No plans to cut carbon price, says Treasury minster

The government has no plans to cut the carbon price, a Treasury minister has told MPs.

Presenting evidence to the House of Commons environmental audit committee about the Budget on Wednesday (12 December), junior Treasury minister Robert Jenrick was quizzed about the announcement on carbon pricing in October’s tax and spending annual statement.

The Budget stated that the Carbon Price Support (CPS) rate, which is set by the UK government, will be maintained at £18 per tonne of CO2 until the end of the 2021-22 financial year. However it will seek to reduce the CPS if the Total Carbon Price, which also comprises the EU Emissions Trading System (EU ETS) level, is too high.

The Budget commitment to keep the carbon price under review did not imply that there are plans to cut it, said Jenrick: “We would take into account the competitiveness of the British economy and if necessary consider changing the price but have no plans to do so at the moment.”

He was backed up by Philip Duffy, director of the Treasury’s enterprise and growth unit.

Pointing to the fluctuation in the carbon price over recent months from £6 to £19, he said: “It’s not right that the government is changing stance: the government is being very front footed on carbon pricing and we don’t see that changing.”

Josh Burke, policy fellow in UK climate and energy policy at Imperial College’s Grantham Research Institute, said the level of carbon price outlined in the Budget should be sufficient to ensure that the government meets its commitment to drive coal off the generation mix by 2025.

He said that the combined ETS and the CPS delivered a total price of about £34/tonne, which should be sufficient, given that a level of £24 is necessary to keep coal off the energy system.

But Burke cautioned that the Budget announcement only provided certainty about the level of the carbon price for the next two years.

Nick Molho, executive director of the Aldersgate Group, said the government had picked the best available option on carbon pricing given the circumstances.

But, pointing to the conclusions of a recent University College London report, he said the carbon price will have to be substantially increased from the late 2020s onwards.

“If you want the carbon price to act as investment signal, you will need carbon price escalation once coal is off the system.”

Molho also told MPs that remaining within or closely aligned to the EU ETS, the preferred option for the future of carbon pricing outlined in the Brexit withdrawal agreement, is better than setting up a UK-only scheme because it provides access to a more liquid market.

And he said that an ETS is preferable to a carbon tax in the long term because it is more flexible and will ensure less divergence between EU and UK carbon prices.

Molho also called for the government to maintain subsidies for electric vehicle purchases until the mid-2020s which is the earliest point that he envisages they will reach price parity with combustion engine fuelled cars.