Utility Week

10 | 9TH - 15TH NOVEMBER 2018 | UTILITY WEEK Policy & Regulation Analysis I t was the longest Budget speech in nearly 20 years, clocking in at an hour and eleven minutes. However Philip Ham- mond still couldn't find the time to mention climate change or energy. James Court, policy and external affairs director at the Renewable Energy Associa- tion, has never spotted so few references to climate change in more than a decade-and-a- half of Budget-watching. While he counted five mentions of nuclear fusion and eight of gas in the Red Book, the document that sets out the government's Budget plans in detail, climate change did not even merit one. What makes the lack of attention to the issue more glaring is the timing of the Budget, which came out exactly three weeks aer the publication of an alarming report by the UN's Intergovernmental Panel on Cli- mate Change. This warned that governments have just 12 years to put in place measures to pre- vent global temperature rising 1.5C above pre-industrial levels, the point above which increasingly catastrophic changes becomes harder to prevent. The lack of measures announced in the Budget means this already short window has just got a lot tighter, says Dr David Williams, chief executive at renewable energy devel- oper Eco2: "They said we've got 12 years to make a difference and we've now got 11." Richard Howard, head of research at Aurora Energy, says: "Given the government has just asked the CCC [Committee on Cli- mate Change] to review measures for 1.5C, you would have thought there would have been something on climate change and more on energy. You might have thought there would be a bit more." Hammond's clumsy feel for environmen- tal issues was underlined by his merging of securing the planet's future with measures to tackle plastic waste – notwithstanding that the latter was welcome. Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, believes the two issues shouldn't be con- flated. "Cutting down plastic waste doesn't do much to deal with climate change," he says. The key proposal for the sector in an oth- erwise energy-light Budget was the Treas- ury's plans for dealing with the UK's climate change commitments in the event of a no- deal Brexit. A key plank of Britain's carbon reduction plans is its participation in the EU Emissions Trading System (EU ETS), which is in turn bound up with the UK's membership of the wider trading bloc. The centrality of the EU ETS only looks set to grow, says Court: "Once you start to go into the late 2020s and the 2030s when you will be transitioning gas off the net- work, it will be an increasingly important mechanism." Under the plans outlined by the govern- ment, a carbon emissions tax will replace the EU ETS if the UK is unable to agree a with- drawal deal by Brexit day at the end of next March. The new tax would apply from next April to the approximately 1,000 big manufactur- ing plants and power stations that currently participate in the EU ETS. These plants would have to pay £16 for each tonne of car- bon dioxide emitted over and above their free allowance under the EU ETS. In addition, the Finance Bill contains legislation to pave the way for a range of longer-term carbon pricing options if the UK is unable to remain in the EU ETS. Richard Warren, head of policy and rep- resentation at UK Steel, is worried by the lack of detail about the proposed tax. He is particularly concerned that UK businesses' competitiveness will suffer if the EU ETS, currently around €22 euros, continues its fall from currently high levels. He says: "We need to know details on how the ongoing tax will reflect fluctuations so that industry isn't worse off than if the UK had stayed in the EU ETS" But the publication of a hard figure gives the energy industry something to plan around, says Aurora's Howard: "What the industry has been asking for is certainty. On no deal they have broadly given the maxi- mum certainty they could. If we come out, we will have £16 per tonne." Carbon pricing There is more disquiet surrounding the Red Book's statement on the future of the carbon pricing level. The government has said it will main- tain the Carbon Price Support (CPS) rate freeze at £18 per tonne of CO2. It will then seek to reduce this rate if the total carbon price, which comprises the EU ETS price and the UK government controlled CPS, remains high. The lack of clarity is a headache, says Howard: "The problem if you are a genera- tor or a buyer of power is the uncertainty that still prevails. "The total price you are targeting would have given people the certainty they need." Marshall agrees. "If you are preparing bids for the next T4 capacity market or for the next CfD [contract for difference] auc- tion you are not going to be sure about what wholesale revenues to put into your models." Under the original proposals for the CPS regime laid out by Hammond's predecessor George Osborne in 2011, the level was sup- Last Budget before Brexit A crowd-pleasing Budget from chancellor Philip Hammond may have helped the Conservatives with the public at large, but there was little for utilities to celebrate. David Blackman reports.

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