House of Commons Library

Carbon Price Floor

Published Wednesday, May 14, 2014

Details of the Carbon Floor Price and the Government's announcement to freeze prices until 2020

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The introduction of the carbon floor price by the Government is a repsonse to fluctuations in the price of carbon in the form of EU ETS allowances which has resulted in uncertainty for investors in low carbon technologies. This has contributed to a lower level of investment in these technologies, below what is required to meet UK carbon reduction and renewable targets.

The Coalition Government committed to introduce a floor price carbon and published a consultation on carbon price support in December 2010. Following this it announced in the March 2011 Budget that it would be introducing price support via the Climate Change Levy and fuel duty with a target price of £30 per tonne of carbon dioxide in 2020. The floor price will start at about £16 per tonne. At the time of the announcement the trading price was around £15 per tonne, but by January 2013 it had fallen to under £4.

The Government published its consultation in December 2010. This set out how the exemption from the Climate Change Levy for fossil fuels used to generate electricity would be removed. The Government proposed taxing fossil fuels at rates that took into account of their average carbon content.

The Treasury published confirmed carbon prices three years in advance from April 2013, together with indicative prices up to 2017. These were due to rise every year until 2020, with all revenue raised retained by the Treasury. However in the Budget 2014 the Government announced that prices would be capped at £18 per tonne from 2016 to 2020 to limit the competitive disadvantage faced by business and reduce energy bills for consumers.

Background on the Climate Change Levy is available in Library Standard Note SN/BT/235

Commons Briefing papers SN05927

Author: Elena Ares

Topics: Climate change, Coal, Energy, Environmental protection, Nuclear power, Oil, petrol and natural gas, Renewable energy, Taxation

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