Damaging low carbon investment: TUC Response to Environmental Audit Committee Inquiry

Does the Government’s current fiscal and legislative agenda accord with the action required and, if not, why not and where might it be improved? 

TUC response:

No. The Government has announced at least 11 Treasury-led green policy reversals that together have drawn widespread criticism from the industries affected (motor manufacture, construction, energy project developers, the renewable energy sector, energy efficiency installers etc). The moves are undermining manufacturing jobs and investor confidence by breaking progress in clean technology development.

These policy reversals impact on the three major decarbonisation pathways identified by the Committee on Climate Change: energy supply, transport and energy efficiency.

Only one announcement, ending subsidies for onshore wind projects, was in the Conservative Party’s election manifesto. Policies have been changed or scrapped either without consultation (zero carbon homes; the Green Deal; changes to Vehicle Excise Duty; privatising the Green Investment Bank; applying the Climate Change Levy to renewable energy); or without an adequate impact assessment. The Feed-in Tariff consultation document states (para 1.20): “Owing to this uncertainty around the exact effect this change would have on the rates of return required by developers, DECC has not attempted to estimate the likely impact of this change on deployment and therefore on potential savings.”

The Government’s Green Economy Council would now appear to be in abeyance, not having met for almost two years, yet this would have been an appropriate forum for government to consult with its stakeholders.

Government policy reversals include:

1. Scrapping the Zero Carbon Homes building standards: cut without consultation as part of the Chancellor’s “productivity” initiative.”  The UK Green Building Council as called the move the ‘death knell’ for zero-carbon homes. Willmott Dixon Energy Services  said: “This announcement seriously undermines industry confidence in government policy and will diminish future investment.”

2. Changes to Vehicle Excise Duty: without consulting the motor industry, the July 2015 Budget reversed the polluter pays principle, so that very few low emissions vehicles will now be exempt from VED. From 2017 a new greener car will cost nearly £1,000 more, boosting VED revenues by £3 billion. The Society of Motor Manufacturers and Traders said the new regime “will disincentivise take up of low emission vehicles.”

3. Privatising the Green Investment Bank: the GIB has been the UK’s most active investor in the green economy. According to E3G, the government’s plan to sell a majority stake in the bank to fund austerity measures would be "reckless," damage investor confidence and dilute the bank's purpose.

4.Applying the Climate Change Levy to renewable energy: Budget 2015 also reversed the polluter pays principle for renewable electricity generators, who will lose their levy exemption, a measure designed to encourage businesses to “operate in a more environmentally friendly way.” The decision will raise £3.9 billion by 2020. RenewableUK commented that the Levy Exemption Certificates “have provided vital financial support for renewable energy producers.”

5. Cut renewable energy subsidies for onshore wind: some 250 planned onshore wind farms will be cancelled. RenewableUK  commented: “The Government’s decision to end prematurely financial support for onshore wind sends a chilling signal not just to the renewable energy industry, but to all investors  across the UK’s infrastructure.”

6. Cutting subsidies for larger solar power schemes: the Government is proposing to exclude solar farms with less than 5MW of capacity from the Renewables Obligation (RO) from April 2016. To justify the decision, the Energy secretary argued that “we need to keep bills as low as possible for hardworking families.” The annual subsidy to solar power costs the average consumer £10 per year  on annual electricity and gas bills of £1,338 per year. The Solar Trade Association  (STA) said the announcements will prove “a real blow to investor confidence… solar farms are a very cost-effective ways of generating solar power.”

7. Cutting subsidies for small-scale renewables: steep cuts to feed-in tariffs and the overall budget for solar and wind energy installations of less than 5MW are proposed , yet the Government has failed to provide an employment impact assessment: “There is likely to be a negative impact on existing jobs in the renewable electricity generation sector, though DECC has not been able to quantify it.” DECC’s own data suggest up to 30,000 jobs are involved in solar PV installation work. Over 100 organisations have written to the Government  objecting to this policy reversal.

8 -11. Other significant government policy changes include:

• Consulting on proposals to remove pre-accreditation for Feed-in tariff schemes of more than 50kW, which will particularly impact on community energy projects.
• Delaying the autumn 2015 round of Contracts for Difference for large scale renewable energy projects.
• Scrapping the Green Deal for home energy efficiency investments, without a replacement scheme.
• Budget 2015 confirmed that the Government has abandoned a Coalition commitment to increase the share of environmental taxes in the total tax take.

The pace and breadth of these policy reversals, driven by fiscal policy considerations, will put the UK’s climate change targets at risk, and damage the UK’s transition to a low carbon economy.

Dr Colin Nolden’s review of FIT schemes concluded that as a form of fiscal and monetary stimulus they have contributed effectively to job creation; business birth rates in the UK power sector have increased significantly; and investments in renewable generation have created more jobs per unit of energy than fossil fuels by an order of magnitude.

The CCC’s report to Parliament challenged the government over its 4th carbon budget for the period 2023-2027:

“…what steps will the Government take during this Parliament to make sure that targets to reduce emissions for the 2020s and beyond are achieved in a cost-effective way? Virtually all policies or funding in these areas are due to expire during this Parliament.”

“Without significant new policies progress will fall behind what is required to meet legal obligations through the 2020s.”

The Energy Secretary has outlined the Government’s current policy approach to energy policy   based on a “sustainable free market” in a recent speech, which included the following key arguments:

“The best way to deliver on this is through the way we know the economics will work best…using the markets…using free enterprise and competition to drive down the costs of climate action…by focussing on energy efficiency…or storage and reducing demand…support must help technologies stand on their own two feet… not to encourage a permanent reliance on subsidy... our approach will keep the costs of bills down … a sustainable free market delivers the best results for hard working families…”

Whilst the former policy framework was imperfect, it was delivering cuts in carbon emissions through government leadership and an active industrial and energy policy strategy which encouraged investment. It is incumbent on government to provide an open and transparent assessment of how  its market-led alternative approach will impact on carbon emissions, investment and jobs, and set out in detail its legislative plans to replace abandoned schemes with viable policy alternatives.