Budget pressure mounts on carbon price floor

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Budget pressure mounts on carbon price floor

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Pressure is mounting on the UK’s tax on carbon emissions from energy ahead of the Budget this Wednesday (19 March).

There have been conflicting calls from suppliers and commentators, some urging the Government to scrap it or keep it.

Writing in the Telegraph over the weekend, EDF Energy’s CEO argued in favour of keeping it, describing it as “of all the environmental measures… [it] is the most cost-effective way to cut emissions”.

Vincent de Rivaz said: “Two things tell us that the policy is working. First, it is tipping the balance away from coal to lower carbon gas at a time when many relatively modern gas powered stations have been closed or mothballed.

“Second, it is encouraging spending on new low-carbon power generation such as wind, biomass and nuclear to give us a more resilient and balanced energy system.”

Other commentators such as Tony Lodge, Research Fellow at right-leaning thinktank Centre for Policy Studies have railed against the carbon tax.

Yesterday he claimed the carbon tax could soon mean wholesale UK electricity prices “almost double those in Germany or Italy”, declaring in an article on Conservative Home: “We Conservatives need to rid this albatross and do it quickly; this week should be a start.”

Many large energy users are hoping for a compromise: a freeze.

One consultancy suggested this would actually spell lower prices for the next couple of years.

Phil Grant, Partner in the Energy Advisory Practice at Baringa Partners said: “If the carbon price floor is held constant for 2016/2017 at the same level as 2015/2016, we estimate that power prices will be £2-£3/MWh lower than if the Government retained the original carbon price floor trajectory.”

He said this would mean coal power plants remain competitive with gas ones longer into this decade.

Conversely this would create more uncertainty for gas-fired plants as well as renewable energy developers under the Renewables Obligation, he claimed.

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