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Where next for the Carbon Price Support?

Tom Musker Senior Modeler

Among the issues taxing (groan!) Government at present, perhaps unexpectedly, is the rate of Carbon Price Support in the coming budget. Only last November the 2017 Autumn Budget stated the government were “confident” that the Total Carbon Price, the combination of EU Emissions Trading System (EU ETS) and Carbon Price Support prices, were “at the right level”, and government would “continue to target a similar Total Carbon Price until unabated coal is no longer used”, which would be 2025 according to the current coal closure policy. At the time EU ETS prices were around €7/t, so with a Carbon Price Support rate of £18/t, the total carbon price came to £24/t. Roll on 10-months prices have rocketed to €20/t, supported by reforms to the EU ETS, although have dropped slightly from a high of €25/t earlier in the week, leaving the total carbon price now at just under £36/t, 50% higher than what was the government had considered the “right level”. Great news for GB’s low carbon generators, bad news for gas-fired CCGT and coal-fired generation, where the carbon cost now contributes £14/MWh and £36/MWh respectively to their marginal cost of generation. Gas generation also faces much higher fuel costs, as gas prices have also climbed. If the government really believe £24/t to be the “right level” the Carbon Price Support would be reduced to £6/t at some stage in the ...

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