Carbon floor price freeze ‘will not satisfy heavy industry’

Anticipated British government plans to freeze its carbon floor price are unlikely to ease the burden on heavy energy users according to analysts and industrial consumers.

A freeze on the support originally intended to provide a minimum price for carbon permits rising annually beyond 2020 is expected in the March Budget. But experts have claimed it will still leave UK energy intensive industries paying three times more than European Union (EU) rivals for carbon emission permits.

The carbon price floor was set at £4.94 a tonne of carbon dioxide in April 2013 and, according to the Treasury will rise to £18.08 a tonne in for the year 2015-16.  No decision has been made beyond 2016. A freeze at the 2016 price would leave wholesale power prices 13 per cent higher than they would be without the carbon tax according to Trevor Sikoski, analyst at Energy Aspects.

Analyst at Liberum Capital Peter Atherton said: “Freezing it for a few years could be a halfway house that doesn’t satisfy anyone.”

EU carbon prices have plummeted by 65 percent over the past three years to around €6.50 a tonne. Analyst forecasts show a 2016 price for permits under the EU Emissions Trading Scheme of €11 a tonne with the British carbon tax taking it to €33 a tonne.

Britain has introduced a compensation package for industrial consumers to offset the carbon costs. But UK energy intensive users are supportive of the freeze saying the tax hands EU rivals a competitive advantage. Chief executive of the manufacturers’ organisation EEF said recently: “I know the Treasury officials’ biggest concern is seeing a loss of revenue if this tax is frozen, but I am hopeful that the chancellor will be supportive given the critical importance of the issue to UK industry.”