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Subsidy review omitted as Osborne removes Climate Change Levy exemption

Subsidy review omitted as Osborne removes Climate Change Levy exemption

The renewables industry can breathe something of a sigh of relief as Chancellor George Osborne’s summer budget included no full-scale review of the Levy Control Framework (LCF), but did remove an exemption for renewables from the Climate Change Levy.

Delivering his budget this afternoon, Osborne said the government would “continue to promote the low carbon investment and innovation” required to combat climate change and that it would focus on “the best value for money policies”.

However there was no explicit mention of a review of the LCF and in turn renewable energy subsidies despite rumours in the national press this morning indicating they could fall on Osborne’s chopping board.

The LCF budget is rumoured to have run away under coalition rule and forecasts from market intelligence firm Cornwall Energy and the Telegraph suggesting it could record an overspend of between £1.5 billion and £2 billion by 2020.

Such an announcement would’ve appeared at odds with the government’s commitment to sending a strong message during November’s COP21 summit in Paris, where Osborne today said the government would push for a global climate deal to limit global warming at 2 degrees.

Osborne also confirmed that the government is to publish proposals to extend competitive tendering for onshore electricity transmission targets, which are expected to save consumers circa £390 million over the course of 10 years, while he also welcomed the findings of this week’s Competition and Markets Authority investigation into the energy sector.

But it was not all good news for the renewables sector. The budget sets out that the government “believes in making the most of the UK’s oil and gas resources” and confirms it will continue to support fracking, and investment into the North Sea gas and oil industry will continue – as set out in the March budget – for a sixth consecutive year.

The removal of renewable energy’s exemption from the Climate Change Levy was also revealed, with the government stating that the decision was to “correct an imbalance in the tax system” and “helping ensure support for low carbon generation provides better value for money for UK taxpayers”.

Industry reaction 

Nick Molho, Executive Director of the Aldersgate Group 

The government’s understandable focus on tackling the annual budget deficit and the national debt shouldn’t come at the expense of failing to support those sectors of the economy that are key to the UK’s long-term growth and competitiveness prospects. With the global low carbon goods and services sector already worth US$5.5 trillion and international momentum building to accelerate cuts in carbon emissions, the UK economy can’t afford to drop out of the low carbon race.

Dr Nina Skorupska, chief executive, Renewable Energy Association:

The removal of the Climate Change Levy exemption for renewables will have a significant effect for our members immediately, and will undermine investor confidence by changing the stable market conditions needed for financing and business planning.

If the intention was to remove the anomaly of international firms benefiting from the CCL exemption, this is a disproportionate action that now turns a measure designed to encourage low-carbon electricity, into just an electricity tax for business.” 

David Powell, senior economics campaigner, Friends of the Earth: 

The next five years are crucial for breaking our dependency on climate-wrecking gas, coal and oil and dirty transport – so it’s appalling that the Chancellor has only added fossil fuel to the fire.

Mr Osborne’s confirmation of huge tax breaks to North Sea gas and oil, and continuing support for deeply unpopular fracking, is particularly reckless as the world prepares for critical climate talks this December.

Money raised from taxing cars shouldn't be spent on yet more roads, which will simply encourage more traffic. The Chancellor should boost public transport instead, and make our cities better for walking and cycling to help stop air pollution claiming lives.

Dr Gordon Edge, director of policy, RenewableUK 

The Chancellor’s announcement that renewable electricity will no longer be exempt from the Climate Change Levy is a punitive measure for the clean energy sector. Until now, Levy Exemption Certificates (LECs) generated as a result of the CCL have provided vital financial support for renewable energy producers. 

The Chancellor says the removal of the exemption will earn the Treasury £450 million in 2015/16, rising to £910 million in 2020/21. We’re suddenly looking at a substantial amount of lost income for clean energy companies which was totally unexpected. For example, Levy Exemption Certificates account for just over 6% of onshore wind generators’ revenues. 

The government had already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy we have. Now they’re imposing retrospective cuts on projects already up and running across the entire clean energy sector. 

Yet again the government is moving the goalposts, pushing some marginal projects from profit into loss. It’s another example of this government’s unfair, illogical and obsessive attacks on renewables.