U.K. Utility Carbon Costs May Surge to 35 Euros, New Energy Says

U.K. utilities will face a surge in carbon costs to as much as 35 euros ($45) a metric ton by 2015 after the government set its emission price floor at its highest rate yet, according to Bloomberg New Energy Finance.

Britain will demand utilities pay 18.08 pounds ($27.40) per ton of carbon dioxide emitted for the year through March 2016, the U.K. Treasury said today in its budget document. That compares with 4.94 pounds a ton when the support program starts next month.

The U.K. is seeking to spur construction of nuclear plants by making it more costly to run fossil fuel-powered stations. On top of the support payments, U.K. energy companies may have to fork out another 14 euros a ton if EU lawmakers approve proposals to postpone the sale of new permits in a strategy known as backloading, New Energy Finance figures show.

“The combination of backloading politics in Brussels and the carbon price-support mechanism from Whitehall makes life complicated for U.K. energy companies,” Matthew Cowie, an analyst in London for New Energy Finance, said today by e-mail. “If backloading eventually finds support, the peak of its price impact on EU allowances is likely to coincide with the record-high carbon price support payment announced today.”

The support will increase costs for U.K. energy consumers compared with those in the rest of Europe, according to Wayne Mitchell, director of industrial and commercial markets at npower, the Swindon, England-based unit of RWE AG.

The U.K. price floor was increased to compensate for the slump in carbon permit prices, which fell to a record low in January, said Catherine Airlie, an analyst with IHS Inc. in London.

“The higher tax will raise the cost of generating electricity, pushing consumer energy bills higher,” Airlie said today by e-mail. That may increase the number of people who struggle to pay fuel costs, she said.

EU carbon for December rose 13 percent today to 3.97 euros a metric ton on the ICE Futures Europe exchange in London.