In his annual budget address yesterday, George Osborne announced that he wants to see "investment in our world-leading energy sector, including renewables" (albeit that those projects are to be "fiscally sustainable" and not to place too heavy a burden on the consumer) and work towards meeting the UK's carbon reduction targets. So what made up the "Green" aspects of the Budget?

Carbon Reduction Commitment (CRC)

Osborne strongly criticised the CRC in his address and described it as "cumbersome" and "bureaucratic" and is to consult on simplifying the CRC energy efficiency scheme to reduce administrative burdens on business. Should significant administrative savings not be deliverable, he has said he will bring forward proposals in autumn 2012 to replace CRC revenues with an alternative simpler environmental tax. Osborne also confirmed that the Government will engage with businesses before then to identify potential options, so those who have been looking for a change to the CRC may have the opportunity to be directly involved in the Government developing a better, simpler option.

Carbon price floor and Climate Change Levy (CCL)

The Government will set 2014–15 carbon price support rates in line with the carbon price floor set out at Budget 2011 and are to make a number of additional legislative provisions with effect from 1 April 2013.  These were confirmed as: changes to the treatment of solid fuels (including changing the way the rate for solid fuels is calculated); the introduction of a generating capacity threshold of 2MW before electricity generators will be liable to the carbon price support rates of CCL; and all generators will be required to self-account.

This year's Budget confirmed that CCL rates will increase in line with RPI from 1 April 2013, and as announced in Budget 2011, Climate Change Agreements (CCA) will be extended to 2023. In addition the CCL discount on electricity for CCA participants available from 1 April 2013 will, as announced in the 2011 Autumn Statement, be increased to 90% as part of a package of measures to support energy-intensive industries exposed to international competition.

As set out in Budget 2011, the CCL exemption for electricity from CHP plants supplied indirectly to business energy consumers will be removed from 1 April 2013. This year Osborne confirmed that electricity utilities will be able to continue to allocate CHP LECs until 31 March 2018.  In addition fossil fuels used to generate heat in a good quality CHP plant will not be liable to the carbon price support rates, subject to State aid approval.

Green Investment Bank

Following the announcement on 8 March that the headquarters of the Green Investment Bank would be in Edinburgh, with the main transaction team based in London, the Government confirmed in the Budget that the GIB has been established and is set to make its first set of green investments in April 2012, which will no doubt be a welcome injection into the industry.  However it must be noted that there is still the matter of state aid approval which has yet to be obtained. 

Efficiency

The Budget also announced the introduction of enhanced capital allowances for energy-saving and water-efficient technologies. The list of these designated technologies qualifying for the enhanced capital allowances will be updated during summer 2012, subject to State aid approval.

The Green Deal

Within the Budget the Government also confirmed that it has introduced other initiatives as part of the "Green Deal", including: the introduction of the Renewable Heat Incentive; the provision of £1billion to support the commercialisation of Carbon Capture and Storage; the ROC Banding Review; and the development of 5 new Centres for Offshore Renewable Engineering.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 22/03/2012.