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Darling's carbon crackdown
- Created:
- 12 March 2008
- Written by:
- Graeme Davies
The promises of the 'greenest' Budget yet fell flat, although changes to vehicle excise duty and the threat of legislation to outlaw free plastic bags meant plenty of lip service was paid to green issues. But there could be some tangible, and not very palatable, longer-term effects on the energy producers and airlines.
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Once again, the government has reiterated its commitment to the EU Emissions Trading Scheme (ETS) and its desire to see London remain at the forefront of the global carbon business. The proposal for implementing Phase III of the EU ETS out to 2020, which the government supports, would be a major boon for the likes of Climate Exchange, which has a significant share of the European carbon trading market.
But the extension of the EU ETS could affect UK energy generators, who would have to buy all of their allowances at auction in the 2013-20 period. Until now, companies have received at least 90 per cent of their emissions permits for free. "The government is doing this to put upward pressure on wholesale prices, and thus make renewables and nuclear energy more viable," says Angelos Anastasiou, utilities analyst at Pali International. The changes will affect coal-fired generators such as Drax the most, and cause power companies to look for greater efficiencies.
The government will push ahead with plans to shift aviation taxation from the individual to the airline via a per-aircraft levy, expected in November 2009. The Chancellor says he is increasing forecast revenues from this tax by about 10 per cent in the second full year of operation, which some analysts are interpreting as an increase in the rate of the duty. But the exact rates and allowances are still under discussion.
"It looks increasingly likely that the change to the regime is not going to be a revenue-netural change, but is going to increase the overall burden of taxation on the industry," says Douglas McNeill, an analyst at Blue Oar Securities. The move, coupled with the expected inclusion of airlines in the EU ETS by 2012, will affect carriers with older fleets and low load factors. That suggests Ryanair and easyJet, whose modern aircraft are usually at least three-quarters full, should be less affected than legacy national carriers.
