Budget 2020: Growing a greener economy

Growing a greener economy

The UK has already cut carbon emissions by more than any other G7 country and in 2019 was the first major economy to legislate for a target of net zero greenhouse gas emissions by 2050. As the UK prepares to host this year’s COP26 UN climate summit, the Budget announces a range of policies to reduce emissions, ensure our environment is protected and resilient to climate change, and generate green economic opportunities across the nations and regions of the UK.

Increasing the UK’s use of clean energy is a vital part of reducing carbon emissions and putting the nation at the forefront of new innovative industries. The Budget announces a Carbon Capture and Storage (CCS) Infrastructure Fund to establish CCS in at least two UK sites, one by the mid-2020s, a second by 2030. To encourage more environmentally-friendly ways of heating homes and other buildings, the government will also introduce a Green Gas Levy to help fund the use of greener fuels, increase the Climate Change Levy that businesses pay on gas, and reopen and extend the Climate Change Agreement scheme by two years.

Road transport is responsible for 91% of domestic transport emissions, and around a fifth of overall UK emissions. To support drivers to move away from polluting vehicles, the Budget announces investment in electric vehicle charging infrastructure, which will ensure that drivers are never more than 30 miles from a rapid charging station, provides £532 million for consumer incentives for ultra-low emission vehicles, and reduces taxes on zero emission vehicles.

In addition, the government will promote air quality improvement by removing the entitlement to use red diesel except for agriculture, fish farming, rail and non-commercial heating. The government will tackle air pollution by providing £304 million to help local authorities reduce nitrogen dioxide emissions and improve air quality.

The government will also invest in the natural environment, planting enough trees to cover an area the size of Birmingham, restoring peatlands, and providing more funding to protect the UK’s unique plants and animals. The government will also go further to tackle the scourge of plastic waste by introducing a Plastic Packaging Tax, as well as providing further funding to encourage producers to make their packaging more recyclable.

Natural environment

Nature for Climate Fund – The government will invest £640 million in afforestation and peatland restoration in England, delivering more than a 600% increase in current tree planting rates.⁸⁰

Nature Recovery Network Fund – The government will invest up to £25 million in England to partner with landowners, businesses, and local communities in the creation of Nature Recovery Areas. These will deliver habitat and species restoration and recovery, alongside wider natural capital benefits.

Natural Environment Impact Fund – The government will commit up to £10 million to stimulate private investment and market-based mechanisms to improve and safeguard our environment.

Darwin Plus expansion – The government will triple the Darwin Plus programme to £10 million per year to support the conservation of the UK Overseas Territories’ unique and globally significant biodiversity and help protect and enhance their natural environments.⁸¹

Energy and environmental tax

Plastic Packaging Tax – As announced at Budget 2018 and following consultation in spring 2019,⁹⁴ the government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic. This will apply to the production and importation of plastic packaging. The government will keep the level of the rate and threshold under review to ensure that the tax remains effective in increasing the use of recycled plastic. The government will also extend the scope of the tax to the importation of filled plastic packaging and apply a minimum threshold of 10 tonnes of plastic packaging to ensure the smallest businesses are not disproportionately impacted. The Budget also announces the launch of a further consultation on the detailed design and implementation of the tax, which includes consideration of an exemption for certain types of medical packaging. (38)

Aggregates Levy – The government will freeze the Aggregates Levy rate in 2020-21 and will be publishing a summary of responses and government next steps to last year’s comprehensive review of the levy. (52)

Increasing the gas rates under the Climate Change Levy (CCL) for years 2022-23 and 2023-24 – To meet the UK’s net zero commitment, the UK must continue to remove incentives to choose gas over electricity, which is a cleaner energy source. Building on the Budget 2016 announcement to make gas and electricity rates equal by 2025, the government is raising the rate on gas to £0.00568/kWh in 2022-23 and to £0.00672/kWh in 2023-24 whilst freezing the rates on electricity. To ensure the tax system treats fuels that are used off the gas grid more equitably, the government will freeze LPG at 2019-20 levels until April 2024. (41)

Extending the Climate Change Agreement (CCA) scheme – To support energy-intensive businesses to operate in a more environmentally sustainable way, the government will reopen and extend the CCA scheme by two years. The CCA scheme allows businesses to reduce their CCL bill in exchange for meeting targets to improve their energy efficiency. The terms of the extended scheme will be set out in a consultation to be launched shortly after Budget. As part of this, the government will simultaneously consult on long-term options for the CCA scheme.

Carbon price support (CPS) rate – The government will freeze the rate of the CPS at £18t/CO2e in 2021-22. Alongside wider carbon pricing policies, this will continue to encourage decarbonisation of the power sector. (43)

Carbon pricing after the transition period – The UK will continue to apply an ambitious carbon price from 1 January 2021 to support progress towards reaching net zero. The government will legislate at Finance Bill 2020 to prepare for a UK Emissions Trading System (ETS), which could be linked to the EU ETS. The government will also legislate for a carbon emissions tax as an alternative carbon pricing policy and consult on the design of a tax in spring 2020.