Osborne’s Budget should freeze the UK’s carbon tax and phase out dirty coal

There are just 10 coal-fired power stations remaining in the UK, but they represent a fifth of the UK’s total carbon footprint

 

The UK has a coal problem.

Over the past five years the proportion of UK power supplies generated from burning coal has increased. This rise means that most of the environmental progress from the deployment of clean energy stations like wind farms has been cancelled out because burning coal produces so much carbon pollution.

There are just 10 coal-fired power stations remaining in the UK, but they represent a fifth of the UK’s total carbon footprint.

They are so old and inefficient that to stay online most of them will soon require investment. Before this investment takes place ministers have a unique opportunity to take action to phase-out the UK coal fleet.

This would ensure that the UK meets goals on cutting carbon pollution, whilst reducing costs for households and keeping the lights on through an improvement in the investment case for cleaner power stations.

The government thinks our coal stations will close soon anyhow but this projection is based on some big assumptions. The biggest of these is the idea that a massive increase in the unilateral carbon tax that power stations have to pay in the UK will go ahead.

This would drive up electricity bills for households and would mean that UK businesses were paying substantially more carbon tax than in other European countries.

It would be hugely controversial. For this reason it is very unlikely that such a high carbon price will actually be enforced.

The situation is similar to that of the fuel duty escalator, which has been frozen because of how unpopular it would be among voters. Given this reality, it is far more likely that the carbon tax will be kept relatively low.

The impact of this happening on the amount of coal we would burn would be considerable.

Coal-burning would become significantly more profitable than other, cleaner forms of generation. This would result in an increase in coal generation and consequently a spike in carbon pollution.

IPPR has been investigating whether there could be an alternative way of ensuring that coal generation is limited to ensure climate change commitments are not threatened, but in a way that would not cause energy bills to soar.

Our analysis shows that if the carbon tax was frozen at its current level but a cap was placed on the levels of carbon pollution that any coal station could release each year then coal generation would stop altogether by 2025 but consumers would be able to benefit from a small but welcome annual saving of £8.41.

Investors in new power stations or energy-saving technologies would benefit because once they know that coal is coming offline they will benefit from a bigger market share. This will have the effect of lowering the cost of investments in cleaner power stations, and offering us improved energy security.

Families will save cash and important manufacturing businesses here will become more competitive, and crucially it would send a clear signal to the world that Britain remains serious about playing our part in the international effort to reduce the risks from climate change.

This should be a no-brainer.

Jimmy Aldridge is a Research fellow at the think tank IPPR

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