British government ‘gambling with energy policy’

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More than 20 years since the privatisation of electricity and the United Kingdom government is to introduce measures – which it hopes will deliver new nuclear power stations, more renewables, lower prices and guarantee more energy security in the long term. New analysis shows that this strategy is a high political gamble. It will require considerable market intervention to get close to achieving the decarbonisation and new-build the government wants. But it risks significantly increasing fuel poverty and prices for industry in the medium term.

In his March 2011 Budget, British Chancellor George Osborne announced a new unilateral UK carbon price floor – to be known as carbon price support – to start in 2013. This will operate by “topping up” the price of carbon set within the European Emissions Trading System. This topping up will then ensure that the UK’s own set trajectory is met. The carbon price floor will tax the 75 per cent – and growing – of Britain’s grid, which is fossil fuel based like gas, coal and oil. Its role is to incentivise those who invest in new low carbon technology. But relative to current projections for the EETS price by 2020, the new unilateral UK price could nearly double the carbon price on today’s figures. Importantly, this will affect many UK generators with vast interests in fossil fuel plant whose emissions will face the price floor from 2013. The carbon price floor will, therefore, increase the wholesale price of domestic electricity as a consequence of increasing the costs incurred by oil, coal and gas-fired power stations.

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