Nobody seems to like the carbon floor price

Another day, another complaint about the carbon floor price. This controversial policy has united an unlikely alliance of green campaigners and heavy industry in opposition.

Greens don’t like it because it benefits the nuclear industry, while manufacturers are disgruntled about having to pay more for electricity.

But Greenpeace and WWF had a legitimate claim that government policy was incoherent – on the one hand promising no subsidies to nuclear power but at the same time implementing a policy that could indeed earn such generators billions of pounds. The EEF, which represents manufacturers, on the other hand, is criticising the energy department for doing exactly what it intends to do: push up the cost of energy.

Although ministers might not say it in so many words, the department wants electricity consumers to pay more for their energy. This is what Chris Huhne calls factoring in “the true costs of unabated fossil fuels”.

Current electricity costs might factor in the cost of production, transmission, marketing and the rest, but what they don’t reflect is the environmental cost. This is what Lord Stern was referring to when he talked of the “the greatest market failure the world has ever seen”. If consumers are to pay for the CO2 included in their energy use, their bills will inevitably rise.

Where industry might have a point is that the market doesn’t yet allow for them to take advantage of the benefits of the carbon price. Clean generators will receive the windfall from selling carbon permits, but the overall wholesale price of electricity for consumers will still be pushed up, whichever source their electricity comes from.

Huhne hopes the measures will encourage manufacturers to improve efficiency to cut their bills, and will bring down price volatility in the long term. But as for short term price hikes, he should turn round to industry and say, “Yes, that’s the point.”

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