Carbon Floor Price, skunk works and committee room fourteen

And so back to Parliament to hear what her Majesty has in store for us this session. I see that the word ‘climate change’ creeps into the Most Gracious Speech, immediately above the words ‘other measures will be laid before you’. I also observe that our Energy Secretary of State has been busy during the brief recess, announcing that he and eight other energy and environment ministers from EU states have got together to produce a strong statement demanding that the commission and the European Parliament get together to sort out the EU Emissions Trading Scheme by the end of July, latest. That’ll be the revival of the proposal to relate the future price of traded allowances by ‘backloading’ large numbers of them which was ambushed in the EU Parliament just recently by among others , a large cohort of British Conservative MEPs.  So it’s good to see whose side our Government is on, then, even if some of the major coalition partners MEPs aren’t.

However, even as the ink dries on the message of hope from Ed and pals, a subtler message wafts towards us from the Committee Corridors, where the remaining clauses of the finance bill will be debated next week. One of those, clause 197, is, on the face of it, a simple clause to uprate the Carbon Floor Price. But then, looking a little further we see that the next clause introduces a whole new schedule which junks all the previous legislation on carbon floor price and replaces it with new provisions. In short, the Carbon Floor Price will, by the end of next week have been fully decoupled from what might happen to the European Emissions Trading Scheme, even as some members of the Government work to retrieve EU ETS.

To see just how much the decoupling will consist of, we need to wind back to the Treasury (yes, I’m afraid it’s them again) response to consultation paper  that came out in 2010, heralding the introduction of the first floor price this spring (2013).  And here’s the chart that showed how the floor price had been constructed – an aim of moving up to a price of £30 a tonne of CO2 by 2020, with the initial ’tax’ per tonne in the UK coming in at £4.94 – rather higher than the £1 suggested in the original consultation, but as you can see, shadowing the EU ETS upwards with an increment of about £2 per year.


All that nonsense has long been junked, though. What has happened since is that, each year the ‘indicative’ rates forward from the starting point get tweaked, and that then becomes the real price the year after. Thus in 2010, the price per tonne was £4.94 for 2012-13, £7.28 for 2013-14, and £9.80 for 2015-16.  Then in budget 2012, the second year figure morphed into £9.55, and finally, upstairs in Committee Room 14 or whatever, they will be putting the final nail in the coffin of the 2010 paper by putting into place a ‘real’ next year figure of, yes, £9.55 and then a new ‘real’ price of £12.06 per tonne for 2015-16 and a whopping ‘indicative’ £14.86 for 2016-17.

We might think a carbon floor price is a good thing, combined with EU ETS, but entirely separate from it, and predicated on a virtual zero price for the next three years out? Not so sure. Obviously, from Treasury’s point of view  it is good business raking in vast sums of money with no hypothecation on the pretence that (as the HMRC budget note tells us)  ‘the carbon floor price is designed to encourage additional investment in low carbon generation by providing greater support and certainty to the carbon price.’ All said with a straight face, of course, but we need to remember that the Carbon Floor Price, so long as EU ETS exists, does not save an ounce of CO2, since the allowances that would have been traded simply go elsewhere in Europe, probably to the longer term detriment of the system itself.

So to summarise, in case anyone’s got a bit lost by now:  Treasury (and by the way the nuclear industry for reasons set out here) get lots of free money based on a projected virtually nil price for ETS and its replacement with a tax, no carbon is saved from being emitted, and the claim can be made that this is all ’encouraging investment in low carbon power’. All quite neat, except of course, unless the EU ETS allowance trading price recovers, as Ed Davey is clearly determined that it should. I wouldn’t bet anything at all on the chances of those indicative figures coming down in the event of that happening: indeed the business up in committee corridor next week, which will probably be passed, is to ensure they don’t. Well done once again, George.

One thought on “Carbon Floor Price, skunk works and committee room fourteen

  1. Hi Alan,

    I’m a bit new to all this and currently grasping with the complexities of EMR. You say

    “so long as EU ETS exists, does not save an ounce of CO2, since the allowances that would have been traded simply go elsewhere in Europe”

    Are you saying the UK is producing its own allowances so that the ones they would have bought from the EU stay on the market and can be bought from elsewhere? I.e. producing even more allowances which is part of the reason EU ETS is in such a mess?

    I thought that the carbon price floor was about UK companies having to pay a bit extra for the allowances they were buying from the EU?

    Sorry for the confusion!

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