Energy market reforms: Advice from the Committee on Climate Change

As the UK government prepares to announce its proposed “radical” reforms to the energy market, it is worth recapping on some advice meted out by the Committee on Climate Change a few days ago.

The Committee on Climate Change has calculated that, over the period from 2023 to 2027, the UK must reduce its carbon dioxide emissions to about 390m tonnes a year, compared to annual emissions of about 570m tonnes at present.

In order to achieve this the UK will need to generate low-carbon energy – from renewables, nuclear reactors and coal and gas-fired power stations equipped with carbon capture and storage technology – equivalent to the output of about 25 large-scale fossil fuel power stations.

In addition to that, about 7m homes will need to be fitted with heat pumps by 2027, and there will need to be at least 11m electric cars on the road. The cost would probably amount to about 1 per cent of GDP in 2030, according to the committee’s estimates.

David Kennedy, chief of the statutory body that was set up to advise ministers on meeting their emissions reduction targets, is adamant that new nuclear power plants should not receive government subsidies, because they are financially viable without support from taxpayers.

He has told the FT that if the feed-in tariff that is to be proposed tomorrow is set too high, that would constitute a subsidy to the nuclear industry. It would only be acceptable if it was low enough not to count as a subsidy. “The feed-in tariff can be less than the wholesale electricity price, in which case it is not a subsidy,” he said.

The purpose of feed-in tariffs is to guarantee a minimum future price for electricity for low-carbon generators that would give the markets the confidence to invest in them.

Chris Huhne, the energy secretary, told us on Wednesday evening that the government had promised no direct subsidy to the nuclear industry, but that the feed-in tariffs were permissible as they would cover every form of low-carbon energy generation.

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