Delays in UK green policies could dissuade investment in the short term

One of the many disappointments in one of the least green budgets you could imagine was the lack of detail about key elements in the coalition Government’s green agenda. Having announced that they intend to intervene in the energy market in various ways to support low carbon investment it is important that a clear timetable is adhered to and yet there were no more details made available in yesterday’s budget. If ideas such as the green investment bank and introducing a carbon floor price take a long time to be realized, rather than encourage more investment, they are likely to dissuade investors who will not want to commit funds to projects if the rules of the game are about to be changed.

The issue closest to our heart is the potential introduction of a floor price into the carbon market in the UK and we’ve written a briefing looking at what I means and how it might operate.

The basic idea is to reform the existing Climate Change Levy so that it applies upstream and acts as an insurance policy against lower than expected prices in the carbon market. There are lots of details that need to be fleshed out before a conclusion can be reached about whether it is a sensible policy or not.

A few things can be said already, however:

Reform of the CCL is long overdue as it currently taxes energy use not the carbon content of the energy used, so looking again at its design is a welcome development.

The carbon floor price may create a clearer investment opportunity in the UK, however, it will not save a single tonne extra of carbon unless fewer permits are issued into the market. (This is because caps are preset by the number of permits handed out so any policy that just affects price and not the supply of permits has no additional environmental impact overall). So in terms of value for money it must be assessed as an industrial rather than environmental policy. And it must not become an alternative to seeking the long term solutions to the problems in the carbon market which are tighter caps, more use of auctioning and more limits on offsetting.

Finally, if introduced now it has the potential to deliver large windfalls to existing low carbon generation currently on the system and already paid for/ subsidised by the public purse or via our energy bills. One of the main beneficiaries would be EDF/British Energy who currently operate a large portion of the UK’s existing nuclear power stations. They also have public plans to build more.

Call me cynical but this could be a well-timed windfall-generating policy mainly benefiting one major company. UK consumers of electricity should be very interested in this and demand to know the proposed details as soon as possible.