Chancellor cranks up support for low-carbon businesses

Electric vehicles, carbon capture and storage and efficient heating systems emerged as the big winners, as support for low-carbon businesses formed a central part of Chancellor Alistair Darling's Pre Budget Report.

Speaking in the House of Commons, Darling said the UK had emerged as a global leader in emerging low-carbon industries and that the continued development of these sectors would help lead the economic recovery and create "high paid, high skill jobs".

He said that to help accelerate the development of the sector, he would divert funds to increase investment in a raft of renewable energy and clean technologies, promising to increase support for low-carbon businesses and domestic efforts to cut emissions by £400m.

The Treasury said that when combined with policies announced since September 2008, the new funding would support more than £15bn of additional public and private investment in the low-carbon and energy sectors over the next three years.

He said that an additional £150m would be made available for low-carbon industries in the UK, to be distributed primarily by the government's innovation fund and the Carbon Trust, while a further €100m (£91m) would be paid into the European Investment Bank's fund to help countries reach their 2020 emissions and renewable energy targets.

The Pre Budget Report revealed that the £150m additional investment would provide £50m for the UK offshore wind industry, £40m for low-carbon technologies, such as for small and community-scale low-carbon energy generation, £30m to help the Teesside chemicals industry decarbonise its operations, and £30m for green transport projects, including an expansion of the Technology Strategy Board’s ultra-low-carbon vehicles competition.

It also confirmed that the increased support for offshore wind projects provided through the Renewables Obligation that Darling announced earlier this year would be extended from April 2010 to March 2014.

In a surprise move, Darling pledged to make the UK a world leader in CCS technology and announced that the government would double its support for the sector in order to help four demonstration plants.

To date, the government has said that it will support between two and four demonstration plants to be paid for through £1bn from the Treasury and a levy on energy bills. Now Darling has confirmed that four plants will indeed be built with the projects funded by a levy on energy companies between 2014 and 2018.

The move was welcomed by Jeff Chapman, chief executive of the Carbon Capture and Storage Association (CCSA), who hailed the announcement as "a very positive one for the CCS industry".

"The government’s support is vital to the growth of the CCS industry, and today’s announcement highlights the appetite for CCS in the UK and demonstrates that the government is committed to CCS having an important role in meeting carbon targets," he said. "This announcement gives the green light for funding to UK CCS demonstration projects and, in combination with the Energy Bill before Parliament, could mean four full-scale coal power plants in the UK fully equipped to near zero CO2 emissions."

There was similarly good news for companies operating in the green home sector, with Darling announcing that a further £200m has been earmarked to extend the Warm Front home insulation scheme for low income households. However, a spokesman for Friends of the Earth said that following earlier cuts to the scheme the increase meant that the funding available through Warm Front was still lower next than had originally been anticipated.

Darling also announced a new green boiler scheme modeled on the car scrappage initiative, under which households scrapping boilers with an energy efficiency rating of G will receive up to £400 to help pay for a more efficient boiler. Darling said that the most inefficient boilers added £200 to energy bills and increased annual carbon emissions by one ton.

There was an additional boost for manufacturers of small-scale renewable energy technologies, when Darling confirmed that the income households generate from onsite renewable energy technologies through the imminent Clean Energy Cashback feed-in tariff scheme would be tax free. He also said that the average household or business taking part in the scheme would be paid £900 a year by energy firms for the power they generate.

However, with a detailed announcement on the scale of the tariffs on offer for different technologies not expected until early next year, renewable energy firms will have to wait until January to see if their campaign for higher tariffs has been successful. Moreover, businesses planning to generate revenue through the scheme have been excluded from the tax break.

Finally, Darling announced a number of measures to curb emissions from the transport sector, confirming that the government has given the go-ahead to projects to electrify rail lines in the North West and unveiling a series of tax breaks for electric vehicles.

Under the changes, taxes on electric company cars and electric vans will be removed for five years, while a 100 per cent first-year allowance will be provided for the purchase of electric vans. Similarly changes to company car tax bands will aim to further provide businesses with the incentive to invest in cars emitting less than 99g of CO2 per kilometre.

Peter Young, chairman of green business think tank the Aldersgate Group, welcomed the announcements, but warned that the sums provided by the government are still too modest to drive a genuine low-carbon revolution.

"There were some broadly positive announcements for environmental industries in the Pre Budget Report but a more urgent approach to financing green technologies is needed for the government to meet its low carbon targets," he said. "The adoption of new financial mechanisms, such as green bonds and a green infrastructure bank, would accelerate the transition to a low-carbon economy and lead to the creation of the highly skilled and highly paid jobs that the chancellor is targeting."

He added that while the additional funding, such as the £90m channeled through the European Investment Bank, was welcome, it "cannot be relied upon to deliver renewable technologies in the UK at the scale and pace required".

His comments were echoed by Friends of the Earth's senior economics campaigner Ed Matthew, who accused Darling of wasting a "golden opportunity" to demonstrate genuine global leadership in developing a low-carbon future.

"Some of Alistair Darling's eco-initiatives are certainly welcome, but the
economy doesn't need green tinkering - it needs a complete low carbon overhaul, " he said. "He should have announced an ambitious new financial institution - a Green
Investment Bank - to build a low-carbon economy and encourage the private sector to invest in greening the UK."