What does the UK's Autumn Budget 2024 mean for the Energy Sector?

Funding for the UK’s clean energy industry

Following its founding in July 2024, Great British Energy, a new publicly owned energy company, has been allocated £125m in funding for 2025-2026. This is in addition to the initial capitalisation of £8.3bn announced earlier this year. Capitalisation for Labour’s National Wealth Fund, which is expected to catalyse £70bn in private investment for the UK’s clean energy and growth industries was also mentioned as key to this transformation of the UK into a clean energy superpower. 

More specific investment pledges include £3.9bn being invested in carbon capture projects between 2025-26, support towards the first round of green hydrogen production contracts and £163m to continue the industrial energy transformation fund, which seeks to assist high emissions business with lowering their carbon output.  

On the energy management side, Reeves announced £3.4bn in investment towards a ‘warm homes plan’. This aims to increase household efficiency and assist heat decarbonisation as part of Labour’s wider manifesto pledge to put £13.2bn to towards these issues.  

Ed Miliband’s Department of Energy Security and Net Zero (DESNZ) has also seen a major budget increase from £6.4bn in 2023-24 to £14.1bn in 2025-26 which will flow through to various projects as the UK moves towards its net zero targets. 

Oil and gas – incentivising decarbonisation

A major headline under Reeves’ budget was the increase in windfall tax on oil and gas companies via the energy profits levy (EPL), initially introduced in May 2022 following record profits by these companies during the global energy crisis. 

The EPL will rise by 3% to 38% from 1 November whilst the 29% investment allowance for these companies will be removed. This will leave the headline tax rate on oil and gas activities at 78%, one of the highest in the world. The funds collected through the EPL will then be used to fund green energy projects in the UK. 

To incentivise decarbonisation in the oil and gas industry, the rate of ‘decarbonisation allowance’ will be set at 66% whilst the government also intends to launch a consultation on handling price-shocks from the EPL in 2025. Furthermore, payments by oil and gas companies into carbon capture usage and storage (CCUS) decommissioning funds will also be available for tax relief. CCUS funds are financial reserves established by oil and gas companies which are allocated towards the safe decommissioning of oil and gas infrastructure for conversion into carbon capture infrastructure. This tax break should incentive oil and gas companies in repurposing their assets and contributing towards the development of what the Labour government envisage to be a world leading carbon capture industry. 

Support for Electric Vehicles (EVs)

Following Labour’s election manifesto which referred to a phase out of new cars with internal combustion engines by 2030, Reeves clarified this point and announced funding and incentives for the EV industry. 

This 2030 date was clarified to be 2035 for zero-emissions vehicles, with new hybrids remaining available for purchase from 2030. 

Amongst a number of incentives for EVs, Reeves announced an increase in the gap in excise duty paid in the first year by electric vehicles against non-electric, an annual 2% increase in benefit-in-kind tax rates for electric company cars to 2030 and a further year’s extension of “green” first year allowances for pre-tax business deductions on expenditure for zero-emissions cars or charging points. 

The government also pledged £200m in investment in 2025-2026 to accelerate the EV charging point rollout and £120m to support the purchase of electric vans under the plug-in vehicle grant scheme. 

Non-electric vehicle owners also saw some benefits in the form of the continued fuel duty freeze with the 5p cut continuing for another year. 

Addressing international carbon leakage

The UK confirmed the 2027 introduction of the carbon border adjustment mechanism (CBAM), which is intended to address carbon leakage and support the UK’s decarbonisation efforts.
Carbon leakage occurs where a business shifts its production to a different country with less stringent carbon regulations, thereby reducing its UK emissions reporting and reducing the costs of its production by avoiding carbon prices but ultimately not addressing the root emissions issue.  

The CBAM will impose a liability on importers for goods within high emissions industries such as aluminium, cement, fertilisers, hydrogen and steel (although, notably, the ceramics and glass sectors have been left out for now). This liability will seek to reflect the difference between the carbon price in the UK and the country of origin by covering direct and indirect emissions embodied in these products. 

Provisions in the Finance Bill 2024-25 will enable HMRC and the UK Emissions Trading Scheme Authority to prepare for the introduction of this mechanism and the government’s response to the March 2024 consultation has confirmed the scope. This includes a threshold for CBAM goods passing the tax point over a 12-month rolling period at £50,000. Such a threshold will ensure that over 99% of imported emissions are covered while exempting over 80% of smaller businesses.

This seeks to level the playing field and support domestic industry whilst further reducing global emissions. A similar mechanism is also being rolled out across the EU as part of the EU’s Green Deal.