have decided rightly to provide an exemption for input fuels used to generate heat in good quality combined heat and power plants and the exclusion of small scale electricity generation of two megawatts capacity and less.

There was better news on the CRC Energy Efficiency Scheme, with the announcement that the Government will seek major savings in the administrative cost of the Commitment for business from this “cumbersome, bureaucratic” policy that “imposes unnecessary cost on business”, the Chancellor went on to say that “if those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.”

We welcome this review of the CRC; the scheme is overly burdensome, costly and provides no guarantee of carbon reductions. However, we feel that no amount of tinkering with this doomed tax on British business will ever make it work and therefore the Government should scrap the scheme in the autumn, as part of a holistic review of green polices ahead of the next Comprehensive Spending Review.

Overall this was an interesting Budget for green policies, but perhaps not as interesting as we might have hoped.

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Director of EU Affairs

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