Low-cost, reliable and abundant energy is essential to reduce fuel poverty and keep British industry competitive (The Times)

CPS energy expert Tony Lodge wrote to The Times on 23rd January 2013 regarding the staggering gap in energy prices that could appear between the EU and UK as a result of the forthcoming carbon price floor.

Sir, The energy charities and businesses which have written to the Prime Minister to warn of soaring fuel poverty miss the point in their call for the Government to effectively pay back to households the money it raises from the new carbon tax (report, Jan 21). Low-cost, reliable and abundant energy is essential to reduce fuel poverty and keep British industry competitive. It is incoherent to impose green taxes on electricity generators and then give money back to households in the form of subsidies. In the case of energy-intensive industry, the coalition wants to see a manufacturing-led economic recovery but this will only be forthcoming if energy prices are competitive by international standards.
April’s new carbon price floor will increase the price paid by electricity generators for the carbon dioxide they emit by 325 per cent on present figures. Given that the UK relies on carbon-emitting fossil-fuelled plants to generate more than 75 per cent of its electricity, this new tax will cause electricity prices to spike and then continue to rise in line with the carbon price floor’s steep trajectory. In recent days, the Europe-wide price for carbon has collapsed to a record low of €4.70 but Britain will introduce its own rising carbon price floor in April, starting at €20 a tonne. This will create a huge disparity between EU and UK carbon prices.
Rather than raising money through energy taxes and then handing back subsidies, companies and charities should push for the Government to abandon its plans to impose a unilateral new UK carbon tax and instead argue that Britain’s carbon prices should remain the same as EU competitors, while examining viable ways to strengthen EU-wide carbon prices.

Tony Lodge
Research Fellow Centre for Policy Studies

Date Added: Wednesday 23rd January 2013