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UK Cuts Go Easy on Clean Energy

While environment activists were disappointed that a new Green Investment Bank will now have just £1 billion ($1.58 billion) in state funding – half the expected figure – the RHI was welcomed, as was a continuance of current FiTs, and £200 million ($317 million) for developing offshore wind.

Chancellor George Osborne promised £860m for the RHI subsidy, funded by the government rather than through a levy and aimed at a 10-fold increase in the sector.

“Today's announcement is a huge relief and a very big breakthrough,” said Gaynor Hartnell, chief executive of the Renewable Energy Association (REA). 

“Finally renewable heat moves to the heart of UK energy policy, exactly where it belongs. Companies throughout the UK are poised to deliver on renewable heat, creating tens of thousands of green jobs over the coming decade.”

Almost half of both the UK's energy consumption and its CO2 emissions come from energy used to heat space and water, industrial process heating, industrial drying and similar purposes. Yet the process of decarbonising this sector is at a very early stage.

“Currently, only 1% of total heat demand comes from renewable sources which the government clearly recognises needs to rise if we are to meet our renewable energy targets,” said Julia Davenport, CEO of the renewable energy supplier Good Energy.

The renewable energy sector also welcomed the announcement that feed-in tariffs would be maintained, although Osborne said their efficiency would be improved at the next formal review through a focus on “more cost effective carbon abatement technologies”.

He also committed up to over £200 million for developing offshore wind technology and manufacturing at port sites.

Yet, the environment sector was not exempted from the government’s push to restore the UK’s battered public finances. Nathan Goode, Energy Environment and Sustainability Partner for Grant Thornton UK LLP, said the chancellor's speech suggested cuts in FiTs could come in 2014/2015.

"This leaves open the possibility that Solar FITs will be reduced if they are too successful. This is a negative signal to investors in renewables as it insinuates the government may change the rules if the FITs are seen to be too successful."

Obsorne also signalled a cut in the energy ministry's budget.

“Overall, the total resource settlement for the Department for Energy and Climate Change will fall by an average 5% a year – but there will be a large increase in capital spending, partly to meet unavoidable commitments on nuclear decommissioning,” he said.

The announcement that funds raised by the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme would now go to state coffers – rather than being recycled to benefit eco-friendly companies – also dismayed some sector bodies and sustainability experts.

Liz Peace, chief executive of the British Property Federation, said the change turned the carbon trading scheme into a £3.5 billion ($5.5 billion) stealth tax on businesses.

“We urge government to clarify how the revised scheme will function, as people are making decisions on it,” she said.

However, James Cameron, vice chairman of Climate Change Capital, described the application of the CRC to the property sector as "perhaps the most significant structural change in a mainstream asset class". In his view, it "may unlock large quantities of green building investment".

Under the CRC, launched in April, large public and private sector organisations buy allowances equal to their annual carbon emissions. An emissions 'cap' curbs total allowances while participants can cut their 'emissions' either through buying extra allowances or by investing to cut the allowances they need to buy.

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