Budget 2018: the energy impacts

As has become customary in recent budgets, The Chancellor gave scant attention to energy; in fact he didn’t mention it throughout his entire address.

But, closer examination of the full Budget 2018 document does offer up some interesting developments regarding business and energy.

Many analysts suspected there would be movement on carbon price and climate change levies, and this has proven to be the case.

On energy efficiency and business…

Philip Hammond has detailed an Industrial Energy Transformation Fund as part of the wider Industrial Strategy.

Backed by up to £315 million of investment, this will support businesses with high energy use to transition to a low carbon future and to cut their bills through increased energy efficiency.

The government will also issue a call for evidence on introducing a new Business Energy Efficiency Scheme, focused on smaller businesses. Over time, this scheme will reduce business energy bills and carbon emissions. The call for evidence will seek views on a range of possible delivery options.

Plainly this development will be crucial for firms affected by both ESOS (The Energy Savings Opportunity Scheme) and SECR (Streamlined Energy and Carbon Reporting). For now, details remain limited. The Hub will report as more insight emerges

On the Climate Change Levy……

The Chancellor announced that the Climate Change Levy (CCL) on gas usage will rise to match the tax rate on electricity. The gas levy will be raised so that it reaches 60% of the electricity main rate by 2021-22, while the electricity rate will be lowered in 2020-21 and 2021-22.

On carbon pricing…

Of late, much emphasis within the sector has focused on today’s high carbon price: fossil fuel plants have been paying both a high EU ETS and carbon price support.

And, Philip Hammond has addressed this. His Red Book explains the price of EU Emissions Trading System (ETS) allowances has risen significantly over recent months, raising the Total Carbon Price.

Therefore, he will freeze the Carbon Price Support (CPS) rate at £18/tCO2 for 2020/21. From 2021/22, the government will seek to reduce the CPS rate if the Total Carbon Price remains high.

On carbon pricing and Brexit…

Another crucial area concerns how the UK will fix punitive measures on carbon, to help drive the low carbon transition if a no deal scenario prevails.

Hammond has replied that in the ‘unlikely event’ no mutually satisfactory agreement can be reached and the UK departs from the EU ETS in 2019, the government would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act.

The tax would apply to all stationary installations currently participating in the EU ETS from 1 April 2019. A rate of £16 would apply to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS. The government is also legislating so it can prepare for a range of long-term carbon pricing options.

So, nothing is certain, but new laws may be coming to replace how we presently tax carbon.


Broadly, The Chancellor painted a picture of ending austerity, with other big news concerning the complete abolishment of PFI and personal tax allowance thresholds rising a year early, which might please some SME business owners out there.

EDIE commented: ‘In his speech at the House of Commons, The Chancellor gave little reference to the green economy, with the plastic tax being the headline announcement.’

Business Green wrote: ‘Budget speech ignores clean energy and climate action.’

All in all, there was little of major note in this budget regarding energy. As with all UK policy, much will depend on the final Brexit terms. There is hope for energy efficiency, but we await further detail on the bones of new policy.