Science & Environment

Is 'stealth' tax a threat to UK economy going green?

Flooded land by the River Severn (Getty)
Image caption There will be more funding for flood defences and coastal erosion management

Plans for a British "green economy" are still more or less on track following a government decision to impose a green "stealth tax" on business.

The Chancellor promised £1bn for a carbon capture and storage plant and £1bn for a Green Investment Bank.

A further £200m will be spent on job-creating low-carbon technologies, particularly on offshore wind and a port to service windfarms.

And subsidies to renewables remain untouched.

But businesses are complaining that they are indirectly funding the investments through changes to the CRC energy-saving initiative.

The CRC applies to organisations like hotel chains, supermarkets, banks, and government departments, which account for around 10% of the UK's carbon emissions.

It starts next year and was due to raise a self-financing fund through levies on energy.

Controversy

The fund would have been recycled to those firms in the CRC which cut energy most.

But the Chancellor will claw the estimated £3.5bn into the Treasury.

"The coalition said they wanted to simplify the complexities of the CRC and they have certainly found a novel way to do that," said Liz Peace from the British Property Federation.

"This will ensure that the CRC will cost the wider business community almost £3.5bn more than it would have."

The other main controversy over the announcement concerned the Green Investment bank.

Many commentators warned that the Chancellor's £1bn is not enough to create a fund to remove the risk for investors pondering offshore wind schemes.

The figure is half the amount originally mooted.

"The Government's idea for a Green Investment Bank holds considerable promise, but it must be properly funded and given the power to borrow on money markets," said Tim Yeo, the chair of the Energy and Climate Change Select Committee.

"Although £1bn sounds a lot, it may not be enough to leverage the billions of pounds of extra private sector cash needed to kick start the low-carbon revolution."

A Decc source told BBC News that if the bank is launched as a fully-fledged government-backed bank, it will be able to leverage huge funding from the private sector.

But we need to see details on the bank to be sure.

On carbon capture, a government source told me the Treasury had been keen to cut the funding for the first demonstration project promised by this government and the last.

Leading the way

The UK is a leader in carbon capture technology and has agreed that it will help carry the banner on this technology for Europe.

On Wednesday, the power giant EoN said it could not meet the government's deadline for a CCS demonstration at its plant in Kingsnorth

A DECC source said there is still a political commitment to three to four CCS demonstration plants, but the Treasury has not agreed the details of the electricity levy which would fund further demonstrations. This will be key.

Other green schemes have mostly been shaved rather than axed. The home energy-saving scheme Warm Front faced the most savage hack with a fall in funding from £345m to £100m in two years.

Ministers say their task will then be picked up by energy firms through the Green Deal for energy efficiency.

But critics will say it seems odd for ministers to cut efficiency incentives, which produce huge gains at a relatively low cost.

Feed-in tariffs that incentivise small-scale renewables on people's homes have a cut of around 10% - much less than the solar industry feared.

Subsidies for wind power also remain untouched.

And the government is setting aside £860m of funding from the Treasury for low-carbon forms of heating, like wood burners. This sector produces 47% of the UK's CO2 emissions but has been largely neglected until now.

The Energy and Climate Change Secretary Chris Huhne said: "Decc is playing its part in tackling the deficit. 

"Like the rest of the public sector, we have taken some tough decisions."

But a DECC source privately told BBC News: "We have done bloody well, all things considered."

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