Sunak’s Budget Falls Short of U.K.’s Big Climate Ambitions

(Bloomberg) -- In a year when the U.K. is hosting global climate talks and pressing others to adopt more ambitious goals, Chancellor of the Exchequer Rishi Sunak offered little in the way of fresh cash or ideas in his budget.

Sunak said Wednesday he wanted to lay the foundations for achieving Boris Johnson’s green goals, but environmental advocates were largely disappointed by the new policies and lack of spending. The most significant move was Sunak’s instruction to the Bank of England to align its monetary policy toolkit with the government’s target to eliminate greenhouse gas pollution by 2050.

The central bank has been criticized over its pandemic rescue program and last year it acknowledged that its corporate bond buying program is in line with 3.5 degrees Celsius of global warming -- far exceeding the temperature goals laid out in the Paris Agreement aimed at avoiding the worst effects of climate change.

Sunak also announced plans for new green retail bonds and a National Infrastructure Bank with 12 billion pounds ($16.8 billion) of capital. He mentioned a new taskforce that would seek to boost the market for voluntary carbon offsets.

“While these measures do matter and will make a difference, this budget represents a missed opportunity to put the green economy and sustainability at the heart of the economic effort to recover from the Covid-19 crisis,” said Maria Connolly, a partner at U.K. law firm TLT that advises on clean energy. “Actions speak louder than words and unfortunately the rhetoric on the green industrial revolution continues to outweigh the policies.”

Home Heating

The budget lacked new spending on a home insulation program that is seen as crucial to meeting climate goals. Last month, the government confirmed it was cutting funding for the Green Homes Grant, which helps homeowners switch to more environmentally friendly heating systems.

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“Meeting the most ambitious climate change targets of any major economy will require more ambition than was in today’s budget,” said Emma Pinchbeck, chief executive of the trade body Energy U.K. “We need a concerted, cross-government approach,” she said, “particularly on how to make our buildings energy efficient and low carbon.”

Sunak also canceled a planned increase of a tax on auto fuel for the 11th year in a row, in a bid to reduce costs for consumers. A decade of fixed gasoline duties has increased U.K. carbon dioxide emissions by as much as 5%, according to analysis by the website Carbon Brief.

“It’s astonishing that a government pledging to confront the climate emergency has frozen fuel duty yet again,” said Mike Childs, head of policy at the campaign group Friends of the Earth.

The budget didn’t address cutting the value-added tax on green products such as solar panels. Advocates including The Daily Express newspaper have called for the levy to be cut in order to deliver a “green Brexit” as the U.K. leaves the European Union.

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Climate Mandate

The most impact could come from changing the central bank’s mandate. The BoE is set to be the first in the western world to incorporate climate into its monetary policy remit, according to Positive Money, a group that campaigned for the shift. Sweden’s Riksbank and the Swiss National Bank have already changed their asset purchases to exclude unsustainable assets, though their mandates remain the same.

The decision appears to answer a call from Parliament’s Environmental Audit Committee to align its corporate bond buying program with the Paris accord before the COP26 gathering in November. The BoE said it plans to adopt the changes by the fourth quarter.

Sunak’s announcement completes the mandate change that was promised in the government’s 2019 Green Finance Strategy. The central bank’s Financial Policy Committee already considers climate and net-zero goals within its remit, and now the Monetary Policy Committee will too.

Sunak also said the U.K. will:

• Provide 4.8 million pounds to develop a new hydrogen hub in Wales to test the production of the clean burning gas from renewable energy sources for use in lorries. The project could create 500 new jobs
• Spend 20 million pounds to advance the U.K.’s floating offshore wind industry
• Hold a 68 million-pound competition for funding to implement “first-of-a-kind energy storage prototypes or technology demonstrators”
• Give infrastructure support for the offshore wind sector with the offer to upgrade existing ports in the north of England and develop a new facility
• Organize a 4 million-pound nationwide contest for the first phase of a biomass feedstock program

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