Floor price to cost £9.3 billion

A new report reveals that the planned carbon floor price (CFP) could reduce UK emissions by 5.3% by 2020, but cost businesses an additional £9.3 billion in higher energy costs, undermining competitiveness.

According to analysts Point Carbon, the introduction of the CFP, which was announced in the Budget, will cut carbon emissions by 67 million tonnes between 2013 and 2020, equivalent to the emissions from six 400MW gas-fired power stations.

They calculate that the CFP could rise by 2020 to €54 (£47) a tonne, well above the £30 claimed by the chancellor in his Budget announcement and a significant premium on the €36 (£31) the analysts predict the carbon price will rise to across the rest of the EU.

“This tax represents an additional £9.3 billion burden on UK business not faced by other European companies, impacting UK competitiveness as UK businesses will face higher power prices,” said Point Carbon’s Sebastian Mankowski.

The forecasts follow a warning from Tata Steel (formerly Corus) that the CFP is a potentially severe blow to the sustainability of steelmaking in the UK.

“The CFP will impose additional unilateral emission costs specifically on the UK steel industry by seeking to artificially ensure that these costs cannot fall below government-set targets which no other European country will enforce. This is an exceptionally unhelpful and potentially damaging measure,” said Karl-Ulrich Köhler, chief executive at Tata Steel’s European operations.

Announcing the CFP, the chancellor said its introduction would play a very important role in providing incentives for investment in cleaner technologies as it is based on the “polluter pays” principle.

It will apply to energy generators from 1 April 2013 and will initially be set at £16 per tonne, rising to a target £30 per tonne in 2020.

This will drive £30–40 billion of new investment in low-carbon electricity generation, says the Treasury, equivalent to 7.5–9.3GW of new capacity.