The carbon tax should be scrapped before it makes energy imported from Germany cheaper than domestic supplies, according to City analysts.
The City believes the green measure – championed by former Liberal Democrat energy minister Chris Huhne – is the easiest target for the Government to axe as it attempts to reduce household energy bills.
The tax on coal and gas was introduced earlier this year and is designed to provide power operators with an incentive to invest in low carbon dioxide generation.
It adds an average of £5 to annual household bills, but this is expected to rise sharply in the future.
The levy is a uniquely British invention slapped on bills in addition to the cost of the European Union’s emissions trading scheme, which licenses energy companies producing carbon emissions.