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18 Oct 2010 04:10:22

DECC to disclose new carbon floor price

David Huhne will provide clarity on energy policy after revealing a carbon floor price that is expected to boost low carbon renewable, nuclear and CCS projects.

The UK Energy and Climate Change Secretary will unveil today the government’s first National Policy Statement on Energy where is expected to provide details on a ‘floor price’ on carbon emissions. The event will take place at Hinkley Point nuclear power station, in a move that is expected to provide low carbon investors greater certainty and further clarity on a wide-range of the Coalition government's energy policies.

In particular, the energy policy statement will include details on how the government plans to provide a stable carbon 'floor price' designed to boost the economic case for low carbon renewable, nuclear and carbon capture and storage (CCS) projects. Investors in new nuclear plants and CCS projects have been waiting anxiously to find out what level the carbon ‘floor price’ will be set at and how it will be imposed.

It remains uncertain how the British government will impose a carbon floor price when the current price is delivered through the EU-wide carbon market
Industry insiders declared that the carbon ‘floor price’ will have to reach around €80 a tonne to make it possible for new nuclear reactors to compete economically with coal-fired power plants. However, the carbon price under the EU emissions trading scheme (EU ETS) has been moving below €15 a tonne for much of the past year and it remains to be seen how the British government will move to impose a carbon floor price when the current price is delivered through the EU-wide carbon market.

Other uncertainties are whether the government will announce the precise carbon floor price it wants to impose and when it plans to bring the carbon floor price into effect, particularly given that any significant increase will lead to a climb in energy bills.

According to the Sunday Times one option being considered by the Department of Energy and Climate Change was to introduce a lower carbon floor price over the next two years, which would then be increased gradually over the next decade as new nuclear plants and CCS projects come online.
Energy investors such as EDF, RWE and E.ON, who are all working on plans for new nuclear reactors, are hoping that today's announcement gives them the certainty they need to move forward with their energy plans, after growing increasingly frustrated over the lack of clarity around the proposed carbon floor price.

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