Energy companies want low-carbon incentives, but don’t expect much

Last week I wrote that one of the areas of complete agreement at a debate during the European Future Energy Forum had been the need for a high and stable carbon price to incentivise low carbon energy production. But I added that nobody knew how to bring it about.

During that debate, the foreign office minister Lord Howell said:

The government has got to keep its nerve and do some brave things which are highly unpopular and likely to lose nice votes. This is getting if anything more difficult, as gas gets very cheap, and the gap with renewables widens. We need to get costs down and carbon price up.

This resolution to make a potentially unpopular move will be tested on Wednesday evening. That is when the big six British energy companies, including Centrica, EDF and Scottish Power, will warn Chris Huhne over dinner that the government’s proposed carbon floor price is not going to achieve much.

Our energy editor Sylvia Pfeifer reports:

The industry has reached a consensus position, with all companies agreeing that some form of additional incentive is required. Options range from a feed-in tariff to guarantee the price for low-carbon electricity to payments to companies as reward for having available generation capacity.

To a certain extent they are pushing at an open door: the government has already committed to a feed-in tariff, which will be reduced on the same schedule as promised by the previous government. But the real question remains whether we can achieve a suitably high and international carbon price at all. As Sylvia writes:

But executives believe if that were to be the only incentive the floor would have to be set at a pretty high level, with estimates ranging between €80 and €90 a tonne of carbon. The companies argue any floor price should start at a relatively low level and then gradually step up towards a level of about €35 a tonne of carbon. Prices are currently hovering at around €15 a tonne.

Nobody I have spoken to in recent days and weeks has expressed much optimism at all that a solution can be found. One expert, Mark Spelman of Accenture, said to me, when asked about when we might see a suitable and stable carbon price:

This decade is all about laying the right sorts of foundations – experimentation, trial and error. If we really want to get ourselves into a sustainable position by 2050 we have got to learn and work through some of these experiments.

In other words, don’t expect anything this decade. Not exactly a promising message.

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