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Budget 2016: energy and environment takeaway

By 17th March 2016 Blog No Comments
George Osborne delivered Budget 2016, here's what it had in store for energy and the environment - more at www.remsol.co.uk

Yesterday, George Osborne delivered his Budget 2016. It contained a host of measures that will be welcomed by businesses, especially SMEs, with reductions in a range of business taxes. From a sustainability perspective, although any direct measures appear thin on the ground at first glance, there are still some important changes for businesses to note.



Technologies and supplies

The Chancellor announced additional support for renewable electricity. The Government will auction up to £730 million support for offshore wind and other less established renewable technologies in this parliament, for projects that will be generating electricity in 2021 to 2026, presumably to help close the gap that will be evident with the closure of all coal-fired power stations by 2025.  The first auction will offer £290 million of support.

Following the National Infrastructure Commission’s report “Smart Power“, the Government will allocate at least £50 million for innovation in energy storage, demand-side response and other smart technologies over the next 5 years. Again, this follows the announcement in September 2015 that coal-fired power generation will end in 2025, and that closing the gap that will be left will need a combination of new energy sources, better grid balancing and energy storage to help combat the problems of intermittency with wind and solar renewables.

The Government is launching the first stage of a competition to identify a small modular nuclear reactor (SMR) to be built in the UK, and will publish an SMR delivery roadmap later this year. It will also allocate at least £30m of funding for R&D in advanced nuclear manufacturing.

Further to the announcement in January, the Government confirmed in Budget 2016 that it will provide a further £20 million in funding for seismic surveys to support the exploration of new onshore oil and gas discoveries.


Beyond support for technologies aimed at helping the UK meet its goal of decarbonising energy generation, Budget 2016 also contained a number of changes to energy taxes.

The Climate Reduction Commitment, or CRC efficiency scheme, is a mandatory carbon emissions reporting and pricing scheme to cover large public and private sector organisations in the UK that use more than 6,000 MWh per year of electricity and have at least one half-hourly meter settled on the half-hourly electricity market. Under the CRC, participants are required to measure and report their electricity and gas supplies annually following a specific set of measurement rules, and buy allowances for every tonne of carbon they emit – the requirement to purchase allowances being intended to incentive energy efficiency and carbon reduction measures. Budget 2016 abolishes the CRC from the end of the 2018-19 compliance year.

To cover the cost of CRC abolition, the main rates of Climate Change Levy (CCL) will increase from 1 April 2019. Businesses with Climate Change Agreements will see their discounts rise in order to compensate for the rise in the main CCL rates.

The Chancellor also announced that the Government plans to rebalance the main rates of CCL for different fuel types to reflect recent data on the fuel mix used in electricity generation. In the longer term, the government intends to rebalance rates further to deliver greater energy efficiency savings, to reach a 1:1 ratio of gas and electricity
rates by 2025. It says the main reason for doing so is to more strongly incentivise reductions in the use of
gas, in support of the UK’s climate change targets – contrary to popular belief given the Government’s backing for fracking.



Low emissions vehicles

The Government, through the Office for Low Emission Vehicles and Innovate UK, is awarding £38 million of grants across the UK, matched by industry, for collaborative R&D into low emission vehicles. This will presumably capture all forms of low emissions vehicle technology, including electric vehicles, hydrogen fuel-cell technology and Compressed Natural Gas (CNG) engines.

In other measures to support transition in the UK to cleaner zero and ultra-low emission vehicles, which will help improve air quality in the UK’s towns and cities and protect the environment for the next generation, the Chancellor announced that the Government will extend the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further 3 years to April 2021;  reduce the main rate threshold for capital allowances for business cars to 110 grams/kilometre of CO2 and the FYA threshold to 50 grams/kilometre of CO2 from April 2018, to reflect falling vehicle emissions; continue to base Company Car Tax on CO2 emissions of cars, and consult on reforming the lower CO2 bands for ultra-low emission vehicles.

Flood defence

Spending on flood defences and resilience is to be increased by more than £700 million by 2020-21, funded by a 0.5% increase in the standard rate of Insurance Premium Tax. In addition to this, the Government will spend a further £130 million on repairing transport infrastructure damaged by Storms Desmond and Eva.


The list of designated energy-saving and water-efficient technologies qualifying for Enhanced Capital Allowances (ECAs) will be updated during summer 2016, subject to State aid approval. The first year allowances let businesses set 100% of the cost of the assets against taxable profits in a single tax year. This means the company can write off the cost of the new plant or machinery against the business’s taxable profits in the financial year the purchase was made, making investment in energy-saving and water-efficient technologies more affordable.


The Government will legislate later in 2016 to reduce statutory plastic packaging recycling targets for 2016 and 2017, to reduce the burden on business. The Government will also set new recycling targets for glass and plastic packaging for 2018, 2019 and 2020. This will be particularly relevant to obligated businesses (those that handle more than 50 tonnes of packaging materials or packaging a year, and have a turnover more than £2 million a year).


The Aggregates Levy rate will remain frozen at £2 per tonne in 2016-17, to support the construction sector. Meanwhile, the Government will consult on a new exemption from the Aggregates Levy for aggregate which is an unavoidable by-product of laying pipes for utilities, with a view to legislating in Finance Bill 2017.


The Landfill Communities Fund

In the Autumn Statement 2015, the Government announced reforms to the Landfill Communities Fund, including simplification of record-keeping requirements and changes to the scheme’s objectives. The scheme’s regulator, ENTRUST, will publish guidance shortly setting out the requirement for landfill operators to make a greater contribution to the fund from April 2016.


The standard and lower rates of Landfill Tax will increase in line with RPI, rounded to the nearest 5 pence, from 1 April 2017 and again from 1 April 2018 as announced previously.

HMRC will consult later this year on the definition of a “taxable landfill disposal”, with the intention of changing the definition in Finance Bill 2017. This change aims to bring clarity and certainty to the tax without affecting its intended scope.

The Chancellor also announced that additional funding will be made available over the next five years for HMRC to increase compliance activity across the waste supply chain, enabling the Government to better tackle waste crime by identifying and addressing fraud and tax evasion which often accompanies unlawful waste management.


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