Hot Air: The carbon price floor in the UK

Article

The UK government is introducing a floor price for carbon - to be known as carbon price support. It will be levied as an additional tax on the carbon content of fuels used for power generation in the UK, and calibrated to supplement the price of carbon set in the EU Emissions Trading Scheme. However, the particular design of the UK proposal could mean that intended benefits are not captured.

The most comprehensive solution to the problems with the UK proposal is to enact the carbon price floor at a European level, not a national level. This would provide more investor certainty across the continent, allow the quantity of permits to adjust, and prevent unintended consequences. It would accord with the strong finding in the literature that such hybrid regimes are more efficient than a pure cap and trade.

If, however, the UK does implement a unilateral floor price, then setting the level low, to minimise unintended consequences, and introducing a carbon price support guarantee, to secure the benefits of greater certainty, offer the best combination of outcomes.

Related items

  1. A little girl in a red school uniform looks at the camera while another student writes with a pencil next to her

    What comes next: A fairer approach to primary assessment

    England’s primary school accountability and assessment system is not working well for disadvantaged children.
  2. A woman’s hand filling in a postal ballot / voting form.

    A durable majority?: How public opinion on the EU performs under pressure

    A decade on from Brexit, Andy Burnham has signalled that a reassessment of the UK’s relationship with the EU might be around the corner.
  3. Flags of Great Britain and European Union

    New world, new relationship: Our future with Europe

    Britain’s assumptions about its place in the world no longer hold, upturned by Russian aggression, American unreliability and Chinese coercion.