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. Who gets a good deal? Revealing public attitudes to transport in Great Britain

    Transport isn’t working. That’s the message from the British public. This is especially true if you’re on a low income, disabled or living in the countryside. The cost of living crisis has exposed the shortcomings of our transport system,…

  2. Bhargav Srinivasa Desikan on TalkTV discussing AI

    IPPR's Bhargav Srinivasa Desikan on TalkTV discussing his new report on the impact of generative AI on the UK labour market.
  3. Man using AI chatbot

    Transformed by AI: How generative artificial intelligence could affect work in the UK – and how to manage it

    Technological change is a good thing. It has brought exponential gains to living standards and is the foundation of modern society. Yet unmanaged technological change has always come with risks and disruptions.