Budget 2011: was this a budget for green growth?
Whilst events in the Middle East and Japan meant last week’s Budget was never going to stay on the front pages for long, the publication of another set of poor macro-economic indicators – the Office of Budget Responsibility downgraded UK growth forecasts – put renewed focus of the contents of the Chancellor’s red box. Was this really going to be the much-trailed ‘Budget for Growth’ and how prominently was ‘green growth’ going to feature in Treasury economic planning?
Green Investment Bank
One issue we knew had been featuring in Treasury discussions for some time is the role of the Green Investment Bank (GIB). For months the media has been filled with reports of Government infighting over the funding and powers of the GIB. The Department for Energy and Climate Change (DECC) has been pushing for the GIB to have the ability to borrow money and be given £4-6 billion of capital upfront. In the other corner the Treasury has been fighting for a much lower level of capitalisation, with the GIB acting as a fund for low carbon finance rather than a true bank with the ability to borrow.
So who was left standing following the Chancellor’s speech last Wednesday?
The additional £2 billion of capitalisation announced is very welcome yet this is still woefully short of an adequate level of funding needed to kick-start investment in the low carbon economy. Secondly, the GIB’s inability to borrow until Treasury deficit reduction targets are met, means it will only be able to generate green growth and contribute to the UK’s economic growth once the economy has already recovered. DECC down but not out I make it.
Carbon price floor
The Government’s plans for the introduction of carbon price was another policy initiative that generated much debate ahead of the Budget speech. The rationale for imposing a carbon floor price is to make electricity generated from decarbonised sources, such as renewable and nuclear, more attractive and guarantee that carbonised electricity generation will always be pricier than decarbonised sources.
A carbon price has the potential to give would-be low carbon investors the certainty they need to invest in UK PLC and drive the growth of innovative marine and wind technologies. Yet the carbon price is going to be subject to annual votes in Parliament which fails to give investors the long-term certainty they need to splash the cash. I would also question how much a carbon price is really aimed at supporting renewable power generation rather than merely being a stealth nuclear subsidy?
I believe, despite events at Fukushima, nuclear as well as renewable power are crucial to the UK’s future energy needs. But, with little doubt that fossil fuel power generators will seek to pass the carbon price on to consumers, what will this mean for an average SME’s energy bills during such difficult economic times?
This was not a green budget by any means but, with the Treasury’s unswerving focus of deficit reduction and the need to respond to voter anger over the high price of fuel, it was never going to be. We will have to wait for the publication of the Government’s ‘Roadmap For A Green Economy’ later this spring before we can really judge whether this is going to be the ‘greenest government ever’.
What are your views on the Budget, green growth and the Green Investment Bank and carbon price floor? Let us know by commenting below.