Budget 2009: environmental announcements | Practical Law

Budget 2009: environmental announcements | Practical Law

An update on the main environmental announcements in the Budget 2009, delivered by the Chancellor on 22 April 2009.

Budget 2009: environmental announcements

Practical Law UK Legal Update 2-385-8253 (Approx. 12 pages)

Budget 2009: environmental announcements

by PLC Environment
Published on 22 Apr 2009 • England, Wales
An update on the main environmental announcements in the Budget 2009, delivered by the Chancellor on 22 April 2009.
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This update summarises the main environmental announcements in the Budget 2009, delivered by the Chancellor, Alistair Darling, on 22 April 2009.

Introduction

The following is a summary of the principal environmental announcements in the Budget 2009.
For further information on the Budget 2009, see:

Climate Change Act 2008: first three carbon budgets

The Government has announced the first three carbon budgets, as required under the Climate Change Act 2008 (CCA 2008) (see Building a low carbon economy: implementing the Climate Change Act 2008).
The budgets set out the amount of greenhouse gases (GHGs) that will need to be reduced in the UK in the following periods:
  • 2008-2012.
  • 2013-2017.
  • 2018-2022.
The CCA 2008 places a legal obligation on the Government to reduce GHGs in the UK by 80% by 2050 (by reference to 1990 levels). The first three carbon budgets are intended to reduce GHG emissions by 34% by 2020, with a view to meeting the 2050 target.
The budgets are based on the advice of the Climate Change Committee (CCC) and are divided into "interim budgets" (which will take effect immediately) and "intended budgets" (which are tighter than the interim budgets). This is to reflect the fact that a new international climate change agreement is expected to be agreed in Copenhagen in December, to replace the Kyoto Protocol. Once that has taken place, the CCC will review the intended budgets to ensure that the UK's national targets reflect what has been agreed on an international level and these will then replace the interim budgets.
The first three carbon budgets are as follows:
 
Budget 1 (2008-12)
Budget 2 (2013–17)
Budget 3 (2018–22)
Carbon budgets (MtCO2e)
3018
2782
2544
Percentage reduction below 1990 levels
22%
28%
34%
The budgets will be implemented through three statutory instruments, the:
  • Carbon Budgets Order 2009, which sets the level of the first three carbon budgets.
  • Climate Change Act 2008 (2020 Target, Credit Limit and Definitions) Order 2009, which amends the level of the 2020 target (to 34%), sets the limit on international credits in the first budgetary period and defines international aviation for the purposes of reporting under the CCA 2008.
  • Carbon Accounting Regulations 2009, which set out the detail of the carbon accounting system.
The statutory instruments have been laid in draft before Parliament today and are expected to come into force on 31 May 2009. To view the draft Orders, see Office of Public Sector Information (OPSI) website: Draft Statutory Instruments.
The Government wants GHG reductions in the non-traded sector (that is, sectors not covered by the EU Emissions Trading Scheme) to be achieved though national efforts, rather than by buying offset credits. As had already been announced last year, the GHG reductions required under the carbon budgets do not include emissions from international aviation or international shipping.
For further information on the:

Climate Change Strategy and Renewable Energy Strategy

The Government is planning to publish the following strategies:
  • Energy and Climate Change Strategy, in summer 2009.
  • Renewable Energy Strategy, shortly.
  • Reducing Greenhouse Gas Emissions from Transport Strategy, in summer 2009.
The Energy and Climate Change Strategy will set out the Government's overall proposals and policies for meeting the UK's carbon budgets and provide a long-term framework (see Climate Change Act 2008: first three carbon budgets above).
The Government:
One hopes the forthcoming Energy and Climate Change Strategy will draw all these various initiatives together.

Renewable energy and low-carbon industries

The Government will provide over £1.4 billion of additional funding for the renewable energy and low-carbon sector, which includes:
  • £525 million for offshore wind projects that reach financial close between now and 2011. The funding will be provided by an uplift in support through revised banding of Renewables Obligation Certificates (ROCs) under the Renewables Obligation (RO). Under the revised banding, offshore wind will receive 2 (rather than 1.5) ROCs for each megawatt hour of electricity produced. The Government estimates this will be worth £3.5 billion over the lifetime of the projects.
  • £405 million to support low-carbon industries (such as wind and marine energy) and "advanced green manufacturing". This will be delivered through existing schemes such as the Environmental Transformation Fund (ETF) and through the new Strategic Investment Fund (which will make £750 million in total available for advanced industrial projects of strategic importance, including £250 million for low-carbon projects). For further information on the ETF, see Legal update, Difficult times for renewable energy but investment continues: Environmental Transformation Fund and Energy Technologies Institute.
  • £375 million to support energy and resource efficiency in businesses, public buildings and households over the next two years (see Energy efficiency measures below), including £10 million for waste infrastructure.
  • £90 million to fund engineering and design studies for carbon capture and storage (see Carbon capture and storage below).
  • £70 million to support decentralised small-scale and community low-carbon energy (see Energy efficiency measures below).
The Government is also proposing to provide additional support for combined heat and power (a low-carbon technology) through exemptions from the climate change levy (see Combined heat and power below).
The European Investment Bank (EIB) will also provide up to £4 billion of new funding for renewable energy projects in the UK.
The Government estimates that the low-carbon and environmental sector in the UK will grow by £45 billion by 2015, taking it to a total worth of £150 billion, and that the sector could employ 1.3 million people.
For further information on renewable energy in general and the RO, see:

Carbon capture and storage

The Government has said it will put in place a "mechanism" to deliver up to four carbon capture and storage (CCS) demonstration/pilot projects, including both pre- and post-combustion CCS technology. However, it has also said that final approval for this funding will depend on decisions taken in the next Spending Review.
The Government is also planning to allocate £90 million to fund companies in the current competition for a demonstration CCS project, so that they can carry out detailed preparatory studies for CCS. The aim is to help a full-scale CCS demonstration plant to be begin at the earliest possible date.
The Government will also be making changes to the North Sea oil and gas regime to remove fiscal barriers for projects that reuse North Sea oil and gas infrastructure for other activities (such as CCS and wind energy).
For further information on CCS, see:

Combined heat and power

The Government will extend the climate change levy (CCL) exemption for indirect sales of electricity generated using combined heat and power (CHP) beyond 2013 to 2023, subject to obtaining EU state aid approval. It has also announced that CCL rates will remain at current levels in 2010-2011.
The CHP announcement is intended to help investors plan with greater certainty. It is expected to deliver investments of around £2.5 billion and increase CHP electricity generating capacity by 3 gigawatts (GW) by 2015. The Government also expects this will generate a significant number of new jobs.
The Government's long-term strategy for CHP will be set out in the Heat and Energy Saving Strategy (HES), which it is currently consulting on, and plans to publish later in 2009.
For further information on:

Energy efficiency measures

An additional £375 million will be made available to support energy and resource efficiency in businesses, public buildings and households over the next two years, including:
  • £100 million to improve insulation in 150,000 homes in the social sector through the Decent Homes programme.
  • £100 million for the construction of new homes with higher energy efficiency standards.
  • £100 million for low-cost loans, to be delivered through the Carbon Trust, to help around 3,500 small and medium-sized businesses save on energy bills.
  • £65 million for loans to install energy efficiency measures in public buildings in England, which will support around 3,000 projects in schools, hospitals and other public sector institutions.
In addition, £70 million will also be made available to decentralised small-scale and community low-carbon energy (including microgeneration), broken down into:
  • £45 million for small-scale renewable electricity and heat technologies, primarily through the Low Carbon Buildings Programme (LCBP). This should help the renewable electricity supply chain benefit from FIT and RHI when these are introduced in 2010 and 2011.
  • £25 million for low-carbon community heating schemes.
Local authorities will also benefit from an additional £100 million to build new social housing that meets higher energy efficiency standards. This will form part of a wider £600 million package of public funding to help kick-start the stalled housebuilding market (see Legal update, 2009 Budget: implications for property: Support for the housing industry).
For further information on energy efficiency in general and microgeneration, see:

Landfill tax

Rates of landfill tax

The standard rate of landfill tax (LFT) will increase by £8 per tonne on 1 April each year from 2011 to 2013. The standard rate applies to non-inert or active wastes that have a possibility of generating landfill gas and leachate. The current standard rate (April 2009-March 2010) is £40 per tonne.
The lower rate of LFT will be frozen at £2.50 per tonne for 2010-2011. The lower rate only applies to inert waste.
The LFT regime is designed to encourage use of, and investment in, alternatives ways to deal with waste, including reuse, recycling, generation of electricity (in energy from waste plants) and anaerobic digestion.
For further information on LFT, see Practice note, Landfill tax.

Overhaul of entire landfill tax regime

The Government has published, alongside the Budget 2009, a consultation on how to modernise the existing LFT regime (see Modernising landfill tax legislation). The LFT regime has been in place since 1996 and both waste industry practice and environmental regulation have changed significantly since then, prompting the Government to review the way in which the regime operates.
The consultation closes on 24 July 2009. Subject to the comments it receives in response to this consultation, the Government is planning to make the necessary changes to the LFT regime through the Finance Bill 2010, with the changes coming into effect "some time after that".
The consultation addresses two key aspects of the regime:
  • The definition of a taxable disposal of waste at a landfill site.
  • The definition of wastes that should qualify for the lower rate of LFT.
Taxable disposals: The current LFT defines a taxable disposal by reference to the place/area where the waste is disposed of and the intentions of the person who discards the material. The Government is proposing to define a taxable disposal by reference to a taxable area, a taxable activity and taxable materials, which it believes fits better with the way landfill permits now operate under the new Environmental Permitting regime. Under the proposals, LFT would become due when the waste enters the tipping area of the landfill during its operational/active phase. As opposed to the current regime, where tax becomes due when the waste enters the gates to the landfill site.
The courts have been asked to decide on a number of occasions what constitutes a taxable disposal. The most recent case, HM Revenue and Customs v Waste Recycling Group Limited [2008] EWCA Civ 849, resulted in the Court of Appeal ruling that material received at a landfill site, which is put to use on the site (for example, for daily cover or engineering purposes), is not subject to LFT (see Legal update, Court of Appeal rules on whether use of inert waste for daily cover and engineering is subject to landfill tax). In December 2008, HM Revenue & Customs published a guidance note stating that it had decided not to appeal against the Court of Appeal's decision and provided an illustrative list of non-taxable uses of materials (see Legal update, HMRC publishes guidance on landfill tax in response to Court of Appeal ruling).
However, the Government has indicated in the current consultation document (at paragraph 1.14) that the court's decision has resulted in a significant amount of waste falling outside of the LFT and that it believes "the policy rationale underlying the tax points to an imperative to tax much of this waste". The Government is, therefore, going to amend the law (through the Finance Bill 2009 and associated secondary legislation) to bring certain wastes back within the scope of the LFT, with effect from 1 September 2009 (see Budget Note - BN79 - Landfill Tax: Taxable Disposals of Waste at a Landfill Site).
Lower rate of tax: At present, decisions at to which types of waste qualify for the lower rate of LFT are made by reference to a list of materials, set out in the Landfill Tax (Qualifying Material) Order 1996 (SI 1996/1528). The Government is proposing, instead, to follow the various tests set out in EU legislation for determining what waste is inert for tax purposes.
For further information on the:
We will produce a more detailed Legal update on this consultation shortly, once we have had a chance to consider in more detail the proposals set out in the consultation document.

Waste infrastructure

The Government has said it will make £10 million of new grants available for businesses in 2009-2010 to deliver anaerobic digestion and in-vessel composting infrastructure.
This is in addition to its recent announcements about making more than £2 billion of PFI credits available for waste projects, through the new Infrastructure Finance Unit that was launched by the Treasury in March 2009 (see Legal update, Innovative waste PFI sees first use of Infrastructure Finance Unit funds).

Climate change levy and climate change agreements

The Budget 2009 makes the following changes to the CCL and climate change agreements (CCAs):
For further information on the CCL and CCAs, see Practice note, Climate change levy and climate change agreements.

Aggregates levy

The aggregates levy (AL) will remain frozen at £2 per tonne in 2010-2011, to ease pressure on a sector that is currently facing difficulties due to the downturn in the construction industry.
For further information on the AL, see Practice note, Aggregates levy.

Water industry

The Government has welcomed the final report of the Cave Review on competition and innovation in water markets, which was published today. The Cave Review aims to ensure more competitive prices and more choice for customers, as well as more efficient and sustainable use of water.
For further information, see Legal update, Final report of Cave review of competition and innovation in water markets published.

Low-carbon transport

The Budget 2009 introduces new measures to:
  • Encourage investment in the development and take-up of vehicles with lower carbon dioxide emissions, including ultra-low carbon vehicles.
  • Use fuel duty and Vehicle Excise Duty (VED) to help create incentives to reduce emissions.
It also introduces temporary measures for scrappage of older vehicles, but, although there may be some environmental benefits from this, the main objective is to support the ailing automotive industry.
As mentioned above (see Climate Change Strategy and Renewable Energy Strategy), the Government is planning to publish a Reducing Greenhouse Gas Emissions from Transport Strategy in summer 2009.

Development of low-carbon vehicles

In order to support the shift to ultra-low carbon vehicles, electric vehicles will pay no fuel duty or VED. In addition:
  • £20 million will be made available to support the roll-out of the charging infrastructure needed to grow the market for ultra-low carbon cars.
  • £250 million, announced in January 2009, will be used to reduce up-front costs of early electric and plug-in hybrid cars by £2,000-£5,000 each.
In addition, the EIB announced a doubling of its Clean Transport Facility to EUR 8 billion in December 2008, and the Government states that UK-based manufacturers will benefit from this.
To improve the environmental performance of buses, the Government is reforming the Bus Service Operators Grant (BSOG), as announced in the 2008 Pre-Budget Report. The Budget 2009 confirms that operators will now only receive an increase in their rate of BSOG if they achieve fuel efficiency improvements.

Transport tax

The Government says that transport taxes support the public finances, while furthering the shift to a low-carbon economy.
Main fuel duty will increase by 2 pence per litre on 1 September 2009 and by 1 penny per litre in real terms on 1 April each year from 2010 to 2013. (This in effect reintroduces the escalator for fuel duty.)
The 2008 Pre-Budget Report set out reforms to VED for cars registered from 1 March 2001 onwards, to incentivise the purchase and manufacture of lower carbon cars. The Budget 2009 confirms these reforms, which include:
  • From May 2009, an increase in the number of VED bands from seven to thirteen. This should provide a greater incentive for drivers to choose a lower-carbon car.
  • From April 2010, the Government will further separate out the thirteen different bands.
  • From April 2010, differential First-Year Rates of VED for new vehicles will be introduced. The Government hopes that these will provide a stronger signal to consumers at the point of purchase.
Company car tax (CCT) was reformed in 2002 and is now based on carbon dioxide emissions, encouraging the take-up of more fuel-efficient cars in company fleets. In recognition of advancing vehicle technologies, the Budget 2009 announces changes to the threshold bands and provides that special discounts previously available to certain early technology low-carbon cars will be abolished. The Government also intends to remove the VED 10% band for cars emitting 120 grammes of carbon dioxide per km or less in 2012, and will instead vary the system of CCT bands. Details of specific rates and thresholds for 2012 will be announced in future Budgets.
The Budget 2009 confirms that VED rates for heavy goods vehicles will be frozen in 2009-10, to support the UK haulage industry. The Euro V vehicle emissions standard for new heavy goods vehicles will become mandatory on 1 October 2009. As a result, Reduced Pollution Certificates for vehicles achieving early compliance with this standard will no longer be available for new vehicles from that date. The Government will introduce measures to incentivise the choice of Euro VI vehicles, once the full details of the standard have been established by the European Commission.

Comment: Budget or "Carbon" Budget?

The Budget 2009 is the world's first carbon budget and is good news for renewable energy and energy efficiency.
The announcement of a target of a 34% cut in GHG emissions by 2020 is no surprise as this had already been announced in December 2008 in the CCC's report. The only notable change in relation to the UK's carbon budgets is that the Government will not include the use of carbon offsets in calculating the GHG emissions of the non-traded sector (that is, not subject to the EU Emissions Trading Scheme). This could result in further major emissions cuts being required from businesses, or perhaps, a reverse in the Government position in due course if it looks like an interim carbon budget is not going to be met. For the time being, the Government appears to be holding it as a fallback position. It should not be forgotten that the Government is only talking about its "interim" carbon budgets, which will need to be reviewed as a result of a new global climate change agreement following the UN conference and negotiations in Copenhagen in December 2009.
The Department of Energy and Climate Change has said that it plans to publish, in summer 2009, details of the proposals and policies for meeting the first three carbon budgets outlined in the Budget 2009, and that this will be set in the context of its overall programme for delivering secure and low-carbon energy, transport and housing in a way that benefits the UK economy into the future. This Energy and Climate Change Strategy will hopefully join up the numerous, and so far disjointed, climate change strategies that the Government has amassed (such as the consultations on renewable energy, zero carbon homes and other buildings, energy efficiency, the RHI and FIT).
At first blush, it is not all that obvious from the many announcements in the Budget 2009, how much of the funding is new and how much had already been earmarked for renewable energy, low-carbon industries and energy efficiency. However, once you have unpicked all the figures, the additional sums the Government is planning to invest in the "green sector" are not insignificant: £525 million for offshore wind (albeit indirectly through the re-banding of ROCs rather than direct public funding), £405 million for low-carbon industries, £375 million for energy efficiency, £70 million for microgeneration and distributed energy, £90 million for CCS preparatory studies and (an as yet undecided) additional funding for more CCS demonstration plants. But is this really enough to deliver the Government's "low-carbon vision" and meet the GHG emission reductions targets in the carbon budgets and EU target for renewable energy?
The £525 million uplift over two years for offshore wind recognises the problems that the renewables industry is facing in the current economic downturn. By funding this through the re-banding of ROCs, this means that ultimately it is the consumer, rather than the Government, who will pick up the tab. However, this is only a temporary measure until 2011, in a sector that needs medium and long-term investment signals.
The additional £45 million funding for the LCBP will also be welcomed for the deployment of microgeneration in the public sector, particularly in the run-up to the introduction of the Carbon Reduction Commitment in 2010. It also ends, at least for another year, the uncertainty over the LCBP's future pending the introduction of FIT.
The long awaited news that the Government is supporting two, and possibly up to four, CCS pilot schemes is welcome. Previously, it was only going to fund one CCS pilot, on which three bidders still await a decision. Other EU countries are already ahead of the UK (see Legal update, First power plant retrofitted with CCS technology to begin operation in France) and a decision on whether CCS retrofitting will be required for the contentious Kingsnorth coal-fired power station is still awaited (see Legal update, Planning decision on Kingsnorth coal-fired power station reported to be delayed).
CHP has also been given a boost through an exemption from the CCL.
The Government is also committing £405 million for low-carbon industries and "advanced green manufacturing". However, other than the development of low-carbon technologies such as wind and marine energy, no other detail is provided as to what technologies could benefit or even what is meant by advanced green manufacturing.
Committing £2 billion to waste PFI credits comes at crucial time, when the public sector is on the brink of, or already heavily committed to, major waste management projects (see Legal update, Innovative waste PFI sees first use of Infrastructure Finance Unit funds).
Much has been said about greening transport in the Budget 2009, recognising that investing in improvements in vehicle technology and related infrastructure could not only support a beleaguered car industry but also significantly reduce GHG emissions. However, the Government's plans to pay consumers £2,000 to scrap their old cars for new ones sends a mixed message on emissions by not specifying low-emission models.
HMRC's consultation on modernising and clarifying the LFT regime will no doubt be welcomed by industry as this is bound to bring greater certainty for waste producers and landfill operators. The proposals appear sensible and, if adopted in 2010, could lead to a significant reduction of litigation in this contentious area.