Phillip Hammond has been called on by two of the largest energy companies in the UK to show greater commitment to the governments pledge on taxing carbon emissions.
SSE and Drax have warned Hammond that failure to reinforce commitments would result in a resurgence of coal-fired power stations.
Drax, which operates Britain’s largest power station, and SSE, the UK’s second largest energy provider, have said in a joint letter that they wish to see the chancellor utilise the Autumn budget to show some clarity on the tax.
Last year the government said they would look to freeze the level of the carbon price floor, until 2020 which is the minimum cost for greenhouse emissions created. However this was not enough for some, who wanted see more long term plans put in place.
SSE and Drax both need to see a good carbon price to keep the options of opening up new gas power stations economical. Drax has recently applied for planning permission to transform two of the three coal units it still owns into gas ones, which will produce less carbon emissions.
“At the moment the industry only has sight of the carbon price to April 2021. This is welcome but we now need to understand the trajectory of the UK’s carbon price into the 2020s, particularly as without it generators have less clarity as they seek to deliver a new generation of efficient gas plants in the next Capacity Market Auction in February 2018,” the companies said in the letter.
The letter, which was also co-signed by 3 other companies and an environmental agency spoke of the need for a “robust and strong carbon price”. They say that this is the most effective way to align with government plans to combat climate change without any further need for regulation and fewer subsidies from the state.
The UK has been one of the more progressive countries when it comes to raising costs to help reduce carbon dioxide emissions. In 2013 Britain introduced its first carbon price mechanism, which meant that power generators paid a tax of £23 per every ton of carbon produced. This amount was almost 5 times that of the EU standard. The new levy helped speed up the shutting down many power stations, which generated energy from coal, paving the way for other, less emission heavy substances.
Mr Hammond now has to make a difficult decision on whether to continue his pledge on Carbon pricing when the current arrangement expires in 2021. He has to try and keep two pledges, one to reduce emissions and the other to cut energy costs.
Carbon pricing has aided the progression of renewable energy sources such as wind and solar power as well as helping gas-fired electricity generation, which only emits roughly one half of the amount of carbon as coal does. Leaving the Carbon price at its current level would lead to a resurgence in coal according to energy consultancy Aurora because prices in coal were predicted to fall in the 2020’s, whereas that of gas was expected to rise.
