Osborne continues to place UK’s leadership on climate change in danger
The prospect for significant progress on an internationally binding emissions reduction treaty is bleak. Nevertheless, the UK Government is taking an ambitious position. Chris Huhne has said that “A global deal covering all major economies is not a luxury. It is not an optional extra. It is an absolute necessity” and that “above all, we must show leadership”.
Recent speeches by Osborne and Huhne revealed conflicts between their views on green policies. Yesterday’s statement further demonstrates how Huhne’s ambitions for green leadership are not shared by his colleague and seriously undermine the Coalition Government’s claim to be the ‘greenest government’ ever.
Firstly, under the banner of ‘fairness’ Osborne announced deferral of the 3 pence per litre (ppl) rise in fuel duty from 1 January 2012 to August 2012 and cancellation of the inflation increase that was planned for 1 August 2012, which was expected to be worth 1.92ppl.
This is the single biggest tax cut announced in the Autumn Statement costing nearly £1 billion in 2012-13 and at least £825 billion in every subsequent year. This is the almost exactly the same as the amount being cut from Child Tax Credits by removing the planned £110 above inflation increase announced in the emergency budget.
It is neither fair to relieve the squeezed living standards of road users at the expense of low paid earners who rely on tax credits nor will it stop climate change.
Fuel duty is an important way to drive demand for lower carbon vehicles. Recent IPPR research demonstrated that the UK has the skills, expertise and manufacturing capabilities to be an international leader in low carbon vehicle technology. The potential upsides are significant but require strong Government leadership to be realised. This includes advocating for high emissions performance standards for vehicles at the EU level and creating a market in the UK to support these fledgling technologies.
Second, Osborne announced plans to provide £250 million in tax relief and compensation for energy intensive industries who are facing competitive pressures from measures aimed at ameliorating climate change such as the carbon floor price.
This policy, also known as the ‘carbon price support’, is being introduced as part of the Government’s wide-ranging electricity market reforms. It will be levied as an additional tax on the carbon content of fuels used for power generation in the UK, and calibrated to supplement the price of carbon set in the EU Emissions Trading Scheme (ETS).
IPPR research has shown how unilaterally introducing a floor price for carbon means emissions reductions achieved in the UK could be emitted by other participant states in the EU ETS. In other words, the policy will result in no carbon emission reductions but will add significant costs for industry and raise energy bills for consumers.
Rather than trying to fix this broken policy for heavy industry alone, Osborne should have scrapped the carbon price support and by doing so not added to the pressure consumers are already feeling from rising energy bills.
Third, Osborne missed an opportunity to gear infrastructure investments at low carbon energy infrastructure. For example, yesterday’s announcement of major investment in road building and the introduction of more toll roads could have been more ambitious if a comprehensive road pricing system had been introduced.
Finally, the youth jobs contract could have been tied into efforts to reduce domestic emissions by improving residential energy efficiency—the so-called Green Deal. This approach would have achieved multiple policy goals simultaneously by stimulating growth and tackling youth unemployment as well as reducing emissions.
As it was Osborne showed little of the leadership Huhne is calling for in the UK’s approach to the negotiations in Durban. Indeed, George Osborne’s reference to the ‘burden’ of environmental goals suggests he is far from accepting the view that the UK economy and UK businesses will reap rewards by taking the lead.
Irrespective of the UK’s negotiating position, it is highly unlikely that much of substance will result from Durban. Regardless, countries across the World are taking action by setting ambitious low carbon strategies and mobilising the investments and the political will to deliver them. Global investment in clean energy soared to over $240 billion last year from around $50 billion in 2004. Governments and businesses are wising up to the benefits that a leadership position will deliver.
Climate change leadership needs to begin at home. Osborne needs to remember this Government’s pledge to be the ‘greenest ever’ and reinforce the UK’s established position as a low carbon leader, not give it up.