Industry NewsThe CBI has urged the Government to exempt businesses from the impacts of the carbon floor price. The lobby group claims that the environmental scheme will drive many companies out of the country. While the carbon floor price had been envisioned as a support mechanisms for carbon prices, aiding renewable generation, its operation will mean it is an effective fuel tax. The CBI has called for a form of rebate for energy intensive users to compensate for the impacts of the tax. In return, the businesses would commit to greater energy efficiency measures.
The carbon floor price, as initially described by the Government, is designed to keep carbon prices around 16 pounds/tCO2e for the first year, then progressively increase. A higher carbon price will reduce the economic value of fossil-fuel based generation and so support renewable energy projects. In practice, the 'floor' price will add a set fee to carbon emissions per year, regardless of the wholesale price at the time. This fee, set at approximately 4.94 pounds/tCO2e, is to be paid by the person selling the primary fuel to the generator.
As such, it is thought that the price will be passed along to generators in the wholesale fuel price and, by extension, to end-users through higher wholesale electricity prices. Energy-intensive businesses such as steel and cement makers will be strongly impacted by these changes, the CBI argued. With the floor price being UK based, the CBI adds that the situation will result in businesses moving elsewhere, creating so-called 'carbon leakage'.
Rhian Kelly, director for business environment at the CBI, has commented, "The irony is that these companies are key to the green economy...These are the chemicals companies making lubricants for wind turbines, the aluminium [smelters] making supplies for electric vehicles, the cement companies responsible for the concrete that glues wind turbines in place."