Give us a carbon price contract, not a promise

Article by Rupert Edwards & Dominic Maxwell

"To its credit, the thrust of the government's overall climate policy is demonstrating leadership at a time when the European Union as a whole seems to be losing its nerve. The coalition government has recognised that in the absence of meaningful emissions reduction targets in the EU, the price of carbon in the EU Emissions Trading System (EU ETS) is insufficient to drive new low-carbon investment at the scale and pace required."

"Energy secretary Chris Huhne has recognised that this is a major problem and that the current price of carbon is far below the level that's needed. Consequently, the government has proposed a solution: a promise of a "carbon price support", using the tax system to top up the carbon price set through the market. In theory, it would provide a trajectory of minimum carbon prices out to 2030."

"But just as the Romans asked, "who guards the guards?", investors ask "what guarantees the guarantee?", and the answer is disheartening. The government top-ups would be exposed to the changing winds of every subsequent government. They would need a Parliamentary vote each year as part of the annual Finance Act. They would be designed in the same model as previous commitments that have been famously abandoned, not least the "fuel price escalator", introduced in 1993 but abandoned in 1999 to the sound of beeping horns as lorry drivers protested..."

Read the full article on the Utility Week website

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Give us a carbon price contract, not a promise