This tax on the emissions of power companies "will do nothing to reduce carbon and threatens to damage the reputation of policies aimed at tackling climate change" according to the IPPR (the Institute for Public Policy Research).
The Carbon Price Support scheme, which is due to begin in 2013, is another plank of the UK Government's strategy to tackle climate change.
But the scheme will force up to 60,000 more UK households into fuel poverty as energy companies pass on the additional costs of paying the tax to consumers, the IPPR's analysis of the Government's own figures shows.
By introducing a floor price for carbon in only one of the European Union's ETS’s participating countries, IPPR says this will undermine the economic efficiency of the scheme.
“Because a floor price for carbon in the UK will depress the carbon price elsewhere in Europe, the UK will effectively hand over billions to European polluters," said Andrew Pendleton, its Associate Director.
Showing posts with label Carbon price support mechanism. Show all posts
Showing posts with label Carbon price support mechanism. Show all posts
Thursday, June 30, 2011
Tuesday, May 17, 2011
Government's electricity market reforms are 'half baked'
The Government's proposals for reforming the electricity market have come under a hail of attack for being short on detail and plain wrong in other areas, as well as opening a back door for subsidising nuclear power.
According to a committee of MPs, there is a gaping hole in the Government ambitions to reform the electricity market - set out in a consultation which closed on March 10 and which is awaiting Government response - and that is an absence of a plan for the wholesale market.
The wholesale market ″would not be changed by the measures proposed", says the Select Committee on Energy and Climate Change in their review of the Government's proposals.
“The consultation document proposes a number of "bolt on" measures that reform the subsidies and structures around the market, not the market itself", they continue.
The market dominance of the Big Six energy companies must be broken up they say, "in order to allow new entrants to invest in the UK's low-carbon future". Currently, they are almost unchallenged in the sector as they control both generation and supply, therefore there is little room for independent or decentralised generation.
“This lack of liquidity in the market makes it hard for potential investors" and new entrants, says the review.
The MPs also say that "the Government's 'one size fits all' approach will fail to bring forward the low-carbon investment we need".
Some generators such as nuclear and biomass which can provide continuous power will benefit from the kind of contracts proposed, but for intermittent generators such as wind and solar, and technologies like carbon capture and storage and electricity storage itself, the contracts are inappropriate.
It says that the proposed Feed-in Tariff with Contract for Difference is fine to expedite an extremely rapid rollout of nuclear power, "if that is the option the Government wishes to pursue," but MPs suggest other kinds of long term contract should be designed as well for other kinds of low carbon generation.
These contracts give a guaranteed price for generating electricity from nuclear power over the long-term in order to help finance the construction of the plans. However, this effectively amounts to a subsidy which is given to nuclear, whereas the Government is ostensibly opposed to such subsidy.
"Ministers ... don't want to own up to supporting [nuclear power]," said Committee chairman Tim Yeo. "This is understandable given the promise they made not to subsidise nuclear, but it would be deeply irresponsible to skew the whole process of electricity market reform simply to save face."
As a result, the government should immediately put together an independent team of experts to develop alternative financial incentives for all low carbon energy generators.
Juliet Davenport, CEO of Good Energy, a generator and supplier of renewable energy, welcomed this recommendation. "It is important that the Government creates a truly level playing field so that renewable energy doesn't miss out because of hidden subsidies for other technologies," she said.
The committee has other criticisms of the proposals.
There is not enough focus on energy efficiency in the review. "Demand reduction ought to be a primary focus of the Government's decarbonisation agenda, as the most cost-effective and environmentally effective method of climate change mitigation."
It "should be placed at the heart of EMR and the Government's climate change policy".
DECC proposes a carbon intensity of 100g CO2/kWh for electricity generation by 2030, compared to the present 490g CO2/kWh. But MPs say instead they should accept the recommendations of the Committee on Climate Change and let the electricity market review aim to achieve 40-60gCO2/kWh by 2030.
The level of the Carbon Price Floor is crucial to the success of the reforms. MPs criticise the Treasury for introducing the price in this year's Budget ahead of the review of market reform. The floor will start at around ｣16 per tonne of carbon dioxide in 2009 prices (equivalent to ｣19.16 in 2013-14 estimated prices) and follow a linear path to ｣30 per tonne in 2020 (in 2009 prices).
"We would have preferred the government to establish a nominal Carbon Price Support level until 2018 and then set a long-term trajectory based on advice from the Committee on Climate Change," the report says. "Until then, the Carbon Price Support represents little more than an additional energy tax, which will be passed on to consumers."
Furthermore, proposals for an Emissions Performance Standard (EPS) are ″half baked" say the MPs. "The EPS proposed in the consultation document would have no material impact and is therefore pointless. The prospect that the EPS will be tightened by unannounced amounts later on introduces additional political risk."
The caveat that the EPS could be changed later if it is not working just introduces more uncertainty into an already highly uncertain investment world, they say.
The Government also has a duty to explain to the public what the costs of decarbonisation are and how they will be met. To be sustainable the reforms must have public support.
More detail is also called for in other areas, such as interconnection, carbon price trajectories, the contribution of decentralised generation, technological improvements, the pace of electrification in the domestic heating and transport sectors, and what happens if the price of gas falls.
A target timetable for implementation must be published as soon as possible, once the details are right, to reduce the uncertainty that is deterring investment.
Electricity market reform must also be coordinated with other developments, such as the Energy 2050 strategy in Europe and the transmission pricing review.
This topic is too important to get wrong, they conclude. Without the ｣110 million of investment necessary in the electricity sector in less than 10 years, the UK will not meet its decarbonisation and energy security targets.
According to a committee of MPs, there is a gaping hole in the Government ambitions to reform the electricity market - set out in a consultation which closed on March 10 and which is awaiting Government response - and that is an absence of a plan for the wholesale market.
The wholesale market ″would not be changed by the measures proposed", says the Select Committee on Energy and Climate Change in their review of the Government's proposals.
“The consultation document proposes a number of "bolt on" measures that reform the subsidies and structures around the market, not the market itself", they continue.
The market dominance of the Big Six energy companies must be broken up they say, "in order to allow new entrants to invest in the UK's low-carbon future". Currently, they are almost unchallenged in the sector as they control both generation and supply, therefore there is little room for independent or decentralised generation.
“This lack of liquidity in the market makes it hard for potential investors" and new entrants, says the review.
The MPs also say that "the Government's 'one size fits all' approach will fail to bring forward the low-carbon investment we need".
Some generators such as nuclear and biomass which can provide continuous power will benefit from the kind of contracts proposed, but for intermittent generators such as wind and solar, and technologies like carbon capture and storage and electricity storage itself, the contracts are inappropriate.
Support for nuclear power
It says that the proposed Feed-in Tariff with Contract for Difference is fine to expedite an extremely rapid rollout of nuclear power, "if that is the option the Government wishes to pursue," but MPs suggest other kinds of long term contract should be designed as well for other kinds of low carbon generation.
These contracts give a guaranteed price for generating electricity from nuclear power over the long-term in order to help finance the construction of the plans. However, this effectively amounts to a subsidy which is given to nuclear, whereas the Government is ostensibly opposed to such subsidy.
"Ministers ... don't want to own up to supporting [nuclear power]," said Committee chairman Tim Yeo. "This is understandable given the promise they made not to subsidise nuclear, but it would be deeply irresponsible to skew the whole process of electricity market reform simply to save face."
As a result, the government should immediately put together an independent team of experts to develop alternative financial incentives for all low carbon energy generators.
Juliet Davenport, CEO of Good Energy, a generator and supplier of renewable energy, welcomed this recommendation. "It is important that the Government creates a truly level playing field so that renewable energy doesn't miss out because of hidden subsidies for other technologies," she said.
Energy efficiency is overlooked
The committee has other criticisms of the proposals.
There is not enough focus on energy efficiency in the review. "Demand reduction ought to be a primary focus of the Government's decarbonisation agenda, as the most cost-effective and environmentally effective method of climate change mitigation."
It "should be placed at the heart of EMR and the Government's climate change policy".
DECC proposes a carbon intensity of 100g CO2/kWh for electricity generation by 2030, compared to the present 490g CO2/kWh. But MPs say instead they should accept the recommendations of the Committee on Climate Change and let the electricity market review aim to achieve 40-60gCO2/kWh by 2030.
The level of the Carbon Price Floor is crucial to the success of the reforms. MPs criticise the Treasury for introducing the price in this year's Budget ahead of the review of market reform. The floor will start at around ｣16 per tonne of carbon dioxide in 2009 prices (equivalent to ｣19.16 in 2013-14 estimated prices) and follow a linear path to ｣30 per tonne in 2020 (in 2009 prices).
"We would have preferred the government to establish a nominal Carbon Price Support level until 2018 and then set a long-term trajectory based on advice from the Committee on Climate Change," the report says. "Until then, the Carbon Price Support represents little more than an additional energy tax, which will be passed on to consumers."
Furthermore, proposals for an Emissions Performance Standard (EPS) are ″half baked" say the MPs. "The EPS proposed in the consultation document would have no material impact and is therefore pointless. The prospect that the EPS will be tightened by unannounced amounts later on introduces additional political risk."
The caveat that the EPS could be changed later if it is not working just introduces more uncertainty into an already highly uncertain investment world, they say.
The Government also has a duty to explain to the public what the costs of decarbonisation are and how they will be met. To be sustainable the reforms must have public support.
More detail is also called for in other areas, such as interconnection, carbon price trajectories, the contribution of decentralised generation, technological improvements, the pace of electrification in the domestic heating and transport sectors, and what happens if the price of gas falls.
A target timetable for implementation must be published as soon as possible, once the details are right, to reduce the uncertainty that is deterring investment.
Electricity market reform must also be coordinated with other developments, such as the Energy 2050 strategy in Europe and the transmission pricing review.
This topic is too important to get wrong, they conclude. Without the ｣110 million of investment necessary in the electricity sector in less than 10 years, the UK will not meet its decarbonisation and energy security targets.
Wednesday, March 23, 2011
Osborne's pale green budget offers crumbs to the green sector
Chancellor George Osborne's first budget was billed as a “budget for growth", but the green shoots of recovery could have been stimulated to rise much faster. It offers crumbs to the green sector while doing nothing to tax pollution or wean the UK off oil.
Budget 2011 contains limited measures for funding investment in green technology, and for meeting the skills and enterprise gap perceived in not just the green sector but other sectors necessary to help Britain compete in a global economy.
These general measures include 21 new enterprise zones, new export credits, a technology and innovation centre, nine new university centres, doubling the number of university technical colleges to 24, an increase in work experience schemes and apprenticeships, as well as £100m of investment in new science facilities, income tax relief on enterprise investment schemes rising from 20% to 30%, and an increase in small companies' research and development tax credit to 200% in April and 225% in 2012.
On to the specific environmental measures.
In planning, there will be a new presumption in favour of sustainable development, so that the default answer to development is ‘yes’ to planning applications, although what this means in practice is yet to be defined.
Planning decisions will be localised about the use of previously developed land, removing nationally imposed targets while retaining existing controls on greenbelt land.
Surplus military land will be auctioned off for housing. This means that 20,000 new low carbon homes should be built by 2015, the budget says.
Mr Osborne announced a 12 month limit on considering planning applications, including appeals, as part otherwise yet-to-be-specified measures to “streamline the planning applications and related consents regimes removing bureaucracy from the system and speeding it up”. It's unsure what this means for local accountability.
The Green Investment Bank is to operate from 2012-13. The UK devoted just £12.6bn towards green investment in 2009-10 according to an independent report from the Public Interest Research Centre (PIRC), released yesterday.
This is half the minimum of £20bn that must be invested in each of the next ten years, according to the Treasury, and is less than 1% of UK GDP - or less than what Britain spends on furniture each year.
This is why it is welcome that the Chancellor George Osborne announced £3 billion rather than the £1 billion previously announced to set up the Bank, with £2 billion to be funded from the sale of assets, which includes £775 million net proceeds already received from the sale of High Speed I.
Mr Osborne said that the Bank would “support low-carbon investment where the returns are too long-term or too risky for the market”.
However, he resisted calls that the bank be allowed to borrow and lend with immediate effect, saying instead that it will have to wait until 2016 to do so.
Andrew Raingold, executive director of the Aldersgate Group, was amongst critics of this, saying: "We welcome the additional finance for the Green Investment Bank but it must have the power to borrow from day one. This would put the bank at the heart of Chancellor's plan for growth and not wait until the UK is overtaken in key green industries by competitors."
Mr Osborne did argue that the £3 billion will allow a further £15bn to be raised privately for investment in green infrastructure by 2014-15.
Besides the GIB, the Government is to introduce a carbon price floor for electricity generation from 1 April 2013.
This will start at around £16 per tonne of carbon dioxide and follow a linear path to £30 per tonne in 2020 to drive investment in the low-carbon power sector. The Treasury says that the carbon price support rates for 2013-14 will be equivalent to £4.94 per tonne of carbon dioxide.
It means that signatories to the Emissions Trading Scheme (ETS) will make up the difference between the actual price of carbon permits under the ETS and the agreed floor price. It expects to raise £740 million in the first year, rising to £1.07bn in the second year and £1.4 billion in the third year.
Friends of the Earth complained that the floor price is too low to make much difference (it is currently only £1.30 less than that) and will provide a "windfall for existing nuclear power".
Meanwhile, income from the Climate Change Levy is projected to increase from £0.7 billion now to £2 billion in 2015-16.
Reform to the Climate Change Agreements, which rewards businesses for energy efficiency, will cost the Treasury £140 million in 2013-16. These tax discounts will stay at 80% not reduce to 65% in 2013 as previously proposed, and the scheme will continue till 2023.
Adjustments to company car tax rates from 2013-14 are expected to bring in to the Treasury over the following three years an additional £390 million. A slight change to the Climate Change Levy exemptions in Northern Ireland will bring in an additional £15 million in the same period.
Negatively for the environment, the Aggregates Levy, which is intended to cut landfill from construction, is having its rate increase postponed this year, at a total cost to the Treasury of £90 million, but it will continue until 2021.
Similarly, the proposed increase in air passenger duty is to be deferred and this will cost the Treasury £145 million. However, wealthy owners of private jets will have to pay fuel duty for the first time.
The fuel duty escalator is also being cancelled, as long as oil prices remain high, and fuel duty is to be cut by 1p. Friends of the Earth wondered what this means for David Cameron's recent promise to "wean the UK off oil". Interestingly, the Treasury is predicting that oil prices will come down from today's highs of £69.3 per barrel to £66.2 in 2015-16.
As previously announced, there will be an increase in the standard rate of landfill tax by £8 per tonne to £56 per tonne on April 1 2011 and to £64 per tonne on 1 April 2012 but the lower rate of landfill tax will be frozen at £2.50 per tonne in 2012-13. The value of the Landfill Communities Fund will rise in line with inflation in 2011-12 to £78.1 million.
The proportion of the landfill tax liability paid by landfill operators into it will remain the same. Future decisions on the value of the fund will take into account the success of environmental bodies in reducing the level of unspent funds that they hold.
Despite previous promises to tax pollution more, there were no new initiatives here.
As predicted yesterday, carbon capture and storage is to get £1bn but there will be no special levy to support this technology, and any additional support will be funded from general spending.
Although Osbourne says that the government remains committed to providing public funding for four Carbon Capture and Storage (CCS) demonstration plants, there are concerns over whether the necessary development of this technology, seen as being crucial to reducing carbon emissions from existing and new fossil fuel plants, will go ahead on schedule.
To address the issue of water shortages, The Government is to consult shortly on making reforms to the existing WaterSure scheme, the approach to company social tariffs and options for additional government spending to provide further support for water affordability.
The Budget 2011 documents are available on the Treasury website.
Budget 2011 contains limited measures for funding investment in green technology, and for meeting the skills and enterprise gap perceived in not just the green sector but other sectors necessary to help Britain compete in a global economy.
These general measures include 21 new enterprise zones, new export credits, a technology and innovation centre, nine new university centres, doubling the number of university technical colleges to 24, an increase in work experience schemes and apprenticeships, as well as £100m of investment in new science facilities, income tax relief on enterprise investment schemes rising from 20% to 30%, and an increase in small companies' research and development tax credit to 200% in April and 225% in 2012.
On to the specific environmental measures.
Planning reform
In planning, there will be a new presumption in favour of sustainable development, so that the default answer to development is ‘yes’ to planning applications, although what this means in practice is yet to be defined.
Planning decisions will be localised about the use of previously developed land, removing nationally imposed targets while retaining existing controls on greenbelt land.
Surplus military land will be auctioned off for housing. This means that 20,000 new low carbon homes should be built by 2015, the budget says.
Mr Osborne announced a 12 month limit on considering planning applications, including appeals, as part otherwise yet-to-be-specified measures to “streamline the planning applications and related consents regimes removing bureaucracy from the system and speeding it up”. It's unsure what this means for local accountability.
Green Investment Bank
The Green Investment Bank is to operate from 2012-13. The UK devoted just £12.6bn towards green investment in 2009-10 according to an independent report from the Public Interest Research Centre (PIRC), released yesterday.
This is half the minimum of £20bn that must be invested in each of the next ten years, according to the Treasury, and is less than 1% of UK GDP - or less than what Britain spends on furniture each year.
This is why it is welcome that the Chancellor George Osborne announced £3 billion rather than the £1 billion previously announced to set up the Bank, with £2 billion to be funded from the sale of assets, which includes £775 million net proceeds already received from the sale of High Speed I.
Mr Osborne said that the Bank would “support low-carbon investment where the returns are too long-term or too risky for the market”.
However, he resisted calls that the bank be allowed to borrow and lend with immediate effect, saying instead that it will have to wait until 2016 to do so.
Andrew Raingold, executive director of the Aldersgate Group, was amongst critics of this, saying: "We welcome the additional finance for the Green Investment Bank but it must have the power to borrow from day one. This would put the bank at the heart of Chancellor's plan for growth and not wait until the UK is overtaken in key green industries by competitors."
Mr Osborne did argue that the £3 billion will allow a further £15bn to be raised privately for investment in green infrastructure by 2014-15.
Carbon price floor
Besides the GIB, the Government is to introduce a carbon price floor for electricity generation from 1 April 2013.
This will start at around £16 per tonne of carbon dioxide and follow a linear path to £30 per tonne in 2020 to drive investment in the low-carbon power sector. The Treasury says that the carbon price support rates for 2013-14 will be equivalent to £4.94 per tonne of carbon dioxide.
It means that signatories to the Emissions Trading Scheme (ETS) will make up the difference between the actual price of carbon permits under the ETS and the agreed floor price. It expects to raise £740 million in the first year, rising to £1.07bn in the second year and £1.4 billion in the third year.
Friends of the Earth complained that the floor price is too low to make much difference (it is currently only £1.30 less than that) and will provide a "windfall for existing nuclear power".
Meanwhile, income from the Climate Change Levy is projected to increase from £0.7 billion now to £2 billion in 2015-16.
Other environmental taxes
Reform to the Climate Change Agreements, which rewards businesses for energy efficiency, will cost the Treasury £140 million in 2013-16. These tax discounts will stay at 80% not reduce to 65% in 2013 as previously proposed, and the scheme will continue till 2023.
Adjustments to company car tax rates from 2013-14 are expected to bring in to the Treasury over the following three years an additional £390 million. A slight change to the Climate Change Levy exemptions in Northern Ireland will bring in an additional £15 million in the same period.
Negatively for the environment, the Aggregates Levy, which is intended to cut landfill from construction, is having its rate increase postponed this year, at a total cost to the Treasury of £90 million, but it will continue until 2021.
Similarly, the proposed increase in air passenger duty is to be deferred and this will cost the Treasury £145 million. However, wealthy owners of private jets will have to pay fuel duty for the first time.
The fuel duty escalator is also being cancelled, as long as oil prices remain high, and fuel duty is to be cut by 1p. Friends of the Earth wondered what this means for David Cameron's recent promise to "wean the UK off oil". Interestingly, the Treasury is predicting that oil prices will come down from today's highs of £69.3 per barrel to £66.2 in 2015-16.
As previously announced, there will be an increase in the standard rate of landfill tax by £8 per tonne to £56 per tonne on April 1 2011 and to £64 per tonne on 1 April 2012 but the lower rate of landfill tax will be frozen at £2.50 per tonne in 2012-13. The value of the Landfill Communities Fund will rise in line with inflation in 2011-12 to £78.1 million.
The proportion of the landfill tax liability paid by landfill operators into it will remain the same. Future decisions on the value of the fund will take into account the success of environmental bodies in reducing the level of unspent funds that they hold.
Despite previous promises to tax pollution more, there were no new initiatives here.
Carbon capture and storage
As predicted yesterday, carbon capture and storage is to get £1bn but there will be no special levy to support this technology, and any additional support will be funded from general spending.
Although Osbourne says that the government remains committed to providing public funding for four Carbon Capture and Storage (CCS) demonstration plants, there are concerns over whether the necessary development of this technology, seen as being crucial to reducing carbon emissions from existing and new fossil fuel plants, will go ahead on schedule.
Water shortages
To address the issue of water shortages, The Government is to consult shortly on making reforms to the existing WaterSure scheme, the approach to company social tariffs and options for additional government spending to provide further support for water affordability.
The Budget 2011 documents are available on the Treasury website.
Tuesday, March 22, 2011
Pale green budget tomorrow will cancel CCS levy and forbid Green Investment Bank from borrowing
George Osborne's first budget tomorrow will say that the Green Investment Bank will not be allowed to raise its own finance for some time.
And the levy on electricity bills which had been proposed to raise finance for carbon capture and storage (CCS) plants is to be dropped.
The levy was touted in last autumn's Spending Review as a means of raising billions of pounds for flagship CCS projects. In the review, Osborne said £1 billion was set aside for at least one CCS pilot, with a further three projects to be financed either by the levy or by public money.
But the levy is no longer on the cards following lobbying from industry. This argued that effectively there will already be four carbon taxes, which is complicated enough, and the levy would be a fifth - just too much. The four taxes are:
The carbon price support mechanism, currently the subject of a consultation, is also to be further described in tomorrow's budget.
City accountancy firm PricewaterhouseCoopers was amongst those arguing against the CCS levy. Its partner Mark Schofield has written: “The introduction of a floor price would be a significant change for many companies with high emissions, particularly if the Government decides to set this higher than the EU ETS traded permit price. It is likely that the Government will set a lower price initially, rising over time, but they can’t be too generous.
“One of the main criticisms from the industry is that the carbon floor price will add another layer of policy complexity to an already overcrowded energy supply chain policy mix. It may be difficult for potential investors in low carbon generation to distil from these overlapping policy measures a reliable carbon price signal to guide investment decisions, and for users of energy to understand the overall policy objective.”
This raises questions over how or whether the three further CCS projects will be built. Scottish and Southern Energy, Powerfuel Power Limited, Alstom UK and Ayrshire Power are amongst the companies competing to build them.
The prospect of being able to capture carbon from fossil fuel burning power stations has become key to many policies about tackling climate change while keeping business as usual. This is despite the fact that there is no large-scale commercial demonstration that the technology works anywhere in the world.
The EU will be part subsidising the projects. CCS supporters are hoping that the floor price for carbon will be set high enough to raise sufficient funding for CCS. But then so will renewable energy generators and nuclear newbuild supporters.
The Treasury itself says (in the CPSM consultation document) that around £110 billion in new generation and grid connections alone is required by 2020. The same amount again will be required for further upgrades.
Where will this investment come from? Great hopes have been pinned on the Green Investment Bank.
Osborne is expected to pledge tomorrow that £3 billion will be given to kickstart the Bank. He will say that he believes this will be enough to raise £18 billion of investment into green projects by 2014-15, with the rest coming from the private sector.
This is still a fraction of what is required, which has raised criticism of the Treasury for blocking Energy Secretary Chris Huhne's demand that the new Bank be able to borrow money itself.
Osborne will say tomorrow that the Bank will be able to issue bonds once the nation's debt is falling as a poor portion of grass domestic product–anticipated after April 2015. But for many this will not be soon enough.
Huhne has been locking horns with the Treasury, demanding that it be created as a fully fledged bank. The Treasury's line has been that allowing small investors to take part in the bank's investments would be too complicated, and any borrowing liabilities would be on the government balance sheet, thereby making the deficit appear worse.
“This throws into doubt Britain’s chances of building a low carbon economy and means we will now lose jobs and industries to places like China, Germany and Silicon Valley in California,” said John Sauven, Greenpeace executive director.
The bank is expected to be funded by sales of assets, such as the government one third share in Urenco, the company which enriches uranium for nuclear power stations.
And the levy on electricity bills which had been proposed to raise finance for carbon capture and storage (CCS) plants is to be dropped.
The levy was touted in last autumn's Spending Review as a means of raising billions of pounds for flagship CCS projects. In the review, Osborne said £1 billion was set aside for at least one CCS pilot, with a further three projects to be financed either by the levy or by public money.
But the levy is no longer on the cards following lobbying from industry. This argued that effectively there will already be four carbon taxes, which is complicated enough, and the levy would be a fifth - just too much. The four taxes are:
- the Climate Change Levy (CCL) - since 2001, taxing fossil fuel energy supply to those businesses without a climate change agreement (CCA) with DECC (which gives 80% - reducing to 65% from next month - reduction on this tax)
- the CRC Energy Efficiency Scheme - beginning in 2012, which will raise £1 billion a year by 2014-15 from businesses who consumed over 6,000 MWh in 2008
- the EU Emissions Trading Scheme (affecting generators and the metals, mineral, and pulp and paper industries) - now, most permits are given away free, but the proportion will reduce significantly in 2013
- the new carbon price support mechanism (CPSM), designed to tax fossil fuels used in electricity generation (by removing CCL exemptions from 2013) to make generators' investment in CCS, renewable and nuclear generation more favourable.
The carbon price support mechanism, currently the subject of a consultation, is also to be further described in tomorrow's budget.
City accountancy firm PricewaterhouseCoopers was amongst those arguing against the CCS levy. Its partner Mark Schofield has written: “The introduction of a floor price would be a significant change for many companies with high emissions, particularly if the Government decides to set this higher than the EU ETS traded permit price. It is likely that the Government will set a lower price initially, rising over time, but they can’t be too generous.
“One of the main criticisms from the industry is that the carbon floor price will add another layer of policy complexity to an already overcrowded energy supply chain policy mix. It may be difficult for potential investors in low carbon generation to distil from these overlapping policy measures a reliable carbon price signal to guide investment decisions, and for users of energy to understand the overall policy objective.”
This raises questions over how or whether the three further CCS projects will be built. Scottish and Southern Energy, Powerfuel Power Limited, Alstom UK and Ayrshire Power are amongst the companies competing to build them.
The prospect of being able to capture carbon from fossil fuel burning power stations has become key to many policies about tackling climate change while keeping business as usual. This is despite the fact that there is no large-scale commercial demonstration that the technology works anywhere in the world.
The EU will be part subsidising the projects. CCS supporters are hoping that the floor price for carbon will be set high enough to raise sufficient funding for CCS. But then so will renewable energy generators and nuclear newbuild supporters.
The Treasury itself says (in the CPSM consultation document) that around £110 billion in new generation and grid connections alone is required by 2020. The same amount again will be required for further upgrades.
The Green Investment Bank
Where will this investment come from? Great hopes have been pinned on the Green Investment Bank.
Osborne is expected to pledge tomorrow that £3 billion will be given to kickstart the Bank. He will say that he believes this will be enough to raise £18 billion of investment into green projects by 2014-15, with the rest coming from the private sector.
This is still a fraction of what is required, which has raised criticism of the Treasury for blocking Energy Secretary Chris Huhne's demand that the new Bank be able to borrow money itself.
Osborne will say tomorrow that the Bank will be able to issue bonds once the nation's debt is falling as a poor portion of grass domestic product–anticipated after April 2015. But for many this will not be soon enough.
Huhne has been locking horns with the Treasury, demanding that it be created as a fully fledged bank. The Treasury's line has been that allowing small investors to take part in the bank's investments would be too complicated, and any borrowing liabilities would be on the government balance sheet, thereby making the deficit appear worse.
“This throws into doubt Britain’s chances of building a low carbon economy and means we will now lose jobs and industries to places like China, Germany and Silicon Valley in California,” said John Sauven, Greenpeace executive director.
The bank is expected to be funded by sales of assets, such as the government one third share in Urenco, the company which enriches uranium for nuclear power stations.
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