In Parliament >> Floored by the carbon price

8th July 2013


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  • Business & Industry ,
  • Carbon Trading ,
  • Energy

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IEMA

Alan Whitehead, Labour MP for Southampton Test, says the government must rethink carbon floor price

The Finance Bill is what gives substance to the Budget each year, fleshing out the details of the chancellor’s announcements. It is in the small print of this Bill that you sometimes discover the true meaning of what was outlined in the Budget.

Such is the case with one largely forgotten item in this year’s mass of measures: the chancellor’s complete rewrite of the carbon price support.

The carbon floor price (CFP) will come into effect this year and will be charged to high-carbon-intensity energy generators at a cost of £4.94 per tonne of carbon emitted. In the small print of the Bill is the price the CFP will be over the next few years, almost doubling next year to £9.55 per tonne and rising, by 2016, to almost £15.

This wasn’t how it was supposed to be. When the CFP was first announced in 2010, it was proposed that the price of carbon should rise to £30 per tonne by 2020 – though this was mainly through the EU emissions trading scheme (ETS).

It was planned that the ETS would add a small top-up on to the likely CFP. Of course, the price of carbon has collapsed in Europe. It has fallen so far that the “target” of about £16 per tonne of carbon will now almost wholly be borne by the CFP.

The result of all this is that there is a wide gap in the energy cost between those EU countries sticking to the ETS and the UK with its CFP. It is almost certainly a policy that cannot be maintained long term unless something gives.

It could be that the ETS price recovers or that the UK changes the policy to ensure we get some actual carbon savings from the CFP, perhaps through the investment of the income from the tax in energy-saving measures. Or perhaps, we should simply be given our money back.

This will have to be debated in parliament. What will MPs do? Will they take the money and bury it or will they redistribute it to support low-carbon measures?

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