How much will carbon emissions cost in 2013?

Last month, Nick Clegg cited the government’s Carbon Price Support Mechanism as “exactly an example” of a policy being introduced in an “absolutely predictable” way. This measure, announced in the last budget, will force all polluters to pay more for the carbon dioxide they produce. Clegg told a business audience in London that all emitters would start by paying £16 per tonne in 2013 and the amount would then rise annually until 2020.

In fact, the situation is not quite as simple or as predictable as he suggests.

The Treasury has come up with a complex formula for deciding the level for the price support mechanism. It will depend firstly on the carbon price set by the European Union’s Emissions Trading Scheme and then the amount the UK Treasury decides to levy on top.

Instead of the £16 cited by Clegg, the figure for 2013 will probably be more like £19. Whether the Treasury’s formula will yield predictable or stable results remains to be seen.

All this may seem esoteric and technical. But the government wants the private sector to invest vast sums – as much as £200bn – on renewing our energy infrastructure over the next ten years. It also expects British manufacturers to adjust to the higher energy costs they will inevitably be forced to pay. Investment on this scale will only be forthcoming if the policy environment is stable and predictable. Manufacturers will need the same clarity if they are to survive in the new world of higher energy costs. Clegg appears not to recognise how much still remains to be done.

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