In this crucial overview of energy trends, we examine how George Osborne’s Budget opens the path to a new UK energy and carbon taxation framework

Single reporting framework on energy efficiency and carbon taxes is coming

In his Budget, George Osborne has begun the transition to new energy taxation. The process is not yet complete, but the document represents the first step towards the new regime.

The headline changes the Chancellor has made:

Carbon Reduction Commitment abolished

“Many retailers have complained bitterly to me about the complexity of the Carbon Reduction Commitment (CRC),” said Osborne. “To make good the lost revenue CCL will rise from 2019, but steel remains protected and I am extending climate change agreements that help many others.”

The Budget document goes on to explain that the Government; ‘Will significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers, rather than CRC participants being required to forecast energy use, buy and surrender allowances.’

The key is this; Osborne will consult later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.

We are not there yet, and there is no news on whether ESOS will form the core of the new framework. We only know for sure that further change is coming.

Additional key Budget changes on energy

Support for renewable electricity

Osborne’s Government will auction up to £730 million of support for offshore wind and other less established renewable technologies this parliament for projects generating electricity in 2021 to 2026. The first auction will offer £290 million of support.

On energy and demand side response

Following the National Infrastructure Commission’s report Smart Power, the Government will allocate at least £50 million for innovation in energy storage, demand side response and other smart technologies over the next 5 years.

Petroleum revenue tax

 “I am effectively abolishing petroleum revenue tax,” said Osborne. In doing so, he lends a hand to price-beleaguered fossil markets, which will in turn anger environmentalists.

Nuclear

Osborne has launched the first stage of a competition to identify a small modular nuclear reactor (SMR) to be built in the UK, and will publish an SMR delivery roadmap later this year. It will also allocate at least £30m of funding for R&D in advanced nuclear manufacturing.

Reaction to the news

Here are some key reactions to the Budget, published by EDIE:

“Much more still needs to be done in order to address the concerns of investors recently highlighted by the Energy and Climate Change Committee,” Nick Molho, executive director, Aldersgate Group

“Manufacturers will be enormously pleased to finally see the back of the CRC energy efficiency scheme, a vastly overcomplicated tax that has had a negligible effect on energy efficiency improvements in industry,” Richard Warren, senior energy policy advisor, EEF

“Probably the most notable feature was that he accepted the National Infrastructure Commission’s conclusion that the future of the electricity system is diversified, decentralised and flexible. Concretely that means £50 million for R&D in energy storage and demand response, and endorsement for 9 gigawatts more of interconnection with the Continent – not much on the money side, but profound philosophically,” Richard Black, director, Energy and Climate Intelligence Unit (ECIU)

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