Green energy sector attacks chancellor's changes to climate change levy

George Osborne has infuriated green energy producers and campaigners with a £910m-a-year raid on the renewable energy sector by changing a climate change levy (CCL) at the same time as providing more fiscal help for North Sea oilfields.

RenewableUK, the lobby group, said the changes would cost green energy producers around £450m in the current financial year, and up to £1bn by 2020-2021.

The move hammered the share price of power generator Drax which is in the process of converting stations from burning coal to burning wood pellets. The company lost more than a quarter of its stock market value as it said the move would cost it £30m this year and £60m in 2016.

Caroline Lucas, the Green party MP, described the budget as a “serious blow for the fight against climate change”, while Greenpeace said it showed the chancellor is out of step with the times.

Osborne insisted the Conservative government would still continue to promote low carbon investment and would be pushing for a deal at United Nations talks in Paris later this year to limit global warming to 2C.

But his budget measures included removing the CCL exemption from renewable electricity schemes and promised streamlining other taxes.

“The government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. A consultation will be launched in autumn 2015,” he said.

Osborne also promised to bring forward proposals for a sovereign wealth fund for communities that host shale gas developments, to expand the North Sea investment, and cluster area allowances to include additional activities.

Phil Grant, of management consultants Baringa Partners, said the budget was bad news for investors in green power. “Britain is a world leader in green energy but the abolishment of climate change levies for renewables is another blow for an already fragile sector. Investors were perturbed by recent decisions … to reduce subsidies for new renewable plants and we’ve seen the share prices of companies exposed to renewables take a further hit this afternoon.”

Gordon Edge, RenewableUK’s director of policy, said that until now, Levy Exemption Certificates generated as a result of the CCL had provided vital financial support for renewable energy producers.

“The government had already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy we have. Now they’re imposing retrospective cuts on projects already up and running across the entire clean energy sector.

“Yet again the government is moving the goalposts, pushing some marginal projects from profit into loss. It’s another example of this government’s unfair, illogical and obsessive attacks on renewables”.

Caroline Lucas said that axing the CCL exemption for renewable electricity, committing to further funding for road building, and doing nothing to push forward a low-carbon agenda more widely jeopardised progress on climate change.

“We’ve seen yet another example of reckless short-term policy making that prioritises the profits of polluters over the public interest in a safe and habitable climate,” she added.

Doug Parr, director of policy at Greenpeace, said Osborne was now taxing clean-power schemes as if they were fossil fuel. “This will make it more expensive for business to buy electricity from renewable power. He is man out of step with the times,” he added.

But the move to review the impact of energy efficiency measures on bill payers was welcomed by the EEF, manufacturing employers organisation.

“Fifteen years of layering and tinkering with policy has left us with a vast patchwork of expensive, inefficient and incoherent policy drivers for decarbonisation,” said the EEF’s director of policy, Paul Raynes.

“We urgently need to revisit the policy landscape to reduce costs, improve the business environment and better deliver on our policy objective of reducing emissions,” he added.

Meanwhile Catherine Mitchell, a professor of energy policy at the University of Exeter, said the government wanted a sustainable, secure and affordable energy system but had introduced policy changes that took the UK away from that goal.

“The ending of subsidies for onshore wind farms, our cheapest low-carbon electricity resource, the failure to exploit the potential of energy efficiency, the removal of the Climate Change Levy exemption for renewable energy, and support for unpopular fracking and extortionately expensive nuclear power does not add up to a credible energy policy,” she said adding: “It reduces the chances of us meeting our various legal requirements, and presents serious political risk to investors, which in itself makes energy more expensive.”

Sam Fankhauser, a professor and deputy director at the ESRC Centre for Climate Change Economics and Policy at the London School of Economics, said the move on renewable electricity compromised the effectiveness of the Climate Change Levy as a form of carbon pricing.

But he believed a review of green taxes could be constructive: “UK energy taxes can and should be reformed to make them less burdensome for businesses, deliver increased revenues for HM Treasury and reduce carbon emissions more efficiently. For instance, the Carbon Reduction Commitment Energy Efficiency Scheme, Climate Change Levy and Climate Change Agreement can be combined into one single instrument.”