When it came to power the coalition promised to be the “greenest government in history”. And in his budget, George Osborne made some groundbreaking changes to UK energy policy. So what is the likely impact?
The chancellor announced that Britain would become “the first country in the world” to introduce a ‘carbon price floor’ for the power sector. From 2013 generators will have to pay a minimum of £16 per metric tonne of CO2 they produce. That’s not far off the current market rate (€17) in the EU carbon trading scheme – where companies buy or sell permits that allow them to emit CO2. The EU scheme has been criticised for adding costs to industry without being high enough to have an influence on emissions.
However, one advantage of the UK plan is that by adding stability to the carbon price it makes it easier for investors and generators to calculate returns on low carbon alternatives. Moreover it is scheduled to rise and by 2020 will be £30 per metric tonne.
So who will benefit from the carbon floor? Well it could prove a welcome bit of news for a nuclear industry that has suffered a horrendous 10 days. The coalition, especially the Tory part, has made measured statements in defence of nuclear following the Fukushima disaster. And its low CO2 emissions mean nuclear will avoid the brunt of the carbon price floor.
Renewable energy will also benefit although for expensive technologies like wind and solar the feed-in-tariff is more important in determining growth.
The real loser, of course, will be coal. Many of Britain’s ageing coal power plants are due to be replaced and the carbon price floor makes it more likely they will be replaced by gas, which is slightly cleaner, or nuclear power.
The one saviour for coal-fired power generation would be carbon capture storage (CCS) technology. The idea is to store carbon rather than release it into the atmosphere. Britain has “a unique combination of expertise (oil, gas, coal) and geography (empty North Sea reservoirs)” says Damian Carrington in The Guardian. Yet little progress has been made as governments have “dithered and dallied for years on making the crucial initial investment to get the technology from the experimental to the commercial stage”.
The coalition managed to find $1bn for CCS in last year’s budget and environmentalists hoped that this year would see a special levy on energy bills to further finance the technology. However, in the light of Ofgem’s damning Monday report on energy prices, Osborne was unwilling to court controversy by raising household bills – which is understandable. So Britain could be some distance away from clean coal yet.
In all, it suggests that nuclear and gas will be the main winners. We’ve been keen on natural gas for some time, with my colleague David Stevenson covering the sector a few months ago.