Budget special: Carbon floor price set at £16 a tonne

18th April 2011

Related Topics

Related tags

  • Carbon Trading ,
  • Reporting ,
  • Mitigation ,
  • Renewable ,
  • Generation



CCAs are extended while planned CCS levy discarded in the 2011 budget

The carbon floor price (CFP) will be £16 a tonne of CO2 from 1 April 2013, rising to £30 by 2020. It will apply to energy generators, and the government hopes it will help drive investment in the low-carbon power sector.

George Osborne told MPs that the introduction of the CFP is a world first, and that it will provide the incentive for £billions of new investment in the UK’s dilapidated energy infrastructure.

David Porter, chief executive of the Association of Electricity Producers said that the floor price would increase the confidence of energy companies wanting to develop new low-carbon technologies for electricity production. There is concern, however, that the chancellor gave no indication of post-2020 price levels.

“Investors will have serious doubts about the long-term credibility of the CFP policy as it is currently conceived. This is because it is a tax-based mechanism subject to annual votes in parliament,” commented Rupert Edwards, head of policy and market analysis at Climate Change Capital.

The floor price means that power companies will be taxed on their carbon emissions, but will be allowed to pass the cost on to consumers.

Duncan Sinclair, director at Redpoint Energy, estimates that the CFP will add around £5–£6 per MWh or 10% to electricity prices by 2020, and said it will have a significant impact on the earnings of power generators.

Operators of coal and less-efficient gas plants will be hit hardest, potentially accelerating their closure, while operators of renewable-energy sources and nuclear power stations will pay little, but enjoy a windfall from higher electricity prices.

Industries covered by the EU emissions trading scheme (ETS) could also benefit, according to Christian de Perthuis, carbon tax expert and professor of economics at the University Paris-Dauphine. He says that putting a higher-than-EU-market carbon price on emissions (the price of ETS allowances is currently £15), will mean UK utilities spend more on emissions reduction, leading to a fall in the demand for ETS allowances.

“By unilaterally putting a floor price on carbon for utilities in the UK, Osborne will actually increase the constraint on the UK utilities sector but it will reduce for all other non-power utilities players subject to the ETS in the UK and in all other European countries, whatever their economic sector,” said de Perthuis.

With the introduction of a CFP, the chancellor said that the government would now not go ahead with a levy on energy bills to fund carbon capture and storage (CCS) projects. Instead, the government plans to fund CCS from general taxation, which has caused concern in the industry.

Dr Jeff Chapman, chief executive at the Carbon Capture & Storage Association, said: “The problem is that without a dedicated instrument like the levy there is no guarantee the money will be available, which creates uncertainty. It would have been better to retain the levy, at least for the four planned CCS demonstration projects.”

The chancellor extended Climate Change Agreements (CCAs) to 2023, and increased the climate change levy discount on electricity for those who sign up for CCAs from 65% to 80% from April 2013.


Subscribe to IEMA's newsletters to receive timely articles, expert opinions, event announcements, and much more, directly in your inbox.

Transform articles

EU and UK citizens fear net-zero delivery deficit

Support for net zero remains high across the UK and the EU, but the majority of citizens don't believe that major emitters and governments will reach their climate targets in time.

16th May 2024

Read more

There is strong support for renewable energy as a source of economic growth among UK voters, particularly among those intending to switch their support for a political party.

16th May 2024

Read more

Taxing the extraction of fossil fuels in the world’s most advanced economies could raise $720bn (£575bn) by 2030 to support vulnerable countries facing climate damages, analysis has found.

2nd May 2024

Read more

The largest-ever research initiative of its kind has been launched this week to establish a benchmark for the private sector’s contribution to the UK’s 2050 net-zero target.

2nd May 2024

Read more

Weather-related damage to homes and businesses saw insurance claims hit a record high in the UK last year following a succession of storms.

18th April 2024

Read more

The Scottish government has today conceded that its goal to reduce carbon emissions by 75% by 2030 is now “out of reach” following analysis by the Climate Change Committee (CCC).

18th April 2024

Read more

The Science Based Targets initiative (SBTi) has issued a statement clarifying that no changes have been made to its stance on offsetting scope 3 emissions following a backlash.

16th April 2024

Read more

While there is no silver bullet for tackling climate change and social injustice, there is one controversial solution: the abolition of the super-rich. Chris Seekings explains more

4th April 2024

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert

IEMA Cookie Notice

Clicking the ‘Accept all’ button means you are accepting analytics and third-party cookies. Our website uses necessary cookies which are required in order to make our website work. In addition to these, we use analytics and third-party cookies to optimise site functionality and give you the best possible experience. To control which cookies are set, click ‘Settings’. To learn more about cookies, how we use them on our website and how to change your cookie settings please view our cookie policy.

Manage cookie settings

Our use of cookies

You can learn more detailed information in our cookie policy.

Some cookies are essential, but non-essential cookies help us to improve the experience on our site by providing insights into how the site is being used. To maintain privacy management, this relies on cookie identifiers. Resetting or deleting your browser cookies will reset these preferences.

Essential cookies

These are cookies that are required for the operation of our website. They include, for example, cookies that enable you to log into secure areas of our website.

Analytics cookies

These cookies allow us to recognise and count the number of visitors to our website and to see how visitors move around our website when they are using it. This helps us to improve the way our website works.

Advertising cookies

These cookies allow us to tailor advertising to you based on your interests. If you do not accept these cookies, you will still see adverts, but these will be more generic.

Save and close