The UK will become the first country in the world to introduce a carbon price floor for the power sector to encourage investment in all forms of renewable energy, including controversially new nuclear power.
The measure is among several announced by the Chancellor to boost investment into low-carbon energy and encourage investment to improve what he described as Britain’s “dilapidated infrastructure”.
George Osborne also confirmed plans to inject another £2bn of funding into the Green Investment Bank, backed by asset sales from the government, in addition to the £1bn already announced. The bank will be allowed to leverage up £15bn in private capital and will start operation one year earlier in 2012. The new capital injection will give £3bn of capital to the bank for investments into low-carbon initiatives where “the returns are too long-term or too risky for the market”, said Mr Osborne.
The climate change levy discount on electricity for those signing up to climate change agreements will also rise.
The measures form part of the coalition’s ambition to become “the greenest government ever”.
Both the carbon floor price and the extra funding for the Green Investment Bank had been widely expected.
The carbon floor price was proposed as part of the electricity market review at the end of last year. Under the proposal the government will put a floor under the price of carbon dioxide permits – traded via the European Union’s emissions trading scheme – as the current price of €15 a tonne is considered too low to encourage investment into green energy by companies. The floor price will be introduced in 2013 at £16 a tonne and reach £30 a tonne in 2020.
Vincent de Rivaz, chief executive of EDF Energy, which together with UK partner Centrica plans to invest about £20bn in four new nuclear plants, said the floor price “is important for all low carbon technologies”. He added however that “for nuclear, helping to restore the carbon price to what was originally intended is important to encourage investment in existing plants and in new build”.
However, environmental groups claimed the carbon floor price was a windfall for the nuclear industry.
Dr Doug Parr, policy director of Greenpeace, which opposes nuclear power, said the “carbon floor price will put up bills, deliver a windfall profit for existing nuclear power stations and yet it won’t drive investment into clean energy and improved efficiency. It’s not so much a green tax as a stealth tax and it’s exactly the sort of measure that gives green levies a bad name”.