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The Budget's missed opportunity in the fight for net zero

In what was most likely the last fiscal event before an election, the Chancellor’s Budget last week made the headlines for not really making any headline announcements. With focus in the press on a further cut to National Insurance, a cut to Non-Dom tax statuses and changes to the Child Benefit Threshold, the attention has, as now pretty customary with the Government, shifted away from the Green Agenda. Indeed, as highlighted by Green MP Caroline Lucas, Hunt in his speech on Wednesday, which lasted over an hour, did not once mention climate change, despite February being the hottest ever recorded, as the fight against the climate crisis and the drive towards net zero falls further and further down the Government’s priorities. Despite this lack of enthusiasm, the benefits of net zero investment cannot be understated, with reports suggesting that the net zero economy grew 9% in 2023, a significantly higher percentage of growth than the pretty stagnant economy as a whole, demonstrating that investment into net zero should be a priority, not just for the green agenda but also economic growth.


That said, there were some welcome announcements from the Treasury on green policy last week, such as the £120m increase in investment into green industries taking the total funding through the Green Industries Growth Accelerator to over £1bn. The fund includes earmarked funding for specific renewable areas, such as £390m for electricity networks and offshore wind, and a further £390m for CCUS and hydrogen, the former particularly welcome given the serious lack in offshore wind investment over the past few years. Accompanying this was the announcement of the opening of Auction Round 6 of the Contracts for Difference scheme, which will see another £1bn invested into clean energy, including but not limited to Tidal projects and offshore wind. Further investment into nuclear was also announced, as Great British Nuclear is set to buy 2 sites from Hitachi in Ynys Mon and Gloucestershire and will open the next phase of its Small Modular Reactor selection process, with companies having until June to submit initial tenders.


However, whilst investment in the green economy is always welcome if the UK is to meet its climate and net zero commitments, the investment announced by the Chancellor lacks the scale needed for these targets to be met. With studies arguing that the UK needs to increase investment into net zero by as much as 1% of total GDP to reach desired levels of decarbonisation, the extra funding announced in the Budget is not even close to the level needed.


The most headline grabbing green announcement in the Budget were the proposals to extend the windfall tax for oil and gas companies for another year, due now to end in 2029. Hunt in his speech stated that this was a necessary move as the unprecedented profits that oil and gas companies have made as a result of the war in Ukraine will likely remain past 2028, though conceded that if prices fall below a certain threshold, the Government will legislate to remove the tax. Now, whilst on the surface a tax on hydrocarbons is a good thing, stopping potential investments into excess oil and gas extraction, there is an argument that could be made here that taxing the oil and gas companies will stop them from investing into their own net zero strategies. Moreover, industry has criticised the move as the Chancellor did not commit to spending the money gained from the tax on renewable energy generation, a pledge which Labour has made. It is here that the lack of strategy on renewable energy creates the biggest problems, as the Government are failing to give investors the confidence they need without earmarked funding from the tax for renewable investment and green skills.


Similar can be said for the new air passenger duty announced in the Budget, a tax imposed on all non-economy flights. Representing 8% of the UK’s overall emissions in 2019, it is no doubt that a change is needed to decarbonise the aviation sector. Again, the surface level reaction to the announced levy by environmental groups is positive – a tax on flights will to a degree disincentivise flying, and will decrease carbon emissions, especially if that flight was by private jet. However, the levy will not apply to economy flights, and Government policy remains aimed at doing little to nothing to decrease the amount of actual flying. Emissions could in theory be reduced by this tax if, in a similar way to calls for the windfall tax, the revenue gained went towards a sustainable aviation strategy and helping this industry decarbonise, as they cry out for investment, but again there was no indication of this from the Chancellor. Now, it would be unfair to say that there is no investment into sustainable aviation fuel, as, although not strictly part of the Budget, the Government last week did announce a £270m investment into R&D for manufacturing, centered around zero emission vehicles and clean aviation technology, a relatively smart move given the UK’s expertise in R&D. However, it would seem though that in the absence of proper disincentives to limit the amount of actual flights going from the UK, or a more coherent sustainable aviation strategy, including investment, the new levy will do precious little for green growth.


Pairing these pretty feeble announcements with a lack of announcements in other areas, such as incentives to install heat pumps or for individuals to use EVs, demonstrates clear missed opportunities in what was probably the Chancellor’s last fiscal statement. Not only that, the ever expected extension in the freeze on fuel duty encouraging drivers to keep their petrol and diesel vehicles means decarbonisation of the automative industry is still a long way off. According to Carbon Brief, as of 2023, fuel duty freezes have increased UK carbon dioxide emissions by up to 7%, and so from an environmental point of view it is disappointing to see this continue with no incentive for people to switch to EVs. Again it points to the larger issue of a lack of strategy from the Government, with pretty sporadic taxes that are not earmarked for green investment, and no clear incentives to persuade the individual to decarbonise.  This is definitely a missed opportunity for the Government, and, as pointed out by the Prime Minister when U-turning on green policies in the autumn last year, net zero will not be achieved unless the public are brought along with it; but without clear incentives for the public to do this, it is difficult to see how rhetoric will change on the matter.  


Whilst admittedly it would be unfair to criticise the Government completely for not having an energy strategy, as Tuesday’s announcements on plans to build new gas plants are a credit to their dedication to reforming the energy system, the lack of funding to match greener sentiments offered by the Chancellor last week, by instead favouring strategies that are a clear attempt to win more votes, was a wasted opportunity in the UK’s race to net zero, in a time when investment into renewable energy and more sustainable policy is so desperately needed.

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