The Treasury's Pre-Budget review

The Pre-Budget review in early October disappointed green activists. Environmental measures formed a small fraction of the government’s initiatives. It doesn’t look as though Alistair Darling sees climate change as one of the priorities of this administration. But there were two important commitments: a revision to Air Passenger Duty (APD) and (via BERR) a competition to run a commercial-scale carbon capture project. The APD proposal attracted most attention. The government intends to change the duty so that it is levied on aircraft movements and not on individual travellers. Commentators, and the two main opposition parties, have long suggested that this would be a sensible change. Carbon Commentary disagrees. The proposed revision cannot be implemented without infringing international treaties on the taxation of air travel. The chancellor’s proposed consultation will eventually conclude that APD should remain substantially as it is now.

In the article, we briefly analyse the effects of APD and also show that the duty imposes an effective tax on airlines that is greater than would be levied if air travel were fully included in the European Emissions Trading Scheme (ETS).

The BERR Carbon Capture and Storage (CCS) announcement was worryingly unspecific. It did not even bother to mention a figure for the value of the financial support. It also upset some major companies by only allowing entries for the competition from a limited range of technologies. The government is extremely vulnerable to the charge that it is back in the business of picking winners.

CCS is an extremely important part of any strategy for national reduction of emissions. The UK should be throwing far more money at research and development into the various forms of CCS. The simplest and quickest way to get innovation in CCS would be to include carbon storage as a technology that qualifies under the renewable obligation rules. We need to remove the difference between the financial treatment of renewable power generation and carbon capture. Both achieve the same outcome and both should have the same reward.

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