Your location:

May’s chance to abolish the Carbon Price Floor and help the JAMs

    In 2016, Theresa May pledged that the Conservative party would “put [themselves] at the service of ordinary, working people and...strive to make Britain a country that works for everyone – regardless of where they’re from”. The upcoming General Election, set to be held for 8th June, provides the perfect opportunity for May to deliver on these pledges, by focusing her manifesto on a bold set of policies aimed at benefiting UK industry and the growing percentage of the population that are ‘Just About Managing’ (JAMs). One such policy should be a wider review of energy and climate policy along with be the abolition of the carbon price floor. The carbon price floor was introduced in April 2013 to place a price on greenhouse gas emission and encourage a transition to a low carbon economy and continues to have  negative consequences for both energy intensive industries and customers’ energy bills. In the Autumn Statement 2016, Phillip Hammond pledged to cap carbon price support rates at £18t/CO2, with the Spring Budget 2017 stating that ‘starting in 2021-22, the government will target a total carbon price and set the specific tax rate at a later date, giving businesses greater clarity on the total price they will pay’. The upcoming election provides May the perfect opportunity to review the impact of renewable subsidies and the carbon price floor on both industry and consumers, strengthening her commitment to the ‘ordinary, working people’.

    The carbon price floor has a detrimental effect on the UK’s energy intensive industries, industries where businesses have high energy costs as a share of their total gross value added and are therefore more susceptible to any increases in energy costs. Following the Autumn Statement, a spokesperson for the Engineers Employers Federation stated that they “would like to have seen a complete scrapping of the Carbon Price Floor, which is a business-unfriendly concept in terms of international competitiveness”. During the Parliamentary debate on the Steel Industry in 2016, Stephen Doughty MP argued that “despite the energy intensive industries compensation package, we are still seeing prices that are in the region of 25% higher than in Germany”. The Carbon Price Floor keeps the prices of carbon higher in the UK than other countries, ‘effectively subsidising other Member States at the expense of the UK consumer’. Civitas have argued that the carbon price floor ‘imposes costs on UK firms that their competitors do not face’ and that these prices should not be artificially inflated to the detriment of UK firms. Prior to the introduction of the carbon price floor, a report published by the Energy and Climate Change Select Committee warned of its impact on UK industry. By raising the price of electricity in the UK through an increase in the price of emissions, the carbon price floor creates an incentive for increased imports of electricity. They argued that carbon price floor ‘has the potential to damage the competitiveness of UK industry at a time when energy intensive sectors have an important role to play in promoting economic recovery’.

    Further costs on the energy intensive industries have unsurprisingly trickled down to consumers. By funding green energy subsidies, the government has allowed big energy companies to add them to the energy bills of consumers, with think tank Policy Exchange  proposing that roughly 70% of the costs will be passed on to UK consumers. Doug Parr, spokesperson for Greenpeace, highlighted these implications of such subsidies on renewables and argued that “[The CPF is] putting up people’s energy bills for no environmental gain – giving ‘green taxes’ a bad name without achieving anything”. Civitas has reported that the impact of green energy subsidies on energy intensive industries could end up costing every British household £600 a year by 2020, and more recently the Centre for Policy Studies calculated that these policies will cost UK households roughly £466 a year by 2020.

    By inadvertently increasing the energy bills of UK consumers, the carbon price floor, along with other energy policies, hurts the JAMs more than the rich. Matthew Spencer, director of The Green Alliance think tank, argued that there are “no measures to protect people in fuel poverty from the resulting impact on energy prices”. In a recent Economic Bulletin on ‘Help for JAMs without breaking the bank’, the Centre for Policy Studies found that ‘the poorest decile of household spends, on average, around 10% of their expenditure on energy’ compared to 5% and 3% for the middle and top deciles respectively. By abolishing the Carbon Price Floor and introducing a policy to address the issue of energy costs and the impact of climate policy more broadly in their Manifesto, May can take positive steps towards improving the incomes of the increasing proportion of the population that are ‘just about managing’.

    The decision to call a snap election, while negotiating the UK’s exit from the European Union, places the Conservative Party in a favourable position with regard to reviewing current energy policies. Despite having little impact on overall greenhouse gas emissions, the carbon price floor continues to act as a regressive tax on the UK’s poorest households and penalises UK industry as UK generators of fossil fuel based electricity pay a carbon price over three times higher than their EU counterparts. Centre for Policy Studies have emphasised that ‘any strategy to help the JAMs should therefore address the critical issue of energy costs’, and the Prime Minister must confront the negative consequences of the Carbon Price Floor on UK consumers in her upcoming manifesto to ensure she makes Britain ‘a country that works for everyone’.

    Be the first to make a comment

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.