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UK carbon price floor not enough?

The proposed UK carbon price floor is not enough to create investor confidence, according to Climate Change Capital (CCC).

By Renewable Energy Focus staff

CCC says investors will “highly discount the value of the current policy because it will be implemented through the tax system,” adding that investors would have to hope that Parliament increases the carbon price support annually until at least 2030.

CCC suggests to rather embed the carbon price floor commitment in a contractual obligation, providing investors with the long-term credibility they require to invest.

Such a Carbon Price Support Guarantee (CPSG) would see the Treasury underwriting the value of carbon price support, guaranteeing the carbon price floor. These guarantees could be sold for a nominal fee to investors.

Head of Policy and Market Analysis at CCC, Rupert Edwards, says: “The trajectory for the proposed carbon price floor is meant to be set over the next two decades to give investors certainty so they can bring forward new low-carbon investment into the UK. Investors will, however, have serious doubts about the long-term credibility of the carbon price floor policy as it is currently conceived. This is because it is a tax-based mechanism subject to annual votes in Parliament.

“A policy to reduce uncertainty must itself be certain. To ensure that certainty a contractual obligation could be created with no costs to Government if the Treasury keeps to its carbon price floor commitments. This Carbon Price Support Guarantee (CPSG) would increase certainty, reduce the incentive for investors to ‘wait and see’, and lower costs for investors and the economy. If part of an integrated approach, for example with Electricity Market Reform and the Green Investment Bank, it would be a powerful commitment to a low-carbon Britain.”

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