One of the budget items presented by the United Kingdom’s Chancellor, George Osborne, on 19 March 2014 confirmed the widely anticipated cap on the carbon price floor as a measure to cut energy costs for business consumers.
The carbon price floor was announced in the 2011 Budget and introduced on 1 April 2013. It is a tax on electricity generators passed on to business consumers via their electricity bills and was intended by the Government to incentivize investment in low-carbon generation.
It is currently £4.94 per tonne of carbon dioxide rising to £9.55 per tonne from 1 April 2014. The carbon price floor will rise to 18.08 per tonne of carbon dioxide from 1 April 2015 but will then remain at that level until the end of the decade. Until the Budget 2014 announcement it was due to increase to £30 per tonne of carbon dioxide by 2020.
The Chancellor announced four measures representing a £7 billion package to support reduced energy bills for British manufacturers as follows:
- A cap of £18.08 per tonne of carbon dioxide on the carbon price floor, taking effect from 1 April 2016 and lasting for the rest of the decade.
- The compensation scheme introduced last year for indirect EU ETS and carbon price support scheme for energy intensive industries is extended by four years to 2019-20. This scheme acts to compensate these generators from the requirement to balance their emissions through the purchase of allowances in accordance with EU ETS;
- A new compensation scheme, worth almost £1 billion, for energy intensive industries will be introduced from 2016-17 to help protect them from the electricity costs associated with the Renewables Obligation and Feed-in Tariff schemes.
- Exemption from the carbon price floor on fuel used in Combined Heat and Power (CHP) plants for electricity generated to supply manufacturing firms from 1 April 2015.
As reported widely, the carbon price floor has been controversial since its introduction in 2011. Observers anticipated it would drive up wholesale energy costs and while failing to cut emissions, saying that any UK emission reduction would lead to increased emissions elsewhere in the ETS. The Government has resisted calls for it to be scrapped but recognising the added political pressure over the rise in energy bills has offered a compromise position through this Budget.
According to the Government, the compensation package means that energy intensive industries will be “compensated for all government policy designed to support low-carbon and renewable investment up until 2019-20”.
For further details, the full copy of the Budget 2014 can be found at http://bit.ly/1dprP9q