Energy firms including SSE and Drax have written to chancellor Philip Hammond urging him to keep the UK’s carbon price support.
The tax, held at £18/tonne by George Osborne, could be scrapped in the Autumn Statement.
Such a move would be welcomed by large industrial firms, who have long argued that unilaterally taxing carbon is futile in a global marketplace and that the added cost sets them at a disadvantage versus European competitors.
The energy firms, which also include Calon and VPI Immingham, want Hammond to keep the tax in place beyond 2021.
However, doing so may coincide with major reform of the EU ETS, changes which are intended to increase the cost of carbon permits. Carbon prices under the EU’s trading scheme have tanked in recent years due to post-GFC oversupply and seemingly weak appetite to tackle the problem.
Laura Cohen, head of the British Ceramics Federation, believes reform of the European carbon tax scheme is the single biggest threat facing major energy users.
Decisions made this year around tightening or tiering the allocation of permits post-2020 could result in “very large possible increases indeed”, she told The Energyst Directors’ Report earlier this year.
While the carbon price support mechanism does provide a signal for energy firms to invest in lower carbon generation, it is seen as one of several flawed market interventions that are attempting to achieve the same outcome.
Meanwhile, UK firms are now paying the highest prices in Europe for power and some of the highest prices for gas. Just four years ago, they enjoyed some of the most competitive energy prices in the bloc.
SSE’s head of wholesale policy Pavel Miller said the firm accepts that there are costs to carbon price support, but argued that it delivers “a lot of policy bang for consumers’ buck”.
As well as incentivising investment in lower carbon generation, he added that a robust carbon price out to 2025 would “also improve competition in the electricity markets and reduce risk for investors. This will ultimately benefit consumers as it makes investments cheaper”.