Christopher Booker: George Osborne’s CO2 Tax Will Double UK Electricity Bills

30/09/2012 12:15:28

There’s a nasty shock in store for the British householder when a new ‘carbon’ tax comes into force.

Fast approaching, if largely unnoticed, is yet another massive shock the Government has in store for us with its weirdly distorted energy policy. It is surprising to see what an abnormally high proportion of the electricity needed to keep our lights on has lately been coming from coal-fired power stations. Last Wednesday evening, for instance, this was over 50 per cent, with only 1.3 per cent coming from wind power. Yet by next March, we learn, five of our largest coal-fired plants, capable of supplying a fifth of our average power needs, are to be shut down, much earlier than expected, under an EU anti-pollution directive.

One reason why these plants are being hammered through their remaining quota of hours allowed by the EU is that a new UK tax comes into force next April, which aims to make fossil-fuel power significantly more expensive. In 2010, George Osborne announced his intention to impose, from April 2013, a “carbon floor price” of £16 on every tonne of CO2 emitted by British industry, rising to £30 a tonne by 2020 and £70 a tonne by 2030.

An explicit purpose of this tax is to make the cost of electricity from fossil fuels so uncompetitive compared with “renewables” that it will, in the Treasury’s words, “drive £30‑£40 billion” of investment into “low carbon” sources such as wind and nuclear. On paper, the effect of Osborne’s new tax on our electricity bills looks devastating.

Using the latest figures from the Department of Energy and Climate Change (DECC), our power plants burnt 40 million tonnes of coal in 2011, emitting 116 million tonnes of CO2. They also generated 175,000 gigawatt hours from gas, at just over half a tonne of CO2 per gigawatt. At £16 a tonne, this CO2 would cost £3.5 billion – on top of our total current wholesale electricity cost of some £19 billion. Thus the new impost would represent nearly 20 per cent added to our electricity bills next year, and would almost double them by 2030.

Some of this, however, we already pay through the EU’s Emissions Trading System (ETS), which counts towards our £16 floor price. Osborne’s calculation in 2010 was that, initially, we would have to chip in less than an additional £2 per tonne to make up the £16 price. (The ETS price at that time was predicted to continue rising towards £40.) Since then, however, with falling demand due to the EU’s recession, the price of EU carbon permits has fallen dramatically. To reach the initial £16 level, the Treasury says we will now have to pay nearly another £5, making our electricity significantly more expensive. But since it made that guess the EU price has slipped still further, to well under £6 – leaving a gap of £10 a tonne to be made up by Osborne’s tax, rapidly rising every year thereafter.

Thus, to meet that tax level in the years after 2013, we in Britain will have to pay electricity bills soaring to a level far higher than any others in Europe. All this is to promote the building of thousands more heavily subsidised windmills, which will in turn require us to build more gas-fired power stations to provide back-up for the constant fluctuations in wind speed. And these will be paying Mr Osborne’s fast-rising tax on all the CO2 they emit, with the bill to be picked up by the rest of us on a scale which, within 18 years, could alone almost double the cost of our electricity.

In short, the Treasury has made an incredibly damaging miscalculation. Even if there is little chance that our Energy and Climate Change Secretary, Ed Davey, could get his head round such lunacy, perhaps someone might lay out for Mr Osborne the bill that his delusional new tax is going to land us all with.

The Sunday Telegraph, 30 September 2012