U.K’s ‘Disguised’ CO2 Tax May Harm Industry, Lawmakers Say

Britain’s plan to tax carbon dioxide from power stations on top of European emissions costs may harm industry and raise energy bills without helping the environment, according to a panel of lawmakers.

“A revenue-raising exercise disguised as a green policy won’t help anybody,” Tim Yeo, chairman of the U.K.’s energy and climate change committee, said in an e-mailed statement. “Instead of going it alone, the Chancellor would be better off working with other European governments to make the EU Emissions Trading System more effective.”

The committee, a cross-party panel of lawmakers that published a report today after a four-month inquiry into government emissions policy, said the tax risked making U.K. energy prices higher than the rest of Europe. That may boost the nation’s power imports via cables linking it to France and the Netherlands, which do not have the additional costs.

“It seems that politico-economic uncertainties are back on the agenda for U.K. generators,” Chris Rogers, a utilities analyst at Bloomberg Industries in London, said by e-mail.

Britain’s energy prices have been among the lowest in Europe for at least the last four years, according to the most recent Eurostat figures compiled by Bloomberg. The country gets about 80 percent of its electricity from a mixture of coal and natural gas, so global fuel costs influence prices. The U.K. government said November it will help energy intensive industries with higher costs as a result of the tax.

‘Go No Slower’

Chancellor of the Exchequer George Osborne “has made clear that the U.K. should go no slower but also no faster than other European countries in cutting emissions,” the Treasury said in an e-mailed statement today. “To do this we need to reduce our emissions in the way that works best for circumstances in this country.”

The tax will raise 740 million pounds for the government in its first year, according to documents posted on the Treasury’s website in March. Osborne is scheduled to present the country’s annual budget on March 21, where he may announce the carbon tax for 2014. Last March, he set the tax at 4.94 pounds a metric ton for 2013, based on a so-called floor price of 16 pounds.

“It’s a very small fraction of total tax revenue, compared to other fiscal decisions,” Matthew Sinclair, director of Taxpayers’ Alliance in London, said by telephone. “A tax that doesn’t raise a lot of revenue can be an indicator that it’s not efficient, and could be avoided.” German and French industry often get discounts on their energy bills, according to a November report Sinclair wrote on the impact of carbon costs on industry.

Carbon Price Support

The measure is in addition to Britain’s participation in the EU’s cap-and-trade program which limits emissions from factories, power stations and airlines. European carbon permits for December 2013, the first year in which the tax will be applied, rose 2.4 percent to 8.41 euros a metric ton as of 10 a.m. on London’s ICE Futures Europe exchange. The allowances traded as high as 20.22 euros in May

“Unless the price of carbon is increased at an EU-wide level, taking action on our own will have no overall effect on emissions other than to out-source them,” said Yeo, a member of the Conservative Party, and also chairman of TMO Renewables Ltd., a developer of biofuels, and AFC Energy Plc, a maker of fuel cells.

The Treasury sets its carbon tax two years in advance to allow power generators to prepare. The tax for 2014 will be calculated using the average market price for December 2014 permits in the last twelve months. The government set the floor at 16 pounds a ton, rising to 30 pounds by 2020. The figures are adjusted for inflation.

Tax May Double

The carbon tax for 2014 would be set at 9.78 pounds, should it be calculated today, Lakis Athanasiou, a former U.K. utilities analyst at Evolution Securities and now an independent analyst in London, said by telephone today. That’s nearly double that for the first year of the tax.

Britain should focus on a “strong and stable” carbon price within the European trading system by increasing the bloc’s carbon ambitions from a 20 percent below 1990 target to a 30 percent cut, as well as reducing supply in the market by setting aside permits, according to the report.