Energy Implications of the Spring Budget announced by the Chancellor 2nd March 2021

Below is summary of the energy implications of the Governments Spring 2021 Budget.  If more in depth analysis is required please contact Ian.Shinwell@energy-potential.com.
Climate Change was not the headline act of Wednesday’s Spring Budget for obvious reasons.  However, interested parties were no doubt looking for confirmation that the government is not rolling back on some of the promises made in the Energy White Paper “Powering Our Net Zero Future” published on 14 December and the Prime Minister’s 10-point plan published in November.  The Chancellor did state that his “budget lays the foundations for a strong recovery and a greener economy”.  Indeed, green finance has been added to the remit of the Bank of England.
The White Paper described how the UK intends to clean up its energy system in order to reach net zero emissions by 2050.  Since the White Paper the UK experienced a huge resurgence in new Covid 19 infections and deaths which prompted the enforcement of a severe lockdown of the British economy, the closure of schools, severe limitations on social interaction and the shut-down of non-essential shops and travel and virtually all hospitality. 
As a result of the lockdown the Chancellors budget on 3 March was, perhaps understandably, designed to protect companies and jobs.  He extended furlough and support for the self-employed until September 2021.  The cost of this was added to the extraordinary public health spending on Covid 19 testing and vaccines together with the reduced tax revenues from the shrinking economy and the support given to businesses particularly since the March 2020 lockdown.  As a result of this enormous cost the highest tax rises for 30 years were announced.  The most significant of these are freezing of tax-free allowances and a 6% increase in corporation tax.  
This background was not the most promising for those wishing for more climate change action.
To be fair the Chancellor did not overtly roll back on the White Paper.   Let’s look at some of the measures announced and see if the government’s is still committed to net zero.
As part of the Bank of England’s aforementioned remit it is expected to facilitate an increased supply of green finance and encouragement for infrastructure projects via:

• A sovereign green bond to be issued this summer
• £15b of government debt for green objectives
• A green retail savings product which will raise money to tackle climate change
• A carbon markets working group to ensure the City is the leading market for voluntary carbon offsets
• An infrastructure bank based in Leeds to finance the green revolution.  NB In 2017 Theresa May’s government sold off the Green Investment Bank established by the coalition government in 2012.  Leaving that irony aside the new bank is intended to support regional and local growth to meet net zero emissions targets.  It will have £22b of “financial capacity” made up of equity and debt capital and the ability to issue guarantees
• Echoing the White Paper Teesside and Humberside are earmarked for new port infrastructure in support of offshore windfarm projects
• £57m was promised to support jobs and green growth in Scotland which is intended to be a hub for offshore wind and hydrogen gas
• £4.8m government funding for a Holyhead hydrogen hub in Anglesey with an aim to use hydrogen as a zero-emission fuel for HGVs

Other energy related items covered in the budget were:

• Fuel duty will be frozen at 58p/litre for the 10th year in a row.  NB it will be considered in future for increases in support of the net zero commitment
• Road taxes were frozen for HGVs and for other vehicles will rise with inflation
• The White Paper contained a competition to fund direct air capture and emissions removal technologies.  Additional innovation funds were announced in the budget via 3 new competitions:  a) £20m to develop floating offshore wind, b) £68m for green energy storage systems and c) £4m for clean energy crops and forestry
• Over the last year the government implemented plans for the “green homes grant”, which covers the cost of home insulation/low-carbon heating.  This was to be via £2bn in grants for home-efficiency upgrades NB there was also £1bn earmarked for improvements in public buildings.   Boris Johnson’s 10-point plan then promised a further £1bn.  However, with people unwilling to have tradespeople into their homes during the pandemic only 6.3% of the grants were spent.  It appears the government does not intend to roll over unspent grants to the next financial year, effectively withdrawing £1bn in funding and leaving just £320m for 2021/2022.

Moving onto carbon taxes the UKETS scheme was announced in the White Paper with the first auctions set to be held on the 19th of May.  However, there is a great deal of uncertainty over the rules and delays would not be a huge surprise especially given a widespread belief that there will be insufficient liquidity in a UK only scheme to reduce emissions.  No decision on linking with other nations’ schemes has been announced. 
Finally, Carbon price support will be frozen at £18/tonne of CO2.  This UK Government policy was implemented to support the EU Emissions Trading System (EU ETS) in 2013 to underpin the price of carbon at a level that drives low carbon investment, which the EU ETS has not achieved.  It remains to be seen if it will continue to be required when we are reliant on the UKETS.