Carbon price bad for business and environment

27th January 2012

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Introducing an independent carbon price floor could devastate UK industry's ability to compete in Europe and harm the bloc's efforts to cut emissions, warn MPs

The Treasury’s plans to set a price for a tonne of carbon above that set by the EU emissions trading scheme (ETS) have been labeled a revenue-raising exercise that will not help to encourage the deployment of renewable energy and risks off-shoring emissions to other EU countries by the energy and climate change select committee.

In its latest report examining the ETS, the committee concludes that the scheme has the potential to produce real environmental benefits and promote international action on climate change. However, it claims that individual action by member states, such as the UK’s planned carbon price floor, will undermine its effectiveness.

Higher carbon prices in the UK will artificially raise the price of electricity, according to the report, creating an incentive for heavy industries to relocate operations and to import more electricity from the continent.

“The policy risks the economic future of conventional electricity generation in the UK… Effectively subsidising higher fossil fuel emissions elsewhere in Europe,” it states.

Tim Yeo, chair of the committee, warned: “Unless the price of carbon is increased at an EU-wide level, taking action on our own will have no overall effect on emissions other than to out-source them.

“A revenue raising exercise disguised as a green policy won’t help anybody - the price of carbon has to be increased at an EU level to kick start investment in clean-energy.”

While a Treasury spokesperson defended the government’s plans, saying the carbon price floor was vital in reducing uncertainty for investors in low-carbon electricity generation, the committee’s conclusions have been welcomed by industry representatives.

Gareth Stace, head of climate and environment at the EEF, the manufacturers’ organisation, said: “We have long said that carbon price floor is not needed to achieve a significant shift to low-carbon electricity generation. This policy aim can be better achieved through other measures such as a well-designed feed-in tariff scheme based on contracts for difference.

“The carbon price floor is seen as purely a government revenue generation scheme that adds unilateral costs onto UK manufacturers. The government should scrap it when it is fiscally possible and focus on decarbonising the energy sector.”

The committee also concludes that feed-in tariffs would be more effective than a unilateral carbon price in supporting low-carbon technologies, but its key message is that the UK government must work to ensure the success of the EU ETS.

It states that an over-allocation of emissions permits and a collapse in the price of carbon must be tackled if the scheme is to live up to its potential.

The committee wants the UK to push for the tougher emissions reduction target of 30% by 2020 and improvements that will enable the ETS to better react to changes in the economic environment so the volatility in price that has been seen since its launch is checked.

In other findings, the committee dismisses claims that the ETS threatens the global competitiveness of the EU-based heavy industry saying the threat of carbon leakage has been exaggerated by lobbying parties.

It also warns the Treasury to be careful not to over compensate energy-intensive sectors that are already receiving support from EU. MPs recommend that the government makes any further support conditional on disclosure by industry of the benefits of receiving free ETS allowances and the publication of the value of support measures per company.


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