Budget 2021: Sunak confirms Net-Zero Innovation Fund, announces freeports to spur green investment
Rishi Sunak delivered his Budget for 2021 today (3 March), pledging to put green investment at the heart of the UK's economic recovery from Covid-19. But the Chancellor has come under fire for failing to mention a number of critical policy enablers for the UK's net-zero carbon transition.
Delivering his 60-minute Budget announcement to a socially distanced House of Commons this afternoon, Sunak confimed details of a Net-Zero Innovation Fund and provided more certainty around the climate impact of the National Infrastructure Bank. But he failed to mention the Green Homes Grant and froze fuel duty to dismay of green business leaders.
Understandably, the Chancellor allocated much of his time to the Government’s plans for driving the economic recovery from Covid-19. The furlough scheme has been extended to the end of September, with access to grants widened in a bid to support 600,000 additional self-employed professionals. A new ‘Restart’ grant and loan scheme for businesses was also announced. All in all, the new Covid-19 recovery measures announced today will total £65bn over the next 12 months.
What does the #BudgetSpeech2021 mean for the UK's green economy and net-zero transition?— edie (@edie) March 3, 2021
Read our full summary here: https://t.co/fkfBndm64Z#renewableenergy #greenfinance #BudgetDay pic.twitter.com/JhcppeSTCp
For sustainability and energy professionals, some positives can be taken from the fact that Sunak confirmed and announced several important green economy provisions, following mounting pressure on the Treasury to ensure that its approach is consistent with the UK’s long-term climate and environmental targets.
Specifically, the Chancellor confirmed details of a new Net-Zero Innovation Portfolio, which will provide funding for low-carbon technologies and systems. Additionally, Sunak announced separate funding to support Scotland's transition away from oil and gas, and the Chancellor provided further information on the National Infrastructure Bank which will support the UK's net-zero carbon goals.
“If we want a better future economy… we have to do things that have never been done before,” Sunak said, stating that the Government has “a real commitment to green growth” and “a real commitment to create jobs where people are”. The Chancellor went on to outline plans for an “investment-led recovery” in which sustainable businesses have a key role to play.
Sunak’s comments built on those given by Boris Johnson to The Sun earlier this week. The Prime Minister told the paper: "Green technology, going forward with the green option, is very often the best way to drive, drive jobs, and drive the economy. We can be the centre of battery manufacturing, we can be the centre of battery innovation in this part of the world. And, as I say, the Saudi Arabia of wind. That's our ambition."
Those ambitions aside, today's Budget also included several announcements that have received immediate backlash from members across the green economy. Fuel duty was frozen for a 12th consecutive year, for example. Meanwhile, Sunak failed to mention several key anablers of the Government's net-zero strategy, including its electric vehicle infrastructure plan and the Green Homes Grant energy efficiency scheme.
With all of this in mind, edie's editorial team has summarised the Budget’s key green facets and their potential implications for the nation’s net-zero transition.
Budget 2021: What was (and wasn't) announced
Net-Zero Innovation Fund
As many had expected, Sunak confirmed a new Net Zero Innovation Portfolio of finance totalling £1bn. Funding will be allocated on a competitive basis to sectors including long-duration energy storage; floating offshore wind; biomass and regenerative agriculture.
Sunak also committed a further £375m for a new Future Fund: Breakthrough scheme. The fund will work with the private sector to invest in “high-growth, innovative UK firms” including those in cleantech.
National Infrastructure Bank update
Since the Treasury first confirmed plans to launch a National Infrastructure Bank last November, it has been pressured to provide clarity on the facility’s launch date and the “teeth” it will have to finance the net-zero transition.
Sunak confirmed that the National Infrastructure Bank will be supported by £12bn of initial capital from Treasury coffers and a further £10bn in Government guarantees. With this level of support, he said, at least £40bn of private finance could be unlocked. Sunak referred to the Bank's role in delivering the Conservative Party’s “levelling up” agenda and the net-zero transition, but details on its specific environmental and social sustainability requirements remained light.
The Bank will be based in Leeds and launch this spring. Sunak said it will only finance projects that contribute to the “green industrial revolution”.
Eight freeports for England
Following a successful bidding process, Sunak announced eight freeport locations across the UK, where policies will differ in a bid to spur business investment. More than 30 local authorities submitted bids. The successful areas are East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames.
In these places, tax rates will be lower, planning processes will be simpler and more dedicated infrastructure funding will be provided. Chancellor Sunak told of how he expects sectors like renewable energy generation, R&D and healthcare to expand in these freeports.
Dedicated economic zones where there will be more infrastructure funding, lower tax rates, simpler planning processes.
Carbon markets working group
Part of the mission of the Thames freeport will be to host a new group on carbon markets. The group will be established by Dame Clara Furse, former London Stock Exchange chief executive.
“The working group will draw on the UK’s financial expertise and entrepreneurship and build on the work of crossing-cutting initiatives such as the Taskforce for Scaling Voluntary Carbon Markets,” the Budget document states. This initiative is spearheaded by Mark Carney.
The document does not stipulate a launch date or provide information on who the members will be.
Sustainable retail finance boost
In what Sunak called “a world-first” that will “give people across the UK the opportunity to contribute to the collective effort to tackle climate change”, the Chancellor confirmed the launch of a new support scheme to help retail investors develop green savings bonds.
Under the scheme. retail investors will be required to invest bond funding directly driving the UK’s low-carbon transition, including renewable electricity generation, electric vehicles and active transport.
Green Homes Grant discussions shelved
An update on the Green Homes Grant, following the Government’s decision to pull the bulk of its £2bn initial funding, was top of the Budget wishlist for many trade bodies and green campaign groups.
But the scheme did not get a mention in the speech itself, and the full Budget 2021 document makes no reference to energy efficiency in buildings.
Supporting Scotland’s energy transition
Some 260,000 jobs are linked to the oil and gas industries across the UK, with a high concentration in Scotland and the North of England in the offshore sector. The UK Government has faced increasing pressure to protect these communities’ livelihoods amid Covid-19 and the UK’s energy transition.
Today’s Budget includes a £57m commitment to support cleantech and low-carbon energy jobs in Scotland. £27m will be earmarked for the Aberdeen Energy Transition Zone, given that more than 10% of jobs in the city and 5% in surrounding Aberdeenshire are related to offshore oil and gas. The remainder of the funding will be used to develop a dedicated North Sea Transition Deal with industry and to support a global underwater engineering hub.
Further details are expected in the coming months. Sectors set to benefit include offshore wind, energy storage and green hydrogen.
All in all, an additional £2.4bn was allocated for the devolved administrations in Scotland, Wales & Northern Ireland through the Barnett formula. Sunak said that most funding will go to measures that “grow a greener, more sustainable future”.
Offshore wind and hydrogen supports
Aside from supporting renewable energy in Scotland, the Budget contains commitment to support the Able Marine Energy Park on Humberside and the Teesworks Offshore Manufacturing Centre on Teesside, both of which are developing offshore wind port hubs.
It also includes £4.8m of new funding for a Holyhead hydrogen hub, subject to a strong business case study. The Treasury claims that the project could support up to 500 jobs and become the UK’s first commercial scale green hydrogen plant.
Fuel duty freeze
Sunak confirmed the 12th consecutive year of freezes to fuel duty.
“To keep the cost of living low, I am not prepared to increase the cost of a tank of fuel,” he said. The announcement was met with cheers from the house but green groups have argued that the move could hinder the road transport sector’s low-carbon transition. Transport has been the UK’s highest-emitting sector since 2016.
The Treasury has also pledged to publish a response to its consultation on tax reform for red diesel. At the 2020 Budget, Sunak confirmed that the relief on red diesel duty – which stands at just 11p per litre, compared to a 58p on diesel for cars will end in 2022, except for selected sectors including agriculture.
Aggregates Levy and Carbon Price Support rates frozen
Some green groups had been hoping for long-term clarity on carbon pricing at this year’s Budget, but this was not the case.
The documents take a short-term approach, confirming that the Government will maintain the freeze on Carbon Price Support rates at £18 per tonne of carbon dioxide in 2022-23. They reiterate the commitment to launch the UK’s emissions trading scheme (ETS) in May and state that additional proposals will be published in the coming months.
Similarly, the Aggregates Levy rate has been frozen for 2021-22.
Air Passenger Duty to rise
The Budget documents state that Air Passenger Duty rated will increase from April 2022 but that reduced and standard short-haul rates are unlikely to go up as a result.
The rates for long-haul economy flights from Great Britain will increase by £2, and the rates for those travelling in premium economy, business and first-class will increase by £5. Those travelling long-haul by private jets will see the rate increase by £13.
The Treasury attributed the increase to inflation and has not made reference to the need to minimise the aviation sector’s climate impact as the UK economy recovers from Covid-19.