Summary
GREEN TAXES
A decade ago the Treasury made a number of bold announcements
on environmental taxes. But in 1999 the fuel duty escalator was
abolished, and in subsequent years other green taxes were frozen.
The net result was that environmental taxes as a proportion of
all taxation peaked at 9.7% in 1999 and have declined ever since,
falling to 7.3% in 2006. While Budget 2007 signalled a slight
renewing of ambition with a range of increases to green taxes,
these changes were modest, and in many cases leave respective
rates lower in real terms than they were several years ago.
Aviation
The Committee welcomes the reform of Air Passenger
Duty into a levy per flight rather than per passenger, as the
Committee has recommended in its last two reports on green taxation.
However, it is vital that tax on aviation is not just reformed
but significantly increased, so as to stabilise demand and resulting
emissions. The Treasury should closely examine the merits and
practicalities of varying rates by classifying journeys into three
bands, 'short-haul', 'long-haul', and 'very long-haul', in order
to reflect better the differing magnitude of emissions arising
from the longest range of intercontinental journeys.
Motoring
Road transport emissions in England went up by 12%
between 1997 and 2006; and the 2006 UK Climate Change Programme
Review forecast that increased road transport emissions due to
traffic growth over the period 1990-2010 would more than outweigh
the entire suite of carbon reduction policies aimed at the transport
sector. Some motoring organisations have begun calling for the
next planned increase in fuel duty to be scrapped, given the rise
in petrol prices due to increases in the price of crude oil. The
forthcoming Budget is a test of the Treasury's environmental credibility:
it must not defer its planned rises in fuel duty.
CARBON CAPTURE
AND STORAGE
If the Government were only going to fund one Carbon
Capture and Storage (CCS) demonstration project, it was right
to restrict it to a post-combustion coal plant, as this technology
could be retrofitted to existing power stations, for instance
in China and India. But overall the Government has not shown enough
urgency in its approach to CCS, and it is absolutely imperative
that the Treasury provide considerably more assistance for the
development of this technology in the UK. In order for CCS to
be deployed widely and swiftly in the UK, we recommend that the
Government introduce some form of financial mechanism for incentivising
CCS power plants over conventional power stations.
SHADOW PRICE
OF CARBON
There appear to be serious flaws in the thinking
behind the Shadow Price of Carbon (SPC). The Government has assumed
that international action will be taken to ensure that the effects
of climate change will be relatively mild, and has therefore set
the SPC at a relatively low level. There is a high probability
that, by setting a relatively low carbon price, this will fail
to discourage the approval of carbon-intensive policies and projects,
and thus actually make it harder to achieve the global targets
that the Government is assuming will be met. To redress this,
the Shadow Price of Carbon should be increased, by basing it on
the projected costs of following a 'business as usual' trajectory
of emissions. The Government's first priority should in any case
be deciding how potential projects affect UK carbon budgets. Only
after that should the cost-effectiveness of different policy options
be taken into account.
ENVIRONMENTAL TRANSFORMATION
FUND
The Pre-Budget Report (PBR) announced funding for
a new Environmental Transformation Fund: over three years, £370m
will be spent on low carbon technology in the UK, with £800m
being spent on forestry protection and low carbon investments
in the developing world. Of the domestic fund, only £170m
is new money, and the overall funding is being spread very thin;
the urgency of the need to cut emissions means that this should
now be a much higher spending priority. The international fund,
meanwhile, was probably the most impressive announcement in the
PBR. However, the Government should establish rigorous sustainability
criteria to cover all investments from this fund, in particular
to avoid it being used to fund unsustainable biofuels plantations.
EMISSIONS TRADING
Some of the emissions savings reported by the Government
incorporate the net purchase by the UK of millions of carbon allowances,
although the Government does not always make this clear. The Government
should always be transparent about where reported emissions figures
incorporate the purchase of carbon credits, otherwise it might
give a falsely reassuring picture of progress in decarbonising
the UK itself. The Government should also do more to verify that
the purchase of carbon credits by the UK is funding genuine emissions
reductions elsewhere in the world.
PUBLIC SERVICE
AGREEMENTS
The new Public Service Agreement (PSA) on climate
change is too diffuse, with no clear departmental targets for
reducing emissions, and reduced emphasis overall on reducing emissions
from the UK (this is only one of six performance indicators).
The Government should consider setting emissions reduction targets
for specific sectors of the economy, with relevant departments
being made accountable for achieving them. Overall, environmental
issues appear to be 'ghettoised'; the Treasury must do more to
mainstream environmental policy by reflecting it more strongly
throughout the entire range of PSAs.
CONCLUSION
Although the Pre-Budget Report and Comprehensive
Spending Review were published a year after the Stern Review,
there was little sign in them that the Treasury was responding
on the scale and with the urgency Stern recommended. Furthermore,
since the Stern Review was published the science on climate change
has continued to harden, with global emissions rising faster than
projected; thus the Treasury's lack of urgency stands out as even
more remiss. Pre-Budget Report 2008 must establish a coherent
set of measures to help deliver the UK's 2020 domestic and EU
targets on emissions and renewable energy, and show explicitly
what their planned contribution to this delivery will be.
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