Autumn Statement 2023: Environmental taxes

The Autumn Statement was very positive from an environmental perspective. While tax changes were not significant, the Chancellor addressed some fundamental structural issues the industry faces.

Autumn Statement Environment Tax
Jayne Harrold
Published: 23 Nov 2023 Updated: 23 Nov 2023
Autumn statement 2023

The Chancellor delivered a significant boost to the clean energy sector to deliver on net zero and energy security objectives. The capacity of transmission networks and delays in getting new grid connections are one of the fundamental barriers the renewable energy industry faces, which delays investment and the progress of renewable projects.

The Government will support measures to reduce the end-to-end process of electricity transmission network build, from 14 years to 7 years on average, and joint action with Ofgem to drastically reduce the waiting time for viable projects to connect to the grid is significant for renewable energy sector investment and project development acceleration.

Legislating to provide the Crown Estate with borrowing and wider investment powers to unlock 20-30GW of offshore wind seabed rights by 2030 and working to bring forward floating wind in the Celtic Sea through the 2030s, will also accelerate investment further.

A new investment exemption from the Electricity Generator Levy for new renewable energy projects, or expansion of capacity at existing projects, where the substantive decision to proceed with the project is made on or after 22 November 2023 will serve to further incentivise those businesses investing in renewable energy by reducing the windfall taxes they are subject to.

Funding of £960m in a Green Industries Growth Accelerator to support investments in manufacturing capabilities for the clean energy sectors, particularly carbon capture and storage, hydrogen, offshore wind, electricity networks and nuclear will also help to ensure that the sector is supported by local supply chains.

For the transport sector, designating low carbon infrastructure as a critical national priority and consulting to ensure that the planning system prioritises the roll out of electric vehicle charging infrastructure will help ensure that the infrastructure is available to facilitate the widespread adoption of electric vehicles. The Chancellor will encourage this with £2 billion funding for the automotive sector to support manufacturing and development of zero emission vehicles, their batteries and supply chain, and £975 million for aerospace sector to support the development of energy efficient and zero carbon aircraft technology.

To stimulate energy efficiency in homes, the Chancellor has included permission for heat pumps within the proposed planning reforms, as well as extending the VAT relief available for energy saving materials to new technologies, including water heat pumps.

You can read more detail on the tax changes announced or confirmed below:

UK Emissions Trading Scheme (UK ETS)

As announced in July, the UK ETS reform is a reduction in the number of allowances available for purchase from Government by 45% between 2023 and 2027. The scheme will be extended to cover domestic maritime emissions from 2026 and energy from waste emissions from 2028.

Aggregates levy rate

The rate of aggregates levy will increase to £2.03 per tonne on 1 April 2024 as confirmed in Budget 2023, and a further increase to £2.08 per tonne on 1 April 2025.

Plastic packaging tax

Plastic packaging tax will increase to £217.85 per tonne from 1 April 2024. The Government will also publish an evaluation plan by the end of the year to gather further evidence to inform the future trajectory of the plastic packaging tax rate and recycled content threshold.

No mention was made in the Autumn Statement of a response to the consultation on chemically recycled content.

Climate change levy

The main and reduced rates of climate change levy will be frozen for the 2025/26 tax year, remaining at £0.00775/kWh for electricity and gas, £0.02175 for liquid petroleum gas (LPG), and £0.06064/kWh for any other taxable commodity.  Reduced rates are frozen at 92% for electricity, 77% for LPG, and 89% for gas and any other taxable commodity.

Carbon Price Support rates remain frozen at £18 per tonne of CO2

The Autumn Statement says that the Government will continue to engage with industry and review CPS beyond the announced rates, suggesting that there may be a lifting of the long-term cap in the future.

A new six-year Climate Change Agreement scheme will start in 2025, providing discounts to participating businesses on climate change levy from 2027 to 2033.  It will be possible for new sectors which meet the energy intensity criteria to apply to join the new scheme.  The Department for Energy Security and Net Zero has published a consultation on the new scheme, which closes on 14 February 2024 (what else did you want to do on Valentine’s Day?)

Landfill tax

Landfill tax rates will increase to £103.70 per tonne for the standard rate and £3.30 per tonne for the lower rate from 1 April 2024.

The Government is also launching a £78 million competitive pilot fund to alleviate the cost of landfill tax where it acts as a barrier to the remediation and redevelopment of contaminated land.  This is funding for costs rather than a replacement of the landfill tax exemption for contaminated land which was withdrawn on 31 March 2012.

Carbon Border Adjustment Mechanism

The Government will soon publish a response to the consultation for the introduction of a new UK Carbon Border Adjustment Mechanism.

Electricity Generator Levy

A new exemption from electricity generator levy will be legislated for inclusion in the Finance Bill 2023 for new projects, and increases in capacity of existing projects, for which the substantive decision to proceed is made on or after 22 November 2023.

Qualifying projects will be entirely exempt from the electricity generator levy.  A technical note has been published which provides some indicators of when a project will be seen to have reached the Final Investment Decision.

Energy Profits Levy

The Government has published a number of documents setting out further detail on the Energy Security Investment Mechanism which will be used to determine when the Energy Profits Levy ends, if it is to end early due to a price drop, and conclusions into its review of the long-term fiscal regime for oil and gas.  The Government recognises that certainty of future treatment is important for the sector to facilitate further investment decisions. 

Targeted support for the energy transition is also being provided through relief for payments made by oil and gas companies into decommissioning funds in relation to oil and gas assets repurposed for use in Carbon Capture Usage and Storage (instead of being decommissioned after their productive life in upstream projects).  Legislation will be introduced to remove the receipts from the sale of these assets from Energy Profits Levy.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.