Dismay at the Chancellor’s Spring budget speech on 6 March seemed widespread among environmental observers, with the REA for example, commenting that it “arguably confirms the diminishing of net zero legislation as a recurring theme of this administration”.
Crumbs of consolation were welcomed, such as the 25% boost to landfill tax. A £120m increase in funding for the “green industries growth accelerator” (GIGA), a fund intended to boost clean energy supply chains – including things like hydrogen, nuclear, CCUS and offshore wind – was variously described as “a decisive step towards bolstering low-carbon manufacturing” (Connected Energy’s Matthew Lumsden), and “a relatively small funding boost”, in the words of climate technology firm Ashden.
Veolia’s Gavin Graveson saw the budget as “a missed opportunity” given the dearth of measures to deliver decarbonized and local energy. “The UK needs to back the right horse as we transition to a green economy, where decarbonisation, and circular solutions for materials, will be the foundation.”
The budget statement “predictably majored on pre-election giveaways and political dividing lines”, said Ashden policy lead Will Walter, adding that it “will do nothing for those living in cold, damp, expensive to heat homes or for local authorities struggling to provide basic services.”
Citizens care less about short-term tax cuts and more about long-term investment in public services and getting help with their energy bills, so in that sense the Chancellor had “failed to ‘read the room’”, said Ashden.
Transport tidbits
A freeze on fuel duty continued a long-standing policy of successive budgets. And the 5p cut introduced in 2022 – to address rising fuel costs – will be kept in place for another year. The health of consumers’ wallets takes priority over emissions reductions, was how many interpreted it.
Similarly, the decision to increase air passenger duty will not hit passengers flying economy or on short-haul flights, but will affect those flying business class or in private jets, for example, with Hunt professing an aim to “keep the cost of flying down”.
Decarbonizing these modes of transport received an apparent boost with a £270 million joint investment in technologies for zero-carbon aircraft and automotive. This was welcomed by Oliver Dudok of consultancy firm Kearney, “however,” he added, “neither zero-emission vehicles nor clean aviation is driving the necessary shift towards lower-carbon transportation options.”
He wanted to see a greater focus on public transport options.
“This is also why the decision to extend the 5p cut to fuel duty is disappointing as it sends a conflicting message. On one hand, the UK has clear and ambitious decarbonisation targets, but on the other, it won’t take measures to limit car-based emissions.”
“While there are understandable concerns around the cost-of-living crisis, this is not the right measure when rail fares are rising faster than inflation.
“The funds gained from removing the cut to fuel duty could have been used to make public transport cheaper, thus decarbonising our economy while reducing the financial burden on the wider population.”
Similarly, with air travel he noted that “it is very carbon intensive and until alternatives such as sustainable aviation fuels come to scale, measures to reduce it where lower carbon alternatives exist should be promoted.”
A pivotal deal?
Nuclear energy received attention commensurate with its status as “a critical part of the government’s plan for delivering energy security and a decarbonised power sector”. These were detailed under the “Green industries” heading within the document. The key planks of the UK’s civil nuclear programme include Hinkley Point C, Sizewell C, and “a further large- scale reactor project”, which Hunt said the government is committed to exploring.
Small Modular Reactors (SMRs) are the other piece of the puzzle, and Great British Nuclear is running a competition to support the selection of SMRs, and the chancellor said six companies have now been invited to present bids.
He also unveiled a £160m deal with Hitachi to purchase two such sites: at Wylfa in Anglesey, and at Oldbury-on-Severn. The Wylfa site had been the focus of Hitachi’s efforts to build a 2.9 GW facility, plans that were shelved in 2019.
The deal announced in the budget was described as “a pivotal moment for the future of nuclear in the UK” by Tom Greatrex, Chief Executive of the Nuclear Industry Association. “Wylfa is one of the very best sites for new nuclear anywhere in Europe and there is great promise for a series of SMRs at Oldbury. The success of ramping up nuclear capacity for energy security and net zero rests a great deal on whether we develop at these sites and others.”
Civil nuclear power also received a funding boost in the budget with a by-most-accounts modest increase in funding for the green industries growth accelerator (GIGA), of £120m. This brings the fund up to £1.1 bn, from the pre-existing £960m announced in the autumn statement. This will be split between a number of “clean energy” sectors, with around £390m for electricity networks and offshore wind supply chains, and around £390m for CCUS and hydrogen.
Alongside the budget statement, the government also confirmed details of a new auction round for Contracts-for-Difference (CfD), with just over £1 bn available to fund new renewable energy projects. The Allocation Round 6 (AR6) budget is therefore the largest ever, and includes:£120 million for established technologies such as onshore wind and solar; £105 million for emerging technologies such as floating offshore wind and geothermal, including a ringfenced £10 million budget for tidal for a second consecutive year; and £800 million for offshore wind.
The previous, AR5 funding round in September was notable for its failure to procure any new offshore wind capacity.
Skittish appraisal
Clare Mack of Scottish Renewables felt the funding allocated to offshore wind was “not fully aligned with the increase in deployment required to meet the UK Government’s stated ambition of deploying 50GW of offshore wind by 2030.”
“Industry was seeking a budget and framework that would repair the damage to the UK pipeline from last year’s empty offshore auction.”
“We continue to urge ministers to work with industry in the months ahead to ensure this is delivered so that the AR6 budget matches the enormous economic potential of all renewable energy technologies.”
Observers contrasted the modest gains for clean energy funding with the decision to extend the windfall tax on North Sea oil and gas by another year. It was a decision that “could have big implications”, suggested Bill Main, MD of Balmoral Comtec, a firm providing polymer-based solutions for sectors like oil and gas, and renewables. He appeared to connect the 2022 decision to continue to offer investment allowances to oil and gas extraction (without a comparable measure in place for the renewables industry) with the growing exodus of offshore wind players from UK waters. He suggested care needs to be taken to avoid “alienating any one industry and risking losing the skills and technology that will be required to support us meeting legally binding climate ambitions.”
“Dither, delay and division” was how Ashden characterized the government’s net zero policy to date, which was undermining investor confidence, weakening supply chains and adding to UK energy bills. With home heating, for example, the various retreats and u-turns of recent times “have meant that the industry really don’t know where they are any more.”
“They have had their fingers burned and don’t trust government schemes, undermining the progress of a growth sector.”
Missing once again from the budget is a properly funded retrofit plan to support energy efficiency of properties, said Ashden, a measure that “could really make a difference to the economy and help households trying to keep their costs down and homes warm.”
Ashden commended the firms doing innovative work “against the odds” such as B4Box, a retrofit specialist in Manchester working in areas badly affected by fuel poverty.
The group’s policy lead Will Walker observed that the budget fell on the same day that Birmingham council “approved the biggest budget cuts in local authority history, with many more insolvent or heading that way.”
He added: “Clearly the model is broken. Fundamentally, local leaders need more powers and resources devolved from Westminster, not further pressure on spending that has already been cut to the bone. Only by centering the needs of communities in the transition to net zero, reviving public services, and prioritising those most affected by it, will we get where we need to go and bring people with us.”
Frank Gordon, Director of Policy, REA (Association for Renewable Energy and Clean Technology) described the chancellor’s speech as “a political budget above all that does not reflect the urgency of Net Zero”.
He noted that the Chancellor had promised the sector a response to the US investment in green supply chains and manufacturing, when it was announced last year. And so, “to see very little once again on how we can ensure the UK does not miss out on the vital green jobs and investment up for grabs is very disappointing.”
