How the 2023 budget helps the UK meet net zero goals, and the key policies not addressed
Last week, Jeremy Hunt’s budget outlined the UK government’s financial plans for the upcoming year.
The budget which supports the development of nuclear energy and carbon capture and storage (CCS) has been welcomed for its commitments to clean energy and net zero.
However, more must be done to address the energy efficiency of leaky homes and drive investment in existing renewable energy technologies.
Nuclear power
In his budget speech, the Chancellor said that nuclear power was “vital to meet our net-zero obligations” and a “critical source of cheap and reliable energy” that would be needed “because the wind doesn’t always blow and the sun doesn’t always shine”.
The Chancellor has introduced three main initiatives to increase the nuclear energy supply.
- Nuclear power has been reclassified as sustainable, to attract private investment. Senior nuclear industry figures have said this decision will help develop the proposed Sizewell C nuclear power plant.
- The Great British Nuclear body has been formed to ease the creation of nuclear projects and secure 25% of electricity supply from nuclear by 2050.
- A competition for small modular reactors (SMRs) has been announced and will be run by Great British Nuclear. If this young technology is “demonstrated to be viable”, the government will “co-fund this exciting new technology”, the Chancellor said.
The World Economic Forum has identified small modular reactors as a new breed of power source that does not emit greenhouse gases and is less exposed to traditional dangers such as earthquakes and meltdowns.
Carbon Capture
Additionally, the Chancellor has decided to prioritise investment in the development of Carbon Capture and Storage (CCS), with a funding allocation of £20bn over the next two decades.
There will be an annual allocation of £1bn for this emerging technology with the aim to store 20-30m tonnes of carbon dioxide a year by 2030.
The government will announce a shortlist of projects for the first phase of CCS deployment this month. However, the first potential projects are not due to come online until 2027 at the earliest.
The geopolitical backdrop of the budget
There is a concern that the budget will not help the UK to compete with the US and EU to stimulate green growth investment.
The recent US landmark Inflation Reduction Act (IRA) offers $369 billion in support for clean technologies, which has heated up the global “green race” for investment.
The UK spends a smaller proportion of its GDP on net zero ambitions than many other developed economies, including the US, Germany, and France.
Sam Hall, director of the Conservative Environment Network, said, “But with the USA and EU offering enormous green subsidies, the UK needs to up its game” to remain an attractive place to invest in wind and solar, as well as the next generation of clean industries like sustainable aviation fuel and green hydrogen.
Energy efficiency
In the Autumn statement, the government announced £6.6bn in funding for energy efficiency, with a further £6bn from 2025. No additional funding was announced in the Spring budget.
However, energy groups have said that £6bn a year would be required to upgrade Britain’s leaky homes and to promote heat pumps.
Whilst a climate think tank E3G published findings that the government is yet to provide a third of the home energy efficiency funds promised in its 2019 election manifesto. Adding that the government would need to invest a further £5.3bn in home energy efficiency to keep on track with recommendations set out by the UK’s Climate Change Committee.
Windfall tax
Last Autumn, the Chancellor announced a 45% levy on electricity generators due to the excess profits that renewable and nuclear power companies had been making.
Despite pushback from industry and MPs, there has yet to be any amendments to this tax on renewable energy profits.
Energy UK, the trade body for the energy sector, has been among those calling for the levy to include investment allowances, allowing generators to reinvest tax expenditures into low-carbon technologies.
The report argues that oil and gas extraction would face lower rates of effective tax than low carbon generators, sending the “wrong signal to investors.”
MPs in the Conservative Environment Network are also concerned about our ability to attract investment, stating that “tax breaks” for renewables would be needed to compete with the US and its Inflation Reduction Act.