Autumn Budget 2024: Impacts on the energy sector

Whilst Rachel Reeves’ 2024 Budget hasn't been universally welcomed, it did contain positive announcements for the UK’s transition to sustainable energy and infrastructure.  

One of the Government’s 7 key pillars outlined by Reeves is to make the UK a “clean-energy superpower”. 

The Department of Energy Security and Net Zero has seen its budget more than double from £6.4bn in 2023-24 to £14.1bn in 2025-26, which will support various projects as the UK progresses towards its net zero targets.

Let’s take a look at the detail.

Incentivising decarbonisation

• Air-passenger duty will increase to correct below-inflation uprating in recent years. There will be a 50% increase in duty for larger private jets and a consultation on whether to extend this to all private jets subject to air passenger duty.
  
  
• An increase in the rate of windfall tax on oil and gas companies combined with incentives to decarbonise. The energy profits levy will increase by 3% to 38% from 1 November and the 29% investment allowance for these companies will be removed. However, the rate of “decarbonisation allowance” will be set at 66%. In addition, payments by oil and gas companies into carbon capture and storage (CCS) decommissioning funds will also qualify for tax relief. Changes for the oil and gas industry were less harsh than feared and consequently, oil and gas company shares rose in response to the Budget.
  
  
• A consultation into “scope 3” emissions from offshore oil and gas production was announced at the same time as the Budget following the Supreme Court ruling in R (Finch) v Surrey County Council & Ors [2024] UKSC 20. The Court held that Surrey County Council had acted unlawfully by granting planning permission for the expansion of an oil drilling facility without considering the environmental impact from combustion of the fuel into which the extracted oil would be refined.
  
  
• £3.4bn will be invested in a “warm homes plan” for heat decarbonisation and household energy efficiency over the next three years. It remains to be seen whether planning policy will be reformed to introduce stricter targets for new home emissions. It amazes me that new homes are still being built with gas boilers, although they do at least need to be accompanied by solar panels and waste water heat recovery following an update to building regulations in 2021.
  
  
• £5bn will support a “more productive and environmentally sustainable agricultural sector in England” and £400m+ has been set aside for tree-planting and peatland restoration in a bid to reduce carbon emissions.
  
  
• A carbon border adjustment mechanism will be introduced from 2027 to help reduce emissions in sectors such as steel and cement to ensure the UK remans competitive in the global market. Reeves could have gone further by removing the freeze on fuel duty and freezing the current single bus fare cap at £2. According to the OBR, fuel duty is the only tax that has persistently fallen in recent years. The “temporary” 5p cut will be extended until April 2026.

Support for cleaner energy and infrastructure

Transport and infrastructure

• Investment into rail upgrades including the Trans-Pennine line between York and Manchester, East-West rail to connect Oxford, Milton Keynes and Cambridge, and tunnelling HS2 to central London. Certain lines to be electrified.
  
  
• The “advanced fuels fund” will be extended for a further year to support the production of sustainable aviation fuels.
  
  
• The Government has committed to ending the sale of cars that rely solely on internal combustion engines by 2030. From 2035, the sale of all new cars and vans will have to be “zero emission”, which will end the sale of hybrids. Support for the rollout of electric vehicles (EVs) includes enhancement of preferential treatment for EV company cars under the benefit in kind rules and vehicle excise duty. Over £200m is to be invested in 2025-26 to accelerate the rollout of EV charging points and the Government has committed £2bn in support for the automotive sector “including the zero-emissions vehicle manufacturing sector and supply chain”.  

Clean energy

• Funding announced for investment in CCS, nuclear and “green hydrogen” made with renewable electricity.
  
  
• The Government intends to “take further measures to catalyse private investment in the economy. This includes creating the “national wealth fund” to catalyse over £70bn of private investment in the UK’s clean energy and growth strategies”.
  
  
• The Budget confirmed:
  • Funding for 11 new electrolytic (green) hydrogen projects in England, Scotland and Wales in a move to decarbonise industry across the UK. According to Reeves, these will be the first commercial scale green hydrogen projects in the world.
  • £3.9bn available for CCS projects between 2025 and 2026. This follows the announcement at the beginning of October to provide up to £21.7bn funding to support the development of two undersea carbon storage sites and pipelines.
  • £2.7bn to continue the development of Sizewell C through 2025-26.
  • “Significant support” for UK fusion energy research “to build on the UK’s position as a global leader in sustainable nuclear energy”.
  • £125m to Great British Energy in 2025-26. This follows an announcement in July that this publicly owned company will receive initial capital of £8.3bn of new money over this parliament.
  • £163m to continue the “industrial energy transformation” from 2025-26 to 2027-28.
  • The Government will help accelerate grid connections and build new network infrastructure.
  • The National Energy System Operator has been commissioned to advise on reaching net-zero electricity by 2030 to feed into the Government’s “clean-power 2030 action plan”.
  • Future documents to be published over the next year include a response to the annual update from the Climate Change Committee, an updated “carbon delivery budget plan” and a new industrial strategy.

This suite of changes support the transition to clean energy and decarbonisation. Time will tell how impactful they are in driving the pace at which consumers and industry make more sustainable choices and investment decisions.