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Budget 2020: new chancellor’s multi-billion pound investment in the ‘green’ economy

Chancellor Rishi Sunak announced a series of new investments in the ‘green’ economy to demonstrate the Government’s commitment to the net zero by 2050 goal.

Supporters praised the Chancellor’s unveiling of multi-million-pound spending pots promised for low-carbon transport, renewable energy, natural climate solutions and carbon capture and storage (CCS).

In his speech, the Chancellor rapidly made a series of environmental announcements including:

  • A new plastic packaging tax for manufacturers and importers from April 2022. The tax will stand at £200 per tonne on all packaging using less than 30% recycled content.
  • Red diesel relief will be abolished in 2022, as it has “hindered the development of cleaner vehicles and engines”.
  • Low-carbon energy R&D will receive a £1bn package.
  • Low-carbon transport incentives and infrastructure will receive a £1bn package.
  • £800m+ will be allocated to bring two new carbon capture and storage (CCS) clusters online by 2030
  • A £640m Nature for Climate Fund will back natural climate solutions.

However, there are two measures that stand out to us:

Climate Change Levy

Whilst the news that CCL on gas and electricity would reach parity by the middle of the 2020s was originally announced in the 2018 budget, yesterday’s budget included further details that confirm that parity will occur in 2025.

The table below shows how CCL rates are changing:


  2019/20 2020/21 2021/22 2022 / 23 2023 / 24
  Charge % Change Charge % Change Charge % Change Charge % Change Charge % Change
Electricity £0.00847/kWh + 45% £0.00811/kWh -4% £0.00775/kWh -4% £0.00775/kWh + 0% £0.00775/kWh + 0%
Gas £0.00339/kWh + 67% £0.00406/kWh +20 % £0.00465/kWh +15 % £0.00568/kWh + 22% £0.00672/kWh +18 %


This shows that CCL on electricity will be fixed from 2022 until the CCL on gas reaches parity and it seems likely that the rates for both gas and electricity will be around 0.775p/kWh by 2025.  For gas, this is an overall increase of 129% compared with current levels. After 2025 we would expect to see costs being linked to the Retail or Consumer Price Index.

We also await with interest, more details on the plan to re-open and extend the Climate Change Agreement scheme by two years. This has the potential to benefit our hard-pressed manufacturing sector, in particular.

Green Gas Levy

It’s always been an anomaly that electricity costs include several levies to pay for renewable generation, but gas has never included any levies associated with renewable heat.  The circa £1 billion pounds that it costs to run the Renewable Heat Incentive is not currently funded by energy taxes.

From 2021 this will change; the Government has announced a green gas levy and has plans to increase the amount of green gas production. This is currently produced in anaerobic digestion plants, but future green gas is likely to include other sources, particularly hydrogen.  So, although the initial levy will be relatively small, this has the potential to escalate in the same way that renewable levies did for electricity.

The War on Gas

Part of the reason for increasing taxation on gas is to raise funds for renewable alternatives, but it will also be hoped that this will drive efficiencies in the use of gas. Both are key requirements for achieving the UK’s ambition for net zero carbon by 2050.

Since Electricity Market Reforms started earlier this millennium, the UK electricity market has halved its carbon intensity.  However, this has come at a high cost and around one-third of the electricity bill is directly related to these reforms.

One unintended consequence of the increased taxation of electricity is that it is around four times more expensive when delivered to a site compared with gas, so the economics of replacing gas heating with electric heat pumps is poor, despite the fact that heat pumps are a key part of the net zero carbon journey.

The 2020 budget may have seen the first salvo of measures that will dramatically increase the cost of gas over the next decade to drive the UK’s low carbon ambitions. Is your business ready for the war on gas?

To find out more contact us on 08451 46 36 26.