policy

Things to come
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the Chancellor of the Exchequer that are more significant than others; that delivered on 21 March would certainly count as one of the more significant. Perhaps predictably, the reasons for this are explicitly political. It was Gordon Browns last budget; there is a revived threat to Labours position in the form of a Blair-like Conservative party leader; and there is a fierce battle to occupy both the centre and environmentally friendly ground. The prominence of energy in policy and the budget has, however, always been high. Previous budgets have involved privatisation, decisions on

Dave Shaw, energy consultant, at Carbon Trust-accredited consultancy Efficiency Direct wonders if Gordon Browns last budget was green enough
mongst economics commentators it is generally accepted that there are budget statements from funding for nuclear power, inflation concerns due to oil crises and, latterly, global warming. The production of energy is a matter of national interest: the second golden age of British industry after the second world war was arguably crushed by economic instability around oil prices. The discovery of North Sea oil and the dash for gas in the 1980s have been a financial windfall for the UK until now. have risen so much that the Bank of England highlighted them as one of the key reasons for the peak rate of inflation seen earlier this year, which led to increases in interest rates. Against this backdrop, the UK has decided to take a lead role in setting carbon emission targets. Indeed, while only required under the Kyoto Protocol to cut greenhouse gas emissions by 12.5 per cent compared to 1990 levels by 2010, the government set a self-imposed target for the UK of a 20 per cent reduction. The Kyoto target will almost certainly be met, but the latest projections show that the UK is on target for only a 15 to 18 per cent reduction in emissions by 2010. A further aspirational target of a 60 per cent reduction by 2050 is also in place.

Instability
Today, the UK finds itself being a net importer of gas from Europe and energy supplies are increasingly threatened by the unreliable and unstable conditions in oil and gas producing nations. Price is increasing; supplies are shortening. Indeed, energy prices

Luckily, saving energy means saving money on both a micro and macro level, and if the UK can take a lead role in the development of energy saving technologies, then this may help to address the countrys balance of payments deficit. So just what was in the most recent budget to promote energy efficiency and the UK as a world leader in the field? Business, the Chancellor said, accounted for 40 per cent of UK greenhouse gas emissions (principally carbon dioxide) and that, since 1997, business and government together have achieved a 25 per cent reduction in the carbon intensity of the economy. While the statistics may prove this to be true, how much of this is attributable to the decline of manufacturing in the UK is debatable but no doubt significant.

investment. This tax credit will be worth 40million a year. How it is new and different from the already established Enhanced Capital Allowances (ECA) scheme was unclear from the commons statement. ECAs allow the cost of an environmentally friendly technology (such as an inverter drive), which is on the Environmental Technology List, to be written off against corporation tax in year one, rather than as depreciation over time. In the detail of the main Treasury report, it is stated: The Government also introduced enhanced capital allowances for energy-saving technologies, with over 14,000 approved products now eligible for support. The Government has commissioned an independent review of the effectiveness of the ECA for energy-saving technology, which will be published later this year. It was announced that the Government will also introduce a payable enhanced capital allowance for companies not in taxable profit to ensure both profit and loss making firms have an incentive for energy-saving technology. Increased funding for the Carbon Trust, which provides businesses with advice on improving their energy efficiency as well as interest-free loans to fund capital energy-saving projects such as lighting, insulation and boilers, was also part of the Climate Change Levy (CCL) package. In 2004 to 2005, the Carbon Trust worked with over 2,800 organisations, resulting in cost savings of 200million for business. So now, companies that do not have profits can benefit financially from using environmentally friendly options.

Staying with small- and mediumsized enterprises, more money was also promised to offer energy audits and advice through the Carbon Trust and Regional Development Agencies (RDAs). The RDAs will promote streamlined advice on resource efficiency delivered through Business Links. In total, the advice, support and incentives available from Business Links and the RDAs for environmental improvement and innovation, including for small businesses, will rise from 140million this year to 240million next year.

Forefront
The small company R&D tax credit will be raised from 150 per cent to 175 per cent from April 2008 and the large company rate will also rise from 125 per cent to 130 per cent. It is hoped that much of this will be used in order to help the UK stay at the forefront of developing environmentally friendly and carbon neutral technologies of the sort that will attract environmental tax credits. The Secretary for Industry, the Chancellor announced, would also be announcing a competition to develop the UKs first full scale carbon capture
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Complication
Some accuse the UK of having one of the more complex tax systems in the world. Part of the reason for this is the way in which the Chancellor raises and indirectly cuts taxes. It seems, in effect, that taxes are simply increased for everyone and those for whom they would have an undue adverse effect (e.g. small businesses, pensioners, low income households) should claim allowances to offset the greater burden placed on them. To this end, as well as raising corporation tax for small business and cutting corporation tax for large business (according to the Engineering Employers Federation firms are paying almost 12billion more in tax in 2008/9 than they were when Labour came to power), the Chancellor introduced a new environmental tax credit for environmental

policy

and storage project, the results of which would be announced in 2008. Carbon capture is a process by which carbon produced from the burning of fossil fuels (e.g. at power stations) can be captured and buried, for example,
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definitely warranted (it helps to fund the Carbon Trust, for example) it could be questioned whether this is a step far enough. The current CCL level is simply not high enough to bring about the change in business activity that it was designed to. By linking it to the rate of inflation, it will move at the same rate as other prices and therefore in effect stay at the same relative level. Energy and fuel taxes, as shown by the fuel protests at the turn of the century, are a contentious and emotive issue. However, if they are set below the level at which they change the activity they are supposed to (in this case energy consumption), then they simply and quietly raise money for the treasury.

could or should be. The move toward carbon pricing, via the EU Emissions Trading Scheme is welcome, but whilst the UK is leading the way with respect to the scheme, it still needs further reform. For the lowest emitters in the scheme, the administrative burden is high, and while this is being addressed to a certain extent in the schemes second phase (2008 to 2012), more could be done to ease the pressure on such installations. The price of carbon too, while subject to the market, requires further control the price of a tonne of carbon dipped below 1 in February of this year. Whilst the Chancellor could not address this in his budget, representation at an EU level needs to be made to ensure confidence in the system. Whilst representing clients in the EU Emissions Scheme, Efficiency Direct has found that the current price of carbon, like the level at which the CCL is set, provides no financial incentive to begin the monitoring and management of carbon emissions. In the companys experience, the only driver is the threat of a civil law suit.
www.efficiencydirect.co.uk

under the seabed. At this stage in the technologys development, the capture part has been successful but storage has proved harder to complete. As well as for businesses, measures were announced for households, including insulation and green technology grants and steps intended to gear the housing market to be more favourable toward carbon neutral homes. Commitments were also made with respect to transport, where it was announced that biofuels will, by 2010, account for 5 per cent of all fuel in road vehicles, and by 2020 this could possibly be 20 per cent. 4x4 drivers were also hit hard with severe rises in car tax. A further action in the budget with respect to energy was the announcement that CCL, the levy imposed on each unit of fossil fuel purchased, would now be linked to inflation. Previously, this had remained at a static rate of 0.043p/kWh on electricity and 0.015p/kWh on gas. Whilst an increase in CCL is most

Allowances
In addition to this criticism, the pay tax and claim the benefit system is one that can arguably only work if those who are entitled to allowances actually claim them. Otherwise, once again, the treasury does not have to part with money set aside to offset the effect of taxes for those who are disproportionately and unnecessarily affected. It is doubtful that anywhere near as much of the money put aside for allowances is ever claimed as it

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