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PRE-BUDGET REPORT: PROTECTING AND IMPROVING THE ENVIRONMENT

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A package of measures to reduce pollution and support energy ...
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 cecretary 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 a nd 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 a greeing 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 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 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 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 w ill 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 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

Follow ing 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.

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