Osborne unveils package of green cuts and growth

Green spending faces relatively modest cuts as chancellor vows to put low-carbon economy at heart of economic recovery

James Murray, BusinessGreen, 20 Oct 2010
Chancellor George Osborne has promised that low-carbon projects will emerge as a key driver for economic growth over the next four years, after announcing lower-than-expected cuts to green spending programmes.

Speaking in the House of Commons to announce the results of the Treasury’s Comprehensive Spending Review, Osborne said that one of the guiding principles of the review had been to protect sectors that could drive future economic growth, including “green energy infrastructure” and wider efforts to tackle climate change.

As a result, the Department of Energy and Climate Change (DECC) will see its budget for the next four years cut by 6.5 per cent, while capital spending will increase 41 per cent in real terms.

Similarly, the Department of Environment, Food and Rural Affairs (Defra) will see its budget cut by eight per cent, while spending on flood defences will increase. The Department for Business, Innovation and Skills will have its budget cut by 7.5 per cent while science spending will be frozen.

Overall, the three main departments handling low-carbon policy have fared relatively well compared to average cuts to Whitehall budgets of 19 per cent.

The chancellor also announced that a host of flagship green initiatives will continue, although further details on proposed reforms to numerous projects are unlikely to emerge for several weeks.

Most notably, Osborne said the government would deliver a Green Investment Bank backed by £1bn of initial funding, further money raised through government asset sales, and the ability to raise private finance.

The announcement will disappoint those green businesses that had been calling for the bank to be capitalised with between £4bn and £6bn of government funding, but represents a victory for DECC. There had been reports that the Treasury wanted to strip the new institution of the ability to raise additional private funds through green bonds and other financial instruments.

Osborne also confirmed £1bn of funding for the UK’s first carbon capture and storage (CCS) project would still be made available, despite the news this morning that E.ON was pulling out of the funding competition. ScottishPower’s proposed CCS project at Longannet power station in Scotland now looks set to secure the £1bn funding, as it is the only project still in the running.

The chancellor failed to mention the government’s plans to fund a further three CCS demonstration projects, but a spokesman for DECC said the department still intended to support the development of four demonstration plants. He added that it was also working out how the three additional plants could be funded, through new mechanisms such as a proposed levy on energy bills.

In addition, the offshore wind industry will be breathing a sigh of relief after the chancellor announced that up to £200m of investment had been earmarked for the sector, including the programme to upgrade ports to support offshore turbine manufacturers.

BusinessGreen.com has learnt that the survival of the ports programme is expected to be formally announced next week, along with confirmation as to how much money will be available to upgrade ports. DECC is also expected to provide further details how the total £200m fund for low-carbon technologies will be divided.

The micro-generation sector will also offer a cautious welcome following Osborne’s commitment to provide £860m for the Renewable Heat Incentive scheme and DECC’s confirmation that the feed-in tariff incentive scheme is unlikely to be changed until after 2013 as originally planned.

In a statement released by DECC following Osborne’s speech, it stated that ” feed-in tariffs will be refocused on the most cost-effective technologies saving £40 million in 2014/15. The changes will be implemented at the first scheduled review of tariffs, unless higher-than-expected deployment requires an early review”.

The announcement brings to an end widespread fears that investor confidence would be undermined by earlier-than-anticipated cuts to the popular incentive scheme.

However, the future of a number of other flagship green programmes, including the Carbon Trust and the Energy Saving Trust, continues to hang in the balance.

A spokesman for DECC said that the review into the department’s arm’s-length bodies was ongoing and no date had yet been set for its completion.

There will also be cuts across the department, including an 18 per cent cut in resource spending, a 33 per cent in administration costs and the axing of government funding for the National Nuclear Centre of Excellence.

Energy and climate change secretary Chris Huhne said that despite the cuts, the department remained well positioned to deliver on its low-carbon plans.

“Like the rest of the public sector we have taken some tough decisions, but we remain on course to deliver on our promise to be the greenest government ever,” he said. “We will help create green jobs and green growth – and secure the low-carbon investment we need to keep the lights on.”