The coalition government in the UK promised to be the ‘greenest ever’. After facing much criticism for not living up to this claim, it has recently pushed a number of policies to improve its green credentials. However, according to some, the measures have been rushed, are poorly planned and may not succeed in greening the economy. On top of this, of course, they may add significantly to the costs of steelmakers in the UK.
SBB 10 May The UK government’s planned carbon floor price (CFP) would cost more than necessary to achieve its goal, Ian Rodgers, policy director at UK Steel, tells Steel Business Briefing. Furthermore, it could fail in its goal of providing certainty in carbon credit prices, he adds.
The CFP is intended to guarantee the carbon credit costs of electricity producers in the UK from 2013. These are expected to be passed to consumers, including steelmakers.
The goal is to encourage investment in renewable and nuclear power; investors want to know their future costs in order to estimate when investments will see a return. However, new nuclear capacity will not appear for many years. It is “crazy” that energy intensive industries must pay in 2013 to secure a price in 2020, Rodgers says. It would mean UK steelmakers facing additional costs compared to Europe, he warns.
The scheme may not provide certainty in carbon prices, analysts say. The amount electricity producers pay will be set two years in advance based on exchange-traded futures contracts. The futures contracts price reflects current spot prices plus carry and inflation, not the future spot price, says Emmanuel Fages, head of carbon and energy market analysis at Orbeo. Fluctuation on the spot or futures markets could cause much higher or lower carbon credit costs.
Also, unlike a contract, a tax could be scrapped by a future government. A contract-based approach between government and electricity producers would provide greater certainty, Rodgers says.
The CFP is a signal to investors that it is serious about encouraging investment in low-carbon electricity generation, the treasury insists to SBB.