Budget 2011 and environmental taxes - Environmental Audit Committee Contents


Written evidence submitted by B9 Coal

1.  ABOUT B9 COAL

1.1  B9 Coal is developing game-changing projects in the field of carbon capture and storage, combining coal gasification with highly efficient alkaline fuel cells from AFC Energy to create first-of-a kind Integrated Gasification Fuel Cell (IGFC) power stations.

1.2  AFC Energy's alkaline fuel cell achieves 60% electrical efficiency and operates at low temperature and low pressure. The system has been designed for commercial application and is therefore low-cost (the company has eliminated the need for precious metals) and easy to manufacture and maintain. In addition, the use of hydrogen allows the system to load follow to meet peak energy demand.

1.3  With hydrogen as the feed-stock, fuel cell power stations are not only highly efficient and flexible in output, they are also fuel flexible. The system has the ability to switch between and mix hydrogen produced from coal, gas, biomass and electrolysis sources. Such characteristics offer strategic energy security benefits in terms of utilising potential UK coal resources as well as the ability for grid balancing and back-up for intermittent sources of renewable electricity.

1.4  B9 Coal's pursuits have been underpinned by a strategic partnership undertaken with Linc Energy, the world leader in underground coal gasification. UCG technology potentially gives access in the UK to an extra 17 billion tonnes of coal without the major environmental impacts of conventional mining.

1.5  In October 2010 B9 Coal announced a partnership with Powerfuel Power Limited, outlining plans to incorporate AFC Energy's alkaline fuel cell at Powerfuel's Hatfield site. The Hatfield project is among the most advanced CCS projects in Europe and has been entered for the European Union's NER 300 funding mechanism for new renewable and CCS projects.

2.  B9 COAL AND BUDGET 2011

2.1  B9 Coal supports the concept of taxation as a means of delivering a sustainable low-carbon economy by 2050. However, taxation must be coupled with effective regulation and support to ensure a swift and smooth transition to a decarbonised power generation sector by 2030.

2.2  Budget 2011 included some positive elements for B9 Coal and CCS deployment in general. We welcomed the commitment to fund demonstration projects 2-4 through the Department of Energy and Climate Change's competition. Other positive provisions included the establishment of the Green Investment Bank which will begin operations in 2012 with a tripling of initial capitalisation funds, and the introduction of a carbon floor price which will underpin low-carbon energy generation in the UK.

2.3  On CCS, the decision to fund the demonstration projects from general expenditure has provided the industry with clarification on Government commitment. However the coalition's decision to fund demonstration schemes through general taxation rather than a specific CCS levy could affect the "investability" of CCS; the provision of a CCS levy could have contributed to increased investor confidence in this novel industry. Furthermore, this choice of funding may not enamour public opinion to a development which could have otherwise been self-funded through a CCS levy or similar mechanism. The general public are being faced with massive cuts to public finances and have seen spending reduced in areas such as benefits, healthcare and education, making the decision to fund a relatively new technology difficult to stomach. Government must therefore work to enhance public awareness on CCS and other low-carbon energy technologies, in order to limit the potential for future delays in deployment.

2.4  The establishment of the Green Investment Bank will leverage an extra c. £18 billion in financing for green initiatives, however this will have a relatively small impact for an industry said to need between £200-£450 billion investments by 2030 in order to meet Government carbon reduction targets.

3.  BUDGET 2011 AND FURTHERING THE GOVERNMENT'S GREEN OBJECTIVES

3.1  Budget 2011 made significant provisions for green innovation and the green economy, however it is difficult to say whether the budget provisions will significantly further the coalition's green objectives. It is noteworthy that these measures have been introduced in light of cuts taking place across the public sector which highlight the Government's commitment to addressing the issues of climate change and energy security in the UK. However, as regards CCS the funding for this "crucial" technology has been rendered less bankable to investors as a result of what can be termed a variation in Government accountancy arrangements.

3.2  Approaches to shifting the burden of taxation from "goods" (eg labour) to "bads" (eg emissions) and factors that need to be considered when designing and introducing green taxes.

3.3  It is vital that such a shift in taxation does not result in windfall profits for nuclear and existing renewable generators; the ultimate purpose of this form of taxation should be to incentivise the development of a low-carbon economy. However, the Government must ensure that the burden of any new tax does not adversely affect those who cannot afford it, ie consumers. Fuel poverty is a key issue to be addressed in this regard, and the Government must take the necessary precautions to maintain access to affordable fuel for low-earners. Environmental taxes should be structured in such a way as to incentivise investment in green energy. The Government must be cautious and avoid an investment hiatus in this sector or carbon leakage abroad.

3.4  It is vital that the Government employs the right balance of mechanisms to achieve its environmental and social objectives. Combinations of regulatory and fiscal measures are necessary in this regard (ie taxes plus emissions ceilings).

4.  THE IMPACT OF THE TAXATION SYSTEM IN GENERAL ON SUSTAINABLE DEVELOPMENT

4.1  The taxation system must provide small and fledgling enterprise and industry with the necessary incentives to develop; this may be in the form of lenient taxation or general support and advice mechanisms. Low-carbon energy is an essential area for growth, and the UK must take advantage of its competitive advantage in this regard. It is essential that the UK supports the green economy and avoids forcing green innovation to relocate abroad to more favourable research and investment climates.

4.2  Taxation goes hand in hand with regulation. This should include the provision of well-balanced measures which ensure regulatory and fiscal constraints are not too stringent and do not risk suffocating the system. The taxation system for sustainable development should be progressive with the high tax burden being placed on those with the ability to pay, ie large industry players. Such a system would essentially supplement the work of valuable programmes such as the CRC Efficiency Scheme and the EU Emissions Trading Scheme.

5.  THE PLAN FOR GROWTH

5.1  The ambitions outlined by the Government in HM Treasury's Plan for Growth are crucial for encouraging the development of an innovative green economy in the UK. The document's focus on innovation, research and support for new and small businesses is essential for the development of a sustained and prosperous energy sector throughout the 21st century. The introduction of the carbon floor price and the establishment of a Green Investment Bank are valuable additions to the Government's green portfolio, however it must be emphasised that further action will be necessary in order to leverage the £200-£450 billion private sector investment that this industry will need to meet legally binding emissions reduction targets.

5.2  As a small company employing pioneering technologies in its projects, B9 Coal would favour further support from Government to share the risk-burden placed on fledgling industries such as ours. It is therefore central to this issue that policy-makers understand the liability which is unfairly being placed on entrepreneurs across the green energy sector, especially given the potential of enterprises such as B9 Coal to develop efficient power generation technologies at home in the UK to the benefit of the entire UK economy.

5.3  B9 Coal would favour the introduction of fiscal measures designed to incentivise investments in sustainable energy and clean technologies which will further the development of a low carbon energy sector.

5.4  The UK has real green growth potential due to its strategic advantage over other countries and regions (with regard to location, resources, skills etc.) and must ensure this opportunity is not lost. Without Government incentives for investment in this area there is a likely risk that advanced technologies and enterprises could relocate abroad to more favourable investment and regulatory climates. In light of the UK's reduced competitiveness in recent years the alternative energy sector could provide us with the opportunity to regain economic prominence and compete with emerging economies such as China who are excelling in this field. B9 Coal is a British company utilising AFC Energy's British technology in the effort to tackle climate change. This enterprise will provide employment opportunities in its operational and manufacturing pursuits as part of wider economic expansion in the United Kingdom.

5.5  It will therefore be fundamental that Government policy is formulated in such a way as to ensure the right projects are financed as part of the coalition's green growth plans. It must ensure that this funding is not open to abuse and utilised in the financing of generic forms of private enterprise which will not impact on development of this crucial industry.

6.  GREEN INVESTMENT BANK

6.1  B9 Coal welcomes Budget 2011's announcement on the establishment of the Green Investment Bank with an advanced date of operations. The GIB cannot be commented on in detail until its structures have been further defined. However, this is a positive step taken by the Government and has been underpinned by increased funding and a commitment to the speedy introduction of capitalisation and loaning capabilities.

7.  CONCLUSION

7.1  To conclude, B9 Coal welcomes the provisions included in Budget 2011 and the Plan for Growth which indicate Government commitment to the further development of the UK's alternative energy sector. However, we would warn against the Government becoming complacent in the context of budget cuts across the public sector, and would like to emphasise the need for accelerated action with regard to low carbon power generation.

7.2  The UK has signed ambitious emissions reduction targets into law as part of the Climate Change Act, and has therefore taken a driving seat in the global action to tackle climate change and its associated effects. It is therefore vital that the UK Government backs up these actions with a fiscal and regulatory system capable of incentivising investment and development in the green economy.

20 April 2011


 
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