This report models the impacts of reducing the UK's high unilateral carbon prices, which place unnecessary burdens on business and household bills, and introducing an emissions performance standard that would phase-out unabated coal generation in a more controlled and cost-effective way and stimulate investment in alternative capacity.

Foreword by Greg Barker MP, Lord Teverson and Alan Whitehead MP

In February 2015 David Cameron, Ed Miliband and Nick Clegg made a joint pledge 'to accelerate the transition to a competitive, energy-efficient low-carbon economy and to end the use of unabated coal for power generation'. Delivering on this cross-party pledge to end coal generation will require a clear plan. However, under existing policies we cannot be sure how many more years the UK's coal power stations have ahead of them. The government says that it expects they will all be offline by 2027. However, the assumptions they rely on to make this projection – including rises in the cost of complying with European air-pollution rules, the delivery of large amount of low-carbon capacity, and implausibly high unilateral carbon prices – are very unlikely to become reality, and would hit important British industries and family budgets hard.

This report presents two alternative carbon price scenarios which would bring the UK back into line with the rest of Europe. One would adjust to the European carbon price in 2017; the other would hold the current price steady at £23 until the European price rises above that level. Since both these scenarios would result in cumulative coal generation remaining far higher out to 2030 than in the government's projections, and would threaten both investment in new gas capacity and the UK's carbon targets, new policy interventions are also required.

We have modelled the impact of introducing an emissions performance standard (EPS), which could be applied to all UK power stations which, in 2017, exceed a carbon intensity of 450gCO2/kWh. Our modelling shows that an EPS on 'old coal' would deliver a controlled phase-out of unabated coal generation through the 2020s at a lower cost to the consumer than the government's current policy of pursuing an extremely high unilateral carbon price, while assuaging concerns over security of supply and affordability.

IPPR recommends that an EPS is introduced on top of a UK carbon price held at £23, at 450gCO2/kWh in 2017. We also recommend that a 2030 target for decarbonising the power sector is set as soon as possible in order to provide certainty over future government policy, and that the UK capacity market is reformed.