Further to my posting on Treasury's control framework for DECC levy spending of two weeks ago, it is good to see some people realising the potential implications of this policy. James Murray has an excellent piece in BusinessGreen detailing the search and destroy nature of the Treasury's framework. As James points out it has so far gone "largely unreported", although I for one have been doing my best to highlight the issue on my blog and elsewhere. I recently asked questions on the policy and raised its implications in, among other places, the Energy Bill Second Reading debate and the DECC select committee.
I did get a pretty definitive reply from Treasury to a parliamentary question last week about the central issue of possible effect of the 'cap' on the prospects for a meaningful level of funding for the Energy Company Obligation (ECO) when it comes in. I asked them whether they propose to include the energy companies' obligation in the cap.
Here's what they said in reply:
"The new control framework for DECC levy-funded spending covers DECC's policies that entail levy-funded spending and that are classified by the Office for National Statistics as tax and spend for national accounting purposes.
And here's the killer (they didn't say that bit)
"If other DECC policies are classified by the Office of National Statistics as tax and spend and yet are deficit neutral then they will fall within the control framework. The energy company Obligation will be included if it is classified as such."
So any form of realistic funding for Energy Companies Obligation (ECO) now hangs on the say-so of the Office of National Statistics (ONS). If you really want to get technical about the criteria by which ONS have classified levy arrangements so far, there's an interesting (?) technical piece published in the ONS magazine in 2007. What is clear from that, and from more recent classifications, is that deciding whether a particular initiative falls within ONS classification or not is a technical and, some might say, arbitrary-looking process.
The Carbon Emissions Reduction Target (CERT) was not in, mainly because no sums for the programme were specified - energy companies could theoretically reach their CERT obligation targets with no 'tax and spend' at all. That's not the way ECO has so far been talked about by government, particularly if someone decided that they should have, say, £2bn for ECO in year one, for example. On that kind of formulation ECO would almost certainly be classified as 'tax and spend' by ONS.
And what's worse, is that Treasury have specified that the cap is annually counted. Just what that might mean for an ECO arriving in, say, 2013, is already written on the wall. The 2013 annual cap for DECC levies is £3,184m, and for 2014-15 £3,870m. Taking the Treasury principle that "the general presumption is that new policies will not be introduced outside of a spending review unless they would leave central projections of overall spending within the cap", any minister who claimed to have £2bn for ECO would have to more than halve the annual amount set aside for renewable obligation between 2013 and 2015. Watch out offshore wind, I say!
The £2bn figure is not, of course plucked out of thin air. That's what Greg Barker has said he wants to have in ECO each year. I think Treasury has seen you coming, Greg.
This post first appeared on Alan's Energy Blog.
Dr Alan Whitehead is the Labour Member of Parliament for Southampton Test.
He is a member of the House of Commons Energy and Climate Change Select Committee, as well as the Environmental Audit Select Committee.
