Autumn Statement 2016: Chancellor confirms carbon price floor freeze and low-carbon transport funding

Philip Hammond has confirmed that the UK's carbon price floor will be capped through to 2020, and announced £390m of new funding for low-carbon transport, as the Chancellor delivered his first - and last - Autumn Statement on behalf of the UK Government.

Delivering the 2016 Autumn Statement to a jubilant House of Commons this afternoon (23 November), Hammond also provided some positive funding announcements in the areas of infrastructure, innovation and science and research – each of which could benefit a range of cleantech firms. 

Autumn Statement 2016: The green business reaction

But Hammond failed to answer a number of key green policy questions, and this was ultimately just another budget announcement that has left the green economy with a lot more questions than answers.

In fact, the 64-page Autumn Statement document – one of the shortest Autumn Statement’s ever produced by the Government – fails to mention the words ‘climate change’ or ‘renewable energy’ at all. (Scroll down for full 2016 Autumn Statement document).

Carbon price floor

This was not a ‘new’ announcement as such, but Hammond today confirmed that the carbon price floor – which works in conjunction with the EU ETS scheme to underpin the price of carbon at a level that drives low-carbon investment – will remain frozen until 2020, as originally announced by Hammond’s predecessor George Osborne in the 2016 Budget. 

The carbon price floor will be capped at a maximum of £18 per tonne of CO2 from through to 2020, which will effectively limit the competitive disadvantage faced by business and reduce energy bills for consumers. The price floor will then be uprated in line with inflation in 2020-21. 

Hammond’s confirmation that the carbon price floor will remain frozen was immediately welcomed by Doug Parr, chief scientist for Greenpeace, who said: “It is good news the Government has heeded the call to provide certainty and stability for investors and business.

“This is a policy that needs to stay in place until the historic coal phaseout is locked in and renewables plus battery storage and interconnectors are lined up to fill the gap in the long run.”

Low-carbon transport

In a packed Autumn Statement that focussed on “investing today for the economy of the future”, Hammond announced £390m of funding “to build on our competetive advantage in low-emisson vehicles and the development of connected, autonomous vehicles”.

The £390m will go to “future transport technology”, including driverless cars, renewable fuels and energy-efficient transport. This will include: –

  • £100m towards testing infrastructure for driverless cars
  • £150m to provide at least 550 new electric and hydrogen buses; reduce the emissions of 1,500 existing buses and support taxis to become zero-emissions
  • £80m to install more charging points for ultra-low emission vehicles

Hammond also confirmed that the Government will provide a 100% first-year capital allowance for the installation of electric vehicle charging infrastructure, and that ultra-low emission cars and cycle-to-work schemes would be excluded from the crackdown on benefit-in-kind tax breaks. 

A recent Environmental Audit Committee (EAC) report revealed that the UK faces an uphill battle to reach its 2020 renewable targets for low-carbon transport, so this new funding is a welcome boost for the sector.

Elsewhere in the transport sector, Hammond confirmed that the Government has cancelled the planned fuel duty rise for seventh successive year. This will save the average driver £130 a year, and the average van driver £350 a year. But it has been condemned by green groups, who argue that fuel duty should be increased to tackle air pollution and incentivise a shift towards low-carbon vehicles.

New science and innovation funding

The Chancellor said that the UK needs to become more productive so that wages can rise and people can enjoy higher living standards. To help with that, he announced a National Productivity Investment Fund (NPIF) of £23bn to be spent on innovation and infrastructure over the next five years. 

“We do not invest enough in research, development and innovation,” Hammond said. “As the pace of technology advance and competition from the rest of the world increases, we must build on our strengths in science and tech innovation to ensure that the next generation of discoveries is made, developed and produced in Britain.”

Specifically, the NPIF will provide an additional £4.7bn by 2020-21 in research and development (R&D) funding. This extra £2bn a year by the end of this Parliament is an increase of around 20% to total Government R&D spending, and more than any increase in any Parliament since 1979.

Part of this money will form the Industrial Strategy Challenge Fund – a new cross-disciplinary fund to support collaborations between business and the UK’s science base. The fund will be managed by Innovate UK and research councils, and will cover a broad range of technologies, to be decided by an evidence-based process.

Levy Control Framework

Today’s Autumn Statement document states that the Government “is committed to decarbonising the economy while limiting costs on bills, and will continue to engage stakeholders as it develops an emissions reduction plan”.

It says it is now considering the future of the Levy Control Framework, which allows the Government to set an overall cap for the amount of money that can be raised and spent through this mechanism in support of low carbon electricity.

The future of the Levy Control Framework will be set out in the 2017 Budget.

Renewable energy/fossil fuels

Again, there is no ‘news’ here. The Autumn Statement document simply states: “Over the next 15 years, more than £100bn of private investment is expected in the UK’s energy sector, providing new cleaner generating capacity, upgrading to a smarter energy system, and developing new resources such as shale.”

On oil and gas, the document states: “To ensure a stable tax regime that maximises economic recovery from the North Sea, the Government recommits to ‘Driving Investment’, the long-term plan for the oil and gas ring-fence fiscal regime, and will simplify the reporting process and reduce the administrative costs of Petroleum Revenue Tax for oil and gas companies.”

Flood defence spending

The Chancellor was urged earlier this week by Friends of the Earth (FoE) to “replace warm words with hard cash” and announce a pot of at least £20m for natural flood defence in today’s Autumn Statement.

Hammond duly obliged; of an announced £170m investment in flood defence and resilience measures, £20m of this will be used for new flood defence schemes, and £100 million to improve the resilience of roads to flooding.

Things that the 2016 Autumn Statement doesn’t mention

This was not a budget announcement to remember for the green economy. Aside from Hammond’s positive announcements in the areas of low-carbon transport and innovation, a full look through the full Autumn Statement document below gives green businesses little to get excited about. 

There is no mention of how the UK is going to act on the newly-ratified Paris Agreement; no mention of embedding low-carbon business in the new Industrial Strategy; no mention of renewable energy support; no mention of air quality; no mention of improving Britain’s air quality; and no mention of resource efficiency.

Ultimately, Chancellor Hammond has failed to rise to the new challenge set by the ambitious Paris Agreement to put climate change front and centre of its financial decision-making. Hammond just hasn’t quite delivered the early Christmas present of ambitous green policy pledges that we were hoping for.

Green Party co-leader Caroline Lucas has criticised Hammond for failing to make any mention of climate change. “With Trump’s election, this could have been a moment for Britain to become a world-leader in the fight against catastrophic climate change but, instead, we see little evidence of a commitment to facing up to the greatest challenge of our times,” Lucas said.

“Indeed, it is shameful that the Chancellor failed to even mention climate change in his speech. By caving into the motor lobby and freezing fuel duty again for the seventh year in a row the government has made a mockery of the fact that it is the hottest year on record and condemned us to more carbon emissions and deadly pollution.”

What’s happening next year?

Hammond concluded his Autumn Statement today by saying it would be his last.

But in effect, it’s actually just a switch: from next year, the Autumn Statement will become the main Budget, and then from Spring 2018 onwards – when we would normally get the Budget – Hammond’s annuncement will be downgraded to a fiscal statement. 

Autumn Statement 2016: Full document


Luke Nicholls

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie