Treasury should ‘reconfirm its commitment’ to the Carbon Price Floor

A group of energy companies, including SSE and Drax, has called on the Treasury to “reconfirm its commitment” to the Carbon Price Floor ahead of the autumn budget statement.

The group said the pricing of carbon emissions is “central to the UK’s efforts to decarbonise its electricity system in line with UK climate change commitments”.

“Since its implementation in 2011, the Carbon Floor Price has made an important contribution to delivering significant cost-effective carbon reductions,” it wrote in a letter to chancellor Philip Hammond. “It supports the investment case for a mix of lower carbon generation options including existing and new build gas, nuclear and renewables which can reliably replace ageing coal capacity.”

It said it hoped the EU Emissions Trading System will eventually make the Carbon Price Floor redundant but added that it “will not deliver the necessary carbon price signal to deliver cost-effective decarbonisation of the UK for at least another decade”.

The group urged the government to maintain the Carbon Price Floor beyond 2021 – the limit of its current trajectory – and keep the Carbon Price Support Rate “at least at its current level until 2025”.

Calon Energy and VMI Immingham were also signatories to the letter. The Carbon Price Floor has faced criticism from some industrial energy users who have argued that the resulting higher energy prices have left them at a competitive disadvantage.