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What does the Budget 2011 mean for green growth in the UK?

28 March 2011
What does the Budget 2011 mean for green growth in the UK?

Budget has green aspects, but the government needs to go much further much faster

LONDON, 28 March 2011: On Wednesday 23 March, the UK government's Chancellor George Osborne delivered the Budget 2011, the coalition's first full budget since coming into power last year. Thurstan Wright, Policy Analyst, The Climate Group, analyzes the Budget 2011.

Budget 2011 was the first opportunity for the UK's coalition to show that its commitment to being "the greenest government ever" is more than mere rhetoric, by putting low carbon development at the heart of its strategy for renewed growth. However, while there were some green aspects in the Chancellor's package of measures, the government needs to go much further much faster, if it wishes the UK to lead the Clean Revolution and seize the low carbon opportunities that will chacterize the coming decade.

The Green Investment Bank, seen as a critical initiative by many in the low carbon financing community, saw an extra £2 billion added to the £1 billion already committed to its capitalization. It will also be able to borrow money and raise capital (rather than operate as a limited fund) – but not until 2015-2016, and not until the government’s debt target is met. The good news, is that the bank will be up and running a year earlier than originally planned and will be able to generate up to £15 billion of green investment from the private sector, through co-investment in projects such as wind farms. However, the government could potentially have borrowed as much as £10 billion, which could have leveraged another £50 billion. Concerns have also been raised that if efforts to cut debt and kick-start the economy wane in the next four years, the bank will not be allowed to borrow at all.

Mark Kenber, CEO of The Climate Group, said: “The Green Investment Bank's early opening and extra £2 billion is welcome, but low carbon growth should be at heart of economic policy, not sitting at the margins. Budget 2011 was a fantastic opportunity to make real progress in greening our economy. It will be important for future budgets to maximize the potential of the UK to be a leader in making the transition to a low carbon economy”.

John Cridland, Director-General of the CBI employers’ organization, said: "The Green Investment Bank will play an important role in mitigating some of the risks for companies planning major low carbon investments [...] but it should have powers to borrow from the outset to give investors confidence."

In response, a Whitehall insider said the delay to borrowing powers was not important, as some of the key investments envisaged for the bank are in offshore wind, and many of the biggest offshore wind projects are unlikely to need investment before 2015.

In terms of Carbon Capture and Storage (CCS), the government reasserted its commitment to paying £1 billion for one CCS demonstration plant, but changed the way in which three additional demo plans will be funded. This will now be from general spending rather than a CCS levy on energy bills, which means the additional three projects will have to go through difficult spending reviews. This does little to provide the long-term certainty developers require to get the technology off the ground.

There was mixed news for Electric Vehicles (EVs). The planned rise in fuel duty was delayed until 2012, petrol duty was cut by 1p per liter and the fuel duty escalator, planned to add 1p per year in future years on the price of fuel, was also cancelled; arguably working against the decarbonization of the transport sector. However, the chancellor froze company car tax for cars with low emissions (those that emit less than 95g CO2 per kilometer). The tax goes up by 1% for cars above that level.

More details were announced on the Carbon Floor Price, which is a levy on electricity providers, intended to encourage greater investment in low carbon energy. The floor price will be set at £16 per ton of CO2 in 2013, based on a target price of £30 per ton by 2020.

Finally, there were hopes that further incentives for people to take up the Green Deal scheme, the government's flagship policy to encourage homeowners to make their homes more energy-efficient through loans worth thousands of pounds, would be announced, but no further information was provided.

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