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Oil platform
Dabarti CGI/Shutterstock
UK POLICY
18 March 2015 15:00

Budget 2015: Key climate and energy announcements

Carbon Brief Staff

Multiple Authors

03.18.15
UK policyBudget 2015: Key climate and energy announcements

Chancellor George Osborne today delivered his final budget before the general election in May. Along with a few pre-election treats for voters, there were some important energy and climate announcements, from cutting North sea oil tax rates to opening further talks on a tidal power scheme in Swansea.

Here’s a summary of the key announcements:

North sea tax breaks

The chancellor said the fall in oil prices “poses a pressing danger to the future of our North Sea [oil and gas] industry” and  promised a series of tax breaks worth £1.3 billion over the next five years. The government’s aim is to  maximise extraction of North sea reserves.

Osborne said there will be a “single, simple and generous tax allowance to stimulate investment at all stages of the industry”. The  budget document says government will “substantially reduce oil and gas taxes”.

The BBC has the details, which includes a back-dated 10 percentage point reduction in the “supplementary charge”, a top-up tax paid by the North sea industry.

The government will spend £20 million on seismic surveys in untapped regions of the North sea “to catalyse exploration”. Today’s tax breaks add to those  announced last year. The House of Commons library has a detailed explainer on North sea oil taxes available here.

Friends of the Earth say Osborne had already given tax breaks worth £3 billion in previous budgets. The government says the breaks are not   subsidies, as oil firms still pay the usual rate of corporation tax. However, the Treasury will forego a substantial amount of income.

It says the tax breaks will see “at least 120 million barrels of oil” in additional production over five years. Carbon Brief analysis suggests this would increase emissions by 45 million tonnes of carbon dioxide, around 10% of the UK’s annual total, if it adds to the amount of oil that would have otherwise been extracted and burnt at a global level.

Government support for the North sea industry has been compared to  subsidy for a dying industry by Reuters columnist John Kemp.

Swansea tidal lagoon

The budget document says government will enter the first phase of talks on a proposed £1 billion electricity-generating tidal lagoon at Swansea. The project was named in the UK’sNational Infrastructure Plan and the chancellor’s autumn statement in 2014.

At the time, the government pledged to start closer negotiations with project developer Tidal Lagoon Power to establish whether the project is affordable and value for money. Today’sannouncement suggests that the outcome of these discussions was positive.

The lagoon would generate reliable renewable energy by capturing water from the tides in a manmade pool, and then releasing it through underwater turbines to generate electricity. Carbon Brief has a guide to the concept here.

The project still needs planning permission and would be more expensive than nuclear, solar, onshore and even offshore wind. The company is asking for a subsidy of £168 per megawatt hour of electricity for 35 years, compared with the £92.50 agreed for the Hinkley Point C nuclear plant in Somerset and wholesale electricity prices of £50 per megawatt hour.

The company behind the project say that the lagoon would have an installed capacity of 320 megawatts, and could provide power for over 155,000 homes for 120 years. It has been called ” appalling value for money” by consumer group Citizen’s Advice.

Green investment bank

The chancellor’s budget speech says UK national debt as a share of GDP will fall between this year and next. This should, in theory, trigger borrowing powers for the government’s Green Investment Bank (GIB), which supports low-carbon infrastructure, such as windfarms.

So far the bank has been given £3.8 billion in government funding, but no powers to borrow additional money to extend the reach of its investments. A 2011 document from the Department for Business Innovation and Skills says:

“The government will enable the GIB to have borrowing powers from 2015/16 and once the target for debt to be falling as a percentage of GDP has been met… This will enable the upscaling of the GIB’s activity.”

Today’s budget does not mention the GIB.

Fuel duty

Osborne has cancelled several planned increases in fuel duty since entering office. Today, he  extended the “longest freeze in fuel duty in 20 years” by cancelling the 0.5 pence increase that had been scheduled for September 2015. This appears to contradict his “fair fuel stabiliser”, introduced in 2012.

The idea was that petrol prices would be stabilised, with fuel duty increases deferred unless oil prices remained below $75 a barrel for more than three months. In the case of low oil prices, the fuel duty would be increased.

Oil prices have been below $75 since the start of December 2014, some four months ago.

Other announcements

The government will bring forward plans for onshore power networks to be built under competitive tender. It says this could help cut electricity costs and that competition in offshore networks has saved £200-400 million.

The budget also brings forward plans to compensate heavy industry for the costs of supporting low-carbon electricity. The compensation was due to have started in 2016/17, but will now commence as soon as the government receives state aid approval from the European Commission. It expects the support to be worth £25 million this year.

The government will exempt low-carbon cars from planned increases in company car tax rates. It also announced £60 million for a West Midlands energy research centre that wasannounced in February.

The budget exempts combined heat and power plants from the UK’s top-up carbon tax, thecarbon price floor.

Conclusion

The most prominent climate measure in the budget, the North sea tax break, was widely expected. So was in-principle government support for the Swansea tidal lagoon. The relative absence of climate and energy from the budget is part of a pattern that has even some Conservative MPs saying  the party lack an energy policy altogether.

In common with Osborne’s first five budgets, his sixth and possibly final offering had little positive to say on UK climate action and plenty of red meat for drivers and the oil industry.

Main image: Oil platform. Dabarti CGI/Shutterstock.
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