Process sector reaction to UK government's Comprehensive Spending Review

Environment:

Institute of Environmental Management and Assessment (IEMA):

The 2010 Spending Review sets out Government spending plans to the end of the 2014-15 financial year. For IEMA, the headline issues are:

- £1 billion tax rise from the decision not to recycle revenue from allowance sales under the Carbon Reduction Commitment.

- Uncertainty over the formation of a green investment bank, with capitalisation funding subject to the proposed bank’s design meeting tests of effectiveness, affordability and transparency.

- Science and research budget maintained at 2010-11 level for the next 4 years.

The announcement that there will be no recycling of revenues from the CRC will be of major concern to those companies that have taken early action measures with the expectation of performing well in the scheme’s league table. The full implications will only become apparent at the time of the next budget, but the announcement penalises those companies that have acted responsibly with what now appears a straightforward carbon tax.

Although high-level spending plans have been announced, the implications of these for bodies and programmes such as the Environment Agency, Natural England, WRAP and the Carbon Trust will only become apparent over the next 2 months.

Renewable Heat Incentive (RHI)

As part of the CSR, the Government announced its commitment to the RHI with £860 million of funding in anticipation of a 10-fold growth rate in the sector.

Funding for the RHI will be through general taxation, rather alternative proposals for a levy on fossil fuels used for heating, which could have penalised consumers and intensive energy users in industry - unable to access renewables.

Tax-based funding mean users of efficient natural gas CHP will not be penalised financially. Under original proposals, the funding arrangements risked acting as a disincentive to uptake of a highly environmentally beneficial energy efficiency technology:

Chemical Industries Association chief executive Steve Elliott: “It appears that the Government has been sensitive to the burden that would have fallen disproportionately on energy intensive industries if funds for the Renewable Heat Incentive had been raised through a levy on gas bills”

Renewable Energy Association chief executive Gaynor Hartnell: “Finally renewable heat moves to the heart of UK energy policy, exactly where it belongs. Companies throughout the UK are poised to deliver on renewable heat, creating tens of thousands of green jobs over the coming decade.

“We need to see the details but it looks like they’re serious about supporting massive growth and employment in the UK’s renewable energy sector.

“Once in place, the RHI will enable individuals, businesses and communities to choose renewable heat and take direct control of both their carbon footprint and their energy bills.

“Although some savings will be required from the original policy, the level of funding proposed looks sufficient to enable the development needed in the sector. REA is awaiting policy details to ensure tariff rates are commercially viable for each technology. REA will continue to press for the full range of technologies and scales to be included, such as deep geothermal and renewable liquids.”

Graham Meeks, director, Combined Heat & Power Association: “It is very encouraging to see that Government has addressed the concerns of many across the energy sector, including the CHPA, on the need to ensure the RHI is funded in an appropriate manner. They listened and took action over the serious concerns we raised. This is to be commended.

“Now that the RHI has been confirmed, we need to move quickly to clarify details of the scheme. There are many important biomass CHP schemes in development, but the uncertainty over the future of the RHI has caused most of these to be put on hold.

“To get the industry moving again, and delivering against our renewable targets, it is vital that we see quick progress. We need reassurance that the value of the RHI for CHP projects will be equivalent to the value of the existing incentives under the Renewables Obligation. And we still need much-needed clarity over grandfathering arrangements for RO qualification.

“Today’s announcements have been an important step forward.”

“We will also seek to work with Government to ensure that the RHI can work to support the development of district heating networks. Over 50 separate responses to the RHI consultation stressed the key role district heating has to play in the delivery of renewable and other forms of low-carbon heat. This infrastructure will be fundamental to maximising supply and minimising costs under the RHI.”

Friends of the Earth executive director Andy Atkins: “The Chancellor’s pledge for £200million to support low-carbon technologies and a new bank to help green industries get off the ground is good news - as is his clear commitment that it will be a bank not a mere fund - but it will need significantly more than the £1billion allocated to be effective.

“We’re pleased that the immediate threat to feed-in tariffs and the Renewable Heat Incentive has been fought off, but the Government must now work hard to mend investor confidence.”

Science budget

Chemical Industries Association chief executive Steve Elliott: “I am relieved that the Government has today listened to industry’s plea that the UK needs to maintain its reputation and capability for excellence in scientific research. Freezing the science budget is a better than feared result and gives UK industry a stronger chance of innovating its way to sustained success in international markets.”

Skills

Chemical Industries Association chief executive Steve Elliott: “I am pleased to note that within the funding cuts to Further and Higher Education, the Department for Business, Innovation and Skills has confirmed its commitment to helping ensure that businesses have the highly skilled workforce needed to drive economic growth.

“The Government will boost spending on adult apprenticeships by £250m a year, providing up to an additional 75,000 apprenticeship places every year by the end of the Spending Review period - providing a much needed stimulus to the critical technical skill requirements faced by many within manufacturing.”

Infrastructure spending

Government spending on capital projects will fall by an unprecedented third over the next four years. The Green Investment Bank (GIB) is intended to facilitate movement in the area of low carbon infrastructure. However, said PricewaterhouseCoopers (PwC), the limited funding proposed means that it will be essential for the GIB to be given a well focussed , targeted mandate rather than spread itself too thinly.

Richard Abadie, partner, PwC said: “Such a drastic fall in public revenues flowing into infrastructure will inevitably force the debate on user charging, which is common in several European countries but which the UK has traditionally not adopted.

There is likely to be serious consideration of user charging, not only for roads, bridges and tunnels, but also for additional energy infrastructure … “We look forward to more detail in the National Infrastructure Plan due for publication next week.”

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