• Date

    26 Aug 2021
  • Category

    R&D Tax Incentives, Tax

The going green considerations for rural businesses

The environmental conference COP26, hosted by the UK government, takes place in Glasgow in November. More than 150 countries will come together to outline how they will reach the goal of net-zero carbon emissions by 2050. The UK is set to announce its hydrogen strategy, designed to shift consumption away from fossil fuels and its boiler strategy, which will outline how consumers will be encouraged to swap oil and gas boilers for hydrogen.

The total bill by 2050 is estimated to be £400 billion, and the Chancellor committed £12 billion at the last Budget for green infrastructure and new technologies. This commitment was targeted at larger scale renewable projects, rather than smaller scale projects many rural businesses have developed in the past.

The Feed-in Tariff scheme which previously encouraged many rural businesses to develop their own projects was successful, if measured on the number of renewable installations that have appeared across Scotland over the last 10 years. The tariff was a financial incentive designed to offset the initial risk of investing in renewable technology, but I do not believe we will see this scheme re-opened.

Renewable electricity generation is encouraged at a much larger scale or in projects that can make a financial return without subsidy at all. For rural businesses, there seems to be a shift away from generation of power to utilisation of greener technologies. As technologies evolve, market forces push prices down and this will eventually need to happen with hydrogen and heating systems. The problem is the journey needs to start somewhere and initially these technologies will be expensive for businesses. Whether there will be financial incentives available to consumers in the short term to support a switch in technologies remains to be seen.

As we emerge from Brexit and COVID-19, inflation is driving up costs in the food supply chain and for farmers that is difficult when capital expenditure was already a big cost to justify. Retailers are reluctant to pass price increases onto consumers to protect market share and instead look for efficiencies from suppliers. There is little or no efficiencies left in the chain, and although I expect consumer prices will rise, primary producers will still need to be efficient to be competitive.

Changing behaviours takes time, and for farmers to invest or take a risk in green technology, tax incentives and meaningful levels of grant need to be introduced. Currently, there are few tax incentives available for investment in green technologies. Buying a new electric car through your limited company is quite attractive, but aside from that there is not much else worth mentioning.  

The current strategy relies on the supply chain making other businesses comply and is perhaps overly reliant on the self-imposed environmental obligations of business. In order to kick start green investment a bolder tax strategy needs to be considered by Government and the innovators will embrace it.  Given the capital-intensive nature of farming, I don’t think expensive technology will be a barrier to some businesses, who may also be happy to overcome labour issues at the same time.

The supply chain is already benchmarking farmers on their environmental credentials, and there is no doubt supermarkets are going to turn up the volume on this. Some more specific guidance on environmental improvements would be beneficial so businesses know what to focus on and use of alternative fuels on farms is not far round the corner.

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