The UK is to unveil sweeping reforms of the power market including proposals to set a price floor for carbon designed to give certainty to investors in low-carbon generation.
According to the Financial Times, the UK Treasury is expected to propose a carbon tax that would support the price of the carbon dioxide permits polluters must buy under the EU trading scheme. These permits today trade at about EUR15 ($19.8) per tonne of carbon.
The power industry argues the carbon price needs to be at least around EUR35 a tonne. The new tax would kick in when the price of the permits falls below a set level.
Under the scheme the price would start low then ratchet up over the years to 2020 by which time the government must meet tough climate targets, according to industry executives.
The UK Department of Energy and Climate Change (DECC) will also announce a consultation expected to propose a range of options to support low carbon sources of power generation, including:
1. A “feed-in tariff” guaranteeing low-carbon energy generators a higher return than they could expect from the market or an alternative such as the creation of an obligation on suppliers to provide a certain amount of energy from low-carbon sources. This would include new nuclear;
2. A new emissions performance standard, setting limits for the carbon dioxide any new power station could emit. This is likely to, in effect, kill off new coal plants unless they fit equipment to capture and store emissions. It is likely that gas plants will be spared the same restrictions;
3. New capacity payments to reward generators for building plants that will often stand idle, but can be called on, which are likely to favour flexible gas-fired power plants. As an alternative, National Grid, which runs the electricity transmission network, could be given powers to commission back-up plants.
The government has been clear there will be no public subsidy for new nuclear and it is understood to have taken legal advice about the possible new measures on this point. DECC declined to comment on the proposals ahead of publication, reported the Financial Times. The consultation is set to last until spring when recommendations will be published in an energy white paper.