Climate and energy escape worst of historic UK government cuts

22 October 2010

The UK government’s much anticipated comprehensive spending review (CSR), detailing a record £81 billion in public sector cuts, appears to have taken a 'give-and-take' approach to funding for climate and energy initiatives.

Although the Department for Energy and Climate Change (DECC) was not spared from the cuts, with substantial reductions in administration and resource budgets, the government has increased the department’s capital spending by 41%.

Important announcements include £1 billion to support a commercial CCS demonstration power plant, £860 million for the government's innovative Renewable Heat Incentive, and £200 million to support the deployment of low-carbon technologies including wind power.

The government has stated that this funding will ensure the UK meets its existing climate and energy targets – a 34% cut in emissions and 15% renewable energy by 2020.

Further to the initial £1billion for CCS, the Government "remains committed to providing public sector investment for four commercial-scale CCS projects". It will take decisions on the funding mechanism for the additional three CCS projects, i.e. whether through a specific CCS levy or through general public expenditure, following completion of work on the reform of the Climate Change Levy (the consultation is due in November with conclusions to be announced at Spring 2011).

Feed in Tariff (FIT) levels have been safeguarded until the next formal review in 2012 when they will be cut by 10% (new tariffs operational from April 2013). There is a noteworthy condition that states FITs will not be touched before the first review ‘unless higher than expected deployment requires an early review'.

Changes to the CRC Energy Efficiency Scheme (CRC), however, will be a shock to businesses. The government has announced that the revenue from the scheme (estimated at £1bn per year by 2014-15), originally intended to be recycled to participants (and an attractive financial carrot for top performers), will now be channeled into general Treasury coffers instead. Although this simplifies the administrative burden of the CRC, it has effectively turned the cap-and-trade scheme into a carbon tax.

While taking with one hand, however, the government has also given with the other with the announcement of £1 billion to fund a Green Investment Bank (GIB). Although less than the £6 billion reportedly sought by DECC, the funding provides the seed for an institution which has both cross-party and business support. There is scope to increase this initial amount through sales of government assets and the bank will have the right to raise private finance through its own investments.

Damian Ryan, The Climate Group’s Senior Policy Manager, stated: “We hope that support for the GIB can be increased over time and that the government maintains its commitment to it as one of the things that is truly innovative and can help unlock much needed private finance. Positive initiatives such as this, as well as the funding announcements for CCS and renewables, will determine whether this administration can deliver on its recent commitment to be ‘the greenest government ever’”.

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