Isra-Mart srl: UK Government’s carbon floor price will waste £1 billion, claims report

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The UK Coalition Government’s plan to set a carbon floor price within the European Emissions Trading System (ETS) could waste up to £1 billion by 2020, according to a report from think tank Institute for Public Policy Research (IPPR).

In the March Budget this year, Chancellor George Osborne announced that the Government would introduce a carbon floor price of £16 per tonne of CO2 starting in 2013, which would rise to £30 per tonne by 2020.

But the report, Hot Air, says that the carbon floor price or Carbon Price Support, which will be levied as an additional tax on carbon emissions from energy generation and calibrated to supplement the carbon price in the EU ETS, will not deliver its promised benefits.

According to the IPPR’s analysis, setting a floor price will not cut emissions because a higher carbon price in the UK will lead to a lower price elsewhere and the same amount of carbon being emitted.

And as energy companies pass the additional tax costs onto consumers, the introduction of a floor price could push an extra 60,000 UK households into fuel poverty.

The IPPR says the scheme even fails to give the energy market the long-term certainty that it is crying out for, because the level is reviewed and could be changed annually.

The report recommends that the Coalition should lobby for a Europe-wide carbon floor price, which would provide industry certainty across the region.

But if the UK insists on opting for unilateral action, the floor price should be set low to minimise any unintended consequences.

“The Carbon Price Support scheme risks giving energy and climate change policy a bad name because it will do nothing to reduce carbon emissions while piling more cost on to the shoulders of already hard-pressed consumers,” says Andrew Pendelton from ippr. “At a time of austerity and efficiency, wasting £1 billion is inexcusable; it’s enough to finance a second carbon capture and storage plant.”