Here are a few random (and very late I’m afraid) reflections on some aspects of the budget as they relate to energy, and green energy in particular. I’m not sure these thoughts suffer particularly from being a little late, because as far as I can see from the scant entries in the budget relating to energy in any way, these are mostly time bombs ticking away rather than announcements that are going to have an immediate impact. So we’ll get to see some of these effects realised for better or worse over the coming period, and rather more slowly than the more immediate dredging of more upfront measures such as the unannounced ‘granny tax’, pastygate and just recently, the limitation on people trying to give their money away, allegedly for the benefit of the ‘big society’.
So here we go: bombs away…
- The ending of Climate Change Levy Exemption Certificates on Combined Heat and Power Plants from 2013 is just centrally misconceived, and may well lead to a desperate downsizing of the sector. International Power announced the day before the budget that their Shotton CHP plant was ‘ no longer competitive’ and will close it by the end of the year. Maybe they had an advance budget leak. It sits ill with the increasingly la-la land style ‘targets’ for CHP development that continue to be put forward by DECC.
- The Chancellor says he’s going to consult on further proposals to simplify the Carbon Reduction Commitment – the scheme that introduced proxy carbon trading among companies not in the national allocation scheme for EU carbon trading. Except of course it didn’t, since those with even short memories will recall that in the 2010 Autumn Statement the same Chancellor previously ‘simplified’ the CRC by continuing to collect the income from allowance sales but ending the redistribution of the proceeds to overperformers as originally intended. So now he’s railing against his own ‘simplification’ and saying that if ‘very significant administrative savings’ are not deliverable then he might introduce an alternative environmental tax. This is itself amusing to the extent that Treasury still hasn’t published its new version of what it is going to define a green tax as, instead of the present widely adopted and internationally recognised definitions (see my post from November last year for more on this). So, when we know what a green tax is, there might be one instead of CRC. Watch this space.
- The biggest bomb (I think) is the almost entirely unreported announcement relating to the fancifully entitled ‘Carbon Floor Price’. This is of course, no such thing and is a lumpy tax sitting above whatever the EU ETS price is whenever it is collected. Well, the EU ETS price, in a recession, is unsurprisingly not doing as well as had been predicted at the time the Carbon Tax was first declared. So now the ‘top up’ rate of tax exemption removal from fossil power stations to mimic a carbon price of £16 per tonne, rising to £30 in 2020 will, in year two of the programme, now be not £7.28 a tonne tax on top of EU ETS, but £9.55 per tonne. This works out as a 31% increase on previous plans and an extra pot of cash coming the treasury’s way of perhaps £300 million per year. Justified of course on the current low price of ETS carbon at 6.50 euros early this year. But whether it will be trading at that price in 2014 to keep the overall shape of the trajectory up from £16 to £30 per tonne ‘all in’ is anyone’s guess right now. I would imagine that, just as with the CRC, the Treasury will not be minded to give any of its loot back if the EU ETS price advances by then.
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