Budget 2011: UK first country to introduce carbon floor price
UK business has given a warm reception to Chancellor George Osborne's plans to make the UK the first country to set a carbon floor price.
The price, following a consultation, will start at £16 a tonne of carbon dioxide in 2013 and move to a target price of £30 a tonne by 2020.
In simple terms the move is designed to force suppliers of energy to buy a certain amount of their raw power from low-carbon sources, although in practice, like the current CRC, it's likely to be another form of tax.
However, the measure is also likely to lead to be a 9% increase in average electricity bills and a 6% increase on gas costs, based on today's prices.
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Mr Osborne will also extend Climate Change Agreements (CCAs) to 2023, while the climate change levy discount on electricity for CCA will also be increased from 65% to 80% from April 2013.
Deloitte's head of economic consulting, Robin Cohen, believes Feed-In-Tariffs (FITs) for low carbon generation will play a 'substantial' role in lifting revenues.
He said: "Today's announcement of a carbon price floor for electricity generation is a significant move.
"The carbon price floor will help to drive investment in the low-carbon power sector. But a substantial gap between the costs of unabated combined cycle gas turbine (CCGT) and new nuclear will still remain at £30/tonne.
"This means the Feed-in-tariffs for low carbon generation will need to play a substantial role in lifting revenues to the level necessary for low carbon investors."
WSP Environment & Energy director, Chris Stubbs, agreed saying the moves were 'well thought out'.
He said: "A gradual, phased introduction will allow time for people to factor the additional cost of energy into their budgets and adapt their consumption patterns as necessary.
"However, if utilities companies pass the cost of the carbon price directly onto the consumer, as can be expected, the initial price will be equivalent to a 9% increase on electricity bills and a 6% increase on gas bills, based on today's prices.
"By the time the price reaches £30 in 2020, this equates to an increase of 16% for electricity and 11% for gas."