UK's first 'low carbon' Budget and clean coal pledge

24 April 2009

Mark Kenber, Policy Director of The Climate Group, welcomes the UK's first low carbon budget

The Climate Group welcomes the UK's first low carbon Budget and congratulates the government for adopting an ambitious emissions target for 2020. The 2009 Budget and the subsequent clean coal announcement this week lay important foundations for a prosperous low carbon economy. However, funding pledges will need to be sustained over time and backed by coherent policy if this goal and long-term targets are to be met.

The Climate Group has been a keen advocate and supporter of the UK's Climate Change Bill, the world's first legally binding national climate legislation, pledging to cut UK greenhouse gas (GHG) emissions by 80 per cent by 2050 against 1990 levels.

We welcome the UK's midterm target of cutting emissions by 34 per cent by 2020. It is a bold national target that supports the EU position and gives much needed impetus to the international process in the run-up to the UN Climate Summit Copenhagen in December. We also look forward to this target rising to 42 per cent if a new global climate deal is struck later this year, as recommended by the Climate Change Committee (CCC). The Government is to be applauded for adopting the CCC's recommendations; if achieved, these targets will make the UK a - if not 'the' - world leader in cutting GHG emissions.

Yesterday's first ever 'low carbon' Budget presented an important first step towards achieving this target although many details have yet to be made clear in the summer when the Government publishes a more detailed energy and climate change strategy.

Though greener than many expected, the 2009 Budget leaves much heavy lifting to be done: The CCC recognizes that the EU and UK have agreed in principle the policies necessary to achieve the Extended Ambition scenario needed to meet the 34% and 42% targets but that both more definition and implementation are needed, saying "To deliver feasible emissions reductions, strengthening of existing policies and development of new policies - at the EU, UK and national [within UK] levels - will be required."

Of the various measures in the Budget 2009, particularly welcome was the additional boost for renewables supported by the uplift in Renewable Obligation Certificates (ROCs) and new investment from the European Investment Bank (EIB) to ease project finance. The extra £4bn is a 'shot in the arm' for the UK's offshore wind industry. However, unless such financial support is accompanied by policies to improve the planning system and, most importantly, to the grid the UK is unlikely to reach its renewable energy goals of 15 per cent by 2020.

We welcome the Government's extension to the climate levy exemption for combined heat and power (CHP) technology beyond 2013 to 2023, subject to state aid approval. This should create long-term certainty to increase capacity to 7GW and enable confident investment.

While many of the measures announced in the Budget point in the right direction they don't yet go far enough to achieve the announced 34 per cent greenhouse gas reduction target by 2020. The new policies the CCC says are needed for renewable heat and micro-generation are still not in place and far greater funding is needed to make this really viable for households and small businesses.

While CCS will play little or no role in achieving the 2020 targets, it will play a crucial one in the decades that follow, both in the UK and around the world. The funding for up to four CCS demonstration plants is therefore also welcome as is the Government's pledge announced by Ed Miliband this week that no new coal-fired power plants will be built without a binding commitment to a full-scale CCS retro-fit guaranteed to capture 100 per cent of emissions within five years of the technology being technically and commercially proven. This could be the case as early at 2020 and will give much-needed certainty to investors. We welcome the Government's bold policy leadership, but to ensure the UK can be a global leader in this important technology, we urge them to move quickly to address delays to the CCS competition, first announced in May 2007, and to award a contract so development can get underway and the effectiveness of CCS in cutting emissions can be tested.

Energy efficiency is clearly the big short-term opportunity for the UK to reduce emissions but the Budget's additional support is insufficient especially in the absence of tighter fuel efficiency standards for vehicles and appliances.

While the fuel escalator will offset lower oil prices, we would have preferred the new 'cash for clunkers' scrappage scheme to place greater incentives on electric or plug-in hybrid technologies to make a real difference to the environment. However, we welcome previously announced Government support for electric and plug-in hybrids. Home to many Formula 1 teams and some of the world's leading engineering firms, the UK has the skills to be at the forefront of a motor technology revolution and there is scope for bold UK leadership here.

The UK has a remarkable opportunity to be a world leader in low carbon technologies such as wind, tidal, CCS and clean vehicles but British business needs clearer, stronger and longer-term signals from Government to support an integrated and effective low carbon industrial strategy.

We await further sign-posted Government announcements in the summer outlining in more detail broader policy implications of this low carbon Budget. These must continue to build on the Government's bold intentions to cement the UK's commitment to lead a prosperous low carbon economy.

Announcements this week are a good start but this is no time to rest on our laurels. Public finances are undoubtedly tight, yet it is widely recognised that investing in the green economy is an effective way to stimulate economic recovery, boost investment and create jobs and thereby start redressing the imbalances in the public budget. The UK Government must not take its foot off the low carbon pedal.

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