Budget 2015: Government Slash Incentive for Renewables & Prepare to Tackle Energy Taxes

George Osborne yesterday stripped a key financial incentive from renewable electricity sources and ordered a review of the business energy efficiency tax landscape. The news coming alongside proposed relaxation of planning policy and deregulation demands existing project costings are revised and places corporate energy strategy into serious doubt.

In the post-election budget delivered on 8th July 2015 (see here), the Chancellor of the Exchequer, George Osborne, has announced that the Government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime, including the Climate Change Levy, the Carbon Reduction Commitment energy efficiency scheme and their interaction with other business energy efficiency policies and regulations.

The announcement included the Government’s intention to remove the exemption from the CCL for renewable source electricity which is supplied to business or public sector consumers under the terms of a renewable source contract.

Responding to the announcements in the Budget today about energy taxes, Professor Sam Fankhauser, deputy director at the ESRC Centre for Climate Change Economics and Policy at the London School of Economics, said that “At face value, the Government has turned the Climate Change Levy into a type of ‘energy levy’ by removing the exemption for renewables. This change compromises the effectiveness of the Climate Change Levy as a form of carbon pricing which tackles the market failure resulting from the fact that the price of products and services involving emissions of greenhouse gases do not reflect the costs of climate change. This change will increase the costs for businesses that are supplied with electricity from renewable sources but will leave electricity from fossil fuel sources untouched.

The review, which will include a consultation in the autumn, provides an opportunity to simplify an unnecessarily complex and incoherent set of carbon pricing measures in the UK.

Other than this announcement, the budget did not contain much detail on renewables/climate change policy. It was thought by certain industry sources that the budget might provide further details on the Levy Control Framework beyond 2020/21, although this was not the case.

For further information on energy or carbon management, please contact iain.fraser@greengage-env.com