The government is to spend at least £800m on carbon capture and storage projects, handing a big boost to the UK’s industrial and energy sector by granting one of its key lobbying demands.
The new fund for carbon capture is part of several green initiatives in Wednesday’s Budget, which raises taxes on natural gas and on red diesel, and pledges to plant more trees.
The Budget is the first to be delivered after the UK adopted a new climate target last year to reach net zero emissions by 2050.
However, environmental campaigners said it did not go far enough to address the climate crisis, criticising the chancellor’s decision to freeze fuel duties and spend £27bn on roads, both measures that could increase emissions from the transport sector.
Caroline Lucas, a Green party MP, said the budget was “hugely disappointing” and spent “20 times as much on new roads as green transport”.
“Overall, it is a lukewarm start to a year of climate action,” said Chaitanya Kumar, head of energy and climate at Green Alliance, a non profit organisation. “Our understanding is that he [the chancellor] is still finding his feet around climate and energy.”
The new £800m fund for carbon capture delivers one of Boris Johnson’s key pledges in the Conservative party manifesto, after previous governments changed course on whether to fund projects to capture carbon from power stations or industrial users and store it in depleted oil and gasfields offshore.
Although the sum is less than a previous £1bn pot of money that was suddenly withdrawn by former chancellor George Osborne in 2015, supporters of carbon capture technology welcomed the government’s announcement.
They pointed out the government had raised its ambition by saying it would establish CCS at “at least two” sites in the UK, the first by the middle of the decade and a second by 2030.
Luke Warren, chief executive of the Carbon Capture & Storage Association, said the announcement marked a “step change in ambition”.
Theresa May’s government had undertaken to commission one carbon capture scheme by the mid-2020s. Five sites are competing to become early carbon capture demonstrator projects: in Teesside, Humberside, Merseyside, South Wales and north east Scotland.
Later this year the Treasury will undertake a review of how to fund the transition to net zero, which is expected to be published ahead of the UN climate talks to be held in Glasgow in November.
The Treasury also announced a change to the taxation of gas and electricity, which will in effect raise gas prices for certain commercial and industrial users. A new “green gas levy” on household gas consumption will also be phased in over time.
However, the chancellor watered down a key climate measure on red diesel, scrapping the existing tax relief but granting exemptions to agriculture, rail and fish farming sectors, which will still be able to purchase red diesel more cheaply.
“It looks like there are some pretty big holes that will remain there [in red diesel tax relief], but they are sectors, particularly agriculture, that are used to having beneficial access to fuel,” said George Day, head of markets, policy and regulation at Energy Systems Catapult, a non-profit research group.
Other green measures included a tree planting programme covering 30,000 hectares and the confirmation of a plastic packaging tax, which was first launched in the 2018 Budget.
Industry groups also welcomed the news that the UK’s carbon price floor will be frozen during 2021-2022, providing relief to sectors like steel that have high emissions.
Reporting by Leslie Hook, Nathalie Thomas, Michael Pooler, Chris Tighe, Judith Evans