Budget 2016: What's on the table for energy and climate change policy?

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With less than half an hour to go before the Chancellor takes centre stage and the Westminster rumour mill chugging away, the truth is we still know precious little about what will be announced. This is particularly true when it comes to energy and climate change policy, after numerous conversations on the Business Energy Efficiency Taxation Review (BEETR), the Carbon Price Floor (CPF) and the Levy Control Framework (LCF) we’re still none the wiser on what we can expect.

All we know for definite, or as definite as one can be, is that we’ll be getting an official response from the Government on the BEETR and more than likely an announcement on the indicative level of the Carbon Price Support (CPS) rate for 2020. Everything else is really anyone’s guess.  

EEF’s energy and climate change ask for this year’s Budget were broadly thus;

  • A revenue neutral outcome to the BEETR

  • A retention of the current system of Climate Change Agreements

  • No increase in the CPS rates and a phasing out of the CPF in the 2020s

  • Certainty of LCF spending in the 2020s

There is a great deal of uncertainty about all of this, not only a vast array of different options that the Chancellor could take on the above, he quite clearly also has the option to delay a decision on any of the above. However, if I were to attempt to stare into my fiscal ball I’d hazard a guess at the following:

  1. The BEETR announcement will be very high level and leave a huge amount to be decided and consulted on at a later date. We’ll probably hear that the CRC energy efficiency scheme is to be canned, that the Climate Change Levy (CCL) is to be increased (but without any real detail on by how much on which consumers it will fall on) and that the CCA scheme, and the tax discounts it offers, is here to stay.

     

  2. The CPF is a very tricky one. On the one hand the Government really doesn’t have to make any decision on the future of the tax until it makes a decision on LCF spending in the 2020s, Osborne may have to make to pretty unpopular announcements today, and if he can put off one on carbon taxes I’d say he will. On the other hand, EDF’s announcement recently that it would be extending the life time of its current fleet of nuclear plants, is a good indication that they’ve been quietly informed that the CPF revenue stream is here to stay. On balance I’d say we’ll get an indicative CPS rate announced for 2020, possibly a small increase, but not much else.

     

  3.  The Government really needs to announce something on this soon, uncertainty is rife amongst energy industry investors and something needs to be done to steady the ship. However, there are some many factors that will feed into LCF spending in the 2020s that I think Government is still to make a decision on (Fifth Carbon Budget, the future operation of CfDs and the CPF) that I find it doubtful we’ll get any definitive announcements on this yet.   

     

  4. Not part of EEF’s Budget list, but the smart money is on an increase on fuel duty. Prices at the pump are at historic lows and don’t show any sign of going anywhere soon. The Government needs to find an additional £4billion by the end of this parliament, and Osborne may well judge that motorist and the transport sector can do some of the heavy lifting.


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