Q+A: Britain's new coalition's energy policy

(Reuters) - Energy policy is a potential flashpoint for Britain's new coalition government formed of the Conservative and Liberal Democrat parties, whose differences include their stance on nuclear power.

As part of the coalition agreement, the Liberal Democratic Party said it would abstain from any vote on new nuclear plants, although it previously stated it was opposed to them.

It has also said it does not consider they can go ahead without the government subsidy the Conservatives -- in common with the preceding Labor government -- have said will not be forthcoming.

There could, however, be a price floor for carbon permits to help to spur private sector investment.

The level of the floor for the permits traded by utilities, industrial companies and financial institutions under the EU's Emissions Trading Scheme (ETS) has yet to be defined.

Nuclear power stations do not produce greenhouse gases (GHG) while operating, but the process of building and decommissioning facilities is not carbon-free.

The previous Labor government as well as the Conservatives, who have declared their coalition government will be the greenest yet, consider new nuclear capacity vital to curbing planet-warming emissions while meeting energy demand.

Other elements of Britain's new energy policy include increased focus on energy efficiency, a smart grid to manage supply and demand and help reduce the amount of wasted energy and a Green Investment Bank to help drive investment in low-carbon projects.

Below are questions and answers the policy raises.

HOW HIGH ARE THE POLITICAL OBSTACLES TO NEW NUCLEAR?

* Craig Lowrey, analyst at JC Rathbone Associates:

"On the assumption that the Conservative MPs vote in favor of the proposals, then there should be enough support from Labor MPs to see that it is passed."

CAN NEW NUCLEAR GO AHEAD WITHOUT GOVERNMENT SUBSIDY?

* Paul Atherton, analyst at Citigroup:

"The government has committed to consider a power price floor, which would effectively transfer some of the power price risk to the consumer, but can the floor be set high enough to make a difference to nuclear developers? If the new government sticks with this policy stance, we see little prospect of new nuclear build in the UK by the private sector as it is very difficult to envisage that the risk-reward balance would be favorable for investors."

AT WHAT LEVEL SHOULD A MINIMUM CARBON PRICE BE SET?

* Nick Stern, climate change economist:

"Most of the studies of carbon capture and storage (CCS), assuming good learning processes, would see a price being viable 10 years from now of around $50 a tonne of CO2 equivalent. That doesn't mean the minimum would have to be there, but you would be looking 10 years down the track at carbon prices at that sort of level to sustain CCS. It is important not to rush those things and see what happens in terms of how markets develop."

* Peter Aitken, Vitol head of coal global risk:

"Forty, 50, 60 euros a tonne? It's pitched in that range in order to make technology including carbon capture viable. It's a long way from where we are now. It's not an easy decision for Europe to make."

IS A MINIMUM UK CARBON PRICE FEASIBLE?

* Richard Gledhill, head of climate change services at PricewaterhouseCoopers:

"Carbon and energy traders tend to argue that the market will find the right price for carbon, and in this way help to reduce emissions at the lowest possible cost. But companies struggling to finance low-carbon projects will welcome a price floor. One way to achieve this without intrusive intervention in the market would be to set a reserve price for allowance auctions in Phase Three, which starts in 2013, but you would need to do this across the EU to be effective."

* Renewable energy investor:

"The carbon floor has the effect of benefiting all low-carbon generators because it raises the price of electricity for all, but it does not raise costs for low-carbon generators. The carbon floor will encourage new nuclear, but unless it is very high, nuclear will need one of two things: high fossil fuels prices or much lowered cost of new nuclear power stations."

* Dieter Helm, University of Oxford:

"Moving toward a floor price of carbon is an excellent general policy. I would like a price of carbon which reflects the full social cost of emitting the climate-warming gas. I don't think the EU ETS is ever going to produce that price, which is why the floor price is so important."

CAN BRITAIN MEET ITS EU TARGETS OF A 16 PERCENT REDUCTION IN

CARBON EMISSIONS BY 2020 (COMPARED WITH 2005) AND DRAWING 15

PERCENT OF ITS ENERGY FROM RENEWABLE SOURCES BY 2020?

* Arno Behrens, research fellow at the Center for European Policy Studies:

"It should be noted that the recent recession had a considerable impact on EU GHG emission and that the current (overall) EU 20 percent reduction target may be substantially easier to reach -- even without further climate measures -- than was assumed before the crisis.

"From this perspective, the additional renewables target can be seen as an instrument to ensure real progress toward a low-carbon economy."

The North Sea has offshore wind projects going ahead and Britain has biomass schemes, but 15 percent by 2020 is a challenge given that in 2005 the nation was only getting 1.3 percent of its primary energy from renewable sources, according to EU figures.

For graphic on the progress of various EU nations toward renewable targets, please click on:

* Vitol's Aitken:

"Nuclear probably is the solution that has the balance of economic viability and some kind of environmental credibility."

* Bernie Bulkin, chair of UK Office for Renewable Energy Deployment: "We have committed to at least meeting that target (15 percent of energy from renewables). So far everything I have heard reinforces that commitment."

WOULD THE GREEN INVESTMENT BANK MAKE A DIFFERENCE?

This was already raised by the preceding Labor government, but it remains unclear how it will operate.

Bulkin: "It will be a small part of what needs to be done. Overall funding would involve the usual sources of capital."

(Additional reporting by Daniel Fineren)