PN 3 - PROTECTING AND IMPROVING THE ENVIRONMENT

A package of measures to reduce pollution and support energy efficiency in the UK was announced by the Chancellor today, which will help ensure that economic growth and social progress are balanced with action to protect and improve the environment.

John Healey, the Economic Secretary to the Treasury said today:

"This Pre-Budget Report is good news for the environment and good news for business. It will help deliver sustainable growth and a better quality of life for all. Our framework on green fuels puts the environment and business certainty at the heart of a coherent and radical policy on fuel duty discounts. Plans on the aggregates levy in Northern Ireland and reforms to the Climate Change Levy will increase the environmental gains from these schemes while increasing business competitiveness. At the EU level, the new Emissions Trading Scheme is going to be a huge step forward in tackling climate change across Europe."

The Government is using a range of economic instruments to tackle the challenges faced in achieving sustainable development, tackling local environmental threats and controlling and reducing emissions of the gases responsible for climate change and poor air quality.

The PBR includes key reforms on energy use including:

further steps to encourage business energy efficiency and reduce carbon emissions through extending the eligibility criteria for climate change agreements, which offer 80 per cent reductions from the climate change levy in return for negotiated environmental agreements;
supporting the development of the EU emissions trading scheme (EU ETS), by allowing those eligible for climate change agreements to retain the same incentives on entering into the EU ETS; and
considering the responses to the recent consultation on economic instruments to encourage more efficient use of energy in the domestic sector.

The Government is working to improve public and private transport, including by:

publishing a proposed framework for the future taxation treatment of alternative fuels, which sets out the principles of the Government's approach to these fuels, putting the environment first and providing market stability for investors and consumers of alternative fuels;
committing to provide future market stability for alternative fuels, with the Government announcing a three-year rolling commitment to the duty differentials between the main road fuels and all alternative fuels, with the relative rates to be announced in the Budget; and
examining ways of focusing the duty regime on input-based as well as product-based taxation to incentivise more environmentally and economically efficient types of biofuels manufacturing process.

The Government's waste strategy has been reinforced with:

further improvements to the landfill tax credit scheme, building on the work already under way, to increase choice through projects that conserve or promote biodiversity in natural habitats, streamline the scheme's administration to make it easier to manage and more straightforward for projects to apply for funding; and
the announcement of further details about the recycling of revenue from the landfill tax increases to businesses, including a package of measures such as grants, advisory services and other financial support.

The PBR includes measures to protect Britain's countryside and natural resources, such as:

consulting in early 2004 on tackling diffuse water pollution, including a consideration of the pros and cons of economic instruments; and
extension of the relief from the aggregates levy currently available for aggregate used in processed products in Northern Ireland to cover both processed products containing aggregate and virgin aggregate from 1 April 2004 - subject to state aid approval and the industry in Northern Ireland agreeing to stringent environmental commitments. The relief will be fixed at 80 per cent of the full rate until 31 March 2012.

DETAILS

Alternative fuels framework

The Government today published its proposals for an alternative fuels framework, which sets out the tiered principles for policy decisions on these fuels. The statement of principles confirms that:

policy must be both environmentally and economically sustainable; and
the Government sees a significant role for alternative fuels and is keen to avoid an industry whose long-term survival is dependent on excessive levels of subsidy unjustified by environmental benefit.

In addition, the Government commits to a rolling three-year certainty period for duty differentials on alternative fuels.

Road fuel gases

Following consultation on future support for road fuel gases the Government has considered the evidence presented on the use of these fuels. In line with the principles set out in the proposed alternative fuels framework, the Government has decided that the environmental benefits offered by liquefied petroleum gas (LPG) no longer justify the level of duty differential it currently receives which is almost double the rate of any other EU country. Consistent with the environmental benefit and the new framework on alternative fuels, the rate for LPG will be gradually increased over time towards a level more commensurate with its environmental benefit.

The emissions evidence for natural gas (NG) vehicles suggests that they offer considerable additional benefits over conventional fuels, particularly on air quality. The Government has therefore decided that the duty differentials for NG will be held constant for a further three years.

EU emissions trading scheme

An EU-wide emissions trading scheme (EU ETS) is due to be introduced in 2005 and the arrangements for the scheme are set out in the EU Emissions Trading Directive. The EU ETS will allow UK participants to buy and sell carbon emissions across Europe with the aim of reducing emissions, in line with international and domestic targets, and taking account of business competitiveness issues. It will provide participants with a least-cost approach to reducing emissions, providing the opportunity to buy emissions savings from those who can afford to abate more cheaply. The Government will consult again shortly on what the National Allocation Plan might look like with the intention of submitting its final plan to the Commission by 31 March 2004.

Eligibility for climate change agreements

Following consultation with industry, and agreement on the new Energy Products Directive, the Government has decided that, subject to EU state aid approval, it will extend the eligibility criteria for climate change agreements (CCAs) during 2004. The existing criteria will remain but, in addition, the Government will consider CCAs for sectors that meet a specific energy-intensity threshold, and will look to take account of any competitive distortions in those sectors. Further consultation with industry will take place between the PBR and the Budget 2004 on what level the energy intensity threshold should be set, on competition issues and on minimising the administrative burden of such a system.

Household energy efficiency

The Government confirms its belief that there is a role for the use of economic instruments to encourage household energy efficiency, as part of the Government's wider policy programme to meet its Energy White Paper commitments. Taking into account the responses to the consultation document, and in light of the Corporation Tax Review and negotiations with EU partners on VAT reduced rates, the Government will give further consideration to measures to promote household energy efficiency, including the case for a domestic business tax allowance.

Landfill tax spending programme

Following a general consultation in the run up to Budget 2004, the Government will discuss with stakeholders the best specific mechanisms to deliver its commitment to recycle increases in landfill tax revenue to business, providing this support in the run-up to Budget 2004. It proposes a package of measures that is likely to include grants, extending promotional and capacity building services, enhanced capital allowances, interest-free loans and venture capital funding.

Extension of relief from the aggregates levy in Northern Ireland

Following discussions with stakeholders, and subject to state aid approval, the Government intends to extend the scope and length of the current relief for aggregates in Northern Ireland. The new relief will continue to cover aggregates in processed products and be extended to cover virgin aggregate, coming into effect during 2004 and fixed at the current level of 80 per cent of the full rate until 31 March 2012. However, only aggregates businesses that agree to implement stringent environmental improvements to their operations will benefit. The environmental improvements that quarry operators will need to sign up to will be regularly monitored and reviewed, and enforcement activity will be stepped up.

HM TREASURY PRESS OFFICE

Press enquiries: 020 7270 5238

Non-media enquiries: 020 7270 4558

INLAND REVENUE PRESS OFFICE

Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)

Non-media enquiries: 0845 300 3939
(office hours only)

HM CUSTOMS AND EXCISE PRESS OFFICE

Press enquiries: 020 7865 5095/5471 or 020 8929 4637
(out of hours:020 7620 1313)

GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to the Pre-Budget Report may be found on the Internet at the following addresses:

HM Treasury www.hm-treasury.gov.uk/index.cfm

Inland Revenue www.inlandrevenue.gov.uk

HM Customs and Excise www.hmce.gov.uk

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