#Budget2017: From green to grey in 6 weeks

DPPHh0bW0AEuGEpIn British politics, governing is as much performance art as it is accounting. Even ‘Fiscal Phil’, that most studious scrutiniser of the spreadsheet knows this. Perhaps this is why his green headlines ahead of the budget were about a single use plastics tax, a clampdown on dirty diesels and a push on EVs. These followed a green October, with Michael Gove ditching neonicotinoids and consulting on a bottle deposit scheme, and Claire Perry producing a Clean Growth Strategy that sees huge opportunities too irresistible for a business department to ignore. But the big reveal on budget day showed that, as far as the Treasury is concerned, the future is still grey.

The good news?
Let’s be clear: the budget did have some good news for the environment. The plastic tax is a good thing. The fact that there’s no detail on it at all – it warranted a single sentence in the budget document – suggests it could have been a rather late addition. Still, no one should decry political opportunism if the end result is less plastic waste in the ocean.

The positioning on diesels and electric vehicles is a more structural positive note. Raising vehicle excise duty on diesels is a good use of tax. It nudges drivers to cleaner vehicles, while the plug-in grants help support those who want to buy cleaner cars. The commitment to 25 per cent EVs for the central government fleet is helpful and £200 million for (hopefully smart) charging infrastructure will help to ensure that people who buy EVs can charge them.

But even these have some unwelcome caveats: the VED charge won’t hit diesels meeting the RDE2 standard, which EU law makes mandatory by 2020. This means it’s disconnected from the wider goal of getting to 100 per cent electric, a shift which would cut UK oil imports in half.

By 2025, the UK will need to invest £1.5 billion in charging infrastructure, so the big question is how tax incentives can support private investment. But it’s enough for now.

And the 25 per cent EVs for central government fleets? That’s around 1,200 EVs per year. By contrast, the Indian government is buying 10,000 electric vehicles this year, with a further 10,000 after March.

The bad news
The deathly silence on the future of all renewables other than offshore wind is terrible economics: our calculations show that if the chancellor had gone big on renewables and efficiency he would have saved consumers £1.7 billion per year by 2025, and £5.3 billion by 2030. The phenomenal drop in renewables prices means they’re now beyond subsidy, but they (like every other power station) still need government contracts. Instead, the Treasury is now projecting half a decade of zero growth in all but offshore wind, while committing unlimited sums to the capacity market, which, in practice, mostly buys fossil fuel assets.

To be fair, ditching the levy control framework (LCF), which was the mechanism for funding renewables, has a big upside. Its perverse design means that, as renewables reduce the cost of wholesale electricity, it makes existing contracts look more expensive (even though they’re not). This then causes the government to buy fewer renewables, even though they’re now cheap. Good riddance to that then, but the implication that nothing new will happen before 2025 is a clear signal: don’t invest in Britain.

The big picture
Stepping back, the budget doesn’t make the clean growth strategy undeliverable and it isn’t a signal of a high carbon sect in the Treasury. There is wiggle room to devise subsidy free contracts for solar and onshore wind. Regulation or new non-levy funding could be devised to find the Hinkley C’s worth of efficiency we’ve identified, and that would cost around a third of the price we’re paying EDF. Both the plastics tax and VED decisions signal some thought toward environmentally responsible taxation.

But these signals are swamped by larger themes which are probably not intended, but which paint a picture of grey indecision, not green growth: the changes to oil and gas decommissioning relief are less of an environmental disaster than an undermining of the polluter pays principle: they signal that your taxes, and not company profits, will be used to clean up the UK’s oil and gas legacy. The decision to freeze fuel duty again, even for diesels, shows the government has given up on taxing even the most obvious and salient causes of air pollution. Even carbon pricing is in a box marked ‘coal phase out’ – it’s no longer a core part of UK decarbonisation strategy.

Will the budget undermine the UK’s clean growth? Probably not, if the industrial strategy picks up the slack. But will it make the economy fit for the future? Hardly.

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