UK Carbon Tax to Affect Supply Security

24 March 2011 (Last Updated March 24th, 2011 18:30)

The UK government plans to exercise a new tax on the carbon emissions of fossil fuel plants and heavy industries. Speaking on Budget day, the government announced that it will to introduce a new carbon floor price by 2013 on industries that already buy permits to cover their emissions

The UK government plans to exercise a new tax on the carbon emissions of fossil fuel plants and heavy industries.

Speaking on Budget day, the government announced that it will to introduce a new carbon floor price by 2013 on industries that already buy permits to cover their emissions under European rules.

The country proposes to fix a higher price for carbon permits than the European market price, beginning at £16 per ton.

The carbon price will force firms to close their current fossil fuel plants five years earlier than planned.

According to RWE npower chief executive Volker Beckers, the floor price will put pressure on the system by 2015 with the forced closure of fossil-fuel plants that will cut total supply capacity, the Daily Telegraph reported him saying.

The higher cost to coal-fired and gas-fired plants is expected to be passed on to the consumers, which is set to increase their household bills by 11% to 16% by 2020.

On the other hand, nuclear and renewable energy firms are expected to reap the benefits of the tax that will raise £3.2bn from higher electricity bills.

With the proposal, the UK becomes the first country in the world to introduce such a mechanism to guarantee a price for carbon.