* UK carbon costs could top 2 bln pounds in 2013
* Environmental costs to make up bigger portion of bills
By Susanna Twidale
LONDON, Oct 26 Britain's utilities face a
2-billion-pound ($3.2 billion) bill in 2013 from schemes to cut
carbon dioxide emissions, Reuters data show, risking higher
prices for consumers and more discomfort for a government
anxious to keep energy costs down.
Prime Minister David Cameron threw Britain's energy policy
into confusion last week when, amid rising prices, he gave an
unexpected pledge to parliament that energy suppliers would be
forced to give customers their cheapest tariffs.
Rising wholesale gas prices have been blamed for the bulk of
energy bill price increases coming into effect in the next two
months by five of Britain's big six power providers.
But climbing environmental fees have also contributed to the
hikes, according to utilities, and these are set to soar next
year when requirements under the EU Emissions Trading Scheme
(ETS) and a domestic tax applied by the government kick in.
Complying with these schemes will land a sixfold increase in
costs for British utilities next year compared with 2011,
according to Reuters calculations.
"In the past five years gas price movements have been a
major cause of rising consumer bills. Going forward the cost of
support for low carbon technologies will become an increasingly
large part of consumer bills," said Phil Grant, a partner at
consultancy firm Baringa Partners.
The EU's ETS caps the emissions of 11,700 utilities and
industrial firms in the 27-nation bloc, forcing them to pay for
carbon permits to cover their emissions' output if they exceed
To ease the transition, utilities received a generous amount
of free permits, called EUAs, in the earlier years of the ETS,
but from next year the rules will be tightened and the costs for
companies to cover their emissions are set to multiply.
Analysts at Thomson Reuters Point Carbon forecast the UK
heat and power sector will emit 166.1 million tonnes of carbon
dioxide (CO2) in 2013.
The free permit allocation for the sector is set to plummet
from over 111 million in 2011 to 4.5 million EUAs next year, for
a few smaller generators, figures from the UK's Department of
Energy and Climate Change show, meaning the sector overall would
have to pay for permits to cover 161.6 million tonnes of CO2.
Based on latest analyst forecasts for EUA prices in 2013
polled by Reuters, this could cost companies up to 1.47 billion
pounds, compared with the 326 million pounds stumped up by
British power generators in 2011.
While carbon costs will rocket for power companies across
Europe, the bill for British firms will be ramped higher still
by an extra tax imposed by the government in the form of the
carbon price floor.
From April 2013, UK generators will pay the difference
between the price of carbon allowances traded in the EU ETS, and
the UK's notional carbon floor price, devised by the government
primarily to drive investment in low-carbon electricity
Government budgets have set this annual levy for each tonne
of CO2 emitted at 4.94 pounds from April 2013 and 9.55 pounds in
This could add a further 798 million pounds to the carbon
bill for UK utilities in 2013/14, taking the total bill to
almost 2.3 billion pounds, although the actual figure could be
lower as some combined heat and power units will be exempt from
the UK price floor tax.
The government hopes its extra carbon tax will play a small
part in helping to spur the 110 billion pounds investments in
low-carbon power generation it says is needed to replace the
country's aging power stations.
But lawmaker Tim Yeo, chairman of the cross party Energy and
Climate Change Select Committee, said the measure will place an
unnecessary burden on British homes and businesses, while merely
shifting CO2 emissions from power generators to other parts of
Europe not subject to the price floor.
"It raises the costs for consumers without reducing carbon
emissions," he told Reuters.
The Treasury said it expects companies to recoup at least 40
percent of the costs relating to the carbon price floor from
consumer pockets, upping bills by 1 percent in 2013 and by 4
percent in 2016.
However, the government believes its raft of initiatives,
including the "Green Deal" which will help pay for energy
efficient boilers and household insulation, will ultimately lead
to lower household bills.