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Spending review 2010: Osborne wields the axe but boosts renewables

Carbon capture and storage (CCS) and the Green Investment Bank both received a £1bn spending boost in the Comprehensive Spending Review. But some waste projects were axed, and spending for flood defences was cut.

Chancellor George Osborne said £1bn would enable the “world’s first CCS demonstration project” to go ahead.

The £1bn for the Green Investment Bank would be supplemented by funds from the private sector and the sale of government assets. Osborne said the aim was to make the UK a leader in the global green economy.

However, the Department of Energy and Climate Change (DECC) will have to be careful with its cash. Over the course of the spending review period it must cut resource spending by 18%. While capital spending will rise by 41% in real terms, the increase is intended to offset an rise in nuclear decommissioning costs. Osborne also said that the Nuclear Decommissioning Authority (NDA) would have to continue improving efficiency over the spending review period.

The CCS funding announcement is the government’s first firm financial commitment to such a scheme. But the £1bn investment means that only one such plant will be built.

The pledge coincided with news that an Eon CCS demonstration project would be pulling out of the UK and relocating to the Netherlands. This leaves Scottish Power’s Lang Gannet scheme as the one currently in the game, but so far it has not been guaranteed the money.

Osborne also announced £860M funding for the Renewable Heat Incentive, which will be introduced from 2011/12. This is aimed at driving a more than tenfold increase in renewable heat generating capacity over the coming decade, shifting renewable heat from a fringe industry into the mainstream.

The chancellor also set aside £200M for low-carbon technologies including offshore wind technology and manufacturing infrastructure at port sites. The east coast ports will get £60M so that they can handle big turbines.

Revenue raised from the Carbon Reduction Commitment (CRC) emissions trading scheme - equating to up to £1bn a year by 2014/15 - will be used to “support the public finances” instead of being recycled to participants.

The original intention was that participants would buy carbon credits from DECC, allowing them to emit a prescribed amount of CO2 each year. They would pay £12 per tonne of carbon emitted. If a company emitted lower than agreed amounts of carbon, it could sell its credits to high emission firms in the scheme.

But Osborne has now said that any revenue raised from the scheme will go to the Treasury and not be returned to low carbon companies. This effectively amounts to the imposition of a new tax on high energy emitters while controversially removing the benefit for low carbon companies.

The government will review the work delivered at arm’s length by bodies such as the Carbon Trust, Energy Saving Trust, the Coal Authority and the delivery arm of energy regulator Ofgem.

ICE director general Tom Foulkes broadly welcomed the spending review headlines. “Despite downward pressure on departmental budgets across the board, government has resisted the temptation to compromise projects with the potential to kick start economic recovery and drive the low carbon agenda,” he said.

“Upscaling of renewable energy and low carbon technologies are crucial if we are to avoid a ‘dash for gas’ response to the growing energy gap in future. However, what industry needs now to push forward with these vital programmes is more clarity. For example how the £200M set aside for offshore wind technology and manufacturing at port sites will be allocated.”

Environment minister Lord Henley told NCE sister title MRW that all but one of the projects that had funding withdrawn had a strong energy from waste element.

“We are satisfied that we’re already doing pretty well in terms of meeting our landfill targets, and we’re perfectly happy we’re going to meet the 2020 targets by keeping the 11 projects and losing the seven.”

Waste PFI projects to be axed are: Cheshire West and Chester, and Cheshire East; Coventry, Solihull and Warwickshire; Gloucestershire; Leicestershire; Milton Keynes and Northamptonshire; North London Waste Authority; and South London Waste Partnership. However, 11 other projects will continue and Defra said that it was still committed to supporting 21 waste PFI projects already signed.

Defra has been one of the departments hit hardest by spending cuts. It must cut resource spending by 29% and a capital spending by 34% over the next four years.

Flood defences
The spending review delivered a widely anticipated blow to flood defences, cutting more than £170M from the budget, which now stands at £2bn.

“Flooding is set to be one of the biggest threats the UK faces in coming years. So there is now even more onus on government to get the different responsible bodies working together more effectively,” said MWH technical director and ICE leader on flooding David Balmforth. “We need to shift from a reliance on defence to building resilience.

This requires new approaches for funding mechanisms and regulation that fosters genuine collaboration between the many responsible bodies.”

Readers' comments (1)

  • Our political "leaders" think that throwing £50bn plus to shave a few minutes of a rail journey between two fixed points is wise but much less to protect against the disastrous effects of flooding is not a good idea. Let the River Thames flood and fill up the Palace of Westminster I say.
    Jim Barrack

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