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Time to reconsider carbon tax plans (Financial Times)

    CPS energy guru Tony Lodge writes to the Financial Times on the Coalition's plans to introduce a carbon price floor. 

    To view this letter at its original destination, please visit the Financial Times website (£). 

    "Sir, The chancellor’s desire to support a large increase in new gas-fired power stations risks creating a large foreign UK gas dependency by 2020 (“Osborne in renewable row with Lib Dems”, July 20).

    Today, Britain still enjoys a diverse and balanced electricity supply system. In the winter months and first quarter of 2012, Britain relied heavily on its elderly coal plants to supply 42 per cent of electricity. The fuel regularly met 50 per cent demand. Gas accounted for just 27 per cent, which is its lowest share in the past 14 years. Gas is now increasingly expensive and generators have been keen to burn cheaper coal. In the first quarter of 2012, coal burn at power stations was at a higher level than any equivalent quarter since the 1990s. Coal is currently the fuel of choice for UK electricity generation.

    From next April the government will introduce a new carbon price floor that will tax carbon emissions at £16 per tonne of C02 emitted, rising to £30 in 2020. This measure will heavily tax the very fuels the UK is increasingly relying on to provide cheap and abundant electricity. Importantly, it will make generating electricity from coal uneconomic and force the closure of many baseload coal plants before 2020.

    Ironically, the government is encouraging more gas-fired stations both to replace coal and act as a bridge to new atomic power plants in the mid 2020s, but the price of gas makes this strategy high-risk, especially as the carbon price floor will similarly increasingly tax gas plants.

    The coalition should reconsider its unilateral carbon tax plans, look to strengthening pan-European carbon prices and support new, efficient coal plants alongside gas. Though the price floor will bring in a considerable sum for the Treasury, it will drive up energy costs for households and industry at a time when cheap energy should be a priority. It will also allow a huge disparity to open between UK and EU carbon prices that will affect the competitiveness of UK industry against its European competitors.

    Tony Lodge, Research Fellow, Centre for Policy Studies, London SW1, UK"

    To view this letter at its original destination, please visit the Financial Times website (£). 

    Date added: Monday 23rd July 2012