The UK government’s levy on coal and gas, which is called the carbon price floor, was implemented earlier this year and encourages firms to invest in low-carbon energy production. It adds around £5 to the average energy bill – but this is set to increase.
Macquarie said that the tax was “counterproductive from an environmental, economic and taxation point of view and therefore unsustainable” and “will increasingly affect market behaviour by 2020”.
“We see a £15 to £20 per megawatt hour difference between power prices with and without this floor – which is about 10 per cent of the retail bill,” said the bank’s research.
The warning from the city follows a heated debate over the cost of green taxes, which energy firms blame for driving up household bills.
Last week, Conservative Prime Minister David Cameron pledged to “roll back” the green energy levies strongly supported by his Coalition partner, the Liberal Democrats.
Liberal Democrat Deputy Prime Minister Nick Clegg then suggested that the levies could be switched from bills to taxes. The Coalition is thought to be close to making an agreement on the issue.
The Conservative push to cut down green charges rolled on this weekend, after energy minister Greg Barker told The Sunday Telegraph that subsidies for solar panels will be scrapped within five years to help lower consumers’ energy bills.
The debate coincides with new research from energy efficiency fund Energy Works, which found that 70 per cent of firms in London say they will not meet their growth targets due to rising energy costs.
According to the study of 200 business owners, facilities managers and landlords in the capital, 36 per cent are expecting to miss their growth targets by 10 per cent this year.