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11 July 2006, Reuters

Carbon prices not full cure for UK energy analysts

Carbon prices are key to Britain's drive to a low carbon economy, the U.K. government said on Tuesday, but much uncertainty remains about their future level and whether this can spur change.

In its Energy Review, Britain paved the way for new nuclear power stations, as well as more support for renewable energy and development of technologies to bury polluting carbon dioxide. The report stressed the importance of carbon prices to drive change. These prices are the creation of the European Union's carbon market, and put a price on greenhouse gas emissions by linking these to tradable permits. But the Energy Review was thin on detail about how to improve price transparency, saying it was lobbying the European executive to prolong the duration of the market phases.

In other measures, it reiterated that Britain wants to include aviation and road transport emissions in the scheme, which one ministry official said could happen from 2008 and from 2013 respectively. The current carbon price of around 15-16 euros is enough of an incentive to promote nuclear power, according to Seb Walhain, Director of Environmental Markets at Fortis Bank. The problem is how to guarantee such prices.

"I was hoping they might do something to cut investor risk of low carbon prices, (guaranteeing a minimum price) using a carbon tax or levy," said Tony White, Head of Advisory at specialist merchant bank Climate Change Capital.

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