MPs have today criticised the government’s decision to set a unilateral carbon floor price saying it could have a “devastating effect” on UK industry and will artificially raise electricity prices for consumers.
The Energy and Climate Change select committee has also warned that the UK’s plans to “go it alone” on setting a carbon floor price will also have no overall impact on emissions because emitting firms can relocate to other parts of the European Union (EU).
The report into the EU’s emission trade system (EU ETS) said UK energy generators and heavy industry could be subject to an “exorbitant” top-up tax of up to £25 per tonne because the price of carbon in the rest of the EU is low - today’s carbon price is EUR 7.57 (£6.34) per tonne.
“Unless the price of carbon is increased at an EU-wide level, taking action on our own will have no overall effect on emissions other than to out-source them,” said committee chairman Tim Yeo.
“The Chancellor was right to say we won’t save the planet by putting the UK out of business,” added Yeo referring to Osborne’s remarks after last year’s Autumn Statement.
The committee recommends the UK should push for a strong and stable carbon price across the whole of the EU ETS instead of taking installing a carbon price for solely for the UK.
Carbon emissions trading scheme
The EU ETS is a cap-and-trade mechanism designed to establish a price for carbon and reduce greenhouse gas emissions in an economically efficient manner.
It began on 1 January 2005 and is now approaching the end of phase II - 2008 to 2012 - covering all 27 EU Member States as well as Norway, Iceland and Lichtenstein.
Chancellor George Osborne set a carbon floor price of £16 per tonne in 2013, rising to £30 in 2020 prices. It works as a “top-up” tax on emitters if the price of EU Allowances falls below the floor price. This would be the equivalent of £19.16 in estimated 2013-2014 prices.
The Government expects to raise £1.4bn in additional revenue by 2016 through EU ETS.