Britain’s carbon-emitting businesses will pay more for energy than their European counterparts under the UK’s new carbon price floor, which goes into effect today.
The emissions tax, set by the UK government in 2011, starts at £16 ($24.30) per ton of carbon emitted this year and rises to £30 ($45.63) by 2020. Carbon prices in the rest of the European Union, however, have dropped to record lows, below €5 ($6.41) per ton. Last year EU allowances averaged €7.3 ($9.39) a ton.
In mid-March, the EU canceled an auction of carbon permits for the first time because bids failed to reach a secret reserve price.
The UK’s high carbon price floor represents a threat to competitiveness for British companies, particularly in energy-intensive sectors, says Richard Gledhill, partner PricewaterhouseCoopers sustainability and climate change.
Gledhill says Europe does need higher carbon prices to encourage a transition to a lower-carbon economy “but not just in the UK.”
If the EU doesn’t boost carbon prices, the UK’s significantly higher carbon price floor will cause “carbon leakage,” driving heavy energy users out of the country, Gledhill warns.
Later this month, the EU is slated to vote on a plan to boost the carbon price by a process called backloading, or delaying some permits, which analysts at Thomson Reuters Point Carbon say could provide some temporary stability and would raise carbon prices to around €6 ($7.71) a ton. But only structural reforms would permanently support prices, Point Carbon says.