A summary of the main environmental announcements in the 2011 Budget, delivered by the Chancellor on 23 March 2011. (Free access.)
This update summarises the main environmental announcements in the 2011 Budget, delivered by the Chancellor, George Osborne, on 23 March 2011.Close speedread
The key 2011 Budget documents are as follows:
For a full list of all 2011 Budget documents, see:
The key environmental announcements in these documents are summarised below.
The Green Investment Bank (GIB) will begin operation in 2012-13 (one year earlier than anticipated).
The initial capitalisation will be £3 billion. The government had already allocated £1 billion to the GIB in the Spending Review in October 2010 (see Legal update, Spending Review 2010: environmental implications: Green Investment Bank (www.practicallaw.com/5-503-6609)). The remaining £2 billion is expected to come from the sale of government assets (including £775 million already received from the sale of High Speed I). However, the GIB will not be given borrowing powers until 2015-16.
The government expects the GIB to attract a further £15 billion of private sector investment, taking the total funds available to the GIB to £18 billion.
For more information on the GIB, see Legal update, Green Investment Bank: further details emerge (www.practicallaw.com/4-503-9806).
The government plans to introduce a carbon price floor for electricity generation from 1 April 2013, broadly in line with the proposals in the consultation it carried out in December 2010. The carbon price floor will start at around £16 per tonne of carbon dioxide (CO2) and follow a "linear path" to £30 per tonne in 2020.
The government intends to introduce relief for carbon capture and storage (CCS) and combined heat and power (CHP), as well as remove an existing exemption in the climate change levy (CCL) for electricity that CHP plants supply indirectly to a consumer.
The government has indicated that the carbon price floor is expected to work as follows:
It will tax fossil fuels used in electricity generation under the CCL and fuel duty.
Supplies of fossil fuels (apart from oils) used in most forms of generation of electricity will become liable to CCL, while oils used in electricity generation will become liable to fuel duty.
Supplies will be charged at the relevant carbon price support rate, which will be determined by the average carbon content of the fossil fuel and take account of the expected price of carbon on the wholesale market.
For fossils fuels that are liable to CCL, the carbon price support rate for each commodity will be different from the main CCL rates for the same commodities.
Anti-avoidance measures to prevent forestalling of CCL will be introduced from 23 March 2011.
Primary legislation to cover most of the changes to CCL will be introduced in the Finance Bill 2011.
(See Annex A to the Overview of Tax Legislation and Rates, paragraph 1.28 and pages A97-101.)
For more information on:
The carbon price floor consultation, see Legal update, Government publishes major consultations on reform of electricity market and carbon floor price (www.practicallaw.com/2-504-2796).
CCS, see Carbon capture and storage below.
The CCL rates will increase in line with the Retail Price Index (RPI) (www.practicallaw.com/5-377-4351) in 2012-13.
Climate change agreements (CCAs) will be extended to 2023 (the current scheme ends in March 2013). The current 54 sectors participating in CCAs will be eligible for the extended scheme.
The CCL discount for CCA participants will be increased from 65% to 80% from April 2013.
The government will publish a consultation, by summer 2011, on options to simplify CCAs.
The CCL exemption for taxable commodities used in rail freight and in public passenger rail services that do not hold a Public Service Obligation will be suspended from 1 April 2011, pending EU state aid re-approval. If approval is given, the exemption will be reinstated with retrospective effect, if this is allowed under the approval.
The CCL exemption for taxable commodities used in steel and aluminium recycling will be suspended from 1 April 2013 if EU state aid re-approval has not been received by then. If approval is given, the exemption will be reinstated with retrospective effect, if this is allowed under the approval.
For more information on the CCL and CCAs, see Practice note, Climate change levy and climate change agreements (www.practicallaw.com/8-204-8341).
The government has confirmed that the price of allowances under the Introductory Phase of the CRC Energy Efficiency Scheme (CRC) (which will run to 31 March 2014) will be £12 per tonne of CO2, as anticipated.
The government has also said that it will publish, later in 2011, draft regulations to implement the sale of CRC allowances. It had published an initial draft of the CRC Energy Efficiency Scheme (Allocation of Allowances for Payment) Regulations in February 2010 (see Legal update, Government publishes revised draft regulations on the sale of CRC allowances (www.practicallaw.com/0-501-6005)).
For more information on:
The changes the government is proposing to make to the CRC, see Legal update, CRC: DECC publishes five discussion papers on simplifying the scheme (www.practicallaw.com/2-504-6025) and Legal update, CRC: amendments to the CRC Energy Efficiency Scheme (www.practicallaw.com/4-504-8405).
The CRC in general, see the CRC Survival Kit.
The government has announced that it will shortly publish a Roadmap to a Green Economy, setting out how it can facilitate the investment and business environment for the transition to a growing green economy.
(See Plan for Growth, paragraph 2.155.)
The government has announced that it will introduce a new framework to cap the cost of energy and climate change policies on energy bills. This will include policies (such as feed-in tariffs (FITs)) that are funded through energy bills.
(See Plan for Growth, paragraph 2.159.)
The government has made the following important announcements about how the government intends to meet its target for all new homes to be zero carbon from 2016:
The zero carbon homes standard will only take into account CO2 emissions that are covered by the Building Regulations (that is, CO2 emissions from energy use through heating, fixed lighting, hot water and building services). CO2 emissions from household appliances (such as washing machines, fridges, TVs and computers) will not be included, as these are beyond the influence of house builders.
The government will consult on on-site CO2 reductions. The consultation will:
be based on the Zero Carbon Hub's recommendations on the appropriate levels of on-site CO2 reductions;
adopt the Zero Carbon Hub's advice to take an approach based on the CO2 reductions achieved in real life, rather than on predictions from modelling; and
propose cost-effective options for off-site carbon reductions, relative to the carbon price (see Carbon price floor above).
(See Plan for Growth, paragraphs 2.296-2.300.)
For more information on:
The Zero Carbon Hub's recommendations, see Legal update, Zero Carbon Hub delivers final report on carbon compliance standards for zero carbon homes (www.practicallaw.com/5-504-9008).
Zero carbon homes in general, see Practice note, Zero carbon buildings (www.practicallaw.com/2-375-5085).
CCS demonstration plants will be funded from general taxation, rather than a CCS levy on energy generators (in line with the objectives of tax simplification).
For more information on CCS in general, see Practice note, Carbon capture and storage: overview (www.practicallaw.com/1-378-8519).
The government has set out a timetable for publishing the National Policy Statements (NPSs) for major infrastructure developments in paragraphs 2.32-2.33 of the Plan for Growth.
In particular, the government is delaying publication of the Energy NPSs, in light of the recent earthquake and tsunami and consequent damage to the Fukushima Daiichi nuclear plant in Japan (see Legal update, UK government orders nuclear review and EU orders stress testing in wake of Japan nuclear crisis (www.practicallaw.com/5-505-2072)). The government has said it will make a further announcement on its timetable for the Energy NPSs when the situation is clarified.
The government's timetable for the NPSs on ports, national networks, waste water and hazardous waste are as follows:
National Policy Statement
Consultation and scrutiny
Laid for approval
Completed May 2010
Starting December 2011
By December 2012
By December 2012
Completed by June 2011
Starting May 2011
This table has been reproduced under the terms of the Click-Use Licence from HM Treasury: The Plan for Growth (March 2011).
For more information on NPSs, see Practice note, Planning Act 2008: National Policy Statements (www.practicallaw.com/0-422-3073).
The standard rate of landfill tax will increase by £8 per tonne to £64 per tonne on 1 April 2012 and the lower rate of landfill tax will be frozen at £2.50 per tonne in 2012-13 (as anticipated).
The value of the Landfill Communities Fund will rise in line with inflation in 2011-12 to £78.1 million and future decisions on the value of this fund will depend on how successful environmental bodies are at reducing the level of unspent funds that they hold.
For more information on landfill tax and the Landfill Communities Fund, see Practice note, Landfill tax (www.practicallaw.com/2-204-8315).
Legislation will be introduced under the Finance Bill 2011 to repeal the increase in the rate of aggregates levy (from £2 to £2.10 per tonne) that was due to take effect from 1 April 2011. The increase from £2 to £2.10 will now take place in April 2012.
For more information on the aggregates levy, see Practice note, Aggregates levy (www.practicallaw.com/7-204-8959).
The government will consult in May 2011 on the treatment of capital allowances for expenditure on plant and machinery covered by the FITs and Renewable Heat Incentive (RHI) schemes.
For more information on FITs and the RHI, see:
The list of energy saving technologies that can qualify for enhanced capital allowances (ECAs) will be updated during summer 2011, subject to agreement with the European Commission. For more details, see paragraph 1.11 and pages A45-47 in Annex A to the Overview of Tax Legislation and Rates.
For more information on the current scheme, see Practice note, Enhanced capital allowances (ECAs) for investment in environmental technologies (www.practicallaw.com/8-204-8355).
The government has announced that:
Company Car Tax (CCT) for zero emissions cars will remain at 0% and the rate for cars with emissions up to 75g/km of CO2 will remain at 5%.
CCT for cars emitting less than 95g/km will be frozen from April 2013.
CCT will be increased by one percentage point from April 2013 for all vehicles emitting between 95g/km and 219g/km.
The government will not introduce a per-plane duty at present, due to concerns expressed by stakeholders over the legality and feasibility of those proposals. It has said that it will be starting a "programme of intensive work" with the UK's international partners to build a consensus for a per-plane duty in the future. In the meantime, Air Passenger Duty (APD) rates will be frozen for 2011-12.
HM Treasury has published a consultation on reform of the APD alongside the 2011 Budget. The consultation seeks views on proposals to expand aviation taxation to business jet flights and restructure the APD bands to simplify them, among other things. The consultation closes on 17 June 2011. For more information, see Legal update, Government consultation on changes to Air Passenger Duty: environmental implications (www.practicallaw.com/7-505-3928).
The government has confirmed that, as part of its deregulation agenda and "one-in-one-out" policy for new regulations (announced in the June 2010 Budget), the recommendations from Lord Young's report on health and safety regulation (Common Sense, Common Safety) will be implemented.
Earlier this week, the government released a progress report on implementing these recommendations and published a new report, Good Health and Safety, Good for Everyone (see Legal update, Reform of health and safety law: more government announcements (www.practicallaw.com/8-505-3541) and Practice note, Reforming the UK's health and safety laws (www.practicallaw.com/1-503-7620)).
The government has announced that it plans to consult, in July 2011, on how to "materially simplify" narrative reporting for quoted companies, for example by:
Removing duplicate reporting requirements.
Improving non-regulatory guidance.
Promoting a framework for company reporting that makes it as easy as possible for businesses to adapt to national and international developments.
(See Plan for Growth, paragraphs 2.147-2.148.)
By way of background:
In December 2010, the government published the responses to its consultation on the future of narrative reporting, including whether to reintroduce the requirement for an operating and financial review (OFR). It said that it considered there is a need for a more thorough examination of narrative reporting with a view to streamlining the framework and achieving a significant change in disclosure practice. It also said that it planned to develop policy proposals on the corporate governance agenda by the March 2011 Budget (see Legal update, Narrative reporting: BIS consultation: summary of responses (www.practicallaw.com/5-504-3563)).
On 8 March 2011, the government indicated, in its draft Carbon Plan, that it would announce whether or not it intended to introduce mandatory carbon reporting for companies by the end of March 2011. For more information on these proposals, see Legal update, Government consults on draft Carbon Plan of its climate change actions (www.practicallaw.com/5-505-1218) and Legal update, Defra publishes review on corporate reporting of emissions (www.practicallaw.com/5-504-1309).
The European Commission has also consulted recently on how companies report on non-financial information, including environmental information. That consultation closed in January 2011 (see Legal update, Narrative reporting: European Commission consultation (www.practicallaw.com/1-503-9836)).
For more information on how companies report on environmental issues in general, see Practice note, Environmental reporting for companies: mandatory (www.practicallaw.com/5-501-2161).
The government has announced that the following types of small businesses will not need to comply with new domestic regulation that comes into force from 1 April 2011, for three years:
Micro-businesses (that is, those with fewer than ten employees). Micro-businesses will be able to comply with new regulations on a voluntary basis if they wish to.
Genuine start-ups. The government proposes to define these as businesses commencing a trade, profession or vocation on or after the 1 April 2011, unless:
they carried out a business that did mostly the same activities at any time in the six months before the start-up;
the new business is the result of another business that carried out the same activities; or
the new business takes on all or part of an existing business.
Environmental regulation can place a significant burden on small businesses so this moratorium is likely to be a welcome relief.
(See Plan for Growth, paragraphs 2.47-2.50.)
The government has reiterated that it is committed to being the greenest government ever and that market-based solutions to put a price on carbon are at the heart of its approach. However, faced with less growth than predicted, as well as rising inflation, the Chancellor had little room for manoeuvre. Unsurprisingly therefore, reaction to the environmental provisions in the Budget 2011 has been mixed.
Green Investment Bank. There is a generally positive response to the earlier than expected 2012 launch of the GIB, and to the initial £3 billion investment from the government, which is higher than had previously been announced. However, even with the Chancellor's optimistic aim of private investors bringing this to £18 billion, it falls well short of the £550 billion recommended by the Green Investment Bank Commission in June 2010 (see Legal update, A blueprint for the Green Investment Bank (www.practicallaw.com/8-502-8405)).
Further, there has been heavy criticism of the GIB's lack of power to borrow until 2015-16. This delay is due to the Treasury's concern of the impact on deficit reduction. Friends of the Earth executive director, Andy Atkins, said that "in the global race to develop green industry, the Treasury seems determined to make the UK lose" (see Friends of the Earth press release, Chancellor remains addicted to high-oil economy, 23 March 2011).
However, John Gibbs, corporate finance partner at PwC, is quoted as saying that, despite the initial block on borrowing, the launch of the GIB represents a "major step forward" for the low carbon economy. He went on to say that attention would now turn to the types of products the GIB will be able to offer developers, noting that it is vital that the GIB provide a range of investment products (such as loan guarantees and insurance cover), as well as straight investment (see Budget 2011: Green Investment Bank to launch next year backed by £3bn funding, BusinessGreen.com, 18 March 2011).
Carbon price floor. The £16 per tonne level is higher than the price of carbon under the EU Emissions Trading Scheme (EU ETS) has been for some time (currently around £13 per tonne). Generally, this was welcomed, although RenewableUK stressed the need for certainty on the level after 2020 (see RenewableUK press release, Budget to re-energise funding and planning for renewables, 23 March 2011).
It will be interesting to see how the introduction of a carbon price floor at £16 per tonne will interact with the price of CRC allowances (confirmed today at £12 per tonne for the Introductory Phase).
Vincent de Rivaz, CEO of energy multinational and nuclear developer, EDF Energy, who has long been an advocate of a carbon price floor, is quoted by the BBC as saying this will "support the economics of renewables and carbon capture and storage, and can reduce the need for specific measures to support those technologies. For nuclear, helping to restore the carbon price to what was originally intended is important to encourage investment in existing plants and in new build" (see Budget paints in green and brown, bbc.co.uk, 23 March 2011). The introduction of the carbon price floor may give a boost to the nuclear industry, which has had a difficult time since the crisis at the Fukushima Daiichi plant in Japan (see Legal update, UK government orders nuclear review and EU orders stress testing in wake of Japan nuclear crisis (www.practicallaw.com/5-505-2072)). However, the 2011 Budget also postpones any announcement on the timing of the Energy NPSs (including on the Nuclear NPSs) until the implications of the Japanese crisis are understood.
Climate change agreements. The extension of CCAs to 2023 will potentially attract more organisations to sign up to CCAs. This may result in the current overlap between the CRC and CCAs applying to more organisations: hardly a simplification of the regulatory burden.
John Cridland, CBI Director-General, welcomed support for manufacturers through CCAs, as he said it will help them manage energy costs "which is particularly important given that the Government is pushing ahead with a carbon floor price" (CBI press release, Immediate CBI reaction to the budget, 23 March 2011).
Reduced fuel taxes and the North Sea oil levy. While businesses and consumers will benefit from reduced fuel taxes, there is some concern that the increased tax on North Sea oil and gas could be counterproductive, and could create uncertainty for future investment. Some oil companies are said to have suggested that it will hit future investment in the North Sea.
Zero carbon homes. The policy change (that CO2 emissions from appliances are not included) seems to have come as a genuine surprise to the industry. It would seem that house builders had not been lobbying for it. Paul King, chief executive of the UK Green Building Council, said that he was shocked by the "u-turn" because the UK's "world leading commitment that new homes would not add to the carbon footprint of our housing stock from 2016 has been scrapped despite a remarkable consensus between industry and NGOs in support of it" (see Budget "u-turn" on zero carbon homes, building.co.uk, 23 March 2011).
For more information on the 2011 Budget, see: