2013 Autumn Statement: environmental implications

Practical Law UK Legal Update 9-549-1748 (Approx. 9 pages)

2013 Autumn Statement: environmental implications

Autumn Statement 2013

On 5 December 2013, the Chancellor of the Exchequer, George Osborne, delivered the Autumn Statement 2013, which sets out the UK government's economic and fiscal plans.

This update analyses the key environmental implications.

For:

Analysis of other aspects of the Autumn Statement 2013 (including property and construction implications), see 2013 Autumn Statement.
Summaries of environmental announcements in previous Autumn Statements and Budgets, see Practice note, Government budgets and autumn statements: environmental announcements.

Energy bills and energy efficiency

The Autumn Statement 2013 confirms the government's package of measures designed to reduce household energy bills (including by cutting green levies), which were announced by the Department of Energy and Climate Change (DECC) on 2 December 2013.

The measures include:

A reduction in the cost of the Energy Companies Obligation (ECO) (see Energy Companies Obligation (ECO) below).
Improving the Green Deal (see Green Deal: streamlining and reform below).
Measures to support energy efficiency (see Stamp duty rebate to home buyers for energy efficiency, Energy efficiency support for private landlords under the Green Deal and Energy efficiency loans for the public sector below).
A government-funded rebate of £12 on every domestic electricity bill which will be passed directly to the customer for the next two years, worth a total of £620 million (see Legal update, Government announces measures aimed at reducing energy bills).
Voluntary reduction in electricity distribution network operator (DNO) charges (see Legal update, Government announces measures aimed at reducing energy bills).

(Autumn Statement 2013, paragraphs 1.257-1.261.)

There are no reforms to the funding of key levies supporting renewables and other low-carbon generation. These include feed-in tariffs (FITs), the Renewables Obligation (RO) and the Contracts for Difference (CFDs) that are being introduced as part of Electricity Market Reform (EMR).

For more information on:

FITs, see Feed-in tariffs (FITs) toolkit.
RO, see Practice note, Renewables Obligation.
EMR, see Practice note, Electricity Market Reform (EMR).

Energy Companies Obligation (ECO)

The government will consult, early in 2014, on proposed changes to the ECO. The ECO is an obligation on certain electricity and gas suppliers to improve domestic energy efficiency. It requires the relevant suppliers to achieve carbon savings or customer fuel bill savings, by meeting three targets.

The ECO consultation will include proposals to:

Extend the ECO beyond 2015 to March 2017, allowing the energy suppliers more time in which to reach their targets.
Add district heating and insulation for lofts and for easy-to-treat cavity walls as allowable primary measures to meet targets.
Provide incentives for meeting targets early.

(Autumn Statement 2013, paragraphs 1.257 and 2.36.)

For more information on the:

Changes that the government will consult on, see Legal update, Government announces proposed changes to Energy Companies Obligation (ECO).
ECO in general, see Practice note, Energy Companies Obligation (ECO) and its predecessors, CERT and EEC.

Stamp duty rebate to home buyers for energy efficiency

The government will introduce a stamp duty rebate for home buyers worth up to £1,000 to spend on important energy-saving measures (or up to £4,000 for particularly expensive measures). This will be available to all people moving house, regardless of whether they pay stamp duty, and is expected to help around 60,000 homes a year over three years.

(Autumn Statement 2013, paragraphs 1.261 and 2.37.)

Energy efficiency support for private landlords under the Green Deal

As previously announced, the government will consult on minimum energy efficiency standards to be introduced for private rental properties in 2018 (see Practice note, The Green Deal: Impact on private rented sector (PRS)).

Ahead of the introduction of minimum standards in 2018, the government will provide funding through the Green Deal specifically to help landlords bring their properties up to minimum standards. This measure is expected to improve around 15,000 of the least energy efficient rental properties each year for three years.

(Autumn Statement 2013, paragraphs 1.261 and 2.38.)

Energy efficiency loans for the public sector

The government will provide an additional £90 million over three years for improvements to the energy efficiency of schools, hospitals and other public sector buildings.

(Autumn Statement 2013, paragraphs 1.261 and 2.39.)

Green Deal: streamlining and reform

The government confirmed that it will be streamlining and reforming its flagship energy efficiency scheme for buildings, the Green Deal. DECC announced the proposed changes, which are intended to improve uptake, on 2 December 2013.

The proposed changes to streamline and simplify the Green Deal include:

Adjusting the golden rule, which limits the amount that can be borrowed under a Green Deal plan.
Improving the finance offer that the Green Deal Finance Company can provide.
Amending legislation to make it clearer that landlords and tenants can benefit from the Green Deal.
Opening up access to energy performance certificate (EPC) data, so less efficient properties can be more easily targeted.
Extending the list of energy efficiency improvements (measures) available under the Green Deal.

For more information on:

DECC's proposals, see Legal update, Government announces streamlining and reform of the Green Deal.
The Green Deal in general, see Practice note, The Green Deal.

Contracts for Difference (CFDs) and strike prices

The government confirmed key decisions relating to the EMR, which were published by DECC on 4 December 2013 (see Legal update, Government publishes terms and strike prices for renewable energy contracts for difference).

These decisions relate to:

Key contract terms for CFDs under the EMR. These are largely the same as those set out in August 2013, with some key changes, particularly to increase flexibility to developers.
The level of the strike prices for different renewable technologies, for the periods 2014-15 to 2018-19. The final strike prices offer lower support for onshore wind and solar photovoltaic (PV) than the levels proposed in the July 2013 consultation, but increase support for offshore wind.

(Autumn Statement 2013, paragraph 1.177.)

The government stated in the Autumn Statement 2013 that it will amend the definition of CFD in the corporation tax derivative rules to include the "investment contracts" and "contracts for difference" introduced in the Energy Bill 2013-14, which is currently going through Parliament (see Environment legislation tracker: Energy Bill 2013-14). The change will be made through secondary legislation once the Energy Bill has received Royal Assent (Autumn Statement 2013, paragraph 2.81).

For more information on:

CFDs and the EMR in general, see Practice note, Electricity Market Reform (EMR).
The tax treatment of derivative transactions, see Practice note, Derivatives: tax.

Shale gas: new tax allowance for onshore oil and gas

The Finance Bill 2014 will introduce a new allowance that removes 75% of the capital expenditure that a company incurs in relation to an onshore oil or gas site from a company's adjusted ring fence profits that are subject to the 32% supplementary charge. The new onshore allowance will cover both conventional and unconventional hydrocarbons (including shale gas) and will replace all existing field allowances for onshore projects. The government believes this will make the shale gas regime in the UK the most competitive in Europe.

The government announced this measure in the 2013 Budget and consulted on it in July 2013 (see Legal update, Consultation on tax incentives for shale gas exploration and production). The government says in the Autumn Statement 2013 that it will publish its response to the consultation on 10 December 2013.

The new allowance will apply to capital expenditure incurred on or after 5 December 2013 but companies will be able to defer commencement of the allowance until 1 January 2015.

The activities for which expenditure will qualify for the allowance consist of acquiring, enjoying or exploiting oil rights, prospecting for oil, extracting oil, transporting oil to a delivery point, and the initial treatment and initial storage of oil. The legislation for the new allowance specifies, among other things:

That capital expenditure will not be relievable if production from the site is (or is expected to be) greater than 7 million tonnes.
How a company is to treat capital expenditure incurred before a site is established.
That a company's unused allowances are carried forward to the next accounting period.
That if a company holds both field allowances and new, onshore allowances, it may choose the order in which it uses these allowances.
If a company has an interest in a licence for more than one site, it may elect for the whole or part of its unactivated allowances (allowances for a site that generates no income) in one site to be transferred to another site.

(Autumn Statement 2013, paragraph 1.178-1.180 and HM Revenue & Customs: UK oil and gas fiscal regime: new onshore allowance.)

For more information on:

Shale gas in general, see Practice note, Shale gas in the UK: environmental issues.
The UK's oil and gas tax regime and the supplementary charge, see Practice note, Oil and gas taxation: Supplementary charge.

Climate change levy (CCL) and climate change agreements (CCAs)

The government will introduce a:

Climate change agreement (CCA) for the data centres sector by the end of 2013.
Mixed use exemption from the climate change levy (CCL) for solid fuels used in certain gasification processes.

(Autumn Statement 2013, paragraphs 2.97-2.98.)

For more information on the CCL and CCAs in general, see Practice note, Climate change levy (CCL) and climate change agreements (CCAs).

CRC

The government announced that the price of allowances under the CRC Energy Efficiency Scheme (CRC) for 2014/15 will be:

£15.60 per tonne of carbon dioxide (t/CO2) in the (advance) forecast sale.
£16.40 t/CO2 in the (later) buy-to-comply sale.

(Autumn Statement 2013, paragraph 2.99.)

For more information about CRC allowances and other aspects of the scheme, see:

Aggregates levy

As announced on 13 September 2013, the government will suspend, from 1 April 2014, the exemptions, exclusions and reliefs from the aggregates levy that are subject to the European Commission's state aid investigation. The government will reinstate these should the outcome of the Commission's investigation allow it, and will enable the revenue that would have been due to be repaid where practicable.

(Autumn Statement 2013, paragraph 2.100.)

For more information on:

The Commission's state aid investigation, see Legal update, European Commission investigates UK aggregates levy and Legal update, HMRC publishes guidance on impact of European Commission investigation into UK aggregates levy.
The aggregates levy in general, see Practice note, Aggregates levy.

Low-emission vehicles

The government will:

Invest £5 million in 2014-15 in a large-scale electric vehicle readiness programme for public sector fleets, with a view to encouraging wider acceptance across other sectors.
Support the development of driverless cars by reviewing the regulation and legislation that applies to the testing of driverless cars and by creating a £10 million prize fund to be awarded to a town or city to develop as a testing ground.

(Autumn Statement 2013, paragraphs 1.210 and 2.156-2.157.)

National Infrastructure Plan 2013

The Autumn Statement 2013 highlights a number of the key measures set out in the National Infrastructure Plan 2013 (NIP 2013) that was published by HM Treasury on 4 December 2013, including forthcoming changes to the planning regime for nationally significant infrastructure projects (NSIPs).

For more information about the NIP 2013, see Legal update, National Infrastructure Plan 2013: environmental aspects.

Comment

No surprises

Any element of surprise was lost following the steady stream of detailed announcements from the government over the past week, including on strike prices and CFDs under the EMR, changes to the RHI and how the government will cut consumer energy bills. It was also to be expected that the strike price does not favour onshore wind projects, which have proved very controversial in many shire counties.

There were no real surprises in the Chancellor's statement, although a few disappointments for missed opportunities. Many energy-intensive industries had hoped there would be a cut or removal of the carbon price floor (CPF) under EMR (see Autumn Statement 2013: As it happened, BusinessGreen, 5 December 2013).

Terry Scuoler of the manufacturers organisation, EEF, said:

"Industry, especially energy intensive users, will be dismayed that government has failed to address the genuine concerns surrounding the uncompetitive price of energy for UK manufacturers. Companies looking to invest and create jobs in the UK need a long-term commitment by government to control costs increases and compensate those most affected. Without this commitment, making the case in global boardrooms to invest in the UK will get increasingly difficult."

(See EEF press release, Full comment: Autumn statement fails to send signal for business to invest, 5 December 2013.)

ECO and energy bills

In support of the government's decision to cut green levies from energy bills, including delaying the roll out of insulation measures under the ECO, the Chancellor repeated his mantra that "going green does not have to cost the earth". The decision to give more time and flexibility to energy suppliers to meet ECO targets is likely to hit the fuel poor and worst insulated housing by delaying energy efficiency improvements.

Shale gas

Paul King, Chief Executive of the UK Green Building Council (UK-GBC), commented:

"The Chancellor is right to say "going green doesn’t have to cost the earth" - if only he practised what he preached. Tax cuts for shale gas are a stark comparison to the butchering of ECO we’ve seen this week, a scheme which was helping many households with the cost of living crisis through lower energy bills."

"The emphasis on housing and infrastructure is welcome, but he’s missed an open goal by not recognising the potential for construction to deliver green growth."

(See UK-GBC press release, UK-GBC responds to the Autumn Statement, 5 December 2013.)

David Nussbaum, chief executive of WWF, commented:

"The Prime Minister has just come back from China, where this year already more than half of the new power capacity added to the grid has come from renewable energy. Sadly, he returns to find his own Chancellor determined to push Britain back to ever more reliance on fossil fuels."

WWF also commented that a growing number of voices in the UK and worldwide are calling for fewer fossil fuel subsidies, not more. In the last week in the UK, the Environmental Audit Committee has said that fracking for shale gas "does not warrant subsidy through favourable tax treatment", and the former chief executive of BP, Lord Browne, had also criticised subsidies for oil and gas.

(See WWF press release, Response to Autumn Statement, 5 December 2013.)

CRC prices

As expected, the government set two different prices for the sale of CRC allowances in 2014-15; a cheaper price for forward sales (based on an organisation's predicted CRC emissions) and a more expensive price for the later, buy-to-comply sale (based on what an organisation has actually emitted). For more information on how these two sales of allowances will work, see Legal update, CRC: Draft Allowances Regulations published for Initial Phase.

2013 Autumn Statement: environmental implications | Practical Law