Cameron and Osborne have recently highlighted the importance of action on climate change - you would expect today's Budget to build on that commitment, but sadly it won't
It would not be unreasonable to expect today's Budget to be the greenest in years. After all, less than a month ago the Prime Minister responded to the terrible floods that hit the country by declaring that "man-made climate change is one of the most serious threats that this country and this world faces". Moreover, Chancellor George Osborne, for years regarded as sceptical about the merits of the green economy, declared that he wanted to see more action to tackle climate change, albeit with a renewed focus on cost effectiveness.
With Cameron due to travel to Brussels tomorrow to make the UK's case for a binding EU-wide emissions reduction target of 40 per cent by 2030, you would expect the Prime Minister to want to use the Budget to underline how the government is responding to "one of the most serious threats that this country and this world faces", just as you would expect the Chancellor to want to provide guidance on how he plans to map a cost effective path towards meeting the tough new emissions targets the UK will soon face.
This would be an entirely consistent and responsible course of action. As Matthew D'Ancona argued recently (and I make no apologies for quoting once again one of the most important and concise demolitions of Cameron's green leadership): "If the PM truly believes that anthropogenic global warming is responsible for potentially catastrophic changes in the weather - then it ought, logically, to be his priority, more important even than economic recovery. One cannot be "pragmatic" or "in favour of sensible compromise" about a threat to the survival of the human race."
So it would not be unreasonable to look forward to a Budget today that does everything within the Treasury's power to accelerate action on climate change and support the transition to a greener economy. Osborne could highlight the increased funding for clean energy made possible through the Energy Act, champion a decision to reverse spending cuts for flood defences, and provide a compelling explanation of how he plans to mobilise more clean tech investment, while minimising costs, perhaps through an increased focus on energy efficiency and carbon pricing. And that would just be for starters, he could also talk up the soon to be launched Renewable Heat Incentive (RHI), reference the surge in solar investment that has been seen in recent months, announce new incentives to support the Green Deal, confirm the Green Investment Bank will be allowed to borrow, promise new tax breaks for clean tech manufacturers, and, most important of all, deliver an unequivocal signal that meeting ambitious long term emissions targets is non-negotiable for the UK by cancelling the review of the fourth carbon budget.
However, the chances of such an unalloyed green Budget being delivered are about as likely as Osborne announcing a reversal of his beloved 50p tax cut. It would not be unreasonable to expect a green Budget given the Prime Minister's recent rhetoric and the UK's long term climate change goals, but sadly it would still be deluded.
The reality is that while Osborne may deliver some moderately encouraging green announcements today - we already know there will be more money for flood defences and that a £50bn list of infrastructure projects seeking private investment will include numerous low carbon projects, while the RHI, Green Deal, increased compensation for energy intensive industries, new garden city, and Green Investment Bank could all get a name check - the biggest announcement impacting the green economy is still set to be the heavily trailled and highly retrograde decision to freeze the carbon price floor. Meanwhile, any hopes for a new wave of green policies from the government are likely to remain firmly locked in cold storage until after the election. He may have recently flirted with acknowledging man-made climate change is a problem, but Osborne's utterly transparent attempts to woo the right of the party in preparation for his inevitable leadership challenge means any mention he makes of green issues will be couched in the language of "competitiveness" and "cost effectiveness", which his supporters rightly or wrongly interpret as code for a deep-seated scepticism towards current green policies.
The potential impact of any carbon price floor freeze on coal emissions and clean energy investment has already been widely discussed, with RenewableUK warning this week that a decision to tilt the economics of the energy market further in favour of coal and away from clean energy could see around £4bn of renewables investment put at risk. Unless, Osborne has an as yet unheralded surprise measure up his sleeve to either stick with plans to increase the carbon price floor or mitigate the impact of a lower tax on clean energy investment the move will lead to higher emissions.
Arguments that the changes would have a negligible impact on overall emissions because the UK is part of the EU emissions trading scheme (ETS) would have more credibility if the ETS wasn't in such obvious need of widespread reform. Increased UK emissions resulting from a frozen carbon price floor would end up resulting in a slight reduction in the oversupply marring the market, but that could in turn allow the EU to retire fewer allowances when it eventually gets round to reforming the scheme. A functioning ETS would minimise the impact of the carbon price floor freeze, but with reforms to the scheme on-going it is entirely plausible that EU emissions would end up increasing overall as a result of Osborne's expected decision.
A lower carbon tax also encourages more coal plants to fund the air quality upgrades that would allow them to exploit the emissions performance standard loophole the government deliberately left open in last year's Energy Act, providing a route for more coal power stations than had been expected to continue to operate well into the 2020s.
However, the decision to freeze the price floor would have further negative impacts beyond the immediate effect on emissions. The move would both overshadow the positive green policies the government has introduced in the past year and in changing a policy Osborne himself only introduced two years ago it would drive a proverbial coach and horses through promises that the long-awaited Energy Act would finally deliver some much needed energy investor certainty. Even those lobbying for a freeze in the carbon floor price must accept that changing such critical long term policies every two years does not constitute good governance, particularly when there has been no fundamental change in the circumstances surrounding the policy and all the concerns people had with it were obvious before it was introduced. The move further highlights how Osborne's political machinations all too often result shambolic policy-making.
In addition, it distracts from the real and serious debate over how to tackle the competitiveness issues faced by energy intensive industries as we transition to a low carbon economy. Industry needs targeted compensation to help cope with higher energy costs and reduce the risk of "carbon leakage", just as it needs support to ensure that it is investing adequately in developing the next generation technologies that will allow heavy industry to cut its greenhouse gas emissions. But by simply cutting energy taxes whenever industry lobbyists come knocking Ministers dilute the price signal that should encourage such investment, undermine the effectiveness of targeted compensation measures, and slow the transition away from dirty coal power.
It also creates the impression that whenever incumbent carbon intensive industries step their lobbying up a gear they get what they want. Ahead of the last Autumn Statement energy companies successfully got the government to water down its flagship energy efficiency scheme, despite the fact the resulting cost savings for billpayers were negligible and efficiency improvements represent the most cost effective way of tackling fuel poverty and reducing emissions. Ahead of this Budget industry appears to have successfully convinced the Chancellor that in addition to providing compensation measures to help address competitiveness issues he also needs to freeze carbon taxes. It is a safe bet the same approach will be repeated later this year with further calls to cut "green levies" and taxes, once again unaccompanied by any serious alternative proposals on how deep emission reductions can be achieved. The Chancellor's weakness in the face of this lobbying further fuels green investor fears that when the pressure comes on environmental policies are always at risk from the Treasury's axe.
However, the row over the carbon price floor is a function of a wider weakness in the government's current green economic plans, which is also expected to be much in evidence in today's Budget. Namely, the growing sense among green business leaders that the coalition is - if not running out of ideas exactly - then certainly starting to wind down. It is my understanding that following the passage of the Energy Act DECC had no big requests in front of the Treasury for this Budget. Meanwhile, Defra's ambitions for the rest of this parliament at times appear limited to hoping it does not rain too heavily and finding a more efficient way to kill badgers. There is much still to do in terms of delivering electricity market reform, sorting out the Green Deal, mobilising clean tech investment, and pushing through a long-awaited water bill, but the new policy thinking that is required for the next phase of the UK's decarbonisation journey is now firmly focused on manifesto commitments and the next parliament.
One of the merits of Cameron's decision to impose fixed term parliaments of five years was that it did promise a greater degree of political and policy stability for businesses. But with 14 months still to go until the next election many business leaders will be forgiven for wondering if four year terms might have proven more effective than a five year terms that will inevitably be characterised by policy drift and political manoeuvring during its final year. When you are dealing with "one of the most serious threats that this country and this world faces" can you really afford what risks becoming a year-long hiatus in policy thinking and delivery.
It would be nice to think that before the end of this parliament George Osborne would be able to deliver an unequivocally green Budget fully in line with the government's environmental goals. But it is not going to happen, in part because it is not in the Chancellor's nature and in part because Cameron's five year terms mean the UK's next wave of ambitious green policies will now not be delivered until 2016 at the earliest.
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