UK Budget 2020 – energy sector implications

The UK Chancellor of the Exchequer Rishi Sunak announced his first post-Brexit budget on 11 March, which included a number of measures relating to the energy sector and the environment, aimed at helping the government achieve its mission to deliver clean energy and lead on the path to net zero emissions by 2050.

Measures announced included an additional £10mn in 2020-2021 to support the design and delivery of net zero policies and programmes, as well as an increase in public R&D spend from £18bn to £22bn/y by 2024–2025, with the money to be invested in science and technologies ranging from nuclear fusion to electric vehicles (EVs) and life sciences. R&D investment will also be doubled to £1bn in the UK’s Energy Innovation Programme, which covers a broad cross section of low carbon initiatives, including renewables, smart energy system technologies, nuclear and the built environment.

Looking to support the decarbonisation of the UK’s power and industrial sectors, the Chancellor unveiled investment of at least £800mn in carbon capture and storage (CCS). Plans include establishing CCS in at least two industrial sites – one by the mid-2020s, a second by 2030 – and construction of the UK’s first CCS power plant.

The current Climate Change Levy on electricity is to be frozen, while the levy on gas is to be raised in 2022–2023 and 2023–2024. Sunak also announced the UK’s carbon price support would be frozen at £18/tCO₂e from 1 January 2021 to support progress to net zero and unveiled plans to legislate a Finance Bill 2020 to prepare for a UK emissions trading scheme (ETS) that could be linked to the EU ETS. He also reported that the government plans to legislate for a carbon emissions tax as an alternative carbon pricing policy and will consult on the design of a tax in spring 2020.

Meanwhile, fuel duty was frozen for another year, the 10th successive year, keeping fuel costs down for consumers. The government will also remove the entitlement to use red diesel from April 2022, except in agriculture, fish farming, rail and for non-commercial heating (including domestic heating). The tax differential is large, standard diesel being taxed at 57.95 p/l, while red diesel is taxed at only 11.14 p/l. It is hoped that this will encourage businesses and industry to improve the energy efficiency of their vehicles and machinery or look for greener alternatives.

In addition, some £500mn is to be made available to support the creation of new rapid charging hubs around the UK, to make public charging of EV’s away from home easier and to ensure drivers are ‘never more than 30 miles away from being able to charge up their car’.

Other measures announced included a planned consultation on a introducing a ‘green gas levy’ to fund support for biomethane production to increase the proportion of green gas in the grid, and support for the installation of heat pumps and biomass boilers through the introduction of a Low Carbon Heat Support Scheme.

Meanwhile, a new £640mn Nature for Climate Fund will see 60mn trees planted over the next five years to capture climate-heating carbon and boost wildlife, with some 35,000 hectares of peatland to be restored by 2025.

Lastly, the Chancellor made no legislative changes for the oil and gas industry, a move welcomed by the sector.