U.K. Considers Environment Tax to Replace Carbon ‘Burden’

U.K. Chancellor of the Exchequer George Osborne said today that he may introduce an environmental tax to replace a carbon-reduction program that’s become a “burden” on business.

Proposals for the new tax will be made in the fall should the government not be able to simplify the so-called Carbon Reduction Commitment to reduce its administrative expenses, Osborne told lawmakers in Parliament.

“We’re serious in making sure that green tax is effective and not a complicated burden on business,” Climate Change Minister Greg Barker said in a phone interview. “We’re determined not to tie the green sector up in red tape.”

In a budget with few environmental announcements, Osborne doubled a surcharge on carbon emissions by utilities starting 2014. He indicated support for airport expansion near London, pledged measures to encourage investment in offshore oil and gas and reduced environmental regulation to cut business costs by at least 1 billion pounds ($1.6 billion) over five years.

“It’s a bit like Sherlock Holmes’ dog that didn’t bark: although not a lot was said, in a way that might be seen as a good thing because many of the crucial policies are still being finalized,” Impax Asset Management Group Plc (IPX) Chief Executive Officer Ian Simm said by phone. They include reform of the electricity market, the government’s Green Deal program to insulate homes and details about how the “Green Investment Bank” is going to work, he said.

‘Nail in Coffin’

Green Party leader and lawmaker Caroline Lucas called today’s budget “the nail in the coffin” of the government’s pledge on entering office to be the “greenest ever.” The environmental group Friends of the Earth said the plans ignore Prime Minister David Cameron’s promise to build a clean future.

“The determination to plow ahead with growth-at-any-cost planning reforms and aviation expansion, throw money at North Sea oil and gas, and ignore the potential of green energy shows that this administration’s environmental policy is blue, not green,” Lucas said, referring to the color associated with Cameron’s Conservative Party.

Osborne has “fired the starting pistol for more roads, airports and gas power that will keep the U.K. hooked on costly fossil fuels for decades to come,” Friends of the Earth Executive Director Andy Atkins said in a statement.

Barker said his department hadn’t made any “major asks” of Osborne in this budget.

‘Harder for Business’

“What we wanted was a clear commitment to the renewables sector and we got that,” Barker said. One request the energy department had made and Osborne delivered was for the so-called carbon floor price to apply only to the emissions associated with electricity generation from combined heat and power plants, and not the heat produced, he said.

The U.K. solar power industry, already reeling from unscheduled cuts to subsidies, faces another hit because of restrictions imposed by the chancellor, according to David Symons, a director at global environmental consultancy WSP Environment & Energy.

The solar industry “faces a further 300 million-pound hit over the next five years as its capital allowances are restricted,” Symons said. “This will make it harder for business to invest in renewables because companies won’t be able to recoup their investment as quickly.”

The carbon-reduction commitment compeled 5,000 U.K. organizations to pay about 3.5 billion pounds over four years in fees for emitting carbon. Osborne in October 2010 turned the program into a tax instead of a system that redistributed money from those organizations that made the least progress in curtailing emissions to those that made the most.

‘Overly Burdensome’

“No amount of tinkering with this doomed tax on British business will ever make it work and therefore the government should scrap the scheme in the autumn,” Gareth Stace, head of climate and environment policy at the EEF manufacturers group, said. “The scheme is overly burdensome, costly and provides no guarantee of carbon reductions.”

Osborne today set the carbon price support at 9.55 pounds ($15.13) a metric ton for 2014, almost double the 4.94-pound cost that takes effect April 2013. The U.K. is introducing the tax on power production to encourage investment in nuclear and renewable power.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net; Sally Bakewell in London at sbakewell1@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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