NCPA - National Center for Policy Analysis

Carbon Tax Will Double U.K. Electricity Bills

October 9, 2012

A new carbon dioxide (CO2) tax in the United Kingdom will have severe consequences for electricity prices that consumers will have to pay, says the Telegraph (U.K.).

  • The tax will impose a £16 (almost $26) floor on every ton of CO2 emitted by British industry, rising to £30 (about $48) a ton in 2020 and £70 (about $112) a ton by 2030.
  • The power plants burned 40 million tons of coal in 2011 and emitted 116 million tons of CO2.
  • With the £16 floor, this amount of CO2 would cost £3.5 billion ($5.6 billion), or a 20 percent increase on electricity bills, on top of the total current wholesale electricity cost.
  • As a result, five of the largest coal-fired plants will shut down by next March.
  • These five coal-fired plants were capable of supplying a fifth of power needs.

Despite the okay from an environmentally friendly European Union to continue using the coal-fired plants, the United Kingdom wants to make fossil fuels more expensive. The Treasury estimates that the new tax would increase investment into low carbon sources by £30 billion ($48 billion) to £40 billion ($64 billion).

Proponents of the tax argue that industries already pay for the tax through the EU's Emissions Trading System (ETS), which counts toward the £16 floor price. In 2010, it was argued that the new tax would only impose an additional £2 (about $3) per ton to meet the £16 floor price.

However, the recession has decreased demand and as a result the price of carbon permits have fallen. Now, industries will have to pay £10 (about $16) a ton to get up to the price floor established by the United Kingdom's tax. The new costs will be imposed upon energy consumers who will have soaring energy bills as the new tax takes full effect.

Source: Christopher Booker, "George Osborne's CO2 Tax Will Double U.K. Electricity Bills," Telegraph (U.K.), September 29, 2012.


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