By Gerard Wynn
LONDON, Sept 25 Britain's carbon tax may well be
a casualty of a pledge by the opposition Labour Party to freeze
energy prices for 20 months if it wins the next election.
Labour leader Ed Miliband proposed the freeze in a move to
draw in voters who have been squeezed by four years of
austerity. (For a related column: )
Britain's wholesale electricity prices are the highest in
Europe, making UK power generation businesses more profitable
than those in other countries. One big contributor to those high
prices has been the introduction just this year of a carbon tax.
The Labour Party position may make it more difficult for the
Coalition government to continue that tax, which will raise
wholesale power prices by 5 to 10 percent. The tax is unique to
Britain and is opposed even by some environmental groups.
Thomson Reuters data for baseload power contracts for winter
2014 show that Britain has the highest wholesale power prices in
Europe, ahead of liberalised power markets in Germany, France,
Italy and the Netherlands. (Chart 1)
As a result of such prices, Britain is one of the few
countries where gas-fired power generation is still just about
profitable, at least on the basis of spot prices and not
covering capital costs.
It is difficult to say, however, whether that means British
utilities overall, including gas sales, make bigger profits from
households than do utilities elsewhere.
Utilities do not publish data on the internal profits that
arise when their generation units sell power to their retail
Britain's power prices are higher for a variety of reasons
including dependence on gas, less interconnection with other
countries, lower deployment of zero marginal cost renewable
power and the carbon tax.
Chart 2: (page 1)
Rising wholesale power prices alone could put pressure on
the Coalition to scrap the carbon tax, which it introduced in
The tax is meant to fix carbon prices at a certain minimum
level to encourage investment in technologies that lead to
reductions in emissions, including nuclear power which the
The tax tops up prices of European carbon permits (EUAs) to
push the cost of emissions to a minimum level, set at 16 pounds
($25.58) per tonne of CO2 this year. It results in larger
profits for utilities with low carbon generation and adds to
The trouble is that EUA prices have dive-bombed, leaving
Britain saddled with a rising tax while carbon costs have shrunk
for other EU countries.
The British top-up tax for this financial year will be 4.94
pounds per tonne of CO2, rising to 9.55 pounds in 2014/2015 and
18.08 pounds in 2015/16.
The cost is passed through to wholesale power prices. The
tax will account for about 4 percent of wholesale prices this
year, rising to about 7 percent next year and more than 10
Wholesale power prices and utility profit margins amount to
58 percent of electricity bills in Britain and 67 percent of gas
bills, according to regulator Ofgem.
Additional environmental charges, passed directly to
consumers, account for 11 percent of power bills and 6 percent
of gas bills. (Chart 2)
British utility Centrica responded to Miliband's
pledge by attributing rising UK energy bills to "three factors -
higher commodity costs where Centrica has to compete to buy gas
in a global market; increases in regulated transportation and
distribution charges; and environmental costs and taxes".
Actually, the picture is more complicated.
Utility groups could start by publishing figures on their
And all the main political parties in Britain should explain
why the country needs a carbon tax. If it is really just a
subsidy for expensive new nuclear power, they should say so.