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Back-loading rejection could make UK pay triple rivals’ carbon rates

18 Apr 2013 18:20:26 | edcm

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The European parliament's decision to reject the European Commission's emissions allowances back-loading proposal could hike the sum UK polluters pay for carbon permits next year to more than triple that paid by their competitors elsewhere in Europe because of the recently imposed British carbon top-up tax, the latest allowance prices suggest.

The UK implemented the top-up tax on 1 April to keep carbon costs from plummeting for its power sector.

Tuesday's vote has already widened the gap between the variable carbon allowance market price, which generators in all other EU countries pay, and the UK domestic price.

After the no vote, the EUA December 2014 and 2015 benchmark contracts collapsed, closing at an average of €2.95/tonne of CO2 equivalent (tCO2e) on Wednesday. The UK rate has been £4.94/tCO2e (€5.80/tCO2e) since 1 April.

Carbon price support in the UK is set two years in advance, so it can diverge widely from the volatile carbon market. The 2013-14 rate was announced in 2011, with the 2014-15 rate stated in the government's 2012 budget at £9.55/tCO2e, or €11.22/tCO2e, almost four times the potential rate for Europeans.

The UK rate will then be almost doubled, at £18.08/tCO2e, for 2015-16.

The present UK premium could widen again soon as carbon traders predict benchmark prices will hit €2.00/tCO2e before May.

The relatively higher pollution cost for UK utilities will be passed on to their customers, including industry.

The UK government could face a political backlash if that pushes UK carbon costs too far above those for the rest of Europe.

Phil Bennion, a UK Liberal Democrat MP and also member of the European parliament (MEP), said: "The vote puts UK manufacturing industry at a disadvantage compared to Germany or the Netherlands."

The UK government was in favour of tightening the EU's emissions trading system (ETS) supply cap and wanted to go even further than the proposal to back-load 900m EUAs that failed on Tuesday. Some UK MEPs, mainly from the Conservative party, voted against the proposal, however.

Afterwards, the UK Department of Energy and Climate Change said the commission "must now bring forward concrete legislative proposals" for ETS reform "later this year".

Lawmakers and lobbies said more countries could now forge their own climate measures, creating a patchwork of possibly conflicting carbon-reduction policies.

However, neither the UK utility sector's lobby, the Major Energy Users's Council, nor the Energy Intensive Users Group had provided comment on the impact that the UK's relatively higher carbon cost is expected to have on their members by the time of publication. Marie-Lousie du Bois

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