The Chancellor’s Autumn Statement provided just a few announcements relating to energy and climate policy but assured stakeholders that it will continue to develop an emissions reduction plan to decarbonise the economy while limiting the cost added to bills. The Levy Control Framework (LCF), which the government will set out in the 2017 Budget, is key to this.
The LCF aims to protect consumers by placing a cap on the total payments to low-carbon generation (above the electricity price) for each year until 2020. The cost of these subsidies typically makes up more than 20% of an electricity bill at present, and it is expected to rise to more than 25% by 2018.
Since the Autumn Statement, the government has published its response to findings that the LCF will be exceeded by £1bn in 2020/21. It confirms that it has accepted the recommendations of the report and that the LCF now has stringent controls in place and is more transparent
The Autumn Statement also confirmed that the cap on Carbon Price Support (CPS) would be maintained at £18 t/CO2 , to be uprated by inflation in 2020-21. The government will continue to consider the appropriate mechanism for determining the carbon price in the 2020s. CPS is a tax designed to act as an uplift to the price of carbon in the EU Emissions Trading System (ETS), which has remained low due to an oversupply of allowances in the market. Supporting the price of carbon encourages low-carbon sources of generation, while making coal generation less financially attractive. However, it is also unpopular with energy-intensive industries. The UK’s membership of the EU ETS is one of the many uncertainties created by the EU Referendum and the decision on this will have a bearing on the future of CPS.
In other related announcements, the government’s support of shale gas was underlined by its commitment to a Shale Wealth Fund of up to £1bn for communities local to shale gas production. Electric vehicles and cleaner transport also stand to gain from government investment of £390m for ultra-low-emissions vehicles (ULEV), renewable fuels, and driverless cars by 2020-21, which includes investment in a charging infrastructure and support for low-emission public transport.