Source: BBC Radio 4: Today Programme
URL: N/A
Date: 27/11/2013
Event: The carbon price floor "should be scrapped" and UK energy policy is "in complete chaos"
Credit: BBC Radio 4
People:
John Humphrys: With energy policy in turmoil, the government's under ever-growing pressure to cut the green taxes that push up our electricity bills. One of them - and I warn you, this gets a little bit complicated - is the little-known carbon price floor. It was introduced in April - it is, in effect, a tax on generating electricity here using coal. That's over and above the cost of generators having to buy carbon permits in the European Emissions Trading System. The proceeds - about a billion pounds a year - goes straight to the Treasury, and it adds about 1% to the average household bill, that's about £13 a year, and pushes up, of course, the cost of power to industry. So, will the Chancellor abolish it? In the first of a series, our Environment Analyst Roger Harrabin reports.
Roger Harrabin: I'm among the blue chimneys at the BASF plant just south of Bradford. About 700 people work here, making industrial polymers. Like all heavy industry in the EU, this place is playing its part in cutting the carbon emissions that are driving climate change. The firm has to buy a pollution permit for every tonne of CO2 that it emits.
But the Emissions Trading System isn't working. The price of carbon pollution permits is so cheap that firms are choosing to buy the dirtiest fuel - coal - and simply buy extra permits to burn it. So, in comes the Chancellor. To give a long-term signal that firms should invest in clean power, he's imposed a carbon price floor, artificially raising the price of carbon permits for Britain's firms alone. With me is Andy Mayer from BASF. You're not keen on the carbon floor price.
Andy Mayer: No, we think it should be scrapped, and the reason is that by April 2015 it's adding about 20% to our bills - that's about a million pounds' worth of extra cost, for no particular benefit.
Roger Harrabin: The Chancellor's de facto unilateral tax on energy in the UK doesn't have many friends. The Department of Energy and Climate Change didn't ask for it. The business lobby doesn't like it. Nor do Greenpeace, who say it discredits green taxes. Nor do the Consumers' Association, because it pushes up home energy bills, too. But it does raise a billion pounds a year, increasing to two billion in a couple of years - and this at a time when Mr Osborne's under pressure to shell out public funds to reduce the social costs of energy currently imposed on power bills. Jim Watson, head of the UK Energy Research Centre, can see the Chancellor's dilemma, over the carbon price floor.
Jim Watson: Well, the carbon floor price is actually quite a tricky one. I mean, it's going to bring in - in this financial year - about a billion pounds to the UK Treasury. That's projected to increase to one and a half billion next year and then two billion the year after. So, at a time when public budgets are under extreme pressure, that's very useful revenue for the government. But, as many people have pointed out, you know, it's not necessarily the best way to develop your policy, because it may shift the carbon emissions elsewhere in Europe. And, actually, if we want to develop new low-carbon sources, then the long-term contracts government are proposing are probably a better way to do that. So, on the one hand, you know, the price floor is high, but it's a very useful source of revenue.
Roger Harrabin: And here's the advice Mr Osborne's getting from Guy Newey, at the right-leaning think tank Policy Exchange.
Guy Newey: So, the carbon floor price has very little going for it. Environmentally it's a unilateral carbon price - unilateral action by the UK is not the way to go, to solve an international problem. But it does bring the Treasury a lot of money. On balance, I would leave it alone, as somebody who favours taxing carbon rather than giving out subsidies.
Roger Harrabin: So, back at BASF in Bradford, they're waiting to see whether Mr Osborne will bring down energy bills for them, and for ordinary consumers, by abolishing the price floor next week. If he obliges them, it'll leave a hole in his budget, to be filled by other means.
Mishal Husain: And that was Roger Harrabin, reporting in the first of a series. And, as it happens, Simon has been looking into energy-related issues, as well.
Simon Jack: Yeah, coal making a bit of a comeback, and for some surprising reasons - fracking is having some unexpected consequences. Have a listen to Jonny Dymond, right at the changing face of world energy.
[Loud industrial noise.]
Jonny Dymond: This is the sound of America's energy revolution, as a dozen red trucks pumping water thousands of feet into the ground. You can hear the roar of the pumps. The aim is to split open the earth itself and release its oil riches. This is the latest in a series of oil and gas finds that is transforming America's energy landscape.
Simon Jack: And the extraordinary success of fracking in the US means there is now a massive coal surplus in America, which makes it cheap. While the US manages to reduce its own carbon footprint with the use of slightly less emitting gas produced by fracking, it's effectively exporting its footprint to other countries, who are more than happy to burn that cheap coal. Malcolm Grimston is from the Centre for Energy Policy and Technology at Imperial College London. Good morning.
Malcolm Grimston: Morning.
Simon Jack: Where is this cheap coal going?
Malcolm Grimston: Well, about half of it is coming to Europe, a bit more than a quarter of it going to Asia, and then small amounts there. And within Europe, the three big sources that are taking these are the Netherlands, the United Kingdom and particularly Germany.
Simon Jack: Okay, so the amount of electricity we're getting from burning coal is actually going up?
Malcolm Grimston: Yep, last year in the UK - well, from 2011 to 2012 - coal made a massive comeback from 30% to 38% of our electricity. The amount of carbon dioxide produced per unit of electricity delivered went up 10% in that year, because of the switch from gas to coal.
Simon Jack: Okay, where does that leave our emissions targets? And does it - does this very cheap coal make something like carbon capture and storage more economic and more compelling?
Malcolm Grimston: I mean, in terms of our own commitments, because of the dash for gas in the 1990s, we're on course for our Kyoto commitments, and that will still be the case, after this. But in terms of the longer term, then clearly if coal, globally, is making a significant comeback, as a knock-on from gas appearing, then global carbon emissions start to look a lot more challenging. Carbon capture and storage is always going to be an on-cost. You may argue -
Simon Jack: What do you mean by that? You mean it's never going to pay for itself?
Malcolm Grimston: You can imagine that the other low-carbon technologies, like nuclear, indeed probably already are quite economic in their own right. Carbon capture and storage will always be an added cost. And it's how we deal with the carbon price - it's very interesting, the last article, item - the carbon price in Europe has just totally and absolutely collapsed - nobody is going to make a decision based on the carbon price in Europe.
Simon Jack: I just wonder whether - what's - yesterday, we got RWE, big German company, pulling out of that Bristol estuary array, we've got Ed Miliband talking about price freezes... It just seems that energy policy, both on the sort of development and investment side and its sort of retail side, seems to be in complete chaos.
Malcolm Grimston: It's horrendous. We need about £110 billion spending on our electricity infrastructure by the end of this decade, £350 billion by the end of next decade. We're telling energy companies "Invest if you want, but we'll stop you making any money out of it, with this price cap". And indeed, I mean, the main thing npower have said about this wind issue is that the actual geography itself is too difficult. Now it does point out, the more wind you build, you have to start going to more and more difficult sites, which will be more expensive, both to install the wind generators and worse and worse wind coverage, so you get less and less energy out of it. There's talk of renewables coming down in cost - well, the cost of making wind generators may come down, but some of these other costs goes up - go up, the more you use them. And I think we need a much more sophisticated debate around this.
Simon Jack: Okay. Malcolm Grimston, I'm sure we will look forward to that.