UK’s carbon floor price policy “pointless” says IPPR report

A report published today by the Institute for Public Policy Research (IPPR) has warned that Government plans to implement a carbon floor price will do nothing to reduce emissions, whilst leaving British homeowners facing further rises to their energy bills.

When announced in the March budget, the Government hoped that the Carbon Price Support (CPS) scheme would encourage investment in low-carbon energy projects such as wind farms and nuclear power stations, and thus generate a huge tax earning.

When the scheme comes into operation in 2013, energy companies will be required to generate a fixed level of green energy each year, buying permits for the right to emit additional levels of carbon.

The price of these permits will be set at a “floor price” of £16 for each tonne of carbon emitted, with the policy preventing the cost of permits dropping below this price. This figure will reach £30 by 2020 and nearly £70 by 2030.

The IPPR report Hot Air, argues that because the CPS only exists in the UK, then the extra costs will simply drive permits and carbon emissions offshore.

When the scheme was announced it was said to be designed in a way that it would supplement the price of carbon set in the EU Emissions Trading Scheme (ETS). However, by creating two carbon prices within the ETS, the IPPR conclude that the CPS will waste up to £1bn as cheap carbon permits from Britain flood the EU.

"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," the IPPR's Associate Director Andrew Pendleton said.

IPPR’s solution detailed within the report includes setting a lower carbon tax and for the Government to encourage other European countries to introduce comparable schemes.

"A European-wide problem needs a European-wide solution. The government should argue for a floor price across the EU ETS, not in the UK alone. This would provide more investor certainty across the continent, allow the quantity of permits to adjust, and prevent unintended consequences." the report states.

A further issue the report highlights is the fact that the scheme lacks credibility as a long-term guarantee. This is because it is part of Britain's annual Finance Bill with MPs needing to vote in order to maintain the scheme each year, undermining the project wholly, the IPPR warned.

Mr Pendleton also notes how the risk of the CPS scheme could bring policies aimed at tackling climate change into disrepute. "The Carbon Price Support scheme risks giving energy and climate change policy a bad name because it will do nothing to reduce carbon emissions while piling more cost on to the shoulders of already hard-pressed consumers in the UK," said the IPPR Associate Director.

"It’s been very poorly designed and is not principally about climate change. If you look at it in detail, it’s a revenue raiser," Mr Pendleton added.