The UK’s floor price for carbon dioxide is unlikely to have a direct effect on carbon prices. However, it does provide certainty to investors. Even if the market price collapses, there will be a guaranteed saving from emissions reduction investments.
SBB 25 March The UK will become the first country to introduce a carbon floor price for power plants. This would start at £16 (€18.31) per tonne of CO2 equivalent in 2013 and reach £30/t in 2020, Steel Business Briefing understands. Electricity companies are expected to pass on this cost fully to customers.
It will primarily affect EAF steelmakers, who buy a lot of electricity. While the floor price is above the current market price for European Union Allowances (EUAs), it will remain below many forecasts, SBB notes. The price is closely in line with Accenture’s forecast, points out Charles Jans, a manager in its carbon market division.
The price has been well chosen, argues Emmanuel Fages of carbon market analysts Orbeo. It is not so high as to artificially push up prices, but it guarantees they will remain at a certain level, even in a weaker than expected market.
However, some complain that it could drive industry from the UK. Tata Steel estimates that the price guarantees it additional costs of £20m/year.
EUAs are expected to increase in price to €24/t in 2013 and €40/t in 2020, according to Orbeo. In this scenario, the carbon floor price would not affect steelmakers’ costs. December 2011 EUA futures consolidated to €16.96/t on 23 March, from €17.25/t a week earlier.