Utility Week

10 | 28th March - 3rd april 2014 | UtilitY WEEK Policy & Regulation Analysis I n his Budget for "the makers, the doers and the savers", chancellor George Osborne announced a cap on the carbon price support of £18/tonne of carbon dioxide (tCO2). The announcement was well trailed ahead of the budget and represented some- thing of a compromise between those manu- facturers and consumers of energy calling for a freeze to the rate of increase of the car- bon floor price (CFP) – or for it to be scaled back or scrapped – and those championing low-carbon technologies, who want the rate of increase to continue as planned. As it is, from 2016/17 until the end of the decade, the UK carbon floor price will be no more than £18/tCO2 above the carbon price of the European Union Emissions Trading System (EU ETS). The carbon price support – the difference between the EU ETS and the UK CFP – had been set to increase to more than £24/tCO2 by 2018. This change is set to cost the government £340 million in 2016/17 in lost tax revenue, increasing up to an £870 million dent into the Treasury's coffers by 2018/19. As part of a £7 billion package for industry, the move will knock an average of £50,000 off the energy bill of a medium- sized manufacturer, £800,000 for a typical heavy industrial firm and £15 off the average domestic energy bill. Those in favour of the freeze in the car- bon tax include the manufacturers' associa- tion EEF, the Energy Intensive Users Group (EIUG), the CBI and consumer watchdog Which? All of these say the move to cap the carbon support price at £18/tCO2 until the end of the decade addresses the concerns of consumers – domestic and non-domestic – over rising energy prices. The EIUG has reservations about the cap being too little too late because "climate poli- cies have already caused lasting damage" to Britain's energy-intensive industries (EIIs), while the CBI warns that those other than the EIIs will still face high energy costs. On the other side of the argument, as they had been before the Budget was delivered, are the renewable and green groups. RenewableUK says capping the carbon price support "will chill the mood of some investors in clean energy projects", while Doug Parr, chief scientist at Greenpeace, say the move is a "multimillion bung to coal plants", which are predicted to see a fall in generation costs of up to £6/MWh. Alongside the cap was an extension to the compensation package from the carbon floor price enjoyed by energy-intensive users, plus the inclusion of a compensation package for the additional costs from the Renewables Obligation. Both of these are also beneficial for EIIs. Osborne also included an exemption from the CFP until 2019 for the fuel for combined heat and power (CHP) generation used to supply manufacturers. This is predicted to cost the government £290 million between 2015 and 2019. Director of the Combined Heat and Power Association (CHPA), Tim Rotheray, says: "[The] Budget will help drive investment in industrial energy efficiency, delivering the rare combination of increased indus- trial competitiveness and lower carbon emissions." Jonathan Graham, policy manager at the CHPA, says the exemption will boost those industries with existing CHP facilities and help them to compete with their European rivals. However, Graham urges the government to go further and publish a dedicated CHP policy, because "too o©en CHP has been a bolt-on to other policies". He adds: "What a bespoke CHP policy will help to drive is that new investment in new CHP capacity." Carbon capture and storage (CCS) also received an unexpected boost, with the chancellor revealing that £60 million was being provided to support CCS technologies that show significant potential to reduce the cost of low-carbon generation in the UK. Luke Warren, chief executive of the Carbon Capture and Storage Association, says the money had come earlier than expected and that the funds will assist the development of "some quite exciting second- generation technology". However, Warren raises concerns about the capping of the carbon tax. He told Utility Week: "We are not comfortable with these retrospective changes in policy; we need some stability with the carbon policy framework." Warren adds that he also has concerns about the impact this will have on the funds available for low-carbon generation via the Levy Control Framework. A difficult balancing act The move in the Budget to cap the carbon price support might ease the burden of rising energy bills, but some fear it could also deter investment in low-carbon technologies, says Mathew Beech. SavingS from Budget 2014 energy package in 2018/19 Average household Medium-sized manufacturer Heavy industrial firm Typical compensated energy-intensive industry Estimated total savings from package in 2018/19 £15 £50,000 £800,000 £6.25m Budget 2014 policy deciSionS £ million 2014/15 2015/16 2016/17 2017/18 2018/19 Carbon floor price: limit disparity between UK and EU to £18 from 2016/17 0 0 -340 -615 -870 Combined heat and power: relief for on-site generation 0 -65 -70 -75 -80 Climate Change Levy: metallurgical and mineralogical exemption -20 -25 -25 -25 -25 Oil and gas: changes to offshore chartering and Wood Review implementation -10 -15 -10 -5 -5

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