GEORGE Osborne slapped a minimum price on carbon emissions permits in yesterday’s Budget, which is set to hammer energy producers which rely on fossil fuels and add up to £17 a year to home energy bills by 2016.
The carbon price floor will force power generators to pay at least £16 per tonne of carbon produced from 2013 – around £5 above the expected 2013 price of an EU carbon permit.
The Treasury will pocket the difference if the EU permit price sinks below the new UK minimum, earning it up to £1.4bn a year by 2016 after the price floor rises to £30 a tonne.
EU carbon permits for March closed at €16.42 (£14.25) per tonne on the ICE Futures market yesterday, meaning £1.75 would go to the Treasury at the current price to make the difference up to the £16 floor.
Energy stocks including Drax, Scottish & Southern and Centrica fell after the speech.
EDF, which plans to expand its nuclear presence in the UK, welcomed the tax rise. “It will support the economics of renewables and carbon capture and storage and can reduce the need for specific measures to support those technologies,” said chief executive Vincent de Rivaz.
Consumer groups warned that the price increases for business would be passed on to consumers, although some experts were sceptical of the Treasury’s revenue forecasts.
“The carbon price floor is in line with current market expectations for carbon prices, so there is a reasonable prospect of the floor providing certainty to investors, without embedding a big extra cost to the power sector,” said PwC sustainability partner Richard Gledhill.
Greenpeace complained that the price floor handed a big subsidy to nuclear power plants, which emit little carbon.