Market News

 November 17, 2011
Report warns carbon floor price will destroy UK coal industry

 Failure of coal industry could have severe implications for carbon capture and storage in the UK, think-tank says

The government's plans to introduce a carbon floor price is putting 6,000 coal mining jobs at risk, according to a right-wing think-tank.

A report by the Centre for Policy Studies, seen by The Guardian, will claim that putting a minimum cost on carbon emissions will make the coal industry uncompetitive and force the UK to import all its supplies from overseas.

UK mines supplied 18.4 million tonnes of coal last year, expected to hit 19 million tonnes this year, said report author Tony Lodge, although both figures are dwarfed by the 26.5 million tonnes the UK imported in 2010.

The report warns that the "collapse" of the industry could come as soon as the mid-2020s, arguing that the end of the UK's domestic coal industry will undermine the government's programme of building new coal power stations fitted with carbon capture and storage technology.

The government is considering exempting some heavy industries from the carbon floor price, which was announced in the March Budget as a means of providing clean energy investors with a guarantee that the low price of carbon set through the EU's emissions trading scheme will not undermine future investments in low carbon infrastructure.

However, industry groups have been quick to warn that the move will damage UK competitiveness. The CBI estimates that the floor price will cost the UK's large energy users around £300m each year from 2013 to 2020, while the EEF manufacturers' organisation has called for the mechanism to be abolished, putting the burden at £250m in 2013 rising to £1.2bn in 2020.

In response, the Department for Energy and Climate Change is expected to announce a support package on 29 November that is likely to offer tax breaks to those firms most likely to migrate as a result of the floor price.

However, while industrial groups have warned about the economic impact of the scheme, green campaigners have argued that the floor price is not high enough to wean the country off carbon intensive fuels, and that exemptions should be made only on the basis of strong evidence that companies will be rendered uncompetitive.

Dustin Benton, senior policy advisor at environmental think-tank Green Alliance, told BusinessGreen that the floor price as it stands will simply provide "windfall profits" for nuclear and renewable energy companies, which "won't do anything differently".

Instead, he said, revenues raised from the carbon levy should be funnelled towards more effective carbon-cutting measures, such as insulating buildings, and the Green Investment Bank which is tasked with supporting cutting edge clean technologies.

"The carbon floor price is not going to go away. It's a big revenue raiser for the government," said Benton. "The Treasury has a chance to be progressive with this. They should recycle the revenue to the sort of thing which is most effective at reducing carbon."