UK Budget Indicates Changes for Carbon Pricing

           Carbon and Climate
UK Parliament BEIS

The final Spring Budget, delivered by Chancellor Philip Hammond last week, gave little clarity on the future of renewables and emission reductions, although it did state that “the government remains committed to carbon pricing to help decarbonise the power sector”.

The Chancellor wants the government to set its own carbon pricing from 2021/22, indicating that the UK could stop participating in the EU Emissions Trading Scheme (EU ETS) when it leaves the EU. At present, energy companies and energy intensive industries pay for carbon in two parts: a set UK carbon tax known as the Carbon Price Floor and a variable price under the EU ETS. The government wants to target a “total carbon price”, with the specific rate to be set “at a later date”. The industry is calling for clarity as soon as possible so that the price of carbon can be factored into investment decisions.

A key Budget announcement was made on the Levy Control Framework (LCF), which will be scrapped, and a replacement will be announced later this year. The purpose of the LCF is to protect consumers by placing a cap on the total payments to low-carbon generation for each year. However, the mechanism has suffered from a lack of both control and transparency. Although improvements have been put in place, the Office for Budget Responsibility has recently increased its forecast for spend under the LCF in the 2020s.

The Budget gave support to the North Sea oil and gas sector with the announcement that a tax regime review will take place with the aim of maximising the extraction of the final remnants of oil and gas from late-life assets.

There were notable omissions on key areas of environmental policy such as a replacement for the CRC energy efficiency scheme (CRC), which ends in 2019. The revenue element of the CRC has already been replaced by a planned increase to the Climate Change Levy (CCL), but a further consultation on the reporting element, which has been expected for some time, is yet to be announced.

Environmental Groups hoped that planned solar tax hikes would be scaled back and that a publication date would be announced for the UK’s Emissions Reduction Plan, but no mention was made on either of these issues. The next budget will be delivered in the Autumn of this year.

Nikki Wilson

Nikki joined Alfa Energy in September 2015 as a Carbon Management Consultant where she advises clients on legislation, compliance, and the implementation of carbon management schemes. She is a Practitioner member of IEMA, has a postgraduate diploma in Environmental Decision Making, and has over 15 years’ experience in energy consultancy.