1) “Generous” tax breaks for fracking, and plans to fast track planning permission for shale rigs
The Chancellor announced today: “shale gas is part of the future. And we will make it happen.” He pledged a “generous new tax regime” for the fracking industry – and “by the summer new planning guidance will be available alongside specific proposals to allow communities to benefit".
This announcement indicates Osborne's continued support for fracking as a way to boost the UK economy, as it has done in the US.
As we’ve highlighted before – for a whole host of reasons, a US-style fracking revolution is extremely unlikely happen here. If it was to happen – it would be bad news for efforts to tackle climate change.
Aware of the hostility towards onshore wind on his own benches, the Chancellor is probably aware that fracking could be unpopular across the large areas of countryside earmarked for licenses. This looks an attempt to pre-empt local opposition, and bypass potentially lengthy battles over planning permission. A recent ComRes poll in his own constituency of Tatton (where two licenses have been issued for possible drilling) revealed most of his constituents oppose fracking in the area.
It’s worth noting to date no “community benefits” have been made available to residents hosting renewable energy schemes.
2) A new carbon tax - except for big polluters
The Chancellor’s speech missed a measure projected to raise over £2bn for the government by 2017-18 and nearly £1bn this year – the carbon price floor.
To put that in context that is almost double the cost of the fuel duty freeze, in fact, it is more than all the cuts put together.
This is in practice a carbon tax on top of the EU cost of carbon levied on power stations and passed on to consumers through bills. The policy was announced before but comes in this year and the £975m the chancellor hopes to raise is far more than previously forecast.
It suggests either that the government is expecting lots of money from highly polluting coal burning power stations or that they are compensating for the collapse of the European carbon market with a larger tax then expected. The document doesn't state the level of the floor, but the 2011 budget suggested it would start at £16.
The floor price could help reduce coal burning, but whilst consumers will pay for it at full price the government has previously exempted energy intensive industries – like the steel industry - from the bill. In today’s budget the Chancellor also exempted big polluters from the government’s other green tax, the climate change levy – in a move that will cost £120m.
3) Clean company cars
There have been some additional incentives for companies buying low carbon vehicles beyond 2015.
Companies will be able to claim the cost of the new cars against any tax on profits, provided those cars that have emissions below 75g CO2/km - the current EU average for new cars is about 137g CO2/km.
Currently the only vehicles that can deliver performance below the threshold of 75g CO2/km are hybrid or electric vehicles.
This tax exemption could be effective, because company and fleet cars are currently 55% of purchases in UK, and it amounts to a 21% reduction in the capital costs of an ultra-low carbon vehicle. Extension for 3 years means that low carbon vehicle producers can expect a more attractive market in the UK out to 2018.
4) Carbon Capture support (ish)
The Chancellor promised to take “two major carbon capture and storage projects to the next stage of development," with £1bn worth of support.
The small print of the budget identifies these two commercial scale projects as being at Shell’s Peterhead project in Scotland (the retrofit of a gas plant) and at Drax in Yorkshire, which is an oxyfuel combustion project.
It’s worth remembering this is significantly less public support than was promised in the coalition agreement, which pledged four CCS projects, not two.
Nevertheless, academics with an interest in CCS welcomed the funding for the initial feasibility studies.
A final investment decision on these projects now isn’t expected until 2015.
5) No to renewables
Osborne isn't exactly known for his green rhetoric and today was no exception. The Chancellor failed to even mention renewables in his speech and they barely made an appearance in the budget documents. Instead he focused on supporting gas and nuclear, claiming:
“A vital sector for our economy, and a cost of doing business for everyone, is energy. Creating a low carbon economy should be done in a way that creates jobs rather than costing them.”
We don’t know if he meant to suggest that renewables somehow cost jobs, but we’re bound to observe that a recent report by Cambridge Econometrics for this site’s owners suggested a dash for wind would create 100,000 more jobs by 2025 than a dash for gas.
Osborne, however, probably has his own figures. .
And finally...
The Chancellor hailed his plan to offer guarantees to investors in big infrastructure projects. So far these include the Northern Line extension and the conversion of Drax power station to biomass. However the budget lists 14 big infrastructure schemes, including a new Hinkley point nuclear power plant and offshore wind in the North East.
