Strong carbon price crucial to delivering Government’s clean growth strategy

SSE has joined with Drax and Orsted to call on the Treasury to maintain a strong and stable carbon price in the upcoming budget.

The UK’s three largest power generators have written to the Chancellor Philip Hammond to urge him to resist any reduction in the Carbon Price Support rates as a stable carbon price is crucial to the industry’s post-Brexit confidence and a cornerstone of delivering the ambition set out in the Government’s Clean Growth Strategy.

Alistair Phillips-Davies, SSE Chief Executive, Andy Kloss, CEO at Drax and Matthew Wright, Orsted’s UK Managing Director are in agreement that the UK’s carbon price has been fundamental to delivering a 75% reduction in coal use since 2013 by providing an economic incentive for lower carbon and renewable generation to replace coal fired generation on Britain’s power system.

In setting a strong carbon price, the UK has become a leader in global efforts to meet the Paris Agreement ambition through the Powering Past Coal coalition, and it has made great strides towards meeting domestic carbon budgets.  Going forward, a strong TCP will be the cornerstone of delivering the ambition set out in the Government’s Clean Growth Strategy, while providing billions of pounds in revenue to HM Treasury.

At the Budget last year, the Government stated that the TCP was set at the right level and committed to targeting a similar TCP until unabated coal comes off Britain’s power system.  At the time, the TCP was around £25/tonne.  While that level was sufficient at the time to ensure lower carbon generation ran ahead of coal, a shift in commodity markets has reversed this incentive.  Today, at certain points in the day, it is more economic to run coal ahead of gas, which has resulted in a 15% increase in CO2 emissions from the power sector – an extra 1,000 tonnes of CO2 every hour.

Any increase in emissions from the power sector puts pressure on harder to decarbonise sectors such as heat, transport and industry to reduce emissions faster as the headroom in our carbon budgets diminishes.  As a result, costs to consumers, industry and government will ultimately rise.

Furthermore, it is still uncertain as to whether the UK will participate in the EU ETS beyond March 2019, or in phase IV.  As part of the TCP is derived from the EU ETS, it would be premature to change CPS rates in the Budget given that the details of EU exit will not be known.  If the UK does leave the EU ETS then CPS rates will need to be adjusted to maintain the TCP.

SSE, Drax and Orsted have invested significantly in the technology and capacity needed to achieve the Government’s low carbon goals and stand ready to do more.  However, to achieve it all three say it is imperative that the Government resist any cut to the TCP, including through reducing the CPS rates, at the upcoming Budget. 

Read the letter here.